QUALCOMM INCORPORATED,SAN DIEGO V. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 3(1)(1) INTERNATIONAL TAXATION, CIVIC CENTRE MINTO ROAD

ITA 3742/DEL/2023

AI Insights

The case involves Qualcomm Incorporated, a non-resident company, appealing against the taxability of royalty income received from OEMs for the use of its patents and software. The primary legal issues were whether the royalty income from OEMs located outside India is taxable in India under the Income Tax Act and the India-USA Tax Treaty. The Tribunal examined previous rulings and the specific agreements between Qualcomm and the OEMs, concluding that the income is not taxable as the OEMs did not have a permanent establishment in India and the patents were not used for business activities within India.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470190 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-09-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 20-12-2023
• Other Referred Cases: Qualcomm Incorporated vs. DCIT, Ericsson A.B. vs. DCIT, Nokia Networks OY vs. DCIT
• Laws Referred To: Income Tax Act, 1961, India-USA Double Taxation Avoidance Agreement
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY B. BASANTA; MISTAKE OR
• Assessee Lawyers: PERCY PARDIWALA
• Keywords: Business income; Additional evidence; Onus to prove; Double taxation relief
• Section: 192; 153; 139(1); 22; 13; 264; 9(1); 9(1); 9(1); 115A; 20

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 3742/Del/2023 (Assessment Year: 2021-22) Qualcomm Incorporated, 5775, Morehouse Drive, San Diego, California, USA, 92121, USA Vs. DCIT, Circle-3(1), International Taxation, New Delhi (Appellant) (Respondent) PAN:AAACQ1484H Assessee by : Shri Percy Pardiwala, Sr. Adv Shri Nishant Thakkar, Adv Ms. Jasmin Amalsadavala, Adv Shri Zoheb Balwani, CA Revenue by: Shri Vijay B. Basanta, CIT DR Shri Amit Katoch, Sr. DR Date of Hearing 20/09/2024 Date of pronouncement 14/11/2024 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.3742/Del/2023 for AY 2021-22, arises out of the order of the ld AO [hereinafter referred to as ‘ld. AO’, in short] dated 25.10.2023. 2. The only effective issue to be decided in this appeal is with regard to taxability of royalty income received by the assessee on subscriber units from original equipment manufacturers (OEMs) located outside India and royalty income on infrastructure equipments. 3. We have heard the rival submissions and perused the materials available on record. The assessee is a world leader in 3G, 4G, 5G and next generation wireless technologies. Qualcomm Incorporated includes ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 2 Qualcomm's licensing business, QTL and the vast majority of its patent portfolio. QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and / or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementation, CDMA 2000, WCDMA, CDMA TDD and / or LTE standards and their derivatives. The return of income for the assessment year 2021-22 was filed by the assessee on 15-3-22 declaring total income of Rs. 2254,98,14,260. This sum represents royalty income offered by the assessee under section 115A of the Act on gross basis as per India-USA Double Taxation Avoidance Agreement (hereinafter referred to as the Tax Treaty) and suffered tax at the rate of 10 percent thereon. It is not in dispute that assessee is a non-resident corporate entity incorporated in United States of America ( USA) and a tax resident of USA. 4. During the year under consideration, the assessee was in receipt of royalty income from licensing of patents from the following persons:- S. No. Nature of Receipt Payer Details Amount Taxability 1 Royalty Income earned from licensing of Patents Motorola Mobility India Private Limited 27,97,04,872 Royalty on licensing of patents to an Indian resident would be subject to tax in India under Section 9(1)(vi)(b) of the Act. 2 Tessolve Semiconductor Private Limited 86,41,682 Xiaomi Technology India Private Limited 8,07,19,63,310 4 Oppo Mobiles India Private Limited 8,64,17,92,607 5 Reliance Retail Limited 25,65,02,548 6 Vivo Mobile India Private Limited 5,28,78,58,032 7 Bharat FIH Private (Formerly known as Rising Stars Mobile India Pvt Limited) 33,51,209 Total 22,54,98,14,260 ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 3 5. The assessee was also in receipt of further receipts which were not offered to tax as tabulated under:- S. No. Nature of Receipt Payer Details Amount(INR) Taxability as per assessee 1 Exempt Income from licensing of Patents Innominds Software Pvt Ltd 46,296 As per the provisions of any payment made by a resident, forroyalty in respect of any right,property or information used, o.rservices utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside india would not betaxabie in India. 2 Royalty income Non-resident OEMs, who have reported their sales from lndia( no details given by the assessee) 80,06,96,914 As these Non-resident OEMs have no manufacturing in India Total 80,07,43,210 6. In response to the queries raised by the learned assessing officer, the assessee submitted that Qualcomm does not have visibility of the products sold by its licensees in India unless such information is provided in royalty certificates submitted by its licensees. Further, certain licensees do not report sales by customer or the jurisdictions in which licensed products are sold by such licensees. Accordingly, Qualcomm may not have sufficient information in various circumstances of the actual licensed sales made by Qualcomm's licensees to third parties in India. Qualcomm pays appropriate taxes outside of India on its royalty income with respect to its grant of licenses under its patents. The assessee also placed reliance on the order of passed by this Tribunal in its own case for assessment years 2000- 01 to 2004-05 and assessment years 2009-10 to 2012-13 wherein the Tribunal had held that royalty income received by Qualcomm from the OEMs on manufacture outside of India of subscriber units and infrastructure equipment for sale into India is not liable to tax in India under section ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 4 9 (1)(vi)(c ) of the Act. The revenue had preferred appeals against the said Tribunal orders before the Honorable High Court and they are pending. 7. With regard to royalty income received from non-resident OEMs who have no manufacturing in India in the sum of Rs 80,06,96,914/-, the Learned AO observed that onus is on the assessee to prove that the income received from non-resident OEMs is from those who does not have manufacturing in India. He observed that assessee has not submitted any details with respect to non-resident OEMs. The assessee has only provided the total amount which is from non-resident OEMs who have reported sales from India, but no details of name, products sold, quantum of royalty in respect to each non- resident OEMs were provided. No supporting documents were also furnished by the assessee to prove that these entities do not manufacture in India. Accordingly, the Learned AO issued a show cause notice to the assessee as to why the royalty received from non-resident OEMs who have reported sales in India should not be taxed as royalty under Section 9(1)(vi) of the Act as well as Article 12 of India USA Tax Treaty. 8. The Learned AO based on the findings recorded by his predecessor in assessee’s own case for earlier years, proceeded to treat the aforesaid royalty income in the sum of Rs 80,06,96,914/- to be brought to tax at the rate of 10% as per section 115A of the Act . The Learned AO also observed that the same would also be taxable at the rate of 10% in terms of India USA Tax Treaty. 9. The Learned DRP by placing reliance on its findings recorded in assessee’s own case for the Assessment Years 2014-15 and 2015-16 and facts being identical in this year, repeated the same directions that were given in Assessment Year 2014-15 by rejecting the contentions of the assessee. Pursuant to the directions of the Learned DRP, the final assessment order stood passed in the hands of the assessee company determining total income at Rs 2335,05,11,174/- to be taxable at the rate of ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 5 10% plus surcharge and cess in terms of India USA Tax Treaty. Aggrieved, the assessee is in appeal before us. 10. We find that the Learned DRP had relied on the findings recorded in Assessment Year 2014-15 in assessee’s own case. This Tribunal in Assessment Years 2014-15 and 2015-16 in ITA Nos. 7894/Del/2017 and 7559/Del/2018 respectively dated 13-6-2023 reported in 153 taxmann.com 146 (Del Trib) had decided the very same issue in favour of the assessee by holding that the royalty income received by American company from OEMs located outside India is not taxable in India. The relevant operative portion of the said order is reproduced below:- “11. We have considered rival submissions in the light of decisions relied upon and perused the materials on record. As could be seen from the facts on record, the assessee has offered the royalty income received from OEMs carrying on business in India through their PEs. Whereas, in respect of royalty received from OEMs located outside having no PE in India, the assessee has not offered royalty income to tax. It is the say of the assessee that it has granted patent license of subscriber units/equipments to OEMs, who manufacture them by incorporating/embedding the patents license given by the assessee. The manufactured handsets/equipments also incorporate/embed the chipsets sold by the QCT Division of the assessee, containing the CDMA technology. Whereas, the Assessing Officer has observed that since the subscriber units(handsets/equipments) containing CDMA technology/patent is ultimately used in India by subscribers, the royalty connected to such patent would be taxable in India as the OEMs selling the subscribers units/equipments have PEs in India. 12. From the facts on record, it is evident that the assessee has offered the royalty income in respect of OEMs having PEs in India. In so far as the other OEMs located outside India are concerned, the Assessing Officer has not brought any material on record to demonstrate that they have PEs in India. While treating the royalty income received from foreign OEMs as taxable in India, the Assessing Officer has applied section 9(1)(vi)(c) of the Act. On a careful perusal of the impugned assessment order, it becomes very much clear that except relying upon the assessment order passed in case of the assessee for the assessment year 2012-13 and the report of technical experts obtained by the Assessing Officer while complying to the directions of the Tribunal in assessee's case for the assessment years 2004-05 to 2008-09, the Assessing Officer has done precious little himself to establish accrual of royalty income in India. In fact, the assessment order clearly reveals that his entire decision ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 6 making process, while bringing to tax the royalty income received by the assessee from OEMs located outside India, is based on the assessment order passed in the assessment year 2012-13 and the report of the technical experts relating to the assessment year 2004-05 to 2008-09. 13. It is relevant to observe, identical issue of taxability of royalty income received from OEMs located outside India came up for consideration before the Tribunal in assessee's own case for the assessment years 2000-01 to 2004- 05. While deciding the issue, the Tribunal held that royalty received from OEMs located outside India is not taxable in India. However, when identical nature of addition again came up for consideration before the Tribunal in assessee's own case for assessment years 2005-06 to 2008-09, the Revenue filed certain additional evidences before the Tribunal to demonstrate that certain OEMs have PEs in India and are being assessed to tax in India. Based on the additional evidences filed by the Revenue, the Tribunal restored the issue of taxability of royalty income to the Assessing Officer for re- examination after obtaining report of the technical experts. 14. On carefully going through the two orders of the Tribunal in assessee's own cases, one for assessment years 2000-01 to 2004-05 and second one for the assessment years 2005-06 to 2008-09, it is observed, in the order passed for the assessment years 2000-01 to 2004-05, the Tribunal has categorically held that foreign OEMs, since, have not carried on any business in India, it cannot be said that such OEMs have used assessee's patents for the purpose of any business by them in India. The Tribunal has further held that by utilizing the patents of the assessee, OEMs have not earned any income from a source in India. Therefore, the royalty income cannot be taxable under the first limb of section 9(1)(vi)(c) of the Act. Even, in the second order passed for the assessment years 2004-05 to 2005-06, the Tribunal has agreed with the observations made in earlier order to the effect that as long as patents are used in the manufacturing process, which has taken place outside India, such royalty income cannot have tax implications in India. 15. As could been seen, the Assessing Officer, as discussed earlier, has laid much emphasis on the report of technical experts for the assessment year 2004-05 to 2008-09. However, the crucial issue, which arises is, whether that technical report can be utilized for deciding the issue in the impugned assessment years. Considering the submission of the ld. Counsel for the assessee that locking of CDMA subscriber units to make it India-specific or network carrier-specific, was discontinued in assessment year 2010-11 and thereafter, subscriber units available were open market handsets not locked in any specific service provider, in our view, the report of the technical expert do not have any relevance in so far as the impugned assessment years are concerned. In any case of the matter, the assessment order makes it clear that driven by the assessment order passed for the assessment year 2012-13, the Assessing Officer has concluded that the royalty income received from OEMs ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 7 located outside India is taxable in India. Pertinently, while deciding the appeals for the assessment years 2009-10 to 2012-13, arising out of ITA No. 5353/Del/2012 & others, in order dated 16.04.2018, the Tribunal, having taken note of the relevant facts and earlier decisions on the issue, has held that the royalty income received from OEMs located outside India is not taxable in India. For the ease of reference, we reproduce the following observations of the coordinate Bench in this regard : 44. Therefore in view of above facts and circumstances, facts of impugned appeals before us are similar to the facts and issues decided by the coordinate bench in the first order for AY 2000-01 to 2004-05 dated 31/01/2013 in ITA No 3696 to 3700/Del/20109. The coordinate bench decided the issue as under :-\"On merits : 127. We now proceed to dispose of the merits : Whether the 'royalty' income earned by Qualcomm from OEMs is taxable under sec. 9(1)(vi)(c) of the IT Act 1961 : The issue in question is whether the said \"royalty\" is taxable under sec. 9(l)(vi)(c) of the Act. For ready reference sec. 9(l)(vi) of the Act is extracted below. \"(vi) income by way of royalty payable by-- The Government; or a person who is a resident except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or a person who is a non-resident where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India.\" 128. Sec. 9(l)(vi)(c) is a deeming provision and has to be construed strictly. A plain reading of this section shows that any income by way of royalty is taxable in India, if such royalty is payable by a non- resident in respect ofany right, property or information used or services utilized : for the purposes of business, or profession carried on by such person outside India or for the purpose of making or earning any income from any sourceoutside India. 129. When an assessee claims that it is covered by exceptions to cl. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 8 (b) to sub-cl. (vi) to sec. 9(1), the burden lies on the taxpayer to prove that it falls within those exemption provisions. In comparison, when it is claimed by Revenue that the income falls under cl. (c) to sub-cl. (vi) of sec. 9(1) the burden is on the Revenue to prove the same. 130. Thus to tax the royalty income earned by Qualcomm from OEM's located outside India, under the deeming provision of sec. 9(l)(vi)(c) of the Act, the burden is on the Revenue to prove that the OEMs carry on business in India and that they have used Qualcomm's patents for the purposes of such business in India; or that they have used Qualcomm's patents for the purpose of making or earning income from a source in India. Thus we agree with the arguments of the learned counsel for the appellant that the burden of proof when it falls within the exceptions to sec. 9(l)(vi)(b) is on the assessee and on the contrary the burden is on the Revenue when they chose to invoke sec. 9(l)(vi)(c). This proposition was also accepted by the Revenue. 131. The learned special counsel for the Revenue submitted that the language employed in sec. 9(l)(vi)(c) is \"used for the purpose of\" in contradistinguished from \"utilized in the business\" used in sec. 9(l)(vii)(c). Relying on the language employed in both the sections, he submitted that the situs of the use of intellectual property is not material. It may be used anywhere (in or outside India). He submitted that what is material is the purpose of the use of the property, whether it is used for the purpose of business carried on in India or for the purpose of earning income from a source in India, then sec. 9(l)(vi)(c) of the Act is attracted. 132. In our view what is important is not whether right to property is used \"in\" or \"for the purpose of\" a business, but to determine whether such business is \"carried on by such person in India\". 133. The other issue is whether the Indian Carriers constitute a source of income for the OEMs in India and whether licensing the patented intellectual property to the OEMs, has resulted in making available the patented IPs to the Indian telecom operators for commercially exploiting the CDMA technology in India. In our view neither the AO nor the CIT(A) have demonstrated, that for the years under appeal, the OEMs have used Qualcomm's right/information/property (i.e. patents) for the purpose of carrying on business in India or for the purpose of making or earning income from a source in India. 134. The learned AO as well as the learned CIT(A) have based there findings only on the 16 licensing agreements between OEMs and the assessee. The learned special counsel. Mr. G.C. Srivastava for the first time before this Tribunal filed the following agreements as additional ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 9 evidence to substantiate the case of Revenue to tax the royalty income earned by Qualcomm under sec. 9(1)(vi)(c) of the Act: Equipment purchase agreement between the Tata Tele Services and Motorola Inc. dt. 8th Dec., 2007; Equipment purchase agreement between the Tata Tele Services and ZTE Corporation dt. 19th Feb., 2007. 135. We agree with Mr. Dastur, that cognizance cannot be taken of these agreements as they relate to the financial year 2006-07 relevant to asst. yr. 2007-08 and asst. yr. 2007-08 have no relevance to the case on hand. The learned special counsel sought to make out a new case with the aid of these additional agreements. 136. Nevertheless we consider Mr. G.C. Srivastava's submission that these agreements of Tata Tele Services can be relied upon for the limited purpose of understanding the business model of the OEMs in relation to sale of CDMA products to India. The plea that similar agreements would have been entered into by the India Telecom operators with the OEMs for purchase of network equipment, cannot be accepted as it would be a conjecture and surmise. 137. The AO as well as the CIT(A)'s order are based on 16 license agreements entered into by Qualcomm with OEMs. Redacted copies of the license agreements were filed before us. The appellant during the course of the hearing filed an affidavit disclosing the names of the OEMs along with the dates of execution of the license agreements. Admittedly these agreements were entered into on 13th Aug., 1993 and certain other dates. Majority of the agreements were executed prior to year 2000 i.e. before CDMA services were launched in India. We are basically concerned withthese agreements only. For ready reference we extract relevant clauses from the following agreements : i. Subscriber Unit License agreement by and between Qualcomm and the OEM; ii. Subscriber unit and infrastructure equipment license agreement between Qualcomm and the OEM; iii. We also extract the clauses relied upon by the Revenue in the following agreements to consider the withoutprejudice arguments of the assessee. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 10 iv. Equipment purchase agreement between the Tata Tele Services and Motorola Inc. dt. 8th Dec, 2007; v. Equipment purchase agreement between the Tata Tele Services and ZTE Corporation dt. 19th Feb., 2007. 138. In addition, certain clauses from the following two agreements are alsoextracted as reliance was placed on the same : i. MoU dt. 26th March, 2001 by and between Reliance and Qualcomm (Revenue paper book dt. 29th June, 2012) ii. Technical services agreement between Qualcomm andReliance dt. 16th Oct., 2001. Subscriber unit license agreement between Qualcomm and the OEMs for manufacture of CDMA handsets (Agreement reference page No. 226 to page No. 263 of the appellant's paper book) Extract of relevant clauses from the agreement in relation to grant of license. Clause 5.1 Grant of License \"Subject to the terms and conditions of this agreement, including but not limited to timely payment of the royalties set forth herein, Qualcomm hereby grants to licensee a personal, non-transferable, worldwide and non- exclusive license under Qualcomm's Intellectual property solely for wireless applications to (a) make (and have made), import, use and sell, lease or otherwise dispose of subscriber units, and (b) to make (and have made) components (provided such components have been exclusively designed by licensee and which design is owned and used exclusively by licensee) and import, use and sell, lease and otherwise dispose of components but only if such components are included as part of and within subscriber units sold by licensee or as replacement parts for subscriber units previously sold by licensee. No other, further or different license is hereby granted or implied.\" Qualcomm's Intellectual property (page No. 236 of the paper book) 'Qualcomm's Intellectual Property' means Qualcomm's Technically Necessary IPR and Qualcomm's Included Commercially Necessary IPR and company 3 patents; provided that, notwithstanding the foregoing, the term 'Qualcomm's Intellectual Property' shall not include any intellectual property,including but not limited to patents, owned by Snap Track. Inc. Subscriber unit (page No. 238 of the paper book) : 'Subscriber unit' means a complete CDMA telephone, a cordless base station and/or a CDMA subscriber knockdown kit and 'subscriber units' means a complete CDMA telephone, a cordless base station and CDMA subscriber knockdown kits. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 11 Components (page No. 233 of the paper book) : Components' means application specific integrated circuits ('ASIC's'), electronic devices, integrated circuits, including firmware thereon and accompanying software, and or families of devices for use in wireless subscriber equipment. CDMA ASIC (page No. 231) : 'CDMA ASIC' means Qualcomm's mobile station modem (MSM) CDMA application specific integrated circuit, and any revision, generation, modifications or integration to or of the MSM, purchased by licensee from Qualcomm. (ii) Subscriber unit and infrastructure equipment license agreement betweenQualcomm and licensee (i.e. OEM). (Agreement reference-page No. 264 to page No. 316 of the appellant's' paper book) Extract of relevant clauses from the agreement in relation to grant of licenseClause 4.1- Grant of license from Qualcomm (page No. 279) : Subject to the terms and conditions of this agreement, including but not limited to timely payment of the license fees and royalties set forth herein, on the effective date, 'Qualcomm hereby grants to licensee, solely for wireless applications, a personal, 'non-transferable, worldwide and non- exclusive license (without the right to sublicense) (1) under Qualcomm's applicable subscriber patents to (a) make (and have made), import, use, sell, offer to sell, lease or, otherwise dispose of subscriber units and radiomodules and (b) to make (and have made) components and import, use, sell, offer to sell, lease and otherwise dispose of components but only ifsuch components are included as part of and sold within licensee subscriber units or .licensee radiomodules or as replacement parts for subscriber units or radiomodules previously sold by licensee and (2) under Qualcomm's applicable infrastructure patents to (a) make (and have made), import, use sell, offer to sell, lease or otherwise dispose of infrastructure equipment and (b) to make (and have made) components and import, use, sell, offer to sell, lease and otherwise dispose of components but only if such componentsare included as part of and sold within licensee infrastructure equipment or as replacement parts for infrastructure equipment previously sold by licensee. No other, further or different license is hereby granted or Implied. Notwithstanding the foregoing, licensee, may exercise its 'have made' rights above with respect to components not designed by or for licensee (according to ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 12 specifications provided by licensee) only to the extent that the third party benefiting from such 'have made' rights does not assert, through itself or its affiliated entities patent infringement litigation against Qualcomm or licensee and Qualcomm agrees that it will not charge royalties to any third party with restrict to the sale by such third party of components to licensee to the extent that such third party is making such sale under licensee 'have made' rights and is not using or otherwise infringing upon any of Qualcomm's patents not the subject of such 'have made' rights.' Qualcomm's applicable subscriber patents (page No. 275) : 'Qualcomm's applicable subscriber patents' means Qualcomm's early patents and only if licensee elects under sec. 4.4.6, either Qualcomm's later patents or Qualcomm's other patents, as the case may be. Subscriber unit (page No. 278) : 'Subscriber unit' means a complete CDMA and/or multi-mode CDMA user terminal, including but not limited to mobile, transportable, and portable telephones, which can be used, without any additional equipment or components being attached thereto, to transmit and/or receive transmissions for wireless applications. Radiomodule (page No. 277) : 'Radiomodule' means an electronics sub-assembly for wireless applications which (i) includes, at a minimum, a printed circuit board, multiple individually packaged integrated circuits mounted on the printed circuit board, a CDMA component, and any embedded software, and (ii) provides RF/analog and digital and baseband processing necessary to implement the functions of a CDMA subscriber unit such as to initiate and/or receive wireless telecommunications transmissions; provided that a Radiomodule shall not be capable of initiating and/or receiving wireless telecommunication transmissions without being incorporated into or attached to the product of which it is intended to be a sub- assembly. Components (page No. 271): 'Components' means application specific integrated circuits (ASIC's), electronic devices, multi-chip modules, integrated circuits and/or families of devices, including firmware thereon and software associated therewith, for use in wireless applications. Qualcomm's applicable infrastructure patents (page No. 275) : 'Qualcomm's applicable infrastructure-patents' means (i) every patent issued or to be issued to Qualcomm in any country of the world which claimspriority from a patent application filed anywhere in the world on or prior to the effective date and (ii) every patent issued or to ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 13 be issued to Qualcomm in any country of the world which (a) claims priority from a patent application filed anywhere in the world during the life of the applicable CDMA wireless standard and (b) are technically necessary to use, make and/or sell Infrastructure Equipment compliant with such standard. Infrastructure equipment (page No. 272) : 'Infrastructure equipment' means network equipment for use as a part of any land mobile radio-telephone system for wireless applications, including but not limited to BTSs, BSCs and system switches (and equipment and software for corporation therein), but the term does not include, by way of example and not by way of limitation, components, subscriber units, radiomodules or any other subscriber equipment. 2. Agreement between Tata Teleservices Ltd. and ZTE Corporation for supply of CDMA equipment (reference-agreement 2 filed by the Revenue as additional evidence) Extract of relevant clauses from the agreement on transfer of title and risk of the equipment Clause 14.1 - Title and risk of loss (page No. 33) : 'Without prejudice to TTSL's right to reject as set forth in art. 6.4 of this agreement, the title of all equipment sold hereunder shall pass from the supplier to TTSL in high seas before arrival In India and the risk of loss to the hardware portion of all equipment shall pass from supplier to TTSL upon provisional acceptance.' 3. Agreement between Tata Teleservices Ltd. and Motorola Inc. for supply ofequipment (agreement 1 filed by the Revenue) Extract of relevant clauses from the agreement in relation to transfer of title and risk of the equipment Clause 14.1- Title and risk of loss (page No. 14): 'Without prejudice to TTSL's right to reject as set forth in art. 6.4 of this agreement, the title and the risk of loss to the hardware portion of all Equipment sold hereunder shall pass from supplier to TTSL upon delivery in accordance with CIP Incoterms 2000 port of shipment.' 139. Based on the above, we now proceed to answer the first question as to whether the OEMs have carried on the business in India and that they have used the appellants for the purpose of carrying on such business in India. 140. What is licensed in these 16 agreements is the use of \"intellectual property\" owned and patented by Qualcomm for the purpose of manufactureof subscriber units and infrastructure equipment. These agreements were entered much before CDMA, technology- was introduced in India. A perusal of these agreements does not demonstrate that these are India specific. In fact they are not specific ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 14 to any particular country. The OEMs manufactured products outside India and sold them to not only service providers in India but also to number of others in other countries. The license to manufacture products by using the patented intellectual property of the assessee has not been used in India as the products are manufactured outside India and when such products are sold to parties in India it cannot be said that OEMs have done business in India. 141. The Revenue heavily relied on the equipment purchase agreement entered by Tata with Motorola and ZTE to prove that the OEMs carry on business in India and that they have used the Qualcomm patents for the purpose of carrying on such business in India. His contention that the OEMs carry on business in India is mainly based on the following : The word \"business\" defined under the Act is of wide import and encompasses a host of activities. He contended that if manufacturing is done in one jurisdiction and sale in the other, it cannot be said that business is done in one and not in the other jurisdiction. OEMs carry out installation of equipment in India for the Indian Telecom operators; The entire supply of handsets and equipments though manufactured outside India are India specific and not off the shelf products which can be sold to anyone in any location. The technology is used by the OEMs to manufacture India specific supplies. Hence there is a certain degree of use of the propertyfor the purpose of carrying on business in India; Placing reliance on the decision of the Hon'ble Andhra Pradesh High Court in the case of Syed Asifuddm (supra), he submitted that the handsets are specifically designed and programmed for Reliance. Relying on various clauses in the equipment purchase agreement entered by Tata with ZTE and Motorola, he contended that despite the declaration in cl. 14.1 to the agreements, the agreement has to be read as a whole to ascertain the intent of the parties. He submitted that if the agreement is read as a whole, the intent of the parties is amply clear that the title of the equipment passes in India at the site where the deliveries are made or in a worst scenario atthe airport/seaports in India. 142. We are unable to agree with the contention of the learned special counsel for the following reasons : Accepting such a proposition would lead to a situation where every purchase and sale of goods made by any party in India with any party in other countries would be considered as if those parties are doing ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 15 business in India and sale to India without any operations being carried out in India would amount to business with India and not business in India. For the business to be carried out in India there should be some activity carried out in India. Thus the argument that if manufacturing is done in one jurisdiction and sales in the other jurisdiction, then there is business in another jurisdiction is devoid of merit. Further on the facts of the case, for the reasons given later in this order, even the sale cannot be said to have been done in India. The contention of the Revenue that OEMs (i.e. Motorola and ZTE) carries out installation work for Tata and hence there is some business activity being carried by the OEM in India is factually incorrect and contrary' to the clauses in the equipment purchase agreement which clearly states that installation of the equipment is carried out by a third party appointed by the purchaser (i.e. Tata) in consultation with the supplier. Even presuming for a moment that the installation of the equipment is done by the OEMs in India, the Revenue has failed to demonstrate/prove that the patents licensed by Qualcomm are used by Motorola/ZTE for carrying out such installation activities in India. The next contention of the Revenue (is) that the patented technology is used by the OEMs to manufacture India specific products and that the handsets are customized and programmed to include a code assigned to a specific operator. Hence there is a certain degree of use of the property for the purpose of carrying on business in India. 143. This argument cannot be accepted for the following reasons : During the course of hearing it is admitted that handsets in question embody two technologies (a) technology with respect to the functionality of the handsets and technology with respect to CDMA connectivity. The patents of Qualcomm are admittedly for manufacture of handsets and infrastructure equipment which are sold worldwide. There are no patents of Qualcomm which are used for customization of handset with respect to CDMA connectivity. The patents in question, on which royalty is sought to be taxed, have nothing to do with the functionality of the handsets. Functionality of the handsets may be customer specific or operator specific or India specific but technology with respect to CDMA connectivity, is a universal technology and is not customer specific. Customisation such as locking the handset to enable operation only with a specific operator and other operators with whom reciprocal or ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 16 other arrangements are available, inclusion of Hindi or other regional languages, calculator, music, ring tones, browsers and numerous other features are no way connected .with patents of Qualcomm in these 16 agreements which are for manufacture of CDMA handsets and equipments. In fact in each handset a number of patented technologies other than patents with respect to CDMA connectivity are also used. Hence the argument that patents relating to CDMA, technology are customer specific, service provider specific or country specific is factually incorrect. There is no customization of handset qua the CDMA connectivity. Coming to the argument that handsets are programmed to a particular network service provider and hence it is India specific is not tenable. As rightly pointed out by Mr. Dastur locking of a handset to network is a requirement of the network service provider depending upon its business plans and exigencies and does not affect the ability of the handset to operate on any CDMA telecom network, which is evident from the fact that once the network lock is broken the handset can operate on any network. This fact is also supported by the decision of the Andhra Pradesh High Court in the case of Asifuddin (supra). Hence it cannot be concluded that CDMA technology was service provider specific. Network locks are requested by network service providers to keep the subscribers with them for an extended period. There is no dispute that the locked handset is capable of working anywhere in the world. This is evident from the scheme on international roaming using CDMA handsets downloaded from the website of Reliance Communications. Further there is also no dispute that all telecom operators permit International roaming. Though handsets that may have been purchased under certain terms are locked with a particular network service provider, the handset is capable of working in any country of the world with which that particular network service provider has commercial understanding. This clearly demonstrates that the CDMA connectivity of the phone is in no manner connected with the locking of the phone with a network service provider. Hence, in our view the decision of the Andhra Pradesh High Court in the case Syed Asifuddin(supra) is not relevant. 144. Even otherwise, we are unable to understand as to how sale of India specific handsets can be a basis of coming to the conclusion that the OEMs are carrying on business in India. There are numerous patented IPRs belonging to not only 'Qualcomm- but also to a number of other parties, as well as the OEM's themselves and all these patented IPRs are used for manufacturing certain products which are sold to parties in India. The purchaser may have the option to choose the technologies available or even specify certain additional ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 17 requirements. Sale of such customised products by no stretch of imagination can be considered as business being done in India. A buyer of a product may specify his requirements and when the product is manufactured to such specification it does not tantamount to carrying on business in India. It does not cease to be a sale of a product. No such allegation was made with respect to network equipment being India specific. Technology for manufacturing products is different from products which are manufactured from the use of the technology for which Qualcomm has patents. The role of Qualcomm ends when it licensed its patents on IPRs pertaining to CDMA products for manufacture and when it collects royalty from OEMs on these products, when they are shipped out of the country of manufacture. There is no activity for Qualcomm after this sale and shipmentunder these 16 agreements. For the OEMs it is a sale of a product which is the end of the activity. The revenues are generated on sale only. There are no revenues either to the OEMs or to Qualcomm after the sale of the products. The sale is of a chattel as a chattel. The product is a combination of hardware, integrated circuits, designs multiple application software, CDMA components, chipsets with embedded software etc. The Revenue attempt to break down the sale into various components is not supported bythe terms of the agreements and the facts of this case. It cannot be said that every item other than software was sold and that software which is embedded has been separately licensed. It is not the case of the Revenue that the OEMs have income in India from these sales or that they have income from licensing of software in these products which is assessable to tax. There is no finding that the OEMs have carried on business in India much less that a part of the sale consideration is attributable to any sale or licensing of software carried out in India. When OEMs itself are not brought to tax, to hold that Qualcomm is taxable is not correct. This is not a case of the OEMs being not taxed due to a lapse of the officer concerned or being let off by the Revenue by mistake or oversight. It is not brought to our notice that the OEMs have been brought to tax in any of the subsequent years. Thus the argument that two wrongs do not make a right does not apply to the situation on hand. 145. Regarding passing of the title in the equipment, there is no evidence with the Revenue, for any assessment years before us that the title passed in India and that certain further activity was done by the OEMs in India after the sale. As already stated the burden is on Revenue to prove that business is carried on in India by the OEMs. Arguments have been made without the support-of any-document or evidence pertaining to these years. The Revenue contended that the title in the goods passed to Tata at the port of destination i.e. India based on agreements of-2007. Though these documents have no ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 18 relevance for the years under consideration, on a perusal of these 2007 agreements we find that there there is no clause in both the agreements to support the contention of the Revenue that the title in the goods passes at the \"port of destination.\" Clause 14.1 of the agreement between Tata and ZTE read as under \"Without prejudice to TTSL's right to reject as set forth in art. 6.4 of this agreement, the title of all equipment sold hereunder shall pass from the supplier to the TTSL in high seas before arrival in India and the risk to loss to the hardware portion of all equipment shall pass from supplier to TTSL upon provisional acceptance\". 146. From the above clause, it is evident that title of the equipment has passed to Tata in high seas before arrival in India. The fact that the risk to the equipment shall pass on provisional acceptance is not relevant fordetermining where the title in the equipment passed, which in this case is clearly outside India as per the specific understanding of the parties. The plea to infer otherwise is to be rejected as it is against the express intent of the parties. 147 In our view this issue stands covered by the decision of the Hon'ble Delhi High Court in the case of Ericssion A.B (supra). Ericssion and Nokia's was the case of the OEMs who are into supply of GSM equipment to Indian telecom operators for use in fixed/mobile GSM telecommunication. The equipment was manufactured and supplied from overseas; installation was carried out by their respective affiliates in India. Along with hardware, perpetual license was granted by all the three companies for use of software. Software was inseparable and integral part of hardware, without which hardware could not function. Significant restrictions were placed on the Indian telecom operators on use of software (the Indian telecom operators could not onward sell the software independently without sale of the hardware, etc.). There were distinct agreements with an overall agreement for supply and installation of GSM systems, though split into separate agreements, one for supply and the other for installation which was left to the subsidiaries. The facts of this case are similar to the facts of the case of Ericsson A.B. (supra). The Hon'ble Delhi High Court held as under : Para 41. \"We find that the terms of contract make it clear that acceptance test is not a material event for passing of the title and risk in the equipment supplied. It is because of the reason that even if such test found out that the system did not conform to the contractive parameters, as per art. 21.1 of the supply contract, the only consequence would be that the cellular operator would be entitled to call upon the assessee to cure the defect by repairing or replacing the ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 19 defective part .If there was delay caused due to the acceptance test not being complied with, art. 19 of the supply contract provided for damages. Thus, the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test was not determinative of this factor. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. In Skoda Export (supra), the Andhra Pradesh High Court dealt with this issue in the following manner. 'We may also mention that learned standing counsel for the Department challenged the finding of the Tribunal that the sale of machinery was completed outside India. According to him, the sale was completed only in India, inasmuch as the assessee was entitled to and satisfy itself about the quality and standard of the machinery supplied. We do not see any substance in this contention. The various clauses in the agreement referred to above make it clear that the sale of machinery was FOB, European port, and the time of fulfilment of delivery was prescribed as the date of the bills of lading. The payment was also to be made outside India. The agreement further makes it clear that the insurance risk during the course of the journey was that of the assessee and it paid for the same; even the freight charges from the European port to the place of destination were paid by the assessee. Thus, judged from any angle, the sale of machinery, which are 'goods' within the meaning of the Sale of Goods Act, was completely outside India. A mere provision in the agreement that the assessee is entitled to satisfy itself about the quality and standard of the machinery in India cannot, in the circumstances of this case, detract from the fundamental position that the sale took place outside India. In such a situation, one has to apply the test of predominance and decide where the sale took place ? On a combined reading of the clauses of the agreement, we have no doubt that the sale of machinery did take place outside India'.\" 149. We would discuss the propositions laid down in this case in greaterdetail later in this order. 150. Coming to cl. 14.1 of the agreement between Tata and Motorola itreads as under : Clause 14.1- Title and risk of loss (page No. 14) : \"Without prejudice to TTSL's right to reject as set forth in art. 6.4 of this agreement, the title and the risk of loss to the hardware portion of all equipment sold hereunder shall pass from supplier to TTSL upon delivery in accordance with CIP Incoterms 2000 port of shipment.\" ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 20 Delivery (page No. 44) is defined to mean \"delivery\" or \"delivered\" or \"deliveries\" shall mean the physical delivery by the supplier, of the equipment ordered by TTSL on CIP terms (as defined above), at airports/seaports mutually designated by the parties. CIP (page No. 43) : \"CIP\" means \"cost, insurance paid\" to airport/seaport in India as defined in Incoterms 2000. It means that supplier shall pay and bear the cost of packing/loading/unloading, transportation, carriage, freight, unloading charges, insurance and any other cost of any nature at any time prior to delivery. 151. It is the submission of the Revenue that entire risk is borne by Motorola and the carriage, insurance is paid till the delivery at seaports/airports in India. Hence, the sale concludes in India. The reference by the appellant to CIP Incoterms 2000 does not alter the situation because the expression by its very definition in the agreement means obligation to bear carriage and insurance charges upto airports/seaports in India. 152. At this stage, we find it relevant to extract the definition of CIP from Incoterms 2000 : CIP \"carriage and insurance paid to means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer's risk of loss or damage to the goods during the carriage. \"Carrier\" means any person who, in a contract of carriage, undertakes to perform or to procure the performance, of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. \"Delivery\" - The seller must deliver the goods to the carrier contracted in accordance with the contract of carriage or, if there are subsequent carriers to the first carrier, for transport to the agreed point at the named place on the date or within the agreed period. . 153. On conjoint reading of the agreement with the-definitions from Incoterms 2000, it is very clear that the title and risk of loss passes to the buyer, on the physical delivery of the equipment by the OEM to the carrier, at the port of shipment. The term \"port of shipment\" is definitely not a port in India.' CIP Ineoterms-2000 provides that the delivery from the seller to the buyer concludes at the port of shipment upon delivery to the carrier. The obligation on Motorola to bear the cost of delivery upto the port of destination (i.e. India) is irrelevant to decide where the title passes. This is merely a contractual term between the parties to clarify who is to bear the cost of transshipment, ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 21 insurance etc. The argument that the contract has to be read as whole to ascertain the intention of the parties as to when the title and the risk passed in goods is devoid of merit in the present case as the agreement itself is very specific as to when the title and the risk were to pass. 153A As already stated under identical facts in the case of Ericsson A.B (supra) the Delhi Special Bench in Motorola Inc. v. Dy. CIT [2005] 95 ITD 269 (Del.)(SB) held that the title of the GSM equipment passed outside India. The order of the Delhi Special Bench decision in the case of Ericsson (supra) was latter affirmed by the Delhi High Court in Ericsson A.B. (supra). Regarding the applicability of Ericsson and Nokia ruling, we are unable to appreciate the argument that the propositions in these judgments would notbe applicable to the facts of the present easel To tax the royalty income earned by Qualcomm, the Revenue must show that the OEMs have used Qualcomm patents for a business carried on in India or for making or earning income from a source in India, which leads to the taxability of the OEMs. Therefore, the taxability of Qualcomm-directly depends on the OEMs taxability in India. 154. Ericsson was a company incorporated in Sweden. It was engaged in the business of supply of hardware and software. It entered into an agreement with 10 cellular operators in India for supply of telecommunication systems. These were installed and commissioned in India by two sister concerns of Ericsson, one being a branch of non- resident group company, and the other being resident company of the same group. There was an overall agreement with the operators for supply and installation of GSM systems. The supply of equipment was made on continuous basis. The supply had to satisfy the acceptance test. The issue before the Court was the taxability of such supplies in respect of which title and risk in the goods passed to thecustomers before the goods were delivered in India. The AO held that the assessee company had a business connection under domestic law and that it had a PE under the DTAA between India and Sweden. Business profits were estimated. Entire consideration for supply of software was brought to tax. Income from hardware was estimated at 26 per cent of the billed supplies of hardware. The Hon'ble High Court held that: The title in the goods passed to the buyer before the goods reached the Indian shores and hence no profit could accrue to the non- resident. Sec. 19 of the Sale of the Goods Act would have application. The fact that the contract itself is signed in India or that the freight charges are borne by the importer would make no difference to the inference as was pointed out by the Hon'ble Andhra Pradesh High Court in the case of Addl. CIT v. Skoda Exports. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 22 The fact that the insurance risk was with the supplier before landing does not alter the situation. Acceptance test cannot also lead to a different conclusion as it was meant for ensuring that the supply conforms to the contract parameters. The right to get back the goods after landing, if the importer does not take delivery for whatever reason, could also make no difference since the title has passed to the buyer before landing. Since the installation was also not undertaken by the assessee company, no income therefrom can be brought to tax. The issue whether the assessee had a PE in India during the year is academic in the light of the fact that the assessee has no business connection. That since software is loaded on the hardware in terms of contract, it did not have any independent existence, so as to justify the inference that there has been supply of software. The decision of the Hon'ble Supreme Court in the case of Tata Consultancy Services v. State of A.P. [2004] 192 CTR (SC) 257 making a distinction between assignment of \"copyright right\" and sale of \"copyrighted product\" could not be disregarded. Computer programmes are goods and merely because the software was unloaded from dumb CD from the computer, usable only when it is activated, it does not cease to be goods. The payment to the assessee cannot be split up as between supply and royalty/technical fees. There is no assignment of any copyright in the facts of the case, in the sense contemplated under sec. 14 of the Copyrights Act, 1957 as a consequence of either the overall agreement or the supply contract. The difference between acquisition of a \"copyright right\" and a \"copyrighted product\" was pointed out. 155. In the case of Nokia Networks (supra) the relevant facts are: The assessee, a company incorporated under the laws of Finland, was a leading manufacturer of advanced telecommunication systems and equipment (GSMequipment), which were used in fixed and mobile phone networks. During the previous years, the assessee maintained a LO and also had a subsidiary in India, known as, Nokia India (P.) Ltd. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 23 (NIPL). Its activities involved supply of hardware and software as well as installation and commissioning and also after sale services. It entered into agreements with various Indian telecom/cellular operators and entered into three contracts with them, namely, (1) overall agreement, (2) supply agreement and (3) installation agreement. The assessee supplied GSM equipment, i.e. both hardware and software manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis under independent buyer/seller arrangements. Installation activities were undertaken by NIPL under its independent contracts with Indian telecom operators. The AO held that the assessee was carrying on business in India through a PE. Both the LO and NIPL constituted a PE of the assessee in India. 70 per cent of the total equipment revenue attributed to sale of hardware. The remaining 30 per cent of the equipment revenue attributed towards supply of software and the same was taxed as royalty both under sec. 9(l)(vi) and under art. 12 of DTAA between India and Finland holding that software was not sold but licensed to the Indian telecom operators. The Hon'ble High Court held as follows : if supply agreement is taken as a standalone agreement, the property in the goods passes to the buyer outside India and hence not taxable in India. Sec. 19 of the Sale of Goods Act, 1930 makes it clear that property in the goods passes when the parties intend it to pass. The intention of the parties is manifest in art. 13 of the supply contract/and provisions of art. 15 in no manner militate against such intention. There is nothing in the conduct of the parties, which would suggest that the express provision of art. 13 have been given a go by. The fact that the supply contract was signed in India does not change the circumstance. Acceptance test, which was performed in India, is not a relevant circumstance for determining as to whether income has accrued in India. Acceptance test is not material even for passing of title and risk in the equipment supplied. The submission of the Revenue that the /three agreements, namely overall agreement, supply agreement and installation agreement, are to be taken to form an integrated business arrangement between the parties which was governed by the overall agreement proceeded on the basis that the assessee had entered into contracts with cellular operators in India for setting up of GSM system in India, the hardware and software for which were supplied by the assessee, and the installation thereof was also overseen by the assessee. who was to ensure that it was carried out to the satisfaction of Indian buyers in ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 24 accordance with the terms of the contract. This was also considered by the Court and it was held that the taxable event took place outside India with the passing of the property from seller to buyer. The decision might have been different if the buyer had the right to reject the equipment on failure of acceptance test. The overall agreement does not result in the income accruing in India. The execution of the overall agreement is promptedby pure commercial considerations. Board Instruction No. 1829, dt. 29th Jan., 1989 must continue to govern the assessment for the relevant years, despite withdrawal of this Instruction by CBDT by virtue of Circular No. 7 of 2008 (sic-of 2009), dt. 22nd Oct.. 2009 [(2009) 226 CTR (St) 57]. The place of negotiation, the place of signing of agreement, or formal acceptance thereof or overall responsibility of the assessee are irrelevant circumstances as the transaction relates to the sale of goods and the relevant factor and determinating factor would be as to where the property in the goods passes. In the instant case the property passed on the high seas. Even if it is a case of a composite contract, the supply has to be segregated from the installation and only then the question of apportionment would arise. That the amendment to sec. 9 vide Finance Act, 2012 wherein Explns. IV, V and VI have been added to s. 9 seeking to clarify the scope of cl. (vi) of sub-sec. (1) of sec. 9, it was held that the amendment cannot be read into the treaty. The reasoning given in Ericsson A.B.'s case (supra) would apply to Nokia Net Work OY. 156. In the facts of the present case, Motorola and ZTE are OEMs Supplying CDMA equipment to the Tata an Indian telecom operator. Their business model and supply contract for CDMA equipment is similar to the supply contract entered by the Ericsson and Nokia for supply of GSM equipment. Hence, we are of the view that the propositions laid by the Hon'ble DelhiHigh Court with respect to taxability of GSM equipment with embedded software would be squarely applicable to taxability of OEMs supplying CDMA handsets and equipment. 157. Applying these principles laid down in Ericsson's case (supra), to the facts of the case on hand we have to hold that the title in the goods ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 25 in this case has passed outside India as per the clauses in the agreement. When read with CIP Incoterms 2000. 158. Even otherwise mere passing of title in goods imported into India, in India, at the port of destination cannot lead to a conclusion that the OEMs carry on business in India. It is business with India and not business in India. The mere passing of the title with no other activity does not result in any income being attributable in India. 159. For all aforesaid reasons, we uphold the arguments of Shri Soli Dastur, the learned senior counsel, that OEMs have not carried on business in India, and that the OEMs cannot be said to have used Qualcomm patents for the purpose of such business in India. 160. Before we come to the second limb of argument, we agree with the argument of Mr. Dastur that : Limb (i) covers cases where the right property or information has been usedby the non-resident payer (OEM) itself and is so used in a business carriedon by OEMs in India. Limb (ii) covers a case where the right property or information has not been used by the non-resident payer (OEM) itself in the business carried on by it, but the right property or information has been dealt with in such a manneras would result in earning or making income from a source in India. Any other interpretation to our mind would not be harmonious, as it would make limb (i) otiose. 161. Now we come to the second limb of the issue that is, whether the OEMs have used Qualcomm's patents for the purpose of making or earning income from a source in India. The Revenue once again heavily relied on the CDMA equipment purchase agreement between Tata and ZTE and Tata and Motorola to demonstrate that OEMs have used the Qualcomm's patents for the purpose of making or earning income from a source in India On the basis of the equipment purchase agreement of 2007, it was submitted that the two agreements between Indian operators and OEMs make a distinction between sale of equipment and licensing of software embedded in the firmware. It was submitted that Indian operators have agreed to purchase the equipment and take licenses for the software. In addition, the Revenue has also contended that Indian operators constitute a source of income for the OEMs in India. 162. Reliance was placed on cl. 19.5 of the agreement with ZTE dt. 19th Dec. 2007, wherein it is recorded that all licensed material are the property ol the supplier of its suppliers. Hence it is argued that the supplier of OEMs is Qualcomm which supplied the intellectual ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 26 property to be used under license for manufacturing of handsets/equipment. It was further submitted that the agreement between Qualcomm and the OEMs, which was the basis for the AO to assess the income, states in the preamble that OEMs desiredto obtain licenses of Qualcomm's intellectual property to manufacture and sell subscriber units. 163. Reliance was placed on the definition of the term 'chip sets' in the agreement, as well as other definitions such as \"CDMA, ASIC\" and it was argued that OEMs have given license to use chip sets/ASICs purchased from Qualcomm in manufacturing the handsets/equipment. It was argued that CDMA technology' belonging to Qualcomm is embedded in chip sets which are used by the OEMs and licensed to Indian customers for further use by them. He further submitted that, if this basic proposition is under dispute, relying on the decision of the Hon'ble Supreme Court he submitted that the matter needs a more critical examination by someone who understands CDMA technology. 164. Clause 5.1 of the license agreement is relied upon and it is pointed out that Qualcomm has granted worldwide licenses under Qualcomm's intellectual property to make, import, use, sell or lease or otherwise dispose of subscriber units and to make components and use and sell such components and hence it is only software that was licensed by Qualcomm toOEMs. It was further contended that intellectual property cannot be anything other than chip sets or some other software going to be embedded in the handsets/equipment. 165. Reliance was also placed on Finance Act, 2012 wherein Expln. IV to sec. 9(1)(vi) has been inserted. It was submitted that the argument that OEM sell copyrighted article or thing and the argument that they do not give any right in the copyright, is of no consequence post this amendment as the transfer of any rights in an intellectual property includes transfer of any right to use of a computer software irrespective of the medium through which it is transferred. 166. In a nutshell the submissions of the Revenue are that Qualcomm has made available to the OEMs its patented intellectual property relating to CDMA technology in the form of chip sets/ASIC and that OEMs have inserted these chip sets into the handsets/network equipment manufactured by them and that these in turn have been licensed to Indian operators for which OEMs have received a consideration and hence they have a source ofincome in India. 167. (These arguments of the Revenue are in our view not acceptable forthe following reasons : ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 27 i. The AO assessed the royalty arising from licensing of CDMA patents by Qualcomm to OEMs. The royalty which is brought to tax by the AO does not refer to any software being provided. It is not demonstrated by the Revenue that the software is provided as part of the licensing of Qualcomm patents. ii. The software embedded in the hardware sold to Indian Carriers by the OEMs belong to the OEMs. The software may have been self- generated or procured by the OEMs. iii. None of the 16 agreements between Qualcomm and OEMs which form the basis for assessment in these cases, refer to licensing of software. Thus to argue that software is licensed by Qualcomm to OEMs and which are in turn sub-licensed to the Indian Carriers is contrary' to the facts of the case. The software which is licensed at best relates to the functionality aspect of the product and has nothing to do with the capability to provide CDMA connectivity. 168. The Revenue for the first time before the Tribunal argued that chipsets are purchased by OEMs from Qualcomm and these chipsets which have embedded software and help in function of the hardwares. This is not the basis on which either the AO or the CIT(A) proceeded to tax in this case. 169. It is not necessary for the OEMs to purchase chipsets from Qualcomm only. The OEMs can also purchase the chipsets from a third party other than Qualcomm. In fact, the AO in his assessment order had specifically held that the income, of QCT division from the sale of chipsets is not assessable and that the assessment is confined to the income received by QTL division i.e. the business segment of Qualcomm which is involved in licensing of the patents to manufacture the products. We emphasise that what is brought to tax is the royalty earned from the licensing of patents and not royalty earned on software embedded in the chipsets. 170. Regarding the request made by the Revenue for remand of the case or examination by a technical expert, we do not find it necessary at this stage as there is no dispute that the software is embedded in the chipset he same is installed in the CDMA equipment. Selling of the chipsets is a part of appellant's QCT division activity and what is brought to tax by the AO is the income of QTL division. 171. Even otherwise the software is embedded in the chipset and is an integral part of the chipset. Further, the chipset is embedded in the handset/equipment and these are sold outside India. Further, the total price is fixed for the equipment as a whole and there is no separate consideration for the licensed material. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 28 172. Clause 19 of both the agreements which deals with provisions applicable to licensed materials places significant restrictions (listed below) on Tata for use of the licensed material i. The object code version of the software and related documentation could only be used along with the equipment; ii. Tata has no right to sell or sub-license the licensed materials or modify, decompile or disassemble the software furnished as object code to generate the corresponding source code (part of firmware ) embedded in the equipment; iii. Tata shall hold the licensed materials in confidence and shall not, without Motorola and ZTE's consent, disclose, provide or otherwise make available, in whole or in part, any licensed material to anyone, except to its employees having a need-to- know. Tata shall not copy software' embodied in the firmware. iv. Tata is obligated to return all copies of the licensed materials to Motorola and ZTE when the licensed materials are no longer needed by Tata or if Tata's license in respect thereof is cancelledor terminated by the supplier. v. Further, equipment has been defined under the agreement to mean and include certain CDMA equipment, including but not limited to the hardware, the software, the firmware, the licensed material, and parts thereof and related spares to be supplied by the supplier to Tata under the agreement. vi. Further firmware and software have, been defined in the agreements as under : \"Firmware\" shall mean a combination of hardware and software represented by a pattern of bits contained in such hardware. \"Software\" shall mean a set of man and machine readable instructions on magnetic or other appropriate media, including firmware, which is necessary for the control, operation and performance of the equipment in accordance with the requirements of the specification contained in the agreement. 173. In view of the specific clauses in the agreement, it is clear that the software does not have an independent use and is an integral part of the hardware without which the hardware cannot function. The software supplied was a copyrighted article and not a copyright right. 174. Applying the propositions laid down by the jurisdictional High Court in the case of Ericsson (supra), Nokia (supra) the income from embedded software cannot be taxed in India. The software is only used ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 29 with the hardware and is not independent of the equipment or the chipset. Further, no separate consideration is paid by Tata for licensing of the software under the equipment purchase agreement Consideration is paid only for the equipment which has numerous patented technologies, chipsets and software which enables the hardware to function. The sale cannot be bifurcated or broken-down into different components. 175. Under the 16 licensed agreements between Qualcomm and the OEM which is the basis for the AO as well as the CIT(A) to raise a demand, whatis licensed is the right to manufacture \"subscriber units\". Under theseagreements subscriber unit is defined as \"complete CDMA telephone of which chipset is only one part\". Hence the argument of the Revenue isdevoid of merit. 176. Coming to the argument that the Indian telecom operators in India constitute a source for the OEMs, the Privy Council in the case of Rhodesia Metals Ltd. (supra) and the jurisdictional High Court in the case of Havells India Ltd. (supra) have laid down that the source is the activity that gives rise to income. In the present case, the right property or information licensed to OEMs relates to the manufacture of the products and hence the source of royalty is the activity of manufacturing. Though cited by the Revenue, Rhodesia Metals (supra) in our view entirely supports the appellant's case. In that case Rhodesia Metals Ltd. carried on the business of developing mines in Southern Rhodesia and then selling rights therein. The head seat and directing power of the company was situated in England, the contracts of purchase and sale of the mining rights were entered into in England and the consideration for sale of the mining rights was received in England (para 2 at p. 50 of the order). Despite all this, the Privy Council upheld the contention of the company that the amount earned on sale of such mining rights was not chargeable to tax in England since the source of income was the development of the mines, which activity was carried out in Southern Rhodesia Applying this principle to the facts of the case at hands it becomes clear that the source of the royalty is the place where patent (right property or information) is exploited, viz. where the manufacturing activity takes place, which is outside India. Hence, we are unable to accept the contention that Indian telecom operators would constitute source of income for the OEMs. 177. Coming to the insertion of Expln. 4 to sec. 9(l)(vi) of the Act, we find that the amendment has no effect in the present case as the controversy in this case is taxability of royalty on patents relating to intellectual property for manufacture of CDMA handsets and equipment and does not relate to royalty on licensing of any computer ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 30 software. The OEMs received no income from licensing in computer software. The OEMs sell handsets/equipments to the service providers, outside India and hence the OEMs have no source of income in India. 178. Thus, for all these reasons, we are of the considered opinion that the assessee was right in his argument that the Revenue has not proved that the OEMs have carried on the business in India and that they have used Qualcomm's patents for carrying on such business in India nor the Revenue has proved that the OEMs have used Qualcomm's patents for the purpose of making/earning income from a source in India. Thus we hold that the royalty in question cannot be brought to tax under sec. 9(1)(vi) (c) of the Act. 179. The next issue is whether the royalty paid to Qualcomm by OEMs can be taxed in India under art. 12(7)(b) of the DTAA between India and USA. 180. As we have held that the royalty in question cannot be brought to tax under the IT Act. 1961, we need not go into the question of applicability under DTAA between India and USA as it would be an academic exercise. 181. Before we part, we observe that the Revenue in its effort to support the order of the AO as well as the CIT(A) brought in agreements entered into by Tata in later years i.e. in the financial years 2006-07 and 2007-08. It further widened the grounds of assessment by bringing in not only new material but fresh submissions like licensing of software, chip sets etc. Further, it also brought in a fresh argument that CDMA is a wholesome technology and that Qualcomm is the exclusive owner of the JDMA technology. Revenue submitted that CDMA technology works on certain scientific principles and cannot be broken into handsets and network andthis technology is provided by Qualcomm to Reliance/Tata for earning royalty from third party. 182. On the issue as to whether the CDMA technology is a wholesome technology and whether Qualcomm per se is the exclusive owner of this technology we find the following from the information gathered by us. 183. CDMA is a channel access method used by various radio communication technologies. It is a method of wireless data communication that was originally invented during World War II in England to thwartGerman wire interference. CDMA history can be directly linked back to the 1940s when this form of transmission was first envisaged. This technology has been used in many communication systems, including the global positioning system and in the Omni ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 31 Tracs. The other form of digital technologies currently used to transmit in a wireless transmission is Frequency Division Multiple Access (FDMA) and Time Division Multiple Access (TDMA). TDMA is the primary commercial form of GSM phones (source : Wikepedia, http://www.radio- electroics.com/info/rf- technologydesign/cdma/what- is-cdma-basics- tutorial.php) l84. Qualcomm was the first company to commercialize this technology in OmniTracs (a fleet management system). Qualcomm publicly introduced the concept that CDMA a digital communication technique method could be commercially successful in cellular wireless communication applications. Qualcomm was joined by US network operators Nynx and Ameritch to develop the first generation of CDMA telecommunication system. Later this team was joined by Motorola and AT&T. As a result of this it was possible to start writing of specification for CDMA in 1990. It was then a standard group was set up with the support of Cellular Telecommunications Industry Association (CTIA) and the Telecommunication Industry Association (TIA). This group then published the standard of first CDMA system in the form of IS 95 resulting in the formal publication of IS 95A in 1995 (Source: Wikepedia). The first GDMA system was launched in September, 1995 by Hutchson Telephone Co. Ltd. in Hong Kong and SA Telecommunications in Korea soon to be followed along with the networks in the USA. Later CDMA 2000 series of standards were developed. The standards for CDMA are specified by 3GPP2. (Source: http://www.radio-elecironies.com/info/rf- technology design/cdma/what-is-cdma-basics tutorial.php, http://webopedia.com/TERM/C/CDMA.html) A look at Wikipedia discloses the following : \"3GPP2 is the standardization group for CDMA 2000, they set 3G standard based on earlier 2G CDMA technology. The participating associations are five officially recognized Standard Development Organizations ('SDOs'). They are : ARIB-Association of Radio Industries and Businesses (Japan) CCSA- China Communications Standards Association (China) TIA- Telecommunications Industry Association (North America)TTA- Telecommunications Technology Association (Korea) TTC- Telecommunications Technology Committee (Japan) These SDOs are known as the project's organizational partners. 3GPP2 requires that a participating individual member company be affiliated with at least one of the organizational partners. In addition, the project has welcomed market representation partners (MRPs) who offer market advice to 3GPP2 and bring a consensus view of market requirements (e.g.. services, features and functionality) falling within the 3GPP2 scope. They are : ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 32 The CDMA Development Group (CDG) IPv6 Forum and Femto Forum The work of producing 3GPP2's specifications resides in the project's four technical specification groups (TSGs) comprised of representatives from the project's individual member companies. The TSGs are : TSG-A (Access network interfaces)TSG-C (Cdma2000ilil) TSG-S (Services and systems aspects)TSG-X (Core networks) Each TSG meets, on average, ten times a year to produce technical specifications and reports. Since 3GPP2 has no legal status, ownership and copyright of these output documents is shared between the organizational partners. The documents cover all areas of the project's charter, including CDMA 2000 and its enhancements.\" 185. In view of the above, it would be incorrect to say that Qualcomm is the owner of CDMA technology. What Qualcomm owns are essential patents in, respect of numerous intellectual properties based on CDMA technology. This fact is evident from the clauses in the license agreements. A perusal of the license agreements shows that Qualcomm itself obtains licenses from certain third parties to use their CDMA patents, (pp. 247 and 292 of the paper book filed by the appellant). Thus the argument that CDMA is a technology owned by Qualcomm is devoid of merit. All that Qualcomm owns is essential patented intellectual properties developed under CDMA technology. To put itin simple words a mobile phone or a cellphone is a wireless data communication device which work on wireless technology, while phone is a device that can make and receive telephone calls over a radio link while moving around a wide geographic area. It does so by connecting to the cellular network provided by a mobile telephone operator. This would allow access to the public telephone network. In addition to voice data transmission modern mobile phones also support a wide variety of other services such as text messaging, MMS, e-mail, internet access, short range wireless communication, blue tooth, business applications, gaming and photography. Such mobile phones are also referred to as 'smart phones'.The other forms of wireless data communication technologies currently in use are WiFi, global positioning system (GPS), blue tooth, gig B. satellite television, wireless USB etc. From the above it is clear that there are many digital technologies used to transmit data in wireless form. Hence the argument that CDMA is a wholesome technology and that Qualcomm is the exclusive owner of such technology cannot be accepted. 186. There are a number of simple wireless technologies that are used by us in our daily life. A TV remote or an AC remote have wireless technology and it transmits signals between two points. Many other devices such as washing machines, microwaves, cars, computers and ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 33 even fixed landline telephones, fax machines etc. have chipsets with embedded software which enable the equipment to work. Technology in a \"sense, the patent of which is owned by someone, is being used in India. All these devices which have chipsets with some embedded software when operated may in a way result in use of licensed software or IPRs in India. The use of such equipment cannot result in a source of income for the as it is sale of the equipment is as a \"chattel\", the title of which gets transferred. The software is embedded in the chipset and the chipset is part of the equipment. Hence this argument is devoid of merit and hence cannot be accepted. 187. In the result this issue of taxability of the \"royalty\" paid by OEMs to the assessee is decided in favour of the assessee. Hence these grounds are allowed.\" (underline supported by us to show the various arguments covered by the bench.) 45. Therefore respectfully following the decision of the coordinate bench in assessee's own case for Ay 2000-01 to 2004-05, that royalty income of the appellant earned from OEMs situated outside India for the patentslicensed to OEMS for manufacture of CDMA Network outside India we hold that same is not chargeable to tax u/s 9 (1) (vi)(c) of the ACT. [Asthe revenue is not chargeable to tax in India as per Income tax Act 1961 requirement of looking at the provision of article 12 (7) of Indo USA DTAA is futile. Accordingly, we allow ground No 1 and 2 of the appeal of the assessee. 46. Now we come to ground No. 3 of the appeal of the assessee with respect to revenue received by appellant under BREW operator agreement and BREW carrier agreement what is taxed as ‗Royalty' income in India u/s 9(1)(vi)(c) of the Act and article 12 of the India-US Treaty. This issue hasbeen dealt with extensively by the coordinate bench in second order for Assessment Year 2005-6 to 2008-09 dated 20th February 2015 in paragraph No. 102 to 108 as under:- \"102. That takes us to ground no. 4, as raised by the assessee, against holding that the revenues received by the Appellant under the BREW Operator Agreement and BREW Carrier Agreement is taxable as royalty income in India under section 9(1)(vi) of the Act and Article 12 of the India-USA tax treaty. The assessee contends that in doing so, the AO has failed to appreciate that the provision of BREW software to Tata and Tata Teleservices (Maharashtra) Limited and Reliance Communications Infrastructure Limited results in sale of 'Copyrighted Article' and not licensing of a 'Copyright'. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 34 103. So far as this grievance of the assessee is concerned, only a few facts are required to be taken note of. During the course of the assessment proceedings, the Assessing Officer noted that the assessee has invoiced an amount of Rs 2,52,70.569 to Tata Teleservices Limited under BREW (Binary Runtime Environment for Wireless) agreement. It was noted that it is an application development platform, developed by Qualcomm, for mobile phones that enables users to download and run applications for playing games, sending messages and sharing photos etc. It was also noted that this platform runs between the application and wireless device's chip operating system so that programmers can develop applications for wireless device without the code for system interface or understanding operating systems. It was also noted that end users of BREW customers are the carriers who pay an enablement fees based on device sales or a revenue share for application software that are downloaded. On these facts, the Assessing Officer proceeded to bring the same to tax by observing as follows: I have perused the submissions made by the assessee. However, this hypothesis is not correct as Software is licensed and not sold. Furthermore as per the terms of the BOA as reproduced above, the assessee has given TATA Teleservices the license to reproduce and install the copyrighted software. The license fee for the right to reproduce and use the BREW Software cannot be anything else but royalty. There is a distinction between sale and license since in a sale no agreement is entered into between buyer and seller, however in case of licensing of software an agreement is entered into between copyright holder and the user. Grant of license is granting the user a right to use the software. The assessee's submission that in cases where rights acquired are limited and necessary only to enable the user to operate the program and allow the user to copy the program on the user's computer hard drive, payments would not be treated as towardsroyalty but as towards business income is not acceptable. The assessee itself agrees that payment is made for only the right to use the software and no other title or interest in the software is transferred to the payer. There is no transfer of ownership rights. Various decisions of the Supreme Courts and High Courts clarify that sales constitutes out and out transfer, whereas in license there is only right to use. Some of these decision are at 69 ITR 692 (SC), 236 ITR 314 (ASC), 811 ITR 243, 671 ITR 227. Thus this reasoning of the assessee has no legal or factual basis. In this case, the user only has a right and gets a license to use the software. Even in the OECD commentary it is mentioned that the character of payments received in transactions involving the transfer of computer ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 35 software depends upon the nature of rights that the transferee acquires under the particular arrangement, regarding the use and exploitation of the program. The rights in computer programme are in the form of intellectual property. It has further mentioned \"payments made for the acquisition of partial right in the copyright (without the transferor fully alienating the copyrights) will represent a royalty, where the consideration is for granting of rights to use the program in a manner, that would without such licenses constitute the infringement of copyrights.\" Under the laws of the country, if the software owned by the assessee is used without licenses, it becomes infringement of the copyright. Therefore arguments of the assessee regarding applicability of OECD commentary fail onthis count as well 104. The assessee did raise a grievance before the DRP but without any success. The assessee is not satisfied and is in appeal beforeus. 105. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 106. We find that the payment in question is admittedly the payment is for a software which is for a copyrighted article and not the copyright itself. There is nothing on record to suggest that the payment is for the copyright itself. In this view of the matter, the issue is clearly covered, in favour of the assessee, by Hon'ble Delhi High Court's judgment in the case of DIT v. Infrasoft Ltd. [2014] 220 Taxman 273/[2013] 39 taxmann.com 88 wherein Their Lordships have, inter alia, observed as follows: '85. The Licensing Agreement shows that the license is non- exclusive, non-transferable and the software has to be uses in accordance with the Agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include Infrasoft's copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisation device, which restricts the useof the Software. The software is to be used only for Licensee's own business as defined within the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse- engineer the Software without Infrasoft's written consent. The Software contains a ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 36 mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. 86. The Licensing Agreement shows that the license is non- exclusive, non- transferable and the software has to be uses in accordance with the agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include Infrasoft's copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisat ion device, which restricts the use of the Software. The software is to be used only for Licensee's own business as defined within the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the Software without Infrasoft's written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is inbreach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a \"copyright right\" and a \"copyrighted article\". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for \"copyrighted\" article. This sale consideration is for purchase of goods and is not royalty. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 37 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non -exclusive and non- transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of thelicence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just asthe owner would be in a position to do. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 38 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub - licence or transfer the copy of software toany third party without the consent of Infrasoft. 93. The licensee has been prohibited from copying, de - compiling, de- assembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to Infrasoft. 94. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 39 95. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof f or the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. 95. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 96. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 97. We are not in agreement with the decision of the Andhra Pradesh High Court in the case of Samsung Electronics Co. Ltd. (supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DIT v. M/s Nokia Networks OY (Supra) as not amounting to acquiring a copyright in the software. 98. In view of the above we accordingly hold that what has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income.' 107. Learned Departmental Representative, even as he vehemently relied upon and supported the stand of the authorities below, could not point out any distinguishing feature in this case. 108. In view of the above discussions, and respectfully followingthe esteemed views of Hon'ble jurisdictional High Court, we uphold the grievance of the assessee and direct the Assessing Officer to delete the ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 40 impugned addition of Rs 2,52,70.569. The assessee gets the relief accordingly.\" 47. Therefore, respectfully following the second order of the coordinate bench we hold that royalty from BREW operator agreement of Rs. 67848685/- and 15% thereof amounting to Rs. 10177303/- is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) of the Act as well as Article 12 of the Indo-USA Tax Treaty. Accordingly, ground No. 3 of the appeal of the assessee is allowed.\" 16. The factual position in the impugned assessment years is not different from the assessment years 2009-10 to 2012-13 and the earlier assessment years. In fact, in the assessment order passed for the impugned assessment years, the Assessing Officer has accepted that the facts involved in impugned assessment years are identical to the past assessment years. Thus, when the entire edifice of the present additions made by the Assessing Officer is based on the assessment order passed for the assessment year 2012-13, which now stands reversed by the Tribunal (supra), in our view, the addition made by the Assessing Officer are not sustainable. Accordingly, we direct the Assessing Officer to delete the addition. 17. In so far as ITA No. 7559/Del/2018, being appeal for the assessment year 2015-16 is concerned, our decision in ITA No. 7894/Del/2017 will apply mutatis mutandis. Accordingly, we direct the Assessing Officer to delete the addition.” 11. Respectfully following the same, the Ground Nos. 2 to 9 raised by the assessee are allowed. 12. In view of our aforesaid decision, the Ground No. 1 raised by the assessee challenging that the assessment framed is barred by limitation, need not be gone into at this stage and the same is hereby left open. 13. The Ground No. 10 raised by the assessee would become consequential to the decision taken by us in Ground Nos. 2 to 9. 14. The Ground No. 11 raised by the assessee is challenging the levy of interest under section 234A of the Act. The Learned AO is directed to verify the fact whether the return was filed by the assessee within the due date or extended due date prescribed under section 139(1) of the Act and accordingly decide to charge interest under section 234A of the Act. The ITA No. 3742/Del/2023 Qualcomm Incorporated Page | 41 levy of interest under section 234C of the Act would be consequential in nature and does not require any specific adjudication. It is well settled that the interest under section 234C of the Act could be levied only on the returned income and not on the assessed income. 15. The Ground No. 12 raised by the assessee is challenging the initiation of penalty proceedings under section 270A of the Act. In view of our aforesaid decision, the penalty proceedings would have no legs to stand. 16. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 14/11/2024. -Sd/- -Sd/- (SAKTIJIT DEY) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated:14/11/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "