Income Tax Appellate Tribunal - Delhi
Huawei Technologies Co. Ltd. , China vs Acit Circle Int. Taxation Gurgaon , ... on 22 April, 2022
Author: G.S. Pannu
Bench: G.S. Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: 'D' NEW DELHI
BEFORE SHRI G.S. PANNU, PRESIDENT &
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
Stay Application No.104/Del/2022
Arising out of ITA No.560/Del/2021
Assessment Year: 2018-19
Huawei Technologies Co. Vs. ACIT, Circle Int. Taxation,
Ltd., China Gurgaon, Haryana.
Administration Building,
Bantian, Longgng District,
Shehnzhen 518129 PR
China, China.
PAN :AACCH2982B
(Applicant) (Respondent)
Applicant by Shri Ajay Vohra, Sr. Adv. & Shri
Saksham Singhal, Adv.
Respondent by Shri Kanv Bali, Sr. DR
Date of hearing 22.04.2022
Date of pronouncement 22.04.2022
ORDER
PER SAKTIJIT DEY, JM:
Captioned application has been filed by the assessee seeking stay on recovery of outstanding demand amounting to Rs.61,00,98,080 pertaining to assessment year 2018-19.
2SA No.104/Del/2022
2. Shri Ajay Vohra, learned senior counsel appearing for the assessee, submitted that the demand created is as a result of couple of additions made by the Assessing Officer as under:
i) profit attributed to assessee's PE in India to be taxed as business income - Rs.4,25,84,960; &
ii) income from sale of software as royalty to be taxed on gross basis @ 10% - Rs.3,63,19,79,570.
3. Proceeding further, he submitted, the assessee, a non-resident- company, has made offshore supply of telecommunication network equipments, namely, Core and Access Network Equipments, Mobile Network Equipment and Data Communication Equipments etc. for use in fixed and mobile phone network and terminal products, such as, mobile handsets to the customers. He submitted, in the return of income filed for the impugned assessment year, the assessee itself has offered income of Rs.51,76,97,370 towards fees for technical services (FTS). He submitted, as regards the amount received towards offshore supply of telecommunication equipments, the Assessing Officer has held that the assessee has a permanent establishment (PE) in India and segregated the amounts received towards offshore supply of equipments by apportioning 70% towards hardware and 30% towards software embedded in the hardware. He submitted, while the amount 3 SA No.104/Del/2022 representing supply of hardware has been treated as business profit attributable to the PE, the embedded software has been treated as royalty and taxed @ 10% on gross basis.
4. Further, he submitted, the Assessing Officer has incorrectly levied sur-charge and cess on the FTS income, which as per the treaty provisions, is taxable @ 10%. He submitted, though, the assessee has filed an application for rectification, however, it is still pending. He submitted, once rectification application is allowed, the demand will get reduce to Rs.5600,80,632. Further, he submitted, in so far as taxability of amount received towards embedded software as royalty, the issue is settled in favour of the assessee by the decision of the Tribunal and Hon'ble jurisdictional High Court. Thus, he submitted, the demand relating to the addition of royalty income of Rs.363,19,79,570 is not enforceable. He submitted, the demand on the balance addition would work out to Rs.3,77,85,656. He submitted, this demand is also not recoverable as there is no question of attributing any profit to the PE as the equipments were supplied to Indian customers on offshore basis, hence, such income is not taxable in India as the title in the goods was transferred outside India and the 4 SA No.104/Del/2022 payments were received outside India. In this regard, he relied upon a decision of Hon'ble Supreme Court in case of Ishikawajima Harima Heavy Industries Ltd. Vs. DCIT [2007] (288 ITR 408) - (SC)/(2007) 3 SCC 481. He submitted, even assuming that profit is attributable to the PE, still, an amount of Rs.340,00,19,206, being payment made to Huawei India, has to be reduced from the business profit. In that event, he submitted, the assessee would not have any taxable income in India. Without prejudice, he submitted, since the PE in India is already remunerated at arm's length price (ALP), no further attribution of profit can be made to the PE. Thus, he submitted, recovery of the outstanding demand should be stayed and the appeal may be heard on out of turn basis.
5. Learned Departmental Representative submitted, issue of existence of PE has been decided against the assessee in the past assessment years. Thus, he submitted, the assessee may be directed to deposit 20% of the outstanding demand, subject to which, recovery of the balance outstanding demand may be stayed.
5SA No.104/Del/2022
6. In reply, learned counsel for the assessee submitted, the Tribunal's order on the issue of existence of PE has been recalled and the issue is still pending for decision.
7. We have considered rival submissions and perused the material available on record. It is evident, the demand created is as a result of splitting up of the amount received by the assessee towards supply of telecommunication equipments between the hardware and software. The Assessing Officer has segregated 70% of the receipts as profit from supply of hardware and the 30% representing the cost of embedded software has been treated as royalty and taxed on gross basis. Though, at this stage, we are not required to delve into the merits of the issue, which can be examined at the time of hearing of the appeal, however, it is a fact on record that the issue relating to taxability of the cost of embedded software as royalty income has been decided in favour of the assessee by the Tribunal in assessee's own case in assessment years 2005-06 to 2008-09. The aforesaid decision of the Tribunal has been upheld by the Hon'ble jurisdictional High Court. In this regard, the following observations of learned Dispute Resolution Panel (DRP) would be relevant: 6 SA No.104/Del/2022
"2.3 On the issue of Taxation of software as royalty, the Hon'ble HC passed the order on28.09.2016 in favour of the assessee. The matter is currently pending before Hon'ble SC as the Department has filed SLP."
8. Thus, from the aforesaid observations, it becomes very much clear that the taxability of receipts from embedded software as royalty income has been decided in favour of the assessee in the past assessment years. That being the factual position, we find merit in the submissions of the learned counsel for the assessee that the demand relating to addition of Rs.363,19,79,570 representing income from sale of software as royalty, may not be enforceable as it may ultimately has to be deleted in view of the decision of the Tribunal and Hon'ble jurisdictional High Court in assessee's own case. Nevertheless, keeping aside the demand pertaining to addition made towards royalty, as per assessee's own admission, still there will be some demand left relating to the other additions. Though, learned counsel for the assessee has submitted that the assessee doesn't have a PE, hence, the business profit cannot be taxed in India, however, this contention of the assessee has to be examined at length at the time of hearing of appeal. This is so because, in the past assessment years, the 7 SA No.104/Del/2022 Tribunal has upheld the decision of the departmental authorities regarding existence of PE and attribution of business profit to the PE.
9. Therefore, after considering the prima facie case, balance of convenience and all other relevant factors, we are not in favour of granting absolute stay to the assessee. Consequentially, we direct the assessee to deposit demand relating to the additions remaining after exclusion of addition made towards royalty income. The aforesaid amount, as directed, should be paid by the assessee on or before 31st May 2022. On payment of the aforesaid amount, recovery of the balance outstanding demand shall remain stayed for a period of six months from the date of this order or till disposal of the corresponding appeal of the assessee, whichever is earlier.
10. Considering the request of learned counsel for the assessee for early hearing of the appeal, which was not opposed by the learned Departmental Representative, we direct the Registry to fix the corresponding appeal for hearing, on an out of turn basis, on 15.06.2022.
11. Paper books, if any, must be filed by the parties sufficiently ahead of the date of hearing of appeal. Since, the date of hearing of 8 SA No.104/Del/2022 appeal was announced in the open court, in presence of both the parties, there is no need for issuing separate hearing notices to the concerned parties.
12. We make it clear, the parties must ensure that hearing of appeal takes place on the scheduled date. In case, assessee seeks adjournment without any compelling reasons, it may run the risk of vacation of the stay order and may also lose the benefit of early hearing of appeal.
13. With the above-said observations, the stay application is disposed of.
14. In the result, the stay application is partly allowed.
Order pronounced in the open court on 22nd April, 2022.
Sd/- Sd/-
( G.S. PANNU ) (SAKTIJIT DEY)
PRESIDENT JUDICIAL MEMBER
Dated: 22nd April, 2022.
Mohan Lal
Copy forwarded to:
1. Applicant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
9
SA No.104/Del/2022
Sl. No. Particulars Date
1. Date of dictation: 22.04.2022
2. Date on which the draft of order is placed before the 22.04.2022
Dictating Member:
3. Date on which the draft of order is placed before the other Member:
4. Date on which the approved draft of order comes to the Sr. PS/PS:
5. Date of which the fair order is placed before the 22.04.2022 Dictating Member for pronouncement:
6. Date on which the final order received after having 22.04.2022 been singed/pronounced by the Members:
7. Date on which the final order is uploaded on the 22.04.2022 website of ITAT:
8. Date on which the file goes to the Bench Clerk 22.04.2022
9. Date on which files goes to the Head Clerk:
10. Date on which file goes to the Assistant Registrar for signature on the order:
11. Date of dispatch of order: