TaxTMI 
TaxTMI 
2014 (4) TMI 273
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....el/2010 - Assessee's appeal for AY 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:- "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$32.5 million), by admitting additional evidence in spite of the facts the assessee company admittedly failed to provide the necessary details during the assessment proceedings. 2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law by holding that income from the sale of software was to be taxed as business receipt in accordance with the Article 7 of DTAA, which was however taxed as royalty by the AO. The CIT(A) decided the issue in favour of the assessee on the basis of the decision of the special bench of the ITAT in case of Motorola, against which the department is in appeal before the Hon'ble Delhi High Court. Further the more recent judgment by the ITAT on the same issue in the case of M/s Gracem....
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....h to submit that the assessee does not track sales in south Asian region on a country specific basis. However you may take Euro 27 Million (USD 32.5 Million) as a good faith estimate for the aggregate supplies invoiced to India in F.Y. 2002-03." 5. Since the assessee did not give the exact figures of sales and details thereof, the Assessing Officer estimated the assessee's revenue in India at US$ 40 Million. The assessee, aggrieved with the order of 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 assess....
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....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." 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 side....
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....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:- "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.....
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.... 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, ....
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....ited 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 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 F....
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....e 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." 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 categori....
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....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." 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, ....
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....e, 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 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 possessio....
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....y 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. 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 S....
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.... 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 AY 2005-06 to 2008-09 :- 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 embedde....
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....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. ITA Nos.5420/Del/2012 to 5425/Del/2012 - Revenue's appeals for AY 2003-04 to 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....