CELLTICK TECHNOLOGIES LTD, MUMBAI V. DCIT (IT) 2(1)(1), MUMBAI

ITA 883/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6807 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 21-09-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 22-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Permanent establishment; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 271(1)(c); 143(3); 92B; 234B; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE JUSTICE SHRI P.P. BHATT, PRESIDENT AND SHRI G.S. PANNU, VICE PRESIDENT IT(TP)A NO. 883/MUM/2016 : A.Y : 2012 - 13 CELLTICK TECHNOLOGIES LTD., C/O. SRBC & ASSOCIATES LLP, 14 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT MARG, DADAR (W), MUMBAI 400 028. PAN : AADCC9816E (APPELLANT) VS. DCIT (IT), RANGE - 2(1)(1), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI NISHANT THAKKAR & SHRI HITEN CHANDE RESPONDENT BY : SHRI NISHANT SAMAIYA DATE OF HEARING : 27/12/2018 DATE OF PRONOUNCEMENT : 28 /02/2019 O R D E R PER G.S. PANNU , VICE PRESIDENT : THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 18 .0 1 .201 6 PASSED BY THE ASSESSING OFFICER UNDER SECTION 144C(13) R.W.S. 143(3) OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT) GIVING EFFECT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL - 1 , MUMBAI ( IN SHORT THE DRP ) DATED 2 9 . 12 .201 5 . 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 2 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. GENERAL GROUND 1. ERRED IN DETERMINING THE TOTAL INCOME OF THE APPELLANT AT RS.5,75,43,604 AS AGAINST NIL INCOME OFFERED TO TAX BY THE APPELLANT; NON - TAXABILITY OF THE INCOME RECEIVED BY THE APPELLANT AS 'ROYALTY' INCOME UNDER THE ACT 2. ERRED IN HOLDING THAT THE INCOME RECEIVED B Y THE APPELLANT FROM PROVISION OF THE SOFTWARE SOLUTIONS FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS IN INDIA IS TAXABLE IN INDIA AS 'ROYALTY' INCOME UNDER THE PROVISIONS OF THE ACT; NON - TAXABILITY OF THE INCOME RECEIVED BY THE APPELLANT AS 'ROYALTY INCOME UNDER THE INDIA - ISRAEL TAX TREATY 3. ERRED IN HOLDING THAT THE INCOME RECEIVED BY THE APPELLANT FROM PROVISION OF THE SOFTWARE SOLUTIONS FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS IN INDIA IS TAXABLE IN INDIA AS 'ROYALTY' INCOME UNDER THE PR OVISIONS OF ARTICLE 12 OF THE INDIA - ISRAEL TAX TREATY; 4. ERRED IN HOLDING THAT THE INCOME RECEIVED BY THE APPELLANT FROM PROVISION OF THE SOFTWARE SOLUTIONS FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS IN INDIA IS TAXABLE IN INDIA AS 'ROYALTY' INCOME UNDER THE PROVISIONS OF ARTICLE 12 OF THE INDIA - ISRAEL TAX TREATY WITHOUT APPRECIATING THE FACT THAT THERE IS NO 'USE' OR 'RIGHT TO USE' OF THE 'COPYRIGHT' IN THE SOFTWARE SOLUTIONS WHICH IS BEING PROVIDED BY THE APPELLANT TO CELLTICK MOBILE MEDIA (INDIA) PRIVATE LIMITED ('CELLTICK INDIA') FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS IN INDIA; 5. ERRED IN HOLDING THAT THE INCOME RECEIVED BY THE APPELLANT FROM PROVISION OF THE SOFTWARE SOLUTIONS FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS IN INDIA IS TAXABLE IN INDIA AS 'ROYALTY' INCOME UNDER THE PROVISIONS OF ARTICLE 12 OF THE INDIA - ISRAEL TAX TREATY WITHOUT APPRECIATING THE FACT THE DEFINITION OF THE TERM 'ROYALTY' UNDER THE INDIA - ISRAEL TAX TREATY IS RESTRICTIVE IN NATURE AS COMPARED TO THE 'ROY ALTY' DEFINITION UNDER THE ACT; 3 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. NON - EXISTENCE OF A DEPENDENT AGENT PERMANENT ESTABLISHMENT (DAPE') OF THE APPELLANT IN INDIA AND HENCE, NON - TAXABILITY OF THE INCOME RECEIVED BY THE APELLANT AS 'BUSINESS PROFITS' UNDER THE INDIA - ISRAEL TAX TREATY 6. ERRED IN HOLDING THAT CELLTICK INDIA IS THE DAPE OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE INDIA - ISRAEL TAX TREATY AND HENCE, TAXING THE INCOME RECEIVED BY THE APPELLANT AS 'BUSINESS PROFITS' UNDER ARTICLE 7 OF THE INDIA - ISRAEL TAX TREATY; 7. ERRED IN HOLDING THAT CELLTICK INDIA IS THE DAPE OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE INDIA - ISRAEL TAX TREATY WITHOUT APPRECIATING THE FACT THAT THE CONDITIONS PRESCRIBED IN ARTICLE 5(5) OF THE INDIA - ISRAEL TAX TREATY FOR TREATING CELLTICK INDIA AS A DAPE OF THE APPELLANT ARE NOT SATISFIED; 8. ERRED IN HOLDING THAT CELLTICK INDIA IS THE DAPE OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE INDIA - ISRAEL TAX TREATY WITHOUT APPRECIATING THE FACT THAT CELLTICK INDIA UNDERTAKES ITS BUSINESS ACTIVITIES OF DISTRIBUTION OF SOFTWARE SOLUTIONS ON AN INDEPENDENT BASIS AND DOES NOT FUNCTION OR WORK UNDER THE COMPLETE GUIDANCE AND CONTROL OF THE APPELLANT AS ALLEGED BY THE HON'BLE DRP; 9. ERRED IN HOLDING THAT CELLTICK INDIA IS THE DAPE OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE INDIA - ISRAEL TAX TREATY WITHOUT APPRECIATING THE FACT THAT THE AGREEMENT BETWEEN THE APPELLANT AND CELLTICK INDIA, AND, BETWEEN CELLTICK INDIA AND THIRD PARTY CUSTOMERS, ARE ENTERED ON A PRINCIPAL TO PRINCIPAL BASIS; 10. ERRED IN HOLDING THAT CELLTICK INDIA IS THE DAPE OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE INDIA - ISRAEL TAX TREATY WITHOUT APPRECIATING THE FACT THAT MERELY CONSIDERING THAT THE APPELLANT PROVIDES CERTAIN SUPPORT AND GUIDANCE IN RELATION TO THE SOFTWARE SOLU TIONS TO CELLTICK INDIA WOULD NOT MEAN THAT CELLTICK INDIA IS THE DEPENDENT AGENT OF THE APPELLANT, CONSIDERING THAT CELLTICK INDIA INDEPENDENTLY UNDERTAKES THE ACTIVITY OF DISTRIBUTION OF THE SOFTWARE SOLUTIONS TO THIRD PARTY CUSTOMERS IN INDIA; 4 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. INCORRECT ATTRIBUTION OF INCOME AND PROFITS TO THE ALLEGED DAPE OF THE APPELLANT IN INDIA WITHOUT PREJUDICE TO GROUND NO. 6 TO 10 ABOVE, EVEN ASSUMING (WITHOUT ADMITTING) THAT THE APPELLANT HAS A DAPE IN INDIA, 11. ERRED IN ATTRIBUTING FURTHER INCOME TO THE DAPE, WITHOUT APPRECIATING THE FACT THAT THE DAPE HAS BEEN REMUNERATED AT AN ARM'S LENGTH PRICE; 12. ERRED IN ATTRIBUTING 50 PERCENT OF THE GROSS REVENUES OF THE APPELLANT AS BEING ATTRIBUTABLE TO THE DAPE IN INDIA, ON AN ARBITRARY AND AD - HOC BASIS; 13. ERRED IN ATTRIBUTING 50 PERCENT OF THE GROSS REVENUES OF THE APPELLANT FROM THIRD PARTY CUSTOMERS IN INDIA TO THE DAPE WITHOUT APPRECIATING THE FACT THAT THE SAID RECEIPTS ARE NOT ATTRIBUTABLE TO THE DAPE OF THE APPELLANT; 14. ERRED IN ATTRIBUTING THE PROFITS OF THE APPELLANT WITHOUT APPRECIATING THE FACT THAT ADDITIONAL ATTRIBUTION OF PROFITS TO THE DAPE IN INDIA TO THE EXTENT OF 50 PERCENT OF THE GROSS RECEIPTS OF THE APPELLANT FROM CELLTICK INDIA WOULD TANTAMOUNT TO TOTAL ATTRIBUTION OF 75 PERCENT OF THE TOT AL REVENUES TO THE DAPE IN INDIA; 15. ERRED IN ATTRIBUTING THE PROFITS OF THE APPELLANT AT 40 PERCENT OF THE TOTAL GROSS REVENUES OF THE APPELLANT, ON AN ARBITRARY AND AD - HOC BASIS; INCORRECT APPLICATION OF THE INCOME TAX RATE ON THE ALLEGED GROSS TOTAL INCOME OF THE APPELLANT 16. ERRED IN APPLYING THE INCORRECT INCOME TAX RATE OF 50 PERCENT ON THE ALLEGED GROSS TOTAL INCOME OF THE APPELLANT, INSTEAD OF THE CORRECT INCOME TAX RATE OF 40 PERCENT AS APPLICABLE TO A FOREIGN COMPANY; WRONG LEVY AND COMPUTAT ION OF INTEREST UNDER SECTION 234A OF THE ACT 17. ERRED IN LEVYING AND COMPUTING INTEREST UNDER SECTION 234A OF THE ACT; 5 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. WRONG LEVY AND COMPUTATION OF INTEREST UNDER SECTION 234B OF THE ACT 18. ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT, WIT HOUT APPRECIATING THE FACT THAT INTEREST UNDER SECTION 234B OF THE ACT IS NOT LEVIABLE IN CASE OF A FOREIGN COMPANY WHERE THE ENTIRE INCOME OF THE FOREIGN COMPANY IS SUBJECT TO TAX DEDUCTION AT SOURCE; 19. ERRED IN WRONGLY COMPUTING THE INTEREST UNDER SECTION 234B OF THE ACT; INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT 20. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, ON THE BASIS THAT THE APPELLANT HAS CONCEALED THE PARTICULARS OF INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME. 3. ALTHOUGH ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING, THE ARGUMENTS HAVE BEEN CONFINED TO A SINGLE POINT WHICH IS MANIFESTED IN THE AFORESTATED GROUND OF APPEAL NO. 11 RELATING TO ATTRIBUTION OF PROFITS TO THE DEPENDENT PERMANENT ESTABLISHMENT (PE) OF THE ASSESSEE IN INDIA. AS PER THE LEARNED REPRESENTATIVE APPEARING FOR THE ASSESSEE, THE AFORESAID SHORT POINT, WHICH ACCORDING TO HIM , IS FULLY COVERED BY THE RATIO OF THE JUDGME NT S OF THE HON'BLE SUPREME COURT IN THE CASE OF DIT (IT) VS MORGAN STANLEY & CO., 292 ITR 416 (SC) AND ADIT VS E - FUNDS IT SOLUTION INC., 399 ITR 34 (SC) , NULLIFIES THE ADDITION MADE BY THE ASSESSING OFFICER. IN VIEW OF THE AFORESAID ASSERTION, BOTH THE PA RTIES ADDRESS ED THE BENCH ON THE SAID ISSUE AT THE THRESHOLD AND ACCORDINGLY, THE APPEAL HAS BEEN HEARD. 4. IN ORDER TO APPRECIATE THE CONTROVERSY, THE BRIEF BACKGROUND OF THE CASE CAN BE SUMMARISED AS FOLLOWS. THE APPELLANT BEFORE US IS A FOREIGN COMPAN Y INCORPORATED IN ISRAEL AND IS ENGAGED IN THE BUSINESS OF DEVELOPING 6 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. SOFTWARE AND MARKETING ACTIVE CONTENT FOR MOBILE PHONES ALL OVER THE WORLD. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE EARNED REVENUES FROM PROVIDING OF ITS SOFTWARE SOLUTIONS TO AN INDIAN CONCERN, NAMELY, CEL L TIC K MOBILE MEDIA (INDIA) PVT. LTD. (HEREINAFTER REFERRED TO AS CEL L TIC K INDIA) , WHO WAS ITS 100% SUBSIDIARY, FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS. I N CERTAIN CASES, ASSESSEE ALSO PROVIDED SOFTWARE SOLUTION TO THIRD PARTY CUSTOMERS DIRECTLY. THE INTELLECTUAL PROPERTY RIGHTS RELATED TO THE SOFTWARE SOLUTION IS ADMITTEDLY OWNED BY THE ASSESSEE. IN THE RETURN OF INCOME FILED, ASSESSEE ASSERTED THAT THE RECEIPTS FROM PROVISION OF SUCH SOFTWARE SOLUTIONS EARNED FROM INDIA AMOUNTING TO ` 14,38,59,010/ - WOULD NOT BE TAXABLE IN INDIA EITHER AS ROYALTY OR FEE FOR TECHNICAL SERVICES OR EVEN AS BUSINESS PROFITS , IN THE ABSENCE OF ANY PE IN INDIA. THE ASSESSING OFFICER, HOWEVER, WAS NOT CONVINCED WITH THE STAND OF THE ASSESSEE. INSOFAR AS THE CHARACTERISATION OF THE RECEIPTS IS CONCERNED, THE ASSESSING OFFICER HELD THAT THE RECEIPTS ARE IN THE NATURE OF ROYALTY AS THE TRANSACTIONS CONSTITUTED SALE OF COPYRIGHT S IN THE ARTICLE AND NOT S ALE OF COPYRIGHTED ARTICLES. THE ASSESSING OFFICER FURTHER WENT ON TO HOLD THAT IN TERMS OF THE ARRANGEMENT WITH CELLTICK INDIA, WHICH WAS A 100% SUBSIDIARY, IT COULD BE CONSTRUED THAT CELLTICK INDIA WAS LIABLE TO BE CONSIDERED AS A DEPENDENT PE OF THE ASSESSEE IN INDIA. THEREAFTER, THE ASSESSING OFFICER PROCEEDED TO COMPUTE THE INCOME ATTRIBUTABLE TO ASSESSEES PE IN INDIA IN ORDER TO QUANTIFY THE INCOME TAXABLE IN INDIA. THE ASSESSING OFFICER CONSIDERED THE FACTS AND CONCLUDED THAT IT WAS REASONABLE TO CONSIDER 50% OF THE RECEIPTS AS BEING ATTRIBUTABLE TO THE ACTIVITIES OF THE PE IN INDIA. THUS, OUT OF THE TOTAL RECEIPT OF ` 14,38,59,010/ - , 50% WERE CONSIDERED AS BEING ATTRIBUTABLE TO ASSESSEES PE IN INDIA, WHICH CAME TO ` 7,19,29,504/ - . THE ASSESSING OFFICER FURTHER ESTIMATED 20% OF SUCH RECEIPTS AS EXPENDITURE INCURRED AND 7 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. ACCORDINGLY, QUANTIFIED THE TOTAL INCOME LIABLE TO BE TAXED IN INDIA AT ` 5,75,43,604/ - . AGAINST SUCH A DRAFT ASSESSMENT ORDER, ASSESSEE RAISED VARIED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AND THE FINAL ASSESSMENT ORDER DATED 18.01.2016 HAS BEEN PASSED BY THE ASSESSING OFFICER UNDER SECTION 144C(13) R.W.S. 143(3) OF THE ACT IN TERMS OF THE DIRECTIONS OF THE DRP DATED 29 .12.2015 . SHORN OF OTHER DETAILS, THE ORDER OF T HE DRP HELD THAT THE REVENUES EARNED BY THE ASSESSEE WERE TAXABLE IN INDIA AS BUSINESS PROFITS IN TERMS OF ARTICLE 7 OF THE INDIA - ISRAEL TAX TREATY AND FURTHER THAT THE SUBSIDIARY, I.E. CELLTICK INDIA, CONSTITUTED A DEPENDENT AGENT PE OF THE ASSESSEE I N INDIA. COMING TO THE QUANTIFICATION OF THE INCOME ASSESSABLE IN INDIA, THE DRP UPHELD THE ESTIMATION MADE BY THE ASSESSING OFFICER. 5. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE CONTENDED THAT FOR THE PURPOSE OF APPRECIATING GROUND OF APPEA L NO. 11, ASSESSEE DOES NOT OBJECT TO THE CHARACTERISATION OF THE RECEIPTS MADE BY THE INCOME - TAX AUTHORITIES. THE POINT SOUGHT TO BE RAISED IS THAT IN TERMS OF THE AGREEMENT WITH THE INDIAN SUBSIDIARY, 50% OF THE RECEIPTS FROM THE CUSTOMERS ARE LIABLE TO BE PAYABLE TO THE INDIAN SUBSIDIARY , AND SUCH TRANSACTION SATISFIES THE TEST OF ARMS LENGTH PRINCIPLES . THE LEARNED REPRESENTATIVE POINTED OUT THAT SO FAR AS THE INDIAN SUBSIDIARY, I.E. CELLTICK INDIA , IS CONCERNED SUCH TRANSACTION S W ERE REPORTED BY IT AS AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SEC. 92B OF THE ACT FOR THE INSTANT ASSESSMENT YEAR. A REFERENCE WAS MADE TO THE ORDER PASSED BY THE TRANSFER PRICING OFFICER (TPO) IN THE CASE OF CELLTICK INDIA FOR ASSESSMENT YEAR 2012 - 13 DATED 25. 01.2016 UNDER SECTION 92CA(3) OF THE ACT WHEREBY SUCH TRANSACTIONS HAVE BEEN HELD TO BE AT AN ARMS LENGTH PRICE. A COPY OF SAID ORDER WAS FURNISHED AT THE TIME OF 8 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. HEARING. ON THIS BASIS, IT IS SOUGHT TO BE CANVASSED THAT SINCE THE AMOUNT PAYABLE TO THE INDIAN SUBSIDIARY HAS BEEN HELD TO BE AT AN ARMS LENGTH PRICE, THEREFORE, NO FURTHER INCOME OR PROFITS COULD BE SAID TO BE ATTRIBUTABLE TO THE ASSESSEE ON ACCOUNT OF ITS AGENCY PE IN INDIA. THE AFORESAID PLEA WAS SOUGHT TO BE SUPPORTED BY THE JUDGMENT S O F THE HONBLE COURT IN THE CASE OF MORGAN STANLEY & CO. (SUPRA) AS WELL AS IN THE CASE OF E - FUNDS IT SOLUTION INC. (SUPRA) . EMPHASISING THE IMPORTANCE OF THE PROPOSITION THAT ONCE ARMS LENGTH PRINCIPLE HAS BEEN SATISFIED, NO FURTHER PROFITS COULD BE AT TRIBUTABLE TO A PERSON EVEN IF IT HAS A PE IN INDIA, THE LEARNED REPRESENTATIVE ALSO RELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF HONDA MOTOR CO. LTD. VS ADIT, [2018] 301 CTR 601 (SC) . THEREFORE, IN THE ABOVE BACKGROUND, THE LEARNE D REPRESENTATIVE CANVASSED THAT NOTWITHSTANDING OTHER GROUNDS, ON THE AFORESAID PROPOSITION ITSELF, THE ACTION OF THE LOWER AUTHORITIES IN MAKING THE IMPUGNED ADDITION TO THE RETURNED INCOME IS UNTENABLE IN LAW. 6. ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS NOT DISPUTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED REPRESENTATIVE, SO HOWEVER, HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE APPELLANT BEFORE US IS A TAX RESIDENT OF ISRAEL AND IN TERMS OF THE ARRANGEMENT WITH ITS SUBSIDIARY IN INDIA, I.E. CELLTICK INDIA, IT IS ENGAGED IN PROVIDING SOFTWARE SOLUTIONS FOR ONWARD DISTRIBUTION TO THIRD PARTY CUSTOMERS IN INDIA. IN TERMS OF S UCH ARRANGEMENT EFFECTIVE FROM MARCH, 2011, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 5 TO 18, IT EMERGES THAT THE PRICE REALISED 9 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. FROM THE ULTIMATE CUSTOMER IS SHARED BETWEEN THE ASSESSEE AND ITS INDIAN SUBSIDIARY, I.E. CELLTICK INDIA, ON 50 - 50 BASIS. THE ASSESSING OFFICER HAS CHARACTERISED SUCH RECEIPTS AS ROYALTY IN THE DRAFT ASSESSMENT ORDER, WHEREAS THE DRP TREATED THE SAME AS BUSINESS PROFITS IN TERMS OF ARTICLE 7 OF INDIA - ISRAEL TAX TREATY. BE THAT AS IT MAY, FOR THE PRESENT, TH E ISSUE RELATING TO CHARACTERISATION OF INCOME IS NOT BEING CONTESTED BY THE ASSESSEE AS IT HAS SOUGHT TO CHALLENGE THE UNTENABILITY OF THE ADDITION ONLY ON THE BASIS OF THE PROPOSITION THAT ONCE ARMS LENGTH PRINCIPLE HAS BEEN SATISFIED QUA THE RELEVANT TRANSACTIONS, THERE CAN BE NO FURTHER PROFITS ATTRIBUTABLE TO THE ASSESSEE IN INDIA EVEN IF IT HAS A PE IN INDIA. WHILE CANVASSING SUCH PROPOSITION, ASSESSEE ALSO DOES NOT BRING INTO QUESTION THE STAND OF THE REVENUE THAT THERE IS A PE OF THE ASSESSEE IN INDIA. THE POINT SOUGHT TO BE MADE BY THE ASSESSEE IS THAT THE COMPENSATION REMAINING WITH THE INDIAN SUBSIDIARY, I.E. CELLTICK INDIA, IS ADEQUATE AND JUSTIFIED ON THE BASIS OF THE TRANSFER PRICING ANALYSIS, AND THE SAME HAS BEEN SO ACCEPTED BY THE INCOM E - TAX AUTHORITIES IN THE CASE OF CELLTICK INDIA FOR THE VERY SAME ASSESSMENT YEAR. IN THIS REGARD, A COPY OF THE ORDER OF TPO DATED 25.01.2016 (SUPRA) IN THE CASE OF CELLTICK INDIA HAS ALSO BEEN PLACED IN THE PAPER BOOK AT PAGES 123 TO 124. THEREFORE, ACCORDING TO THE ASSESSEE, NO FURTHER INCOME COULD BE ATTRIBUTABLE TO IT ON ACCOUNT OF ITS PE IN INDIA. IN OUR CONSIDERED OPINION, THE PROPOSITION SOUGHT TO BE CANVASSED BY THE ASSESSEE HAS THE APPROVAL OF THE HON'BLE SUPREME COURT IN THE CASE OF MORGAN STANLEY & CO. (SUPRA) . IN FACT, IN A SUBSEQUENT JUDGMENT IN THE CASE OF E - FUNDS IT SOLUTION INC. (SUPRA) , THE HON'BLE SUPREME COURT REITERATED THE EARLIER PROPOSITION LAID DOWN IN THE CASE OF MORGAN STANLEY & CO. (SUPRA) , AND IN DOING SO, IT TOOK INTO CONSIDERATION THE TRANSFER PRICING ASSESSMENT MADE IN THE CASE OF THE INDIAN SUBSIDIARY. IN THAT CASE TOO, IN THE CASE OF THE INDIAN SUBSIDIARY, THE 10 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. TRANSACTION WITH THE FOREIGN AS SESSEE WAS ACCEPTED TO BE AT AN ARMS LENGTH PRICE. ACCORDINGLY, IT WAS HELD BY THE HON'BLE SUPREME COURT THAT THE ARMS LENGTH PRINCIPLE STOOD SATISFIED AND, THEREFORE, NO FURTHER PROFITS COULD BE ATTRIBUTABLE EVEN IF THER E EXISTED A PE OF THE FOREIGN ASSESSEE IN INDIA. IN OUR CONSIDERED OPINION, THE MANNER IN WHICH THE PROPOSITION HAS BEEN APPLIED BY THE HON'BLE SUPREME COURT IN THE CASE OF E - FUNDS IT SOLUTION INC. (SUPRA) IS CLEARLY ATTRACTED IN THE PRESENT CASE TOO. IN THE PRESENT CASE ALSO, THE TR ANSACTIONS OF THE ASSESSEE WITH ITS INDIAN SUBSIDIARY, I.E. CELLTICK INDIA, HAVE BEEN FOUND TO BE AT AN ARMS LENGTH PRICE BY THE INCOME - TAX AUTHORITIES IN THE CASE OF THE INDIAN SUBSIDIARY, I.E. CELLTICK INDIA FOR THE INSTANT ASSESSMENT YEAR. 8. IN VIEW OF THE AFORESAID DISCUSSION, IN OUR VIEW, SINCE THE APPROPRIATE ARMS LENGTH PRINCIPLE HAS BEEN SATISFIED IN THE PRESENT CASE, NOTHING MORE WOULD BE LEFT TO BE TAXABLE IN INDIA BY ATTRIBUTING ANY FURTHER INCOME TO THE PE OF THE ASSESSEE IN INDIA. THEREF ORE, THE POINT RAISED BY THE ASSESSEE BY WAY OF GROUND OF APPEAL NO. 11 IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF ` 5,75,43,604/ - MADE TO THE RETURNED INCOME. WE HOLD SO. 9. IN VIEW OF OUR AFORESAID DECISION IN GROUND OF A PPEAL NO. 11, GROUND OF APPEAL NOS. 1 TO 10 DEALING WITH CHARACTERISATION OF RECEIPTS AS ROYALTY AND NON - EXISTENCE OF A DEPENDENT AGENT PE IN INDIA RESPECTIVELY ARE RENDERED ACADEMIC AND THERE IS NO NECESSITY FOR ADJUDICATING THE SAME FOR THE PRESENT. S IMILARLY, GROUND OF APPEAL NOS. 12 TO 16 RELATING TO JUSTIFICATION OF ESTIMATION OF INCOME IN INDIA AND THE RATE OF TAX THEREON ARE ALSO RENDERED ACADEMIC IN VIEW OF OUR DECISION IN ALLOWING GROUND OF APPEAL 11 IT(TP)A NO. 883/MUM/2016 CELLTICK TECHNOLOGIES LTD. NO. 11 IN THE EARLIER PARAS. THE ONLY OTHER GRO UND WHICH REQUIRES ADJUDICATION IS RELATING TO CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT. THIS ASPECT OF THE MATTER, IN OUR VIEW, ALSO LOSES ITS SUBSTANTIVENESS SINCE WE HAVE ALREADY DELETED THE ADDITION. NEVERTHELESS, IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DIT (IT) VS NGC NETWORK ASIA LLC, 313 ITR 187 (BOM.) , SINCE THE INCOME OF THE ASSESSEE IS LIABLE FOR DEDUCTION OF TAX AT SOURCE, NO INTEREST FOR DEFAULT OF PAYMENT OF ADVANCE TAX IS EXIGIBLE. THUS, ON THIS COU NT TOO, ASSESSEE HAS TO SUCCEED WITH REGARD TO LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. 10. INSOFAR AS THE LAST GROUND OF APPEAL BY WAY OF GROUND OF APPEAL NO. 20 IS CONCERNED, THE SAME RELATES TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, WHICH IS PREMATURE AND IS LIABLE TO BE DISMISSED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 T H FEBRUARY, 2019. SD/ - SD/ - ( JUSTICE P.P. BHATT ) PRESIDENT ( G.S. PANNU ) VICE PRESIDENT MUMBAI, DATE : 2 8 T H FEBRUARY , 201 9 *SSL*