TaxTMI 
TaxTMI 
2016 (1) TMI 34
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.... to dispose of the appeals by one consolidated order. The grounds of appeal raised in ITA No. ITA No. 952/Del/2006 i.e. the assessee's appeal, are as follows: i. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad both in the eye of law and on facts. ii. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in holding that communication charges of Rs. 36,03,936/- chargeable to tax in India. iii. On the facts and circumstances of the case, the learned CIT(A) has erred in holding that the services provided by the appellant falls in the definition of royalty under Income Tax Act as well as DTAA and hence liable to be taxed in India. iv. On the facts and circumstances of the case, the learned CIT(A) design or model, plan, secret formula or process & was taxable in India under Article 12(3)(a) of the Income Tax Act. v. On the facts and circumstances of the case, the learned CIT(A) has erred in relying upon the Ruling delivered by Authority for Advance Ruling in P. No. 30 of 1999, 238 ITR 296, as the same is clearly distinguishable from the case of the appellant on facts and ignoring the j....
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....t fall within the definition of 'royalty' and placed reliance on the decision of the Jurisdictional High Court in the case of Asia Satellite Telecommunication Co. Ltd. Vs. Director of Income Tax, 332 ITR 340. He also placed reliance on the following decisions: i. DCIT Vs. Panamsat International Systems Inc., (2006) 9 SOT (Del.) ii. Software Technology Parks of India Vs. ITO, (2005) 3 SOT 529 (Bang.) iii. Wipro Ltd. Vs. ITO, (2004) 1 SOT 758 (Bang. ) iv. B4U International Holdings Ltd. Vs. DCIT, ITA No. 880/Mum/2005, Dt. 28.05.2012 v. Siemens Aktiengesellschaft Vs. ITO, (1986) 22 ITR 87 vi. Addl. DIT Vs. TII Team Telecom International (P.) Ltd., (2011) 60 DTR 777 3. On the other hand, learned Sr. DR vehemently argued that the services in question fall within the definition of 'royalty' as defined in Section 9(1)(xi) of the Income-tax Act, 1961 (for short "the Act"). He further argued that the payment was not made for simple use of equipment but for the use of protected software and placed reliance on the ruling of Authority for Advance Rulings, New Delhi, Advance Ruling, P.No. 30 of 1999, 238 ITR 296. He further submitted that in view of the amendment introduced....
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....ivity, use, or disposition thereof; and' (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 derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport from activities described in paragraph 2(c) or 3 of Article 8." 5. Now, we are required whether the nature of services provided by the assessee company falls within the definition of 'royalty' as defined above. In the present case, it is a case of use of embedded secret software owned by the assessee company for the purpose of enabling the customer from India to call the residents of USA or vice-versa. A case involving almost identical facts had come up before the Hon'ble Authority for Advanced Ruling, reported at 238 ITR 296, In this case, company incorporated in the USA belonged to a group of companies engaged in worldwide credit card and travel business. It was engaged in providing international credit cards, traveller's cheques and other travel related services. These instruments are used, discounted and encashed all over the world by travelers on tour or business. To keep track of the....
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....g to the agreement between the American Company and the Indian company, the facilities are to be accessed only by the Indian company. The consideration payable is for the specific programme through which the Indian company is able to cater to the needs of the group companies located in Japan and other places. The transaction would be related to a "scientific work" and would partake of the character of intellectual property. The payments received in such transactions are for the use of intellectual property and partake of the character of royalty. The software is customized and secret. From the facilities provided by the American company to the Indian company, which are of the nature of online, analytical data procession, it would be clear that the payment is received as "consideration for the use of, or the right to use design or model, plan, secret formula or process". The use by the Indian company of the CPU and the consolidated date network of the American company is not merely "use of or the right to use any industrial, commercial or scientific equipment" as envisaged in article 12(3)(b) of the DTA but more than that. It is the use of embedded secret software (an encryption pro....