TaxTMI 
TaxTMI 
2011 (1) TMI 1121
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....filed its return of income for assessment year 2002-03 on 1-10-2003, admitting 'NIL' income and also claimed TDS refund of Rs. 2,69,99,456. Initially, the return was processed under section 143(1) on 4-11-2003 accepting the NIL income filed, but later, the case was scrutinized under section 143(3) vide which positive income was computed and interest under section 234A and 234B of the Act was also charged. The assessee-company is engaged in providing international connectivity services largely in the Asia Pacific Region. The Indian Telecom Regulations allow only licenced service provider to provide International Long Distance Telecommunication Services (ILDTS) in India. The assessee-company, is not a licenced service provider in India, but provides only International Private Lease Circuit (IPLC). The Indian Half Circuit services are provided to the customer by the local licence provider, namely, Videsh Sanchar Nigam Ltd. (VSNL). A customer interested in taking leased line between his office in India and any overseas location, enters into two separate contracts for the provision of connectivity services - firstly with MCI Singapore for provision of international connectivity; and sec....
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....ependent of MCI Singapore; that there is no control on MCI India by MCI Singapore, so MCI India is not a PE of MCI Singapore which at best can only be referred to as an 'Agency-PE'. In the alternative, the case of the assessee is that even if MCI India is taken to be dependent agent of MCI Singapore, it does not constitute a PE of MCI Singapore in India since it does not have the authority to negotiate or conclude contracts nor it secure orders on behalf of MCI Singapore in India. MCI India provides marketing support to MCI Singapore for which it is remunerated at an arm's length basis. Accordingly, the case of the assessee is that since, MCI Singapore does not have a PE in India, no income can be attributed nor taxed in India and, hence, payments received by MCI Singapore for international connectivity services are not taxable in India. To explain its case properly, the assessee also filed copies of the following documents before the Assessing Officer : (a)Copy of the agreement entered into between VSNL and MCI Worldcom Asia (Pte) Ltd. for the International Private Leased Circuit. (b)Copies of the agreements entered into between MCI Worldcom Asia (Pte) Ltd. and their various....
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....ment rental charge is defined as "the fixed monthly rental charge for a Service payable in accordance with clause 4"). 11. On a perusal of the Master Services Agreement with MCI, in the Definitions to Terms and Conditions to the Master Services Agreement it is stated that "Service Equipment" shall mean the equipment, systems, cabling and facilities provided by MCI Worldcom or an MCI Worldcom affiliate in order to make available the service to the customer. Service Equipment shall not include the network or any equipment which is the subject of a separate supply contract between MCI Worldcom and customer. In clause 12 relating to customer obligations, it is mentioned in sub-clause 12.8, relating to service equipment that the customer shall be required to deliver, install and keep installed at the customer site, the service equipment. In the clause 12.9.1, it is mentioned that the customer should house the service equipment required to be housed at the customer site in accordance with Worldcom's reasonable instructions as may be given from time to time. In clause 12.9.2, it is mentioned that the customer shall not move, modify, relocate or in any way interfere with the service equ....
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....ding various equipments either directly or through its affiliates would amount to royalty. This is discussed in the succeeding paragraphs. uThe ITAT in the case of Wipro Ltd. v. Income-tax Officer (80 TTJ 191) has not considered the applicability of royalty for use of equipment under sub-section 4(a) to Explanation 2 of section 9(1)(vi) of the Income-tax Act. uIn the case of Skycell Communications Ltd. v. DCIT (251 ITR 53 ), the Madras High Court has held that payment made to cellular mobile operators by the subscribers would not constitute fees for technical service. This is distinguishable from the issue under discussion for the reason that the Skycell case relates to collection of a fee for the use of a standard facility provided to an average house-holder or consumer, whereas in the present case the issue is Royalties for the use of equipment, wherein there is a one to one agreement between the companies. uThe case of American Express Inc. (Ruling of AAR); Master Card assessment year 1996-97 would be relevant in this regard. In this case the Indian company made payments to the USA company for use of its computer set up in Hongkong and USA, which services were obtained ....
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....ns : (a )VSNL does not have any right to sell the equipment. (b )The equipment has to be handed over to MCI any time on demand for a payment of Rs. 10,000 (c )The payment of Rs. 10,000 is only a token amount and not the actual consideration of the equipment. 18. Hence, it is seen that VSNL is only the custodian of the equipment. Also, MCI holds the ownership of the software as mentioned in the agreement. As discussed above, the assessee has a business connection in India on account of the source of income in India, through assets and services provided (through associated concerns) in India. 19. However, under Article 7(7) of DTAA with Singapore it is stated that "Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article". These payments are in the nature of royalty for the use of equipments (nodal equipment in India, service equipment in USA, etc.) and related services. This income by way of royalty is taxable under section 9(1)(vi) of the Income-tax Act. Under sub-clauses (iva) and (vi) of Explanation 2 to section 9(1)(vi) of....
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.... in law, the learned CIT-A has erred in not deleting the interest charged by the Assessing Officer under section 234A of the Act amounting to Rs. 68,11,987 and interest under section 234B of the Act amounting to Rs. 1,82,78,834. 2.2 That on the facts and circumstances of the case and in law, the learned CIT-A has erred in summarily rejecting the submissions filed by the appellant before him, holding that no detailed arguments were presented by the appellant regarding the levy of interest under section 234A and 234B of the Act. The appellant craves for 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." 7. From both the sides, oral submissions were made, written submissions were filed and voluminous paper books were also filed in support of their respective claims. We have carefully gone through the entire record made available before us, including the paper books of the parties, written submissions and counter submissions submitted before us. Before we proceed to decide the real controversial issue, we deem it desirable to understand the actual nature and modus of working/service ....
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....oncerns in India. For taxing the impugned receipts, being connectivity charges, received by the non-resident company, has been brought to tax as royalty income received from different customers in India, the Assessing Officer has given detailed reasons in his order. Likewise, the ld. CIT(A) has also found these amounts received by the non-resident company for providing connectivity through dedicated bandwidth to its Indian customers holding that the amounts paid were royalty for use of the assessee's 'equipment' or for use of the 'process'. The Assessing Officer has reason to tax this income on the ground that the assessee has an enduring business connection within the meaning of section 9(1) of the Act, as a result of which the source of income being in India and location of assets and software also being in India and the services are also rendered in India. The Assessing Officer has mentioned that in any case, this amount becomes taxable because of the following : (i)The non-resident assessee, M/s. VSNL, Mumbai, had entered into an agreement in the business of providing IPLC and related services to various customers. (ii)The appellant/assessee had located and installed in t....
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....omechanical switches. All the OXC and OADM nodes suffer from fairly large losses overall (over 10 dB) and need EDFAs to compensate for them. In terms of transmission-related issues, losses, amplifier gain equalization; power equalization of channels, and crosstalk were all seen to be major issues. Most of the testbeds could not successfully transmit data all optically through more than a few nodes. However, they give a good indication of the types of networks that will become commercially feasible in the next few years." 1. The Big Picture Since the beginning of the 21st century, there has been a burgeoning demand for communications services. From the ubiquitous mobile phone, providing voice, images, messaging, and more, to the Internet and the World Wide Web, offering bandwidth-hungry applications such as interactive games, music, and video file sharing, the public's appetite for information continues to grow at an ever-increasing pace. Underneath all of this, essentially unseen by the users, is the optical fiberbased global communications infrastructure - the foundation of the information superhighway. That infrastructure contains the multi-wavelength optical networks th....
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.... switches. As optical and photonic technology has advanced, applications to point-to-point transmission have preceded advances in networking. For example, it was clear in the early years of optical fiber transmission that by introducing Wavelength Division Multiplexing (WDM) on existing fibers, the capacity of a fiber link could be increased many fold at minimum cost. However, it was only since the early 2000s that the optical switching technology necessary to convert isolated fiber transmission links to optical networks matured sufficiently to permit the commercial deployment of these networks. In the mid-1990s, the optical network (as opposed to optical fiber transmission alone) was still a "blue sky" concept. New optical and photonic devices were being developed and incorporated into experimental networks. But full-fledged multiwavelength networks integrating optical transmission, switching, and user access were still in the research and development stage. At that time, the technology push for networking was out in front, but demand for the seemingly unlimited capacity of these networks was essentially non-existent. As this is being written, the promise of optical networking ....
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.... to residential customers by the telephone carriers and the cable operators is a step toward eliminating those cow paths. However, Digital Subscriber Line (DSL) and cable modems are half-measures at best. Direct access to the fiber network by the end user [i.e., Fiber To The Home (FTTH) or business user] is the ultimate way of removing the bottleneck so that the network remains effective as demand for bandwidth grows. Although FTTH was deployed many years ago in a few demonstration projects, it did not take hold for several reasons, including cost and the absence of services of interest to the customers. Today that has changed because of the proliferation of broadband Internet services. Deployment of glass is now moving from the network core through fiber access networks to the end users. This will undoubtedly stimulate interest in new broadband services that take advantage of high-speed access and in turn produce demand for more bandwidth. At this writing, most of the world's installed fiber capacity is underutilized - arguably due to the last-mile bottleneck. That should change rapidly as progress in the removal of the bottleneck results in a quantum jump in network traffic, maki....
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....ent generated by the common man, who has only recently gained access to the enormous opportunities our worldwide communication system has to offer. The networks we conceive today must be "futureproof" so as to be ready for the next unforeseen developments. 1.2 Objectives of an Optical Network Architecture Today's and tomorrow's optical networks must provide the capacity, connectivity, and intelligence necessary to link together a global community of information providers and consumers. A well-designed network performs this function efficiently and reliably. To facilitate a systematic study of networks that achieve this goal, it is useful to formulate a generic model in the form of a Multi Wavelength Network Architecture (MWNA). As background for the MWNA, we briefly review the current network structures and the services they support. Until the end of the second millennium, the world of networking consisted of two separate spheres : the traditional telephone networks mainly devoted to providing voice services (operated in a circuit-switched mode) and data networks (operated in a packet-switched mode) for communica- tion between computers. Each type of network was specially ....
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....of connectivity, bandwidth, performance, survivability, cost, and a host of other features. Consider the common Internet services offered to the general public (e.g., e-mail and search engines). They serve a vast globally distributed user community. In terms of connectivity, these types of services push networking to its ultimate limits; any end user wants rapid connectivity to anyone or anything in the network. However, in terms of performance, they are undemanding - they can tolerate errors, delays, and occasional downtimes due to congestion, programming bugs, and equipment failure. Total costs may be high, but they are spread over an enormous user base resulting in a very low cost per user. In contrast, consider a different type of application, the Virtual Private Network (VPN). This is a subnet carved out of a larger network by a telecommunications carrier and put at the disposal of a single enterprise, which typically controls and manages it. Consequently, it has a much smaller user group with more intense utilization per user, far fewer active connections, and tighter control of network performance, including security and reliability. Customer costs per user will be hig....
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....NA must be structured to offer a special set of features adapted to each service it supports. To see how this is achieved, it is convenient to think of the network in terms of its constituent layers, with client-server relations between the neighboring layers. An illustration is the multilayered view shown in Figure 1.1. The architecture is composed of an underlying optical infrastructure, the physical layer - which provides basic communication services to a number of independent Logical Networks (LNs) residing in the logical layer. Each LN organizes the raw capacity offered by the physical layer, adapting it to the needs of the clients it serves, shown in the services layer of the figure. For example, the SONET network shown in Figure 1.1 uses optical wavelength channels provided by the physical layer, transmits optical signals on them, and carries multiplexed communication channels on those signals. The SONET channels can be tailored to support a wide variety of services; two services shown in the figure are Plain Old Telephone Service (POTS) and a VPN. In our example, the SONET layer also supports an ATM layer that in turn supports a client IP layer providing Internet access ser....
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....ltiplexing and switching equipment (e.g., ATM switches, IP routers, or SONET digital cross-connect systems (DCSsJ), shown as hexagons in Figure 1.2. The ONNs (or nodes for short), shown as circles in Figure 1.2, provide the switching and routing functions that control the optical signal paths (also called lightpaths), configuring them to create desired source-destination connections. The stations and nodes contain the optoelectronic and photonic components of the network: lasers, detectors, couplers, filters, optical switches, amplifiers, and so on. These components work together with the fibers to produce the required optical signal connectivity. Although the underlying optoelectronic and photonic technologies have matured considerably since the mid 1990s, they are not as well developed as their electronic counterparts. Thus, electronics (in the logical layer) is currently an equal partner with photonics (in the physical layer). ****** The line between the optical and electronic parts of the network has become fuzzy as technology has advanced, but at this point in our discussion we retain the simplified view that the physical layer is transparent and optical, whereas the log....
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....cedures, and controlled traffic load. -Network : Limited number and length of cables and fibers, efficient use (and reuse) of the optical spectrum, controlled signal impairment in the physical layer, minimization of logical layer complexity. uStructural features -Scalability -Modularity -Survivability (fault tolerance) uControl and management -Efficient, rapid, automated connection provisioning, and reconfiguration -Built-in intelligence in the network elements for monitoring and control -Efficient and rapid automatic fault identification and recovery -An integrated network management system to monitor and coordinate all network layers As we look at existing and proposed network architectures, it is important to keep these goals in mind. 1.3 Optics versus Electronics : The case for Transparent Multiwavelength Networks There are certain functions that come naturally to each technology. Referring to the somewhat idealized view of a network in Figure 1.2 based on the assumption of a purely optical physical layer, there is a clean separation between optical/photonic technology, on the one hand, and electronic technology, on the other. The NASs rep....
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....e property of linearity that makes multiwavelength networking simple and cost effective. To distinguish these linear networks from other types of optical networks, we refer to them frequently as transparent optical networks. Typical non-linear operations performed in networks include signal detection, regeneration, reading, and modifying the information in the signal, buffering, and logic functions (e.g., packet routing based on header information). Although many non-linear functions can be performed in the optical domain with present-day technology, the current state of the art for these nonlinear devices is not nearly as advanced as it is for linear components. For these reasons, we frequently use the terms transparent optical network and purely optical network interchangeably in this book. Nonlinearities make the signal path opaque rather than transparent. Some of the advantages of keeping nonlinear operations out of the signal path are (1) the end-to- end optical path behaves as a literally transparent "clear channel" so that there is nothing in the signal path to limit the throughput of the fibers (a transparent channel behaves very much like an ideal communication channel wit....
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....a multigigabit-per-second trickle : the maximum speed that can be expected of an electronic signal. This is the origin of the highway/cow path analogy we used in section 1.1. More succinctly, optics is fast but dumb, whereas electronics is slow but smart. A final caveat : whenever we speak of enabling technology it must be understood that it is a fast-moving target. Thus, the state of the art is rapidly evolving in the direction of smarter optics and (somewhat) faster electronics. One consequence of smarter optics is that nonlinear operations can be introduced into a purely optical network using optical processing. For example, optical packet switching can be realized either through purely optical processing or a combination of electronics for header processing and optics for switching, resulting in an opaque optical network capable of very high speed packetswitched operation (see Chapter 10). Another example of smarter optics is the use of optical processing for signal regeneration and wavelength conversion within an otherwise linear signal path (see Chapter 4). Faster electronics is a more questionable issue, because as we push the electronic speed limits, costs rise rapidly. ....
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....n the underlying physical layer. This results in a connection granularity ranging from fine to coarse as we move down the stack. In each LN, the electronic switching equipment acts as a "middleman," taking high-bandwidth channels offered to it by the layer below it and organizing them into lower bandwidth channels with a format acceptable and cost-effective for the end users and/or client layer it serves. For example, the layer in Figure 1.1 providing IP over WDM makes use of wavelength channels offered to it by Logical Layer LL1 LL2 LL3 Physical Layer Optical Layer Fiber Layer Figure 1.3 Layered view of an optical network. The physical layer and "packages" the bandwidth so as to support the flow of IP packets among its end users. Sophisticated network users requiring high bandwidth and the flexibility of a clear channel can dispense with the services of an LN to obtain direct access to demand-assigned wavelength channels as shown in the figure, without the intervention of an electronic middleman. Returning to the physical picture, Figure 1.2 illustrates in more detail how the end users interface to the network through various layers of logical (electr....
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....ated most easily in a circuit-switched mode, in which the information-bearing units (optical wavelength channels) being switched are few but large (in bandwidth) and the holding times for a given switch configuration are long (seconds or more). Circuit-switched operation of the optical nodes is perfectly suitable for the physical layer shown in Figures 1.1 and 1.3. Dedicated connections supporting the various LN's are normally held in static configurations for durations of hours, days, or more. Demand-assigned connections are held typically for minutes or hours. Thus, the number of circuits being set up and taken down per unit time is relatively small. This type of operation requires little processing and provides a high aggregate throughput. Conversely, electronics is employed in situations in which there are many information units (e.g., individual packets or cells) being switched per unit time. Because the units are typically small (in number of bits) and because each unit is processed individually, this leads to a heavy processing load, with a relatively low throughput limited by the processing power of the switch. Wide Area Networks (WANs) must handle both large and small info....
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....way per NAS). This means either equipping each station with that many optical transceivers or providing extremely rapid optical connection switching. No matter how it is realized, this degree of connectivity is well beyond the reach of current optical technology. ****** A purely electronic version of Figure 1.2 has its own' problems. This would be implemented with electronic rather than optical switches at the network nodes, as shown in Figure 1.4(b), where the ONNs have been replaced by IP routers. This reduces the physical layer to a set of isolated point-to-point transmission links terminating on the electronic routers. Electronics can easily support the required connectivity via virtual connections. However, the electronic processing bottleneck at the switches makes it difficult and expensive to sustain the required multiterabit throughput on the backbone. Because optical switching is still in the early stages of penetrating large networks, current architectures are tilted more to the electronic side (with multiple stacked logicallayers) than the optical side. However, pressures of increasing demand, performance, cost-effectiveness, and fault tolerance are moving networks....
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....ion links such as transoceanic cables. In going from local subscriber access through MANs to long-haul networks, efficiency and manageability demand that the granularity of the connections increases, just as it does in going down the layered architecture of Figure 1.1. The new optical network architectures have similar hierarchies as shown in the example of Figure 1.5. The mesh network in the center is the core long-haul network, which joins the MANs in the form of rings. End users connect to the MAN through access networks joined to the MAN at gateways indicated by the shaded circles in the figure. These access networks might be in optical form (e.g., Passive Optical Networks (PONs)) or electrical form (e.g., traditional LANs or electronic switches). Their purpose is to aggregate traffic from individual users for more efficient and cost-effective transmission on the network. ****** A characteristic of the hierarchical structure is that as one moves closer to the end user, the number of entities attached to the network grows exponentially. Referring to Figure 1.5, there are many MANs attached to the core, many access networks attached to each MAN, and many end users attach....
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....maller set of coarse granularity connections on the longhaul links. Manageability is maintained because there is a small number of high-speed connections (and a small amount of hardware) to control rather than an enormous number of low speed connections. On the other hand, control and management in a lower level or the hierarchy - a single MAN or access network - can be handled more or less autonomously, dealing only with the relatively small number of "local" entities without an overall view of the complete network. Another way of seeing this is in terms of the multilayered view in Figure 1.1. In a high-speed core of an optical network, control activity is largely confined to high-speed highly multiplexed connections in the physical layer. In moving to the end users, the control functions shift to the higher logical layers, but because the view is local, the total number of entities being controlled is still relatively small. 1.6 A Little History The idea of a high-speed optical transmission system (in free space) was considered as early as 1958, when the laser was conceived (Schawlow + 58), and guided wave optical transmission was exhibited in the laboratory in the mid-1960....
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....). In the 1990s, much activity was devoted to developing ATM as the preferred transport service for B-ISDN. The cell-based transport technique in ATM (essentially a fixedlength, fast packet-switching system) lent itself at the time to a wide variety of multimedia applications and at the same time was well adapted to high-speed switching techniques (de Prycker 91). All of the developments discussed so far were carried out within the traditional voice communications carrier community. However, the early data networks also influenced the structure of today's optical networks. The first data networks were developed in the 1970s mainly for business users, utilizing packet switches designed by computer equipment manufacturers to work together in a closed network environment employing proprietary protocols. Examples were IBM's SNA (Systems Network Architecture) and Digital Equipment's DEC-NET. Typical applications were airline reservation systems and timeshared computing. Governmental organizations joined with ARPANet in the United States, Datapac in Canada, and Cyclades and Transpac in France. Although Datapac and Transpac were public data networks, ARPANet and Cyclades were experimen....
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....mained formidable until the advent or the fiber amplifier. Systems efforts during the pre-EDFA era were focused on a simple architecture appropriate for LANs or MANs: the broadcast-and-select network [Mukherjee 92(a)]. In a typical network of this type, each access station is equipped with a single laser transmitter capable of generating light at a fixed wavelength and contains a single optical receiver capable of being tuned to the wavelength of any transmitter. Signals from all transmitting stations are combined in a centrally located optical star coupler, a passive device that broadcasts an attenuated version of the combined signals back to each receiver. By selecting the appropriate wavelength, each receiver can accept the signal injected by the corresponding transmitter, thereby creating a transparent connection from the transmitter to that receiver. Probably the earliest prototype of a broadcast-and-select network was LAMBDANET (Goodman+86, Goodman+87). Broadcast-and-select networks do not scale well to large sizes primarily because they rely on rapid tuning of optical transceivers over a wide range of wavelengths, they waste optical power, and, most important, they make p....
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....he management and control equipment necessary for making these networks operational and reliable (IEEE93, IEEE96, IEEE98). These testbeds showed for the first time that optical technology could be taken out of the laboratory to produce cost-effective operational networks. Many of the technologies and concepts developed in the testbeds led to commercial products and network deployments that are basic components of our current network infrastructure. Undoubtedly the rapid advances in the enabling technology for optical networks, and its accelerated commercialization at the end of the 1990s, can be largely attributed to the massive infusion of capital to the various players during the "technology bubble" at that time. This produced a host of new start-ups and spin-offs as well as expansions of ongoing activities in the large equipment manufacturers. Although many of the companies that originated the new products have disappeared, the technological progress remains, and will serve as a foundation for the networks of the future. The period of economic consolidation following the bursting of the bubble brought with it a more down-to-earth view of networking, essentially focusing on th....
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....al layer to the needs of the end users. By link functionality, we mean good transmission properties (large bandwidthdistance product). Useful functional properties of nodes and stations include controllable switching and multiplexing features. Without controllability in the nodes and stations, optical channel assignments and signal paths must remain fixed at all times so that connections are frozen, and the network has no flexibility in responding to changing conditions. Conversely, a high degree of node and station controllability under the supervision of a network control and management system improves the efficiency of resource utilization, allows the network to maintain satisfactory performance in the face of fluctuating demand, and enables it to reconfigure itself in case of component failures. Of course, controllability implies the existence of suitable control algorithms to coordinate the functions of the various network entities. Three basic features - topology, functionality, and control - interact closely to influence overall network performance. As might be expected, there are many opportunities for cost-performance trade-offs. Thus, high functionality in the nodes....
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.... this chapter, Chapter 2 introduces the multiwavelength network architecture, describing the layers of connectivity in a wavelength division multiplexed network. The chapter focuses on the functionality of optical network elements - links, nodes, and access stations - and their relation to network performance. Chapter 3 gives an overview of the various layers of network connections. Purely optical networks are discussed first, starting from the simplest (static) networks and then considering the two controllable classes : wavelength-routed networks and linear lightwave networks. The former class supports point-to-point connections, whereas the latter supports multipoint connections, representing a more general view of transparent optical networks and their functionality. Because the physical layer alone is generally not sufficient to serve the needs of network users, the chapter concludes with a discussion of logically routed networks - the multilayered networks of Figure 1.1, consisting of electronic overlays on an optical infrastructure. Chapters 2 and 3 are largely qualitative and serve as introductions and "pointers" to material explored quantitatively in later chapters. ....
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....t of the book, dealing with recent progress in optical packet, burst, and label switching. We conclude in Chapter 11, tying the generic concepts of earlier chapters to recent trends in network deployment. An infinite variety of additional engineering issues arise when operating networks in the real world, and these are often missed in an abstract view of things. Parts of Chapters 4 and 7, the opening part of Chapter 8, and all of Chapters 9 and 11 provide examples of contemporary technology, network design, and network operation, as well as the trade-offs between optical and non-optical networking solutions. These will be of particular interest to those involved in near-term network deployment. However, this is the most "perishable" material in the book. For example, Chapter 9 is important for an understanding of current standardization efforts in network control. However, these are continuing to evolve as this is being written, so that techniques of optical network control and management can be expected to change and progress in future network deployments. Some of the more advanced and speculative sections in the book may be skipped initially by readers learning about optica....
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....ill be seen, the physical layer in optical networks often includes electronic components in the form of signal regenerators or electronic switch fabrics, so it is not always purely optical nor is it completely transparent. We have more to say about purely optical signal paths and the meaning of transparency in Sections 1.3 and 1.4. (5)As the state of the art progresses photonic technology is becoming a viable alternative for many nonlinear signal processing operations, so that the linkage between "transparent" (i.e., linear) and "purely optical" is becoming tenuous. (6)Transparency implies that signals with any type of modulation schemes (analog or digital), any bit rate, any type of format, and using any kind of protocol can be superimposed and transmitted without interfering with one another and without their information being modified within the network. Opaque networks do not have these properties. (7)A similar, but not as severe, throughput limitation applies to "opaque" optical switches that are often used in the physical layer to replace purely optical ONNs. An opaque switch converts the optical signals to electronic form for purposes of switching, and in the proces....
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....ation concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information. (b)payment of any kind received as consideration for the use of, or the right to use any industrial, commercial or scientific equipment, other than payments derive ...." 12. So, according to the above definition, only a payment for the use of or right to use any industrial, commercial or scientific equipment or for the use of or right to use a process can be characterized as 'royalty'. We are in agreement with the contention of the ld. DR that the customer acquires significant economic or possessory interest in the equipment of the assessee to the extent of bandwidth hired by the customer. This capacity is made available on a dedicated basis to the customer for the entire contract period, usually a year. Thus, physical possession is not a must, even according to TAG of OECD. Even if the bandwidth is not used, the customer has to pay the committed charges. Thus, the assessee does not bear any risk of diminution in receipts or increase in expenditure if the customer does not make the use of the capacity. According to the asses....
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....nternational connectivity services outside India cannot, in any manner, be taxed as royalties for use of the equipment under the Income-tax Act and under the India Singapore Tax Treaty. Lastly, but not in the least, it was submitted that the submission of these is that the agreement between the assessee and its customers is for the provision of services and not for granting any right in the network of the assessee. Moreover, the conditions laid down by TAG and OECD had also not been fulfilled. 13. We have cogitated the entire records in depth. We do not find any merit in the submission put forth on behalf of the assessee. The ld. AR has not been able to assail the finding of the Assessing Officer that the customer acquires significant economic to the extent of bandwidth hired by the customer. The capacity is made available on a dedicated basis to the customer for the entire contract period, usually for a year. The physical possessory interest in the equipment is not a must. Even according to TAG or OECD, the customer has to pay a committed charge whether bandwidth is used or not. The agreement may be only for the provision of services but in effect, it grants right to the extent....
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....ments, a clear picture emerges from which only irrebuttable conclusion is derived that payments for the use of the tangible equipment could be considered as a payment for the use of or the right to use industrial, commercial or scientific equipment. The Technical Advisory Group (TAG) of OECD had formulated the following facts for determining whether the payments are for the use of or right to use, industrial, commercial or scientific equipments : u The customer is in the physical possession of the property or controls or has a significant economic possessory interest in it. u The provider does not bear any risk of substantially diminished receipts or increased expenditure in case of non-performance or does not use the property concurrently to provide significant services to the entities unrelated to the services recipients; and u The total payment does not substantially exceed the rental value of the equipment for the contract period. 14. In determining the nature of the payment as 'Royalty', all the relevant factors having a bearing on the substance of the transaction should be taken into account. In this case, the customer acquires significant, economic or possessory ....
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....uation has to be kept in mind while finding out that whether a process was actually used by the payer. In the case of satellites physical control and possession of the process can neither be with the satellite companies nor with the telecasting companies. The control of the process, by either of them will be through sophisticated instruments either installed at the ground stations owned by the satellite companies or through the instruments installed at the earth stations owned and operated by telecasting companies. The use of process, according to agreement, was provided by the satellite companies to the telecasting companies whereby the telecasting companies are enabled to telecast their programmes by uplinking and downlinking the same with the help of that process. Time of telecast and the nature of programme, all depends upon the telecasting companies and, thus they are using that process. The consideration paid by telecasting companies to satellite companies is for the purpose of providing use and right to use of the process and, thus, it is royalty within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi). It is also a royalty within the meaning of clause (vi) of....
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.... of 'equipment'. In satellite transmission, a particular frequency is assigned to the customer and in cable transmission, the customer gets a dedicated bandwidth. This is different from the use of a standard facility like the telephone at our homes. A broadband can be divided into two major categories (i) shared; and (ii) dedicated. Shared internet connections include the popular DSL and Cable broadband connections. Dedicated connections are provided by T1, DS3, and Ethernet business services. The term "business" is to be noticed. Shared Internet services originated to make broadband affordable for residential and home office users. Medium to larger size business have always used dedicated connections for their voice and data circuits. In the bigger picture, the entire internet is a shared bandwidth resource. With a dedicated connection, one's bandwidth is set aside by the service provider and always available for one's use. Recently, the ITAT, Delhi Bench in the case of eFunds Corpn. v. Asstt. DIT [2010] 42 SOT 165 , has held as under : "Income Deemed to accrue or arise in India Assessment years 2000-01 to 2005-06 - Whether in order to constitute PE, place of business nee....