Income Tax Appellate Tribunal - Delhi
Alcatel Lucent Bell Nv, New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A
'A' : NEW DELHI
BEFORE SHRI G.D.AGRAWAL,
G.D.AGRAWAL, VICE PRESIDENT AND
SHRI R.P. TOLANI,
TOLANI, JUDICIAL MEMBER
ITA Nos.4866/Del/2010
Nos.4866/Del/2010 and 2519/Del/2010
Assessment Years
Years : 2003-
2003-04 and 2007-
2007-08
M/s Alcatel-
Alcatel-Lucent France Vs. Assistant Director of Income Tax,
(formerly known as Alcatel Circle-
Circle-1(1),
CIT, France), International Taxation,
C/o PricewaterhouseCoopers, New Delhi.
Building No.10, Tower-
Tower-C,
18th Floor, DLF Cyber City,
Gurgaon - 122 002.
PAN : AACCN0752F.
(Appellant) (Respondent)
ITA Nos.4855/Del/2010
Nos.4855/Del/2010 and 5943 to 5947/Del/2012
Assessment Years
Years : 2003-
2003-04, 2002-
2002-03, 2004-
2004-05, 2005-
2005-06, 2006-
2006-07 &
2008-
2008-09
Assistant Director of Income Vs. M/s Alcatel-
Alcatel-Lucent France
Tax, (formerly known as Alcatel CIT,
Circle-
Circle-1(1), France),
International Taxation, C/o PricewaterhouseCoopers,
New Delhi. Building No.10, Tower-
Tower-C,
th
18 Floor, DLF Cyber City,
Gurgaon - 122 002.
PAN : AACCN0752F.
(Appellant) (Respondent)
ITA Nos.1046/Del/2013
Nos.1046/Del/2013 to 1052/Del/2013
Assessment
Assessment Years
Years : 2002-
2002-03 to 2008-
2008-09
Assistant Director of Income Vs. M/s Alcatel Lucent Bell NV,
Tax, C/o PricewaterhouseCoopers,
Circle-
Circle-1(1), 11-
11-A, Sucheta Bhawan,
International Taxation, Vishnu Digamber Marg,
New Delhi. New Delhi - 110 002.
PAN : AAHCA7652E.
AAHCA7652E.
(Appellant) (Respondent)
2 ITA-4866/Del/2010 &
41 others
ITA Nos.6360/Del/2012
Nos.6360/Del/2012 to 6365/De/2012
Assessment Years
Years : 2003-
2003-04 to 2008-
2008-09
Assistant Director of Income Vs. M/s Alcatel Lucent Canada,
Tax, C/o PricewaterhouseCoopers,
PricewaterhouseCoopers,
Circle-
Circle-1(1), 11-
11-A, Sucheta Bhawan,
International Taxation, Vishnu Digamber Marg,
New Delhi. New Delhi - 110 002.
PAN : AAICA2082M.
(Appellant) (Respondent)
ITA No.1928/Del/2013
No.1928/Del/2013
Assessment Years
Years : 2003-
2003-04
Assistant Director of Income Vs. M/s Alcatel Lucent Deutschland AG,
Tax, C/o PricewaterhouseCoopers,
Circle-
Circle-1(1), Building No.10, Tower-
Tower-C,
International Taxation,
Taxation, 18th Floor, DLF Cyber City,
New Delhi. Gurgaon - 122 002.
PAN : AAICA5114C.
(Appellant) (Respondent)
ITA Nos.1929/Del/2013
Nos.1929/Del/2013 to 1931/Del/2013
1931/Del/2013
Assessment Years
Years : 2002-
2002-03, 2003-
2003-04 & 2008-
2008-09
Assistant Director of Income Vs. M/s Alcatel Lucent France USA Inc,
Inc,
Tax, C/o PricewaterhouseCoopers,
Circle-
Circle-1(1), 11-
11-A, Sucheta Bhawan,
International Taxation, Vishnu Digamber Marg,
New Delhi. New Delhi - 110 002.
PAN : AAHCA6896J.
AAHCA6896J.
(Appellant) (Respondent)
ITA Nos.1336/Del/2012
Nos.1336/Del/2012 to 1339/Del/2012
Assessment Years
Years : 2005-
2005-06 to 2008-
2008-09
Assistant Director of Income Vs. M/s Alcatel Lucent Italia SPA,
Tax, C/o PricewaterhouseCoopers,
Circle-
Circle-1(1), Building No.10, Tower-
Tower-C,
th
International Taxation, 18 Floor, DLF Cyber City,
New Delhi. Gurgaon - 122 002.
PAN : AAICA3581H.
(Appellant) (Respondent)
3 ITA-4866/Del/2010 &
41 others
ITA Nos.438/Del/2013
Nos.438/Del/2013 to 444/Del/2013
Assessment Years
Years : 2002-
2002-03 to 2008-
2008-09
Assistant
Assistant Director of Income Vs. M/s Alcatel Lucent Enterprise,
Enterprise,
Tax, C/o PricewaterhouseCoopers,
Circle-
Circle-1(1), 11-
11-A, Sucheta Bhawan,
International Taxation, Vishnu Digamber Marg,
New Delhi. New Delhi - 110 002.
PAN : AAHCA7398H.
(Appellant) (Respondent)
ITA Nos.5420/Del/2012
Nos.5420/Del/2012 to 5425/Del/2012
Assessment Years
Years : 2003-
2003-04 to 2008-
2008-09
Assistant Director of Income Vs. M/s Alcatel Lucent Shanghai Bell
Tax, Co.Ltd.,
Circle-
Circle-1(1), C/o PricewaterhouseCoopers,
International Taxation, 11-
11-A, Sucheta
Sucheta Bhawan,
New Delhi. Vishnu Digamber Marg,
New Delhi - 110 002.
PAN : AAICA3580G.
(Appellant) (Respondent)
Assessee by : Shri Kanchan Kaushal,
Shri Arvind Rajan and
Shri Shagun Mahajan, CAs.
Revenue by : Shri Sanjeev Sharma, CIT-DR and
Shri Vivek Kumar, Senior DR.
ORDER
PER BENCH :
ITA No.4855/Del/2010 - Revenue's appeal for AY 2003-2003-04 & ITA No.4866/Del/2010 - Assessee's appeal for AY 2003- 2003-04 :-
:-
These appeals by the assessee and the Revenue are directed against the order of learned CIT(A)-XXIX, New Delhi dated 13th August, 2010 for the AY 2003-04.
2. The Revenue has raised the following grounds of appeal:-
4 ITA-4866/Del/2010 & 41 others "1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law by reducing the quantum of revenues received from India from US $40 million to Euro 27 million (US$32.5 million), by admitting additional evidence in spite of the facts the assessee company admittedly failed to provide the necessary details during the assessment proceedings.
2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law by holding that income from the sale of software was to be taxed as business receipt in accordance with the Article 7 of DTAA, which was however taxed as royalty by the AO. The CIT(A) decided the issue in favour of the assessee on the basis of the decision of the special bench of the ITAT in case of Motorola, against which the department is in appeal before the Hon'ble Delhi High Court. Further the more recent judgment by the ITAT on the same issue in the case of M/s Gracemac Corporation dated 26.10.2010 is in favour of the department.
3. The appellant craves to add, amend modify or alter any ground of appeal at the time or before the hearing of the appeal."
3. In the appeal by the assessee, following grounds have been raised:-
"1. That on the facts and in the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals)-XXIX [Ld.CIT(A)] erred in not holding that interest under section 234B of the Act is not leviable even though the entire consideration in the hands of appellant was subject to deduction of tax at source under section 195 of the Act.
1.1 That on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not following the Special Bench decision in the case of Motorola Inc. vs. Dy. CIT [2005] 95 ITD 269 wherein it was held that interest under section 234B of the Act is not leviable if the consideration is subject to deduction of tax at source under section 195 of the Act.
5 ITA-4866/Del/2010 & 41 others
2. That on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not excluding the sales made by appellant to Alcatel India Limited [now known as Alcatel-Lucent India Limited (ALIL)] for the purpose of computing profits attributable to the alleged permanent establishment (PE) i.e. ALIL.
2.1 That on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not taking cognizance that sales between Appellant to ALIL were on Principal-to-Principal basis."
4. Ground No.1 in the Revenue's appeal and ground No.2 in the assessee's appeal are similar. Therefore, both will be dealt together for the sake of convenience. The facts of the case are that the assessee is a company incorporated in France and is a tax resident of France. It is in the business of manufacturing, trading and supplying of equipment and services for GSM Cellular Radio Telephones System. The assessee had filed the return disclosing total income of `1,13,95,910/-. During assessment proceedings, the Assessing Officer asked the assessee to furnish the details of revenue received from India. However, the assessee did not furnish any details. On the other hand, it requested to take the sales in India at Euro 27 Million. The relevant reply by the assessee which is reproduced by the Assessing Officer at page 2 of the assessment order is reproduced below for ready reference:-
"We also wish to submit that the assessee does not track sales in south Asian region on a country specific basis. However you may take Euro 27 Million (USD 32.5 Million) as a good faith estimate for the aggregate supplies invoiced to India in F.Y. 2002-03."
5. Since the assessee did not give the exact figures of sales and details thereof, the Assessing Officer estimated the assessee's revenue in India at US$ 40 Million. The assessee, aggrieved with the order of 6 ITA-4866/Del/2010 & 41 others the Assessing Officer, was in appeal before the learned CIT(A). Before the learned CIT(A), the assessee filed an application under Rule 46A of the Income-tax Rules, 1962 in which it filed additional evidence which included the details of sales for the financial year under consideration showing the sales at Euro 27,307,776. Copy of the additional evidence was forwarded to the Assessing Officer for his comments. The Assessing Officer, vide his report dated 30th April, 2009, objected to the admission of additional evidence on the ground that sufficient opportunity was allowed to the appellant during assessment proceedings but the assessee did not furnish the required information. With regard to admission of additional evidence, the assessee's submission before the CIT(A) as incorporated by the CIT(A) in paragraph Nos.31 & 32 of his order reads as under:-
"31. The appellant on the other hand submitted that Rule 46A provides that the appellant shall not be entitled to produce before the CIT(A) any evidence other than evidence produced by him before the AO, except in the following circumstances.
(a) The AO has refused to admit evidence, which ought to have been admitted.
(b) The appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce.
(c) The appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal.
(d) The AO made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
32. According to the appellant its case falls within the scope of clause (c) and clause (d) above. Further, the appellant was prevented from producing relevant information/details before the AO due to paucity of time as 7 ITA-4866/Del/2010 & 41 others the assessment proceeding was finalized within a short span of three months during which the appellant was not given adequate opportunity to file evidence which is being filed now in support of the grounds of appeal. The appellant further submitted that the principles and circumstances under which the first appellate authority should admit additional or fresh evidence are primarily; the principles of natural justice needs to be adhered to and secondly that the powers of the first appellate authority are co-terminus with that of the AO and are quasi-judiciary powers which should be exercised judiciously to meet the ends of justice and fair play. The appellant relied on following case laws in this regard.
(i) Shakuntala vs. Kuntal Kumar AIR 1969 (SC) 575.
(ii) Jute Corporation India Ltd. vs. CIT 187 ITR 688."
6. Learned CIT(A), after considering the assessee's submission as well as Assessing Officer's objection, admitted the additional evidence and the relevant finding by him reads as under:-
"35. Keeping in view the above mentioned submissions of the appellant, the additional evidence produced by the appellant is admitted. The same was also supplied to the AO for his comments. No adverse findings have been intimated by the AO. Moreover, after the survey at the appellant's premises, the appellant was asked to file the details of year-wise sales made by it during all the years from A.Y. 2002-03 up to the time of survey. In these details also the appellant reflected the figure of sales for the current year at Euro 27,307,776. In his remand report dated 32.06.2010 the AO has not brought to my notice any discrepancy in these sale figures. Therefore, the AO is directed to take the total sales of the appellant in India for the year under consideration at Euro 27,307,776 million. 60% of this figure should be taken as sales of equipment supplied in India and the net profit rate of 2.5% should be applied to the same for calculating the taxable profits of the PE in respect of hardware sales in India as already held above. The AO is directed accordingly."
8 ITA-4866/Del/2010 & 41 others
7. The Revenue, aggrieved with the order of learned CIT(A), is in appeal before us and has raised ground No.1 against the admission of additional evidence as well as against the reduction in the quantum of the revenue. The assessee, vide ground No.2 of its appeal, has claimed that the sales made by the assessee to Alcatel India Limited should have been excluded from the revenue of the assessee.
8. We have heard the arguments of both the sides and perused relevant material placed before us. From a perusal of the assessment order, we find that the Assessing Officer asked the assessee to furnish the details of the revenue received from India. The assessee requested the Assessing Officer to take the revenue at Euro 27 Million. Thereafter, the Assessing Officer, without allowing any further opportunity, estimated the same at US$ 40 Million. In our opinion, when the Assessing Officer was not satisfied with the assessee's estimate, he should have allowed at least one more opportunity to the assessee intimating it that if it does not furnish the details, then the sale should be estimated at US$ 40 Million. Therefore, in our opinion, when before the CIT(A) the assessee furnished complete details of the sales made in India, the CIT(A) was fully justified in admitting the same as additional evidence. He allowed the opportunity to the Assessing Officer to verify such additional evidence and the CIT(A) has recorded the finding that no discrepancy in the details of sales made in India was pointed out by the Assessing Officer in the remand report. He, therefore, directed the Assessing Officer to accept the sales at Euro 27,307,776 as per the details furnished by the assessee. Considering the facts of the case and the arguments of both the sides, we do not find any infirmity in the order of learned CIT(A) and direct the Assessing Officer to adopt the sales as per the details of sales furnished by the assessee in appellate proceedings.
9 ITA-4866/Del/2010 & 41 others
9. Now, in the assessee's appeal, the assessee, for the first time, has raised an argument that the sales made by the appellant to Alcatel India Limited should be excluded. We do not find any such argument raised either before the Assessing Officer or before the CIT(A). Before the Assessing Officer, the assessee stated that the sales may be taken at Euro 27 Million on estimated basis. The Assessing Officer did not accept the same and estimated the sales at US$ 40 Million. Before the CIT(A), the assessee itself furnished the complete details of the sales amounting to Euro 27,307,776 and the same was accepted by the CIT(A). Therefore, ground No.2 now being claimed by the assessee is neither arising from the order of the Assessing Officer nor from the order of the CIT(A). The sales have been accepted as per the details furnished by the assessee itself before the CIT(A). In view of the above, we do not find any merit in ground No.2 of the assessee's appeal. The same is rejected.
10. With regard to ground No.2 of the Revenue's appeal, at the outset, it was pointed out by the learned counsel that the CIT(A) allowed the relief to the assessee following the decision of ITAT in assessee's own case as well as the decision of Special Bench of the ITAT in the case of Motorola Inc. Vs. DCIT - [2005] 96 TTJ 1. That both the decisions of the ITAT have been upheld by Hon'ble Jurisdictional High Court. That the decision of Special Bench of ITAT has been affirmed by Hon'ble Jurisdictional High Court in the case of DIT Vs. Ericsson A.B. - [2012] 343 ITR 470 (Delhi) and the decision in assessee's own case in the case of DIT Vs. Nokia Networks OY & Others
- 358 ITR 259.
11. Learned DR, on the other hand, relied upon the order of the Assessing Officer and he also furnished the written submission which reads as under:-
10 ITA-4866/Del/2010 & 41 others "This brief written submission is a summary of arguments of the Revenue on the issue of taxation of software payment as royalty.
Brief facts
2. A survey under section 133A was carried out at the office premises of Alcatel Lucent India on 27.02.2009. During the course of survey proceedings photo copy of various documents was obtained and statements of senior employees involved in administration, sales and marketing were recorded. Some expatriate persons who were employees of Alcatel Group were also functioning from these offices. On the basis of information obtained during survey and post survey inquiries, notices under section 148 of the Act were issued to all Alcatel Group entities which had carried out business in India. Alcatel Group is has supplied telecommunication equipments and software to various Indian customers.
3. In the assessment orders it was held that various Alcatel Group entities have business connection as well as a permanent establishment in the form of fixed place PE, dependent agent PE and installation PE. A profit based on the sales of equipments made in India was attributed to these permanent establishments. Indian permanent establishment was also involved in making sales in some South Asian countries. A profit on account of these sales was also attributed to Indian permanent establishment. The assessee has not disputed the issue of the permanent establishment as well as attribution of profit to the same and has paid the due taxes.
Taxation of income from licensing of software
4. Income from software has been taxed as royalty. The paragraph 8 of the assessment order for AY 2006-07 deals with the taxation of income from licensing of software as royalties. The assessee has taken this of taxation in appeal.
5. The ld.CIT(A) has discussed the issue of taxation of income from licensing of software in paragraphs 3.4 to 5.8 of his order. The ld.CIT(A) by following the judgment of the Hon'ble Delhi High Court in the cases of Ericsson AB and M/s Nokia Networks has allowed the appeal of the 11 ITA-4866/Del/2010 & 41 others assessee. However, in paragraph 5.8 of the order, the ld.CIT(A) has directed the AO to tax profit worked out @ 2.5% of total sale consideration received by the appellant for supply of hardware and software.
6. The Revenue is aggrieved with the decision of ld.CIT(A) to the extent of not upholding taxation of income from software as royalty and also not considering the applicability of retrospective clarificatory amendments through insertion of explanations 5 and 6 to Section 9(1)(vi) of the Act by Finance Act 2012.
7. The undisputed facts in present case are that software has been licensed and not sold. Further, title in the software has not been transferred. Only partial rights permitting the use of software have been granted.
8. The Revenue relies on the decision of the Hon'ble High Court in the case of Infrasoft Ltd (Order dated 22.11.2013 in ITA No.1034/2009) to the extent that the assessee has not contested the taxability of income from software as royalty under the provisions of the Income Tax Act. The Hon'ble High Court in the case of DIT V/s Nokia Networks OY [2013] 212 Taxman 68 has considered the applicability of the new explanations 5 and 6 providing for retrospective clarificatory amendments in the Act concerning taxability of income from software as royalty. However, the Hon'ble Court has not considered the provisions of Article 3(2) while holding that in absence of any change to the treaty the earlier decisions of the Hon'ble Court in the case of Ericsson apply.
9. The Revenue submits that Article 3(2) of the tax treaty between India and France and other applicable treaties in the present case provides that "As regards the application of the Convention by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under
the law of that Contracting State concerning the taxes to which the Convention applies". Therefore, taking into account the rules of treaty interpretation it is explicitly clear that for finding out the meaning of a term reference can only be made to Income Tax Act and under no circumstances the assistant of Copyright Act or any other Act like Sales Tax Act can be taken in this regard.
12 ITA-4866/Del/2010 & 41 others
10. The Revenue strongly relies on the decision of Central Economic-Administrative Court of Spain in case number 3604/2006 wherein the issue of taxation of income from software under the tax treaty between Spain and the USA has been adjudicated. In this case the taxpayers had claimed that the computer software had to be regarded as literary work under the tax treaty between Spain and the USA. The Spanish Court gave decision in the favour of the Spanish tax authorities and against the taxpayer. The Court observed that computer software is not expressly included in the definition of royalty in Article 12(3) of the treaty due to rapid development of computer technology in recent years. The court then observed that paragraph 13.1 of the OECD Model commentary 2000 on Article 12 recognizes that there may be difficulties in applying the copyright provisions of Art. 12 to software payments since paragraph 2 requires that Software be classified as a literary, artistic or scientific work, but none of these categories seems entirely apt. Considering the interpretation required by Article 3(2) of the treaty and the amendment in Spanish tax law that recently adopted a definition of royalty (Art. 12 of Non-Resident Income Tax Act (Law 41/1998 of 9 December amended by Law 46/2002 of 8 December, currently Article 13.1) No.3 of Royal Legislative Decree 5/2004), the Administrative Court concluded that payments derived from the use of computer software should not be regarded as literary or scientific work and therefore, such royalties should be taxed as other royalties at a higher rate of 10% and not at 5% as applicable to literary or scientific work. Copy of summary of this decision is submitted.
11. Relevant portion of Article 12 of Spain-USA treaty is also attached. The issue of taxation of income from software as royalty was never in doubt and not disputed under the Spain-USA treaty, the dispute only concerned rate of tax.
12. Kind reference is also invited to paragraphs 114 to 117 and 130 to 134 of the assessment order for AY 2006- 07 in the matter. Page 116 and 117 shows that even the OECD countries namely Mexico, Spain, Slovak Republic, Greece, Korea, Poland and Portugal taxes the income from software. India along with many non-member countries of the OECD have submitted their position on taxation of software (kindly refer to pages 132 and 133 of the 13 ITA-4866/Del/2010 & 41 others assessment order). It is mentioned that under Section 90 of the Act, the Parliament has delegated the authority to the Central Government to negotiate the tax treaties with other countries. Tax treaties signed by the Government has full force of law and do not require any further ratification by the Parliament. Therefore, any stated position of the Government is fully effective and has equal force of law as the tax treaties. The position of India on taxation of income from software is known to all the treaty partners and this has not been objected by any one.
13. The Revenue would like to submit that China, Korea, Japan and Vietnam have taxed income from software under their respective tax treaty with Finland. Copy of a summary of decision of the Supreme Administrative Court of Finland in case number KHO 2011 : 101 dated 12 December 2011 is enclosed."
12. We have carefully considered the arguments of both the sides and perused relevant material placed before us. We find that learned CIT(A) allowed the relief to the assessee following the decision of ITAT in assessee's own case for AY 1997-98 in ITA No.407/Del/2001. The ITAT had delivered the above decision following the decision of Special Bench of ITAT in the case of Motorola Inc. (supra). We find that Hon'ble Jurisdictional High Court upheld the decision of ITAT of Special Bench in the case of Motorola Inc. (supra) in the case of DIT Vs. Ericsson A.B. (supra). In the appeal by the Revenue, question No.3 proposed before the Hon'ble Jurisdictional High Court and admitted by their Lordships reads as under:-
"Whether in law, the learned Delhi Tribunal was justified in holding that the consideration for supply of software was not a payment by way of royalty, and, hence, was not assessable both under section 9(1)(vi) of the Double Taxation Avoidance Agreement between the Government of India and Sweden?"
14 ITA-4866/Del/2010 & 41 others
13. That the Hon'ble Jurisdictional High Court, after detailed discussions which are at pages 474 to 506 of the ITR 343, answered the question in favour of the assessee and against the Revenue.
14. The Revenue had also filed the appeal against the decision of ITAT in assessee's own case which is decided by their Lordships alongwith various other cases including the case of M/s Nokia Networks. In this case also, the question No.3 proposed by the Revenue and admitted by their Lordships reads as under:-
"Whether any part of the consideration for supply of software stated by the respondent to be integral to the equipment is taxable as 'royalty' either under section 9(1)(vi) or the relevant provisions of the Double Taxation Avoidance Agreement?"
After detailed discussion, their Lordships answered the question in favour of the assessee and against the Revenue. Since the issue is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of the assessee as well as in the case of Ericsson A.B. (supra), respectfully following the same, we uphold the order of learned CIT(A) in this regard and reject ground No.2 of the Revenue's appeal.
15. Ground No.1 and 1.1 of the assessee's appeal read as under:-
"1. That on the facts and in the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals)-XXIX [Ld.CIT(A)] erred in not holding that interest under section 234B of the Act is not leviable even though the entire consideration in the hands of appellant was subject to deduction of tax at source under section 195 of the Act.
1.1 That on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not following the Special Bench decision in the case of Motorola Inc. vs. Dy.
15 ITA-4866/Del/2010 & 41 others CIT [2005] 95 ITD 269 wherein it was held that interest under section 234B of the Act is not leviable if the consideration is subject to deduction of tax at source under section 195 of the Act."
16. We have heard both the parties and find that this issue is covered against the assessee by the decision of Hon'ble Jurisdictional High Court in the case of DIT-I, International Taxation Vs. Alcatel Lucent USA, Inc. and another vide ITA No.327/2012, 330/2012, 338/2012 and 339/2012, wherein their Lordships, vide order dated 7th November, 2013, held as under:-
"21. We are unable to uphold this part of the decision of the Tribunal. It must be remembered that in the note appended to the return the assessee was quite categorical in denying its liability to be assessed in India. It relied on the double taxation avoidance agreement between India and USA and pointed out that there was no permanent establishment in India. It further stated that the telecom equipments were sold outside India and the payments were also received outside India and thus the assessee did not have any taxable presence in India so as to be liable for tax on its Indian income. If this was the stand of the assessee, it is not impermissible or unreasonable to visualise a situation where, the assessee would have represented to its Indian telecom dealers not to deduct tax from the remittances made to it. On the contrary it would be surprising if the assessee did not make any such representation; such a representation would only be consistent with the assessee's stand regarding its tax liability in India. Moreover, no purpose would have been served by the assessee taking such a categorical stand regarding its tax liability in India and at the same time suffering tax deduction under Section 195(1). Therefore, in our opinion, even though there may not be any positive or direct evidence to show that the assessee did make a representation to its Indian telecom dealers not to deduct tax from the remittances, such a representation or informal communication of the request can be reasonably inferred or presumed. The Tribunal ought to have accorded due weightage to the strong possibility or probability of such a request having been made by the assessee to the Indian 16 ITA-4866/Del/2010 & 41 others payers since otherwise the denial of its tax liability on its Indian income would have served little purpose for the assessee."
17. Respectfully following the above, we hold that the assessee was liable to pay interest under Section 234B. Accordingly, ground No.1 & 1.1 of the assessee's appeal are rejected.
ITA Nos.5943 to 5947/Del/2012 - Revenue's appeals for AY 2002- 2002-03, 2004--05, 2005-
2004 2005-06, 2006-
2006-07 & 2008-
2008-09 :-
:-
18. The common grounds raised in these appeals by the Revenue read as under:-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition made by the AO taxing the income from supply of software as royalty, in not appreciating the facts that the addition were made by the AO were based on detailed analysis of information gathered during survey operation conducted u/s 133A of the Act and further ignoring the fact that this makes the instant case distinguishable from the relied upon case of DIT Vs Ericsson AB decided by the Hon'ble Delhi High Court.
2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in not considering the applicability of retrospective clarificatory amendments through insertion of explanation 5 & 6 to Section 9(1)(vi) of the Act vide Finance Act, 2012, which helps in defining the term royalty income more clearly.
3. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in directing the AO to withdraw interest u/s 234B by relying upon the decision of Delhi High Court in the case of M/s Jacob Civil Incorporated.
4. The appellant craves to add, amend, modify, or alter any grounds of appeal at the time or before the hearing of the appeal."
17 ITA-4866/Del/2010 & 41 others
19. The issue raised vide ground No.1 & 2 is identical to ground No.2 of the Revenue's appeal for AY 2003-04. Therefore, for the detailed discussion in paragraph Nos.12 to 14 above, these grounds of the Revenue's appeals are rejected.
20. Ground No.3 of the Revenue's appeal is similar to ground No.1 & 1.1 in assessee's appeal for AY 2003-04. For the detailed discussion therein, this ground of the Revenue's appeal is allowed and we hold that the Assessing Officer rightly charged interest under Section 234B.
ITA No.2519/Del/2010 - Assessee's appeal for AY 2007-2007-08 :-
:-
21. Ground Nos.1 & 4 of the assessee's appeal are against the charging of interest under Section 234B of the Act. We have considered this issue while deciding the assessee's appeal for AY 2003- 04 and, for the detailed discussion in paragraph Nos.16 & 17 above, ground Nos.1, 1.1 and 4 of the assessee's appeal are rejected and we hold that the Assessing Officer rightly charged interest under Section 234B.
22. Ground No.2 of the assessee's appeal reads as under:-
"That on the facts and in the circumstances of the case and in law, the learned AO has erred in holding that the payments received by the assessee for supply of software is 'Royalty' income under section 9(1)(vi) of the act as well as under Article 13 of the Double Taxation Avoidance Agreement entered into between India and France ('DTAA'/'tax treaty')."
23. We have considered this issue in assessee's own case for AY 2003-04. In that year, the CIT(A) had accepted the assessee's claim and had held as under:-
18 ITA-4866/Del/2010 & 41 others "In view of the discussion made above, it is held that the revenue received by the appellant on account of licensing of software is not in the nature of royalty. However, the software receipts will be treated as business receipts and would be taxed as business profits in accordance with Article 7 of the DTAA."
24. That the Revenue had filed appeal against the above order of learned CIT(A) in AY 2003-04. We have already discussed this issue in detail and, for the detailed discussion from paragraph Nos.12 to 14 above, upheld the order of learned CIT(A). Therefore, for the same reasoning, we reverse the order of learned CIT(A) in this year and hold that the revenue received by the appellant on account of supply of software which is embedded in hardware is not in the nature of royalty. However, the entire receipt from supply of equipment including hardware and software both will be treated as business receipt and would be taxed as business profits in accordance with Article 7 of the DTAA.
ITA Nos.1046/Del/2013 to 1052/Del/2013 - Revenue's appeals for AY2002- 2002-03 to 2008- 2008-09 :-
:-
25. In these appeals by the Revenue, following common grounds are raised:-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition made by the AO taxing the income from supply of software as royalty, without considering that the additions made by the AO were based on detailed analysis of information gathered during survey operation u/s 133A and the case was therefore distinguishable from the case of DIT Vs Ericsson AB decided by the Hon'ble Delhi High Court in ITA No.504/2007 and other similar cases relied upon by the ld.CIT(A).
2. On the facts and in the circumstances of the case, the CIT(A) has erred in directing the AO to withdraw interest charged u/s 234B by relying upon the decision of 19 ITA-4866/Del/2010 & 41 others Hon'ble Delhi High Court in the case of Jacob Civil Incorporated, without appreciating that the levy of interest u/s 234B is mandatory as held in the case of CIT Vs. Anjum Ghaswala & Others.
3. On the facts and in the circumstances of the case, the CIT(A) has erred in not considering the provisions of Explanation 4 to Section 9(1)(vi) of the act inserted by the Finance Act, 2012 with effect from 01.06.1976, which clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not the possession or control of such right, property or information is with the payer or control of such right, property or information is used directly by the payer on the location of such right, property or information is in India.
4. On the facts and in the circumstances of the case, the CIT(A) has erred in not considering the provisions of Explanation 5 to Section 9(1)(vi) of the Act inserted by the Finance Act, 2012 with effect from 01.06.1976, which clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including uplinking amplification, conversion for downlinking of any signal) cable, optic fibre or by any other similar technology, whether or not such process is secret.
5. The appellant craves to add, amend, modify, or alter any grounds of appeal at the time or before the hearing of the appeal."
26. Ground Nos.1, 3 & 4 are with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground Nos.1, 3 & 4 of the Revenue's appeals.
27. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel- Lucent France for AY 2003-04 in ITA No.4866/Del/2010 in paragraph 20 ITA-4866/Del/2010 & 41 others Nos.16 & 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue's appeals is allowed.
ITA Nos.6360/Del/2012 to 6365/Del/2012 - Revenue's appeals for AY2003- 2003-04 to 2008- 2008-09 :-
:-
28. In these appeals by the Revenue, following common grounds are raised:-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition made by the AO taxing the income from supply of software as royalty, without considering that the addition as made by the AO were based on detailed analysis of information gathered during survey action u/s 133A and the case was therefore distinguishable from the relied upon case of DIT Vs Ericsson AB decided by Hon'ble Delhi High Court in ITA No.504/2007 and other similar cases relied upon by the ld.CIT(A).
2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in holding that the interest under section 234B is not chargeable in the case following the decision of Hon'ble Delhi High Court in the case of DIT Vs Jacob Civil Incorporated, without appreciating that the levy of interest under section 234B is mandatory as held in the case of CITVs Anjum M.H. Ghaswala 252 ITR 1(SC).
3. The appellant craves to add, amend, or alter any grounds of appeal at the time or before the hearing of the appeal."
29. Ground No.1 is identical to ground No.2 of the Revenue's appeal for AY 2003-04 in ITA No.4855/Del/2010. For the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground No.1 of the Revenue's appeals.
21 ITA-4866/Del/2010 & 41 others
30. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel-
Lucent France for AY 2003-04 in ITA No.4866/Del/2010 in paragraph Nos.16 & 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue's appeals is allowed.
ITA Nos.1928/Del/2013Nos.1928/Del/2013 to 1931/Del/2013 - Revenue's appeals for AY 2003- 2003-04, 2002- 2002-03, 2003- 2003-04 & 2008- 2008-09 :-
:-
31. In these appeals by the Revenue, following common grounds have been raised:-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition made by the AO taxing the income from supply of software as royalty, without considering that the addition as made by the AO were based on detailed analysis of information gathered during survey action u/s 133A and the case was therefore distinguishable from the relied upon case of DIT Vs. Ericsson AB decided by Hon'ble Delhi High Court in ITA No.504/2007 dated 23.12.2011 and other similar cases relied upon the ld.CIT(A).
2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in directing the AO to withdraw interest u/s 234B by relying upon the decision of Hon'ble Delhi High Court dated 30.08.2010 in the case of DIT Vs Jacob Civil Incorporated, without appreciating that the levy of interest u/s 234B is mandatory as held in the case of CIT Vs Anjum M.H. Ghaswala 252 ITR 1 (SC).
3. The ld.CIT(A) erred in not considering the provisions of explanation 4 of the section 9(1)(vi) of the Income Tax Act, inserted by the Finance Act, 2012 with effect from 01.06.1976, which clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer or all or any right for use or right to use a computer software (including 22 ITA-4866/Del/2010 & 41 others granting of a license) irrespective of the medium through which such right is transferred.
4. The ld.CIT(A) erred in not considering the provisions of explanation 5 of section 9(1)(vi) of the Income Tax Act, inserted by the Finance Act, 2012 with effect from 01.04.1976, which clarified that royalty includes and has always included consideration in respect of any right, property or information, whether or not the possession or control of such right, property or information is with the payee or such right, property or information is used directly by the payer or the location of such right, property or information is in India.
5. The appellant craves to add, amend, modify, or alter any grounds of appeal at the time or before the hearing of the appeal."
32. Ground Nos.1, 3 & 4 are with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground Nos.1, 3 & 4 of the Revenue's appeals.
33. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel-
Lucent France for AY 2003-04 in ITA No.4866/Del/2010 in paragraph Nos.16 & 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue's appeals is allowed.
ITA Nos.1336/Del/2012 to 1339/Del/2012 - Revenue's appeals for AY2005- 2005-06 to 2008- 2008-09 :-
:-
23 ITA-4866/Del/2010 & 41 others
34. In these appeals by the Revenue, following common grounds have been raised:-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the additions made by the AO treating the considerations received by the assessee for supply of embedded software as taxable as 'Royalty', by holding that the such consideration received by the assessee is to be treated as consideration received for supply of goods and not as 'Royalty'.
2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the interest levied under section 234B by the AO, holding that the entire consideration in the hands of the payee was not subject to deduction of tax at source under section 195 of the Act."
35. Ground No.1 is with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground No.1 of the Revenue's appeals.
36. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel-
Lucent France for AY 2003-04 in ITA No.4866/Del/2010 in paragraph Nos.16 & 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue's appeals is allowed.
ITA Nos.438/Del/2013Nos.438/Del/2013 to 444/Del/2013 - Revenue's appeals for AY 2002- 2002- 03 to 2008- 2008-09 :-
:-
24 ITA-4866/Del/2010 & 41 others
37. In these appeals, the Revenue has raised following common grounds:-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition made by the Assessing Officer by taxing the income from supply of software as royalty, without considering that the additions made by the AO were based on detailed analysis of information gathered during survey action u/s 133A and the case was therefore distinguishable from the case of DIT Vs. Ericsson AB decided by Hon'ble Delhi High Court dated 23.12.2011 and other similar cases relied upon the ld.CIT(A).
2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in directing the AO to withdraw interest u/s 234B by relying upon the decision of Hon'ble Delhi High Court in the case of Jacob Civil Incorporated, without appreciating that the levy of interest u/s 234B is mandatory as held in the case of CIT Vs Anjum M.H. Ghaswala 252 ITR 1 (SC)."
38. Ground No.1 is with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground No.1 of the Revenue's appeals.
39. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel-
Lucent France for AY 2003-04 in ITA No.4866/Del/2010 in paragraph Nos.16 & 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue's appeals is allowed.
25 ITA-4866/Del/2010 & 41 others ITA Nos.5420/Del/2012 to 5425/Del/2012 - Revenue's appeals for AY 2003- 2003-04 to 2008- 2008-09 :-
:-
40. In these appeals, following common grounds have been raised by the Revenue :-
"1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the additions made by the AO taxing the income from supply of software as royalty, without considering that the additions made by the AO were based on detailed analysis of information gathered during survey u/s 133A and the case was therefore distinguishable from the case of DIT Vs. Ericsson AB decided by the Hon'ble Delhi High Court in ITA No.504/2007 dated 23.12.2011.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in directing the AO to withdraw interest u/s 234B by relying upon the decision of Hon'ble Delhi High Court dated 30.08.2010 in the case of Jacob Civil Incorporated, without appreciating that the levy of interest u/s 234B is mandatory as held in the case of CIT Vs. Anjum Ghaswala & Others reported in 252 ITR 1 (SC)."
41. Ground No.1 is with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground No.1 of the Revenue's appeals.
42. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel-
Lucent France for AY 2003-04 in ITA No.4866/Del/2010 in paragraph Nos.16 & 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the 26 ITA-4866/Del/2010 & 41 others Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue's appeals is allowed.
43. In the result, -
(i) the appeal of the Revenue for AY 2003-04 vide ITA No.4855/Del/2010 and the appeal of the assessee for AY 2003-04 vide ITA No.4866/Del/2010 are dismissed;
(ii) the appeals of the Revenue for AY 2002-03, 2004-05, 2005- 06, 2006-07 & 2008-09 vide ITA Nos.5943 to 5947/Del/2012 are partly allowed;
(iii) the appeal of the assessee for AY 2007-08 vide ITA No.2519/Del/2010 is allowed; and
(iv) the appeals of the Revenue for AY 2002-03 to 2008-09 vide ITA Nos.1046 to 1052/Del/2013, for AY 2003-04 to 2008-09 vide ITA Nos.6360 to 6365/Del/2012, for AY 2003-04, 2002- 03, 2003-04 & 2008-09 vide ITA No.1928 to 1931/Del/2013, for AY 2005-06 to 2008-09 vide ITA Nos.1336 to 1339/Del/2012, for AY 2002-03 to 2008-09 vide ITA Nos.438 to 444/Del/2013 and for AY 2003-04 to 2008-09 vide ITA Nos.5420 to 5425/Del/2012 are partly allowed.
Decision pronounced in the open Court on 4th April, 2014.
Sd/- Sd/-
(R.P. TOLANI)
TOLANI) (G.D.AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 04.04.2014
VK.
27 ITA-4866/Del/2010 &
41 others
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar