Income Tax Appellate Tribunal - Delhi
Aspect Software Inc., New Delhi vs Assessee on 27 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'G', NEW DELHI
BEFORE
SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER
AND
SMT. BEENA A. PILLAI, JUDICIAL MEMBER
I.T.A. No.1842/Del/2016
(Assessment Year 2011-12)
Aspect Software Inc., Vs. DCIT, Circle 1(1)(1),
C/o, Rashmi Chopra, Adv., International Taxation,
C-56, Nizamuddin (East), New Delhi.
New Delhi-110 013
GIR / PAN :AAGCA7513D
(Appellant) (Respondent)
Appellant by :Shri Roshni Chopra, Adv.
Respondent by :Shri Anuj Arora, CIT DR
Date of hearing: 06.06.2016
Date of Pronouncement: 27.06.2016
ORDER
PER BEENA A. PILLAI, JM:
The present appeal raised by the assessee against the order dated 15.01.2016 passed by of Ld. Assessing Officer for the Assessment Year 2010-11.
2. Brief Facts of the case are as under; 2.1 Aspect Software Inc. ("Assessee / Aspect") filed its return of income for Assessment Year 2011-12 on 30.09.2011 declaring income of Rs.4,18,99,620/- later on a revised return declaring income of Rs.4,20,76,782/- was filed by the assessee on 31.03.2013. The case was 2 I.T.A.No.1842/Del/2016 selected for scrutiny and notice u/s 143(2) of the I.T. Act, 1961, was issued and served upon the assessee. 2.2 During the assessment proceedings, on 19.03.2015, the assessee was asked to explain how the factual matrix and business model of this year is different from earlier Assessment Years and why assessment shall not be completed on the lines of earlier Assessment Years. 2.3 Vide reply dated 25.03.2015 assessee submitted that there has been no change in the business model of assessee vis-à-vis earlier years. The assessee contended that it does not have PE in India. It further contended without prejudice to the contention regarding the absence of PE in India, that there cannot be any basis for attributing 15% of the revenues earned from the sale of hardware to end uses in India, Middle East and Sri Lanka. 2.4 The Ld. A.O. / DRP considered the contentions raised by the assessee and found that these are similar contentions raised during the assessment proceedings for Assessment Years 2007-08, 2008-09 & 2010-11. The Ld. A.O. made addition in the hands of the assessee on similar basis, which was confirmed by the DRP. 2.5 Aggrieved by the final order passed by the Ld. A.O. the assessee is in appeal before us on the following grounds of appeal:
"Based on the facts and circumstances of the case and in law, the Appellant, respectfully craves leave to prefer an appeal under Section 253 of the Act against the order dated January 15, 2016, passed by the Ld. AO under Section 143(3) read with section 144C(13) of 3 I.T.A.No.1842/Del/2016 the Act pursuant to the directions issued by the Hon'ble Dispute Resolution Panel - I ("Hon'ble DRP"), New Delhi on the following grounds:
1. General :
1.1 That on facts and circumstances of the case and in law, the order passed by the Ld. AO pursuant to the directions issued by Hon'ble DRP is bad in law in as much as failed to appreciate the facts involved and law thereon.
1.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble IT AT in the case of Appellant's itself for earlier years.
1.3 That on facts and circumstances of the case and in law, while passing the assessment order, the Ld. AO has erred in computing the total income of the Appellant at Rs.36,75,61,217/- as against Rs 4,20,76,782 income returned by the Appellant and therefore, the order of the Ld. AO is bad in law and needs to be annulled.
1.4 That the Ld. AO has grossly erred both on facts and in law by following the assessment order for A Y 2007-08 and A Y 2008-09 without realizing that each year is self contained with respect to the assessment of that year and the decision taken in anyone assessment year is conclusive only for that assessment year and does not operate as res-judicata in respect of other years.
2. Revenue earned from supply of Software taxed as 'Royalty' is incorrect:
2.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant amounting to Rs.9,10,16,545/- from supply of software to customers in India as 'royalty' under section 9 (1)(vi) of 4 I.T.A.No.1842/Del/2016 the Act as well as under Article 12 of the Double Taxation Avoidance Agreement between India and United States of America ('India - US tax treaty').
2.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT dated May 18, 2015 in assessee's own case where the Hon'ble ITAT by following the decisions of jurisdictional High Court has held that the consideration received by the Appellant for supply of software is for copyrighted article and is not in the nature of royalty under Article 12 of the India-US tax treaty.
2.3 That on facts and circumstances of the case and in law, Hon'ble DRP has grossly erred in confirming the observation of the Ld AO that software 'made available' a 'process' to customers who used the 'process' while carrying out their business.
2.4 That on facts and circumstances of the case and in law, Ld AO has erred in relying on nomenclature "license" written in the agreements rather than the substance of the transaction which was sale of good, i.e. sale of software.
2.5 That on facts and circumstances of the case and in law, the Ld AO has erred in not placing reliance on the OECD Commentary.
2.6 That on facts and circumstances of the case and in law, the Ld AO has erred in placing reliance on decision of Gracemac Corporation [TS-18-ITAT-20 10(Del)], which is not a good law in view of various legal and factual inaccuracies in the observations recorded and which has been distinguished by various courts subsequently.
2.7 That on facts and circumstances of the case and in law, the Ld. AO has erred in observing that all 5 I.T.A.No.1842/Del/2016 payments for software are taxable legally as royalties with some specific exclusion in section 9(1)(vi).
2.8 That on facts and in law, the Hon'ble DRP and Ld. AO have erred in not appreciating that:
2.8.1 the definition of Royalty is different in the Act and the India-US tax treaty;
2.8.2 the benefits available under the India-US tax treaty would still be available to the Appellant as the amendments in the Finance Act 2012 would not impact the treaty interpretation of the term royalty.
2.8.3 That on facts and in law, the Hon'ble DRP and Ld. AO have failed to appreciate that the sale of software is a sale of 'Copyrighted Article' and not 'Copyright' and accordingly, the revenue from sale of software is in the nature of business income not taxable under Article 7 of India-US tax treaty in the absence of the PE of the Appellant in India.
2.9 That on facts and in law, the Ld. AO/ DRP have erred in not relying and distinguishing the decisions of the Hon'ble Apex Court and the jurisdictional High Court in the cases of Tata Consultancy Services (2004) (271 ITR 401) (SC), Infrasoft Ltd. (264 CTR
239), Ericsson A.B. and Metapath (343 ITR 370) (Del HC), Nokia Networks OY (TS-700-HC-2012) (Del. HC) on the one side and relying on the decisions of other courts and AAR in the cases of Samsung Electronics [(203 taxman 477) (Kar. HC) / (TS-696-HC-2011)], Millenium IT Software [(338 ITR 391) (AAR) / (TS-585-
AAR-2011)], ING Vysya Bank Ltd. DDIT (61 DTR 401, ITAT Bangalore), Citrix Systems (343 ITR 1 (AAR No. 822 of 2009)) on the other side.
3. Revenue earned from rendering of Maintenance Services taxed as Royalty/ FTS is incorrect 6 I.T.A.No.1842/Del/2016 3.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant from rendering of maintenance services to customers in India amounting to Rs.16,27,96,345/- as 'royalty' / 'fee for technical services' under Article 12 of India-US tax treaty as well as under Section 9(i)(vi)/(vii) of the Act.
3.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT dated May 18, 2015 in assessee's own case by mentioning that Hon'ble ITAT has not appreciated that the provisions of Article 12(4)( a) would apply to the revenue earned.
4. PE of the Appellant alleged in India is incorrect 4.1 That on facts and circumstances of the case and in law, the Ld. Assessing Officer/DRP have grossly erred in mechanically relying on the orders passed by his predecessors to conclude that Appellant has a PE in India in the form of Aspect Contact Center Software India Private Limited ('Aspect India') and ignoring the fact whether a Permanent establishment exists or not is a fact based exercise which needs to be carried out every year which has not been carried out in the subject year.
4.2 That the Ld. Assessing Officer/DRP has grossly erred both on facts and in law in proposing to hold that the assessee has fixed place PE in India in terms of Article 5(2)(c) of India-USA tax treaty.
4.3 The Ld. AO/DRP has grossly erred both on facts and in law in proposing to hold that the assessee has an 'installation PE' in India in terms of Article 5(2)(k) of the India-USA tax treaty.
7 I.T.A.No.1842/Del/20164.4 The Ld. AO/DRP has grossly erred both on facts and in law in proposing to hold that the assessee has a 'dependent agent PE' in India in terms of Article 5(4) of the India-USA tax treaty.
4.5 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT dated May 18, 2015 in assessee's own case by mentioning that appeal against the order of Hon'ble ITAT has been filed with High Court.
5. Revenue earned from the customers in Sri Lanka and Middle-East taxed in India incorrectly 5.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant from supply of software and rendering of maintenance, implementation and professional services amounting to Rs.6,21,03,157 from the customers based in Sri Lanka and Middle East under the provisions of Article 12 of the India-US tax treaty and Section 9(l)(vi)/ (vii) of the Act.
5.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT dated May 18, 2015 in assessee's own case by mentioning that appeal against the order of Hon'ble ITA T has been filed with High Court.
5.3 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in attributing 15 percent of the revenue earned from supply of hardware to customers in Sri Lanka and Middle East to the alleged PE in India, Aspect India.
6. Incorrect Attribution of Income to the PE in India 8 I.T.A.No.1842/Del/2016 6.1 Without prejudice to the Grounds above, on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in attributing 15 percent of the hardware sale revenue earned by the Appellant from customers in India and from customers in Sri Lanka & Middle East, amounting to Rs. 95,68,387 to the alleged PE, Aspect India 6.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT dated May 18,2015 in assessee's own case by mentioning that appeal against the order of Hon'ble ITAT has been filed with High Court.
7. Wrong rate of tax used 7.1 Without prejudice to Ground 1 to 6 above, on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in taxing the revenue pertaining to agreements entered into on or after 1 June 2005 at a gross rate of 15 percent under the India-US DT AA.
8. Deduction of remuneration paid to alleged PE not allowed 8.1 Without prejudice to Ground 1 to 7 above, on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in not allowing the remuneration of Rs.16,49,94,078 paid to Aspect India by the Appellant as a deduction from the profits attributed to the PE inspite of the fact that the Ld. AO himself had noted in the draft assessment order that the same should be granted as a deduction while computing taxable profits.
8.2 Without prejudice to above, the Ld. AO has erred in not following the order of earlier years passed by his office wherein his office has allowed the remuneration paid to Aspect India by the Appellant as 9 I.T.A.No.1842/Del/2016 a deduction from the profits attributed to the PE while computing the taxable profits.
9. Alleged PE has been remunerated at Arm's length price Without prejudice to Ground I to 8 above and our contention that the Appellant does not have PE in India, the Learned AO has erred on facts and in law in attributing unreasonable and excessive profits to the alleged PE of the Appellant without considering that Aspect India has been remunerated at arm's length price for the services provided to the Appellant.
10. DRP directions are laconic with respect to how TP provisions apply to Appellant 10.1 Without prejudice to our other grounds of appeal, the order issued by the Hon 'ble DRP is laconic 'as the DRP has failed to issue directions to the Ld. AO ascribing cogent and germane reasons for their agreement with the findings of the Ld. AO in the Draft order of assessment under section 144C of the Act.
10.2 That on facts and in the circumstances of the case and in law, the Ld. AO/DRP have erred in holding that the transfer pricing provisions are applicable to the Appellant. The Appellant's transaction of sale of its products in India directly to third parties or through channel partners does not qualify as an "international transaction" (defined under the Act) as it does not entail a transaction between two "associated enterprises".
That on facts and in the circumstances of the case and in law, the Ld. AO/DRP have erred by not appreciating that transfer pricing provisions are not applicable in the instant case and therefore, erred in initiating penalty proceedings under section 271 BA of the Act for not furnishing the Accountant's Report in Form 3CEB as prescribed under Section 92E of the Act.
10 I.T.A.No.1842/Del/201610.3 That on facts and in the circumstances of the case and in law, the Ld. AO/DRP have failed to appreciate that transfer pricing provisions are not applicable in the instant case and therefore, erred in initiating penalty proceedings under section 271 AA of the Act for non maintenance of information and documentation relating to transfer pricing.
11. Non grant of TDS credit 11.1 That the Ld. AO, on facts and circumstances of the case and in law, has erred in granting TDS credit only to the extent of Rs. 2,06,68,773 as against TDS credit of Rs. 2,79,64,300 claimed by the appellant in its return of income.
12. Levy of interest under section 234B of the Act 12.1 That the Ld. AO, on facts and circumstances of the case and in law, has erred in charging interest under section 234B of the Act.
13. Initiation of Penalty Proceedings 13.1 That on facts and circumstances of the case and in law, the Ld. AO has erred in initiating the penalty proceedings under section 271(1 )( c) of the Act holding that the Appellant has concealed the particulars of its income as also furnished inaccurate particulars thereof.
The above grounds of appeal are mutually exclusive and without prejudice to each other.
The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case."
11 I.T.A.No.1842/Del/20163. At the outset the ld.AR submitted that the issues raised in the present appeal are squarely covered by order dated 18.05.2015 in assessee's own case for assessment year 2004-05 and 2010-11 in ITA No. 1124&1125/Del/2014. She submitted that there is no change in the factual matrix in the year under consideration before us vis-s vis 2004-05 and 2010-11. We have heard the elaborate arguments and submissions by Ld.AR and Ld. DR on the issues before us.
4. Ground no.1 is general in nature. Hence not adjudicated upon.
5. Ground No.2: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 1 to 42. The relevant finding of the Order is reproduced as under;
"41. Before us, the learned counsel for the Assessee as well as the learned D.R. relied on several decisions of the High Court and Tribunal rendered on the subject. These decisions are not being considered as the issue is extensively dealt by the Hon'ble Jurisdictional High court in the cases of M/s Ericsson A.B. and Infrasoft Ltd (supra) which are binding on this Tribunal. We observe that all the arguments put forth by the Revenue and the assessee are considered and answered in these decisions. Further, the Delhi High Court in Infrasoft has expressed its disagreement with the view taken by the Karnataka High Court in the case of Samsung Electronics Co Ltd. Hence, the decisions relied by the learned CIT-DR in the case of Samsung Electronics and Gracemac 12 I.T.A.No.1842/Del/2016 Corporation (supra) does not help the case of the Revenue, as we are under the Jurisdiction of the Hon'ble Delhi High Court.
42. ....."
5.1 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we allow this ground raised by the assessee as business receipts, subject to having business connection/PE in India as per adjudication on Ground 4.
6. Ground No.3: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 52-56. The relevant finding are given in para 56 of the order, which has been reproduced as under;
"52. We have heard both the parties at length and perused the relevant clauses of the agreement which deals with the above services. "Services" have been defined in the agreement "to include installation services, maintenance services, education services, professional services and T&M services, all as hereinafter defined, and any other services provided to Customer by or on behalf of Aspect, together with the related deliverables provided under services".
"56. In the present case, the undisputed fact is that the implementation service is inextricably and essentially linked to the supply of software. In view of our decision in Ground No 2 that the supply of software is not taxable as "royalty" under the Tax Treaty, the provision contained in clause (a) to Article 12 (4) would not apply to both Implementation and maintenance services. Further there is nothing to show that these services provided by the assessee 13 I.T.A.No.1842/Del/2016 actually made available to the End User/ Channel Partners any technical knowledge, experience, skill, know-how or processes so as to enable them to apply the said technology. Under these circumstances, we uphold the arguments of the learned Counsel of the assessee and allow the ground."
6.1 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we allow this ground raised by the assessee, subject to having business connection/PE in India as per adjudication of Ground 4.
7. Ground No.4: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 91, which has been reproduced as under;
"91. We have considered the rival contentions and the material on record. The existence of PE in India is the matter of dispute in this ground. Revenue has contended that the assessee has fixed PE, installation PE and Dependent Agent PE in India. Our finding in respect of each of the forms of PE is as under: Fixed PE: As per Article 5(1) of the India -USA DTAA, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Article 5(2) deals with various instances resulting in PE. Article 5(3) deals with cases or facts which do not result in PE. One of the exceptions under Article 5(3) is maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise. The assessee has contended that its activities in India are of preparatory or auxiliary 14 I.T.A.No.1842/Del/2016 character and, hence, there is no PE in India. The revenue, on the other hand, has contended that the business of the assessee is already set up in India and, hence, there cannot be any 'preparatory' and the sale activity undertaken is the main business activity and cannot be regarded as 'auxiliary' nature. As regards the fixed place of business in India, it is contended by the assessee that the business place of Aspect India is not under the control or at the disposal of the assessee and, hence, there is no fixed PE. The revenue, on the other hand, has contended that since the employees of the assessee were in India, the assessee has carried on business in India. After considering the material on records, we are of the view that neither the assessee nor the revenue has been able to conclusively demonstrate the absence or presence of the assessee's fixed place of business in India under Article 5 of the India -USA Treaty. The revenue has, further, contended that the assessee has not submitted the information on visit reports submitted by the employees and information on e- mails of these visiting employees. We, therefore, set aside the matter and remitted to the assessing officer for proper verification regarding existing of PE in India. The assessee also shall submit the details as called for by the assessing officer.
Installation PE: The revenue contends that since installation and support services are provided by Aspect India, there exists an installation PE of the assessee in India. As per Article 5(2) of India - USA Treaty, the term 'Permanent Establishment' includes especially the following:
(i) Clause (j): An installation or structure used for the exploration or exploitation of natural resources, but, only if so used for a period of more than 120 days in any twelve-month period;
(ii) Clause (k): A building site or construction, installation or assembly project or supervisory 15 I.T.A.No.1842/Del/2016 activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period.
There is no dispute that clause (j) above is not applicable. The dispute is with regard to existence of PE under clause (k) above. As per Article 5(2)(k), a building site or construction, installation or assembly project or supervisory activities in connection therewith is regarded as PE is such project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period. Article 5(2)(k) should be read as a whole. The term 'in connection therewith' would apply for the entire preceding words viz., a 'building site or construction, installation or assembly project or supervisory activities'. The term installation project cannot be read de-hors the words accompanying it. Thus, when the entire clause is red as a whole, it would be evident that the installation or assembly project or supervisory activities should be in connection with the building site or construction. In the present case, there is no dispute that the assessee does not carry on business in India through a building site or construction. Consequently, we are of the view that there is no installation PE of the assessee in India.
Dependent Agent PE: Article 5(4) of India - USA Treaty deals with the Dependent Agent PE. It reads as under: Notwithstanding the provisions of paragraphs 1 and 2 where a person-other than an agent of an independent status to whom paragraph 5 applies -is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if:
(a) He has and habitually exercises in the first-
mentioned State an authority to conclude on behalf of the enterprise, unless his activities are limited to 16 I.T.A.No.1842/Del/2016 those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph;
(b) He has no such authority but habitually maintains in the first mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise; or
(c) He habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise. The first and foremost requirement under Article 5(4) is that the said Article will apply to a person other than an agent of an independent status to whom paragraph 5 applies. Paragraph 5 of Article states as under:
"5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph."
Paragraph 5 lays down conditions as to when can an agent; broker is regarded as dependent agent or independent agent. If the agent is devoted wholly or almost wholly on behalf of the enterprise and the 17 I.T.A.No.1842/Del/2016 transactions between the agent and the enterprise are not made under arm's length conditions, the agent is not considered as agent of 'independent status'. In such circumstances, the agent would be regarded as 'dependent agent'. Further, the dependent agent has to satisfy any of the tests laid down in (a), (b) or (c) above in order to constitute a dependent agent PE of the non-resident. Coming to the facts of the present case, the assessee has argued that Aspect India neither secures orders nor habitually exercises an authority to conclude on behalf of the assessee. It is, therefore, contended that there is no dependent agent PE in India. The revenue, on the other hand, has argued that the assessee has not submitted proper facts to substantiate its contention. It is submitted that the assessee has not submitted information on sale of equipment and licensing of software that are done directly by Aspect India to customers and those done through channel partners. It is contended that the assessee has not demonstrated that it identifies customers and make sales. The statement recorded from the Director, sales of Aspect India is stated to be contrary to the claim of the assessee that Aspect India only acts as a communication channel between the assessee and the customers. Similarly, the assessee's claim that majority of sales are made to channel partners is stated to be factually incorrect since information on all the channel partners, date of agreement and sales made through them is not submitted. It is argued that copy of 'I Approve' system has not been submitted by the assessee for factual verification. Considering these facts, we are of the view that both the revenue and the assessee have not been able to demonstrate the existence or otherwise of the 'dependent agent PE'. In the absence of proper information in this regard, we are unable to decide whether the assessee has a 'dependent agent PE' in India. We accordingly, set aside the issue of 'dependent agent PE' and restore to the assessing officer for fresh consideration."
18 I.T.A.No.1842/Del/20167.1 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we set aside this ground to the ld.AO for verification. This ground raised by the assessee stands statistically allowed.
8. Ground No.5& 6: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 92- 106. The relevant paras have been reproduced as under;
"103. We have heard the rival contentions and perused the record. We find it difficult to accept the arguments of the learned CIT-DR for taxing the said receipts. In view of our observations in Ground No 2, 3 and 4, we hold that the revenues earned from customers located in Sri Lanka/ Middle East are not taxable under the Tax Treaty. Even otherwise, we are of the opinion that the said revenue is not taxable under Sec. 9 of the Act. We state our reasons below:
104. In the present case the revenue is received by the assessee from customers located outside India (i.e. Sri Lanka/ Middle East). Therefore, the taxability of the transaction is governed by provisions of Sec.
9(1)(vi)(c )/ 9(1)(vii)(c) of the Act. Thus, to tax the royalty/ FTS income earned from such customers in the hands of Aspect US, the transaction should fall within the provisions of Sec 9(1)(vi)(c )/9(1)(vii)(c) of the Act.
105. Sec. 9(I)(vi)(c)/ 9(1)(vii)(c) of the Act are deeming provisions and have to be construed strictly. A plain reading of both the sections shows that any income earned by a non-resident tax payer (i.e. Aspect in the present case) by way of royalty / FTS is taxable in India, if such royalty /FTS is payable by a non-
19 I.T.A.No.1842/Del/2016resident (i.e. customers located in Sri Lanka/ Middle East) in respect of any right, property or information used or services utilized:
(
a) for the purposes of business, or profession carried on by such person (i.e. customers located in Sri Lanka/ Middle East) in India; or
(b) for the purpose of making or earning any income from any source in India.
Thus to tax the income earned by Aspect US from customers located outside India under Sec. 9(I)(vi)(-c)/ 9(1)(vii)(c ) of the Act, the Revenue must prove that the customers located in Sri Lanka / Middle East carry on business in India and that they have used Aspects US rights in the IPs/ services for the purposes of such business in India; or that they have used rights in the IPs/ Services for the purpose of making or earning income from a source in India. In the present case, the Revenue taxed the said income on the sole reason that these services are provided by Indian subsidiary of the assessee and the assessee is earning huge income from these customers. The AO has not brought anything on record to show that the customers located in Sri Lanka! Middle East has used the rights in the IPs/ services for carrying on business in India or for the purpose of making or earning income from any source in India. Under these circumstances, we agree with the arguments of the learned counsel for the assessee that the revenue in question cannot be brought to tax under the Act.
106. As we have held that the revenue in question cannot be brought to tax as "royalties /F'I'S" under the Act under the provisions of the Income Tax Act, 1961 itself, we do not find it necessary to examine the taxability of the same under Article 12 of the Tax Treaty.
20 I.T.A.No.1842/Del/20168.1 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we allow this ground raised by the assessee, subject to having business connection/PE in India as per adjudication of Ground 4.
9. Ground No.7: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 107-110. The relevant paras have been reproduced as under;
9.1 We have heard both the parties. In view of the decision given in ground No.2, 3, 4 & 6 on taxability of revenue earned from supply of software and support services from customers located in India, Sri Lanka and Middle East, ground No.7 and 8 has become purely academic. Therefore, no adjudication is required. 9.2 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we set aside this issue to the ld.AO, subject to having business connection/PE in India as per adjudication of Ground 4.
10. Ground No.8: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 129-133. The relevant paras have been reproduced as under;
21 I.T.A.No.1842/Del/201610.1 As we have directed the A.O. to refer the matter to the TPO for determining the ALP and thus decide on attribution of profits, we are of the view that this issue should also go back to the A.O. for fresh adjudication in accordance with law.
10.2 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we set aside this ground raised by the assessee to the ld.AO. This ground stands statistically allowed.
11. Ground No.9: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) from para 126. The relevant paras have been reproduced as under;
"126. In view of the above, we agree with the learned counsel of the assessee that where an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk taking functions of the multinational enterprise, nothing further would be left to attribute to PE."
11.1 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, we allow this ground raised by the assessee,
12. Ground No.10: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124&1125/Del/2014(Supra) 22 I.T.A.No.1842/Del/2016 from para 134 - 140 . The relevant paras have been reproduced as under:
12.1 Similar issues have been dealt with by us earlier in this order while dealing with attribution of profits to the PE. As the criteria for adjudication of both the issues is similar, consistent with the view taken by us, we direct the A.O. to accept the TPO analysis of Aspects India wherever the same is available.
12.2 There is no change in the factual position for the year under consideration as recoded by the Ld.AO in the assessment order. Respectfully following the same, allow
13. Ground No.11&12: Ld.AR submitted that this ground has been dealt extensively by this Tribunal in its order dated 18.05.2015 in ITA no. 1124 & 1125/Del/2014 (Supra) from para 142-146. The relevant paras have been reproduced as under;
13.1 However, in a subsequent decision in the Alcatel Lucent, the Hon'ble Delhi High Court on a specific fact situation held that where non-resident assessee accepted its liability to be taxed in India at first appellate stage, all consequences under Act including liability to pay interest under section 234B would follow; assessee could not be permitted to shift responsibility to Indian payers for not deducting tax source from remittances, after leading them to believe that no tax was deductible. 13.2 There is no change in the factual position for the year under consideration as recoded by the Ld. AO in the 23 I.T.A.No.1842/Del/2016 assessment order. Respectfully following the same, we allow this ground raised by the assessee.
14. In the result, the appeal filed by the assessee stands disposed off accordingly.
Order pronounced in the open court on 27th June, 2016.
Sd./- Sd./- (S. V. MEHROTRA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 27.06.2016 Sp. Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order (ITAT, New Delhi) S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 2 Draft placed before author Sr. PS/PS Draft proposed & placed before 3 JM/AM the Second Member Draft discussed/approved by 4 AM/AM Second Member Approved Draft comes to the 27/6/16 5 Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement 27/6 Sr. PS/PS 7 File sent to Bench Clerk 27/6 Sr. PS/PS Date on which the file goes to 8 Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order