TaxTMI 
TaxTMI 
2017 (5) TMI 1605
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....sed income 2005-06 31. 10. 2005 Nil 25. 11. 2009 Rs. 19, 89, 04, 807/- 2006-07 28. 11. 2006 Nil 10. 12. 2008 Rs. 9, 70, 07, 680/- 2007-08 25. 10. 2007 Rs. 5, 10, 242/- 25. 11. 2009 Rs. 2, 69, 34, 122/- ITA/7299/Mum/2010-AY. 2005-06: 2. Effective ground of appeal, filed by the assessee, deals with nature of payment received by it from supply of software i. e. as to whether same is in nature of Royalty under the provisions of the Act and under Article 12 of the Double Taxation Avoidance Agreement (DTAA/Tax treaty) entered in to by India and USA. During the assessment proceedings, the AO found that the assessee had supplied softwares to Reliance Infocom Ltd. , that it had raised bills worth Rs. 19. 89 crore, that in the notes enclosed with the return of income it was claimed that the payments received by it were not taxable in India. The AO directed the assessee to give reasons for claiming the consideration received from Reliance as not taxable in India. After considering the submissions of the assessee dated 07/09/ 2009 and 22/09/2009, the AO held that the assessee had mainly laid emphasis on the definitions rather than the subject matter, that in the AY. 20....
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....) Baan Global BV (49 ITR (T) 73) (vi) First Advantage (P. ) Ltd. (77 taxmann. com 195) (vii) Galatea Ltd. (46 ITR (T) 690) (viii) Datamine International Ltd. (68 taxman. com) (ix) Reliance Industries Ltd. (69 taxman. com 311) (x) Ericsson A. B. (16 taxman. com 371) (xi) Solid Works Corporation (51 20T 34) (xii) Financial Software & System (P. ) Ltd. (47 taxman. com 140) (xiii) Antwerp Diamond Bank NV Engineering Centre (65 SOT 23) (xiv) Aspect Software Inc. (61 taxman. com 36) (xv) TII Team Telecom International (P. ) Ltd. (12 ITR (T) 688 and stated that consideration received by the assessee from supply of software was not in the nature of royalty, that amendment of the Act could not be read into the Act, that the decision of the High Court in the case of Siemens did not hold that amendments the Act could be read into treaty. For this proposition be relied upon the cases of New Skies Satellite BV (282 ITR 114) Software & System(P) Ltd (47 taxman. com 140). He stated that in the case of Antwerp Diamond Bank NV(ITA/5498/ Mum/2014dtd. 26. 10. 2016)the Tribunal had specifically dealt with all the arguments advanced by the DR, that the Tribnal had also held that am....
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....on from Reliance, the High Court order in the petition would have bearing on the present appeal, that the appeal may be ahjourned till the decision of aforesaid writ petition. He further referred to the provisions of explanation 4 to section 9 (1) (vi) and stated that explanation was of clarificatory nature, that same was inserted retrospectively, that if the explanation was applied to the assessee's case the consideration received by it would be nature of Royalty both under the Act and under the tax treaty, that the Hon'ble Bombay High Court in the case of Siemens(310ITR320)had impliedly held that clarificatory explanations could be read into modern tax treaties, that it had approved ambulatory approach to interpretation of treaties against static approach, that in the case of Vaicom 18 Media Private Ltd (162 TTJ 336), the Tribunal had held that amendments in the Act could read into tax treaties. He finally stated that matter could be restored back to the file of the revenue authorities. In that regard he referred to the cases of Global Telesystems Ltd. (Order dated 20/04/2016) and L &T Ltd. (152 ITD 873). 5. We have heard the rival submissions and perused the material before us.....
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....he submitted that other decisions rendered by the Delhi High Court and the Tribunal may not be applicable. While appreciating the Siemens AG (supra) he submitted that, it may kind be borne in mind that: i) The question of law before the Hon'ble High Court was not that whether amendments in the Income-tax Act can be read into the DTAA or not; ii) In the said case, old DTAA (1960) between India and Germany was under consideration; iii) The said decision was rendered in 20008 when the only clarificatory provision by way of Explanation in section 9 was the Explanation below S. 9(2) inserted by the Finance Act, 2007 doing with the requirement of PE for Royalty; iv) That amendments/Explanations in the Incometax Act are being sought to be read into DTAA by virtue of Article 3(12) of the modern treaties; v) Section 9(1)(vi) up to and including Explanation 2 are substantive provisions as inserted by Finance Act 1976 and thereafter, Explanation 3 to 6 are only clarificatory provisions inserted subsequently; and vi) It is not disputed by the revenue that the provisions of DTAA if beneficial to the assessee shall be preferred over the provisions of the Income-tax Act. He further submitted that....
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.... assessment years 2003-04 to 2004-05, 2005-06 and 2008-09. The Tribunal in the assessment year 2004-05 in ITA No. 7347/Mum/2007 on the issue of disallowance of Data Processing Cost has dealt and decided this issue in the following manner:- "15. Now, coming to the main issue i. e. , whether the reimbursement of data processing cost of Rs. 34, 03, 734, amounts to royalty or not, we find from the record that the assessee is engaged in the banking business and operates in India through branch in Mumbai. It has acquired banking application software named as "Flexcube" from an Indian software company which is exclusively used for the banking purpose by the assessee all over the world. When the Mumbai Branch was set-up, the Branch was allowed to use the said software by making it assessable through servers located at Belgium. The Branch sends its data to the Belgium server from where the data gets processed as per the requirement of the banking operations. As per the terms of agreement between the Branch and the Head Office for the usage of software by the Branch, which has been incorporated above, it is evident that the Head Office only has the non-exclusive non-transferrable rights t....
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....by the Branch is not for "use" of or "right to use" of software which is being exclusively done by the Head Office only, installed in Belgium. The Branch does not have any independent right to use or control over such main frame of the computer software installed in Belgium, but it simply sends the data to the Head Office for getting it processed. Insofar as the Branch is concerned, it is only reimbursing the cost of processing of such data to the Head Office, which has been allocated on prorata basis. Such reimbursement of payment does not fall within the ambit of definition of "royalty" within the Article 12(3)(a). To fall within its ambit, the Branch should have exclusive and independent use or right to use the software and for such usage, payment has to be made in consideration thereof. It is not the case of the Revenue that the Head Office has provided any copy right of software or any copyrighted article developed by the Head Office for the exclusive use of the assessee for, which the assessee is making the payment along with the mark-up exclusively for the purpose of royalty. If the payment for license for the software which is installed in the Head Office is being made by t....
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....ered view, therefore, in essence the impugned payment is made to the Australian company in consideration of its processing of data belonging to the Indian company. As far as the scope of article 12(3)(a) is concerned, we find that it covers only a payment for the use of, or the right to use of, any copyright, patent, design or model, plan, secret formula or process, trademark, or other like property or right. The case of the revenue is that the payment is made for the use of specialized software with the help of which data is processed. We are not persuaded. As we have concluded earlier in this order, on the facts of this case, the payment made by the Indian company is not for the use of, or right to use of, software, the payment is for data processing. Be that as it may, even if stand of the revenue is to be upheld and it is to be concluded that the payment is made for software per se, that does not lead to taxability of receipt in the . hands of the Australian company either. It is also by now settled that the payment for software is for a copyrighted article and not copyright per se, and, therefore, is not covered by the scope of payment for copyright. The authority for this pro....
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....to the data processing but what is important to bear in mind is the fact that the payment is not for the use of mainframe computer per se, that the Indian company does not have any control over the mainframe computer or physical access to the mainframe computer, and that the payment is for act of specialized data processing by the Australian company. Use of mainframe computer in the course of processing of data is one of the important aspects of the whole activity but that is not the purpose of, and consideration for, the impugned payment being made to Australian company. The payment, as we have observed earlier, is for the activity of specialized data processing. It is neither practicable, nor permissible, to assign monetary value to each of the segment of this economic activity and consider that amount in isolation, for the purpose of deciding character of that amount. Therefore, neither the impugned payment can be said to be towards use of, or right to use of, the mainframe computer, nor is it permissible to allocate a part of the impugned payment, as attributable to use of, or right to use of, mainframe computer. Accordingly, the provisions of article 12(3)(b) cannot have any a....
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....cussion. Moreover, we find that in the latest decision of Hon'ble Delhi High Court in the case of DIT vs. News Sky Satellite BV passed in ITA 473/2012, order dated 8. 02. 2016 have explained the ratio and principle of Hon'ble Bombay High Court in the case of Siemens Aktiongesellschaft (supra). The relevant observation of the Hon'ble Delhi High Court in the said case reads as under:- "48 In Commissioner of Income Tax v. Seimens Aktiongessellschaft, [2009] 310 ITR 320 (Bom), the Bombay High Court citing R v. Melford Developments Inc. held that "The ratio of the judgment, in our opinion, would mean that by a unilateral amendment it is not possible for one nation which is party to an agreement to tax income which otherwise was not subject to tax. Such income would not be subject to tax under the expression "laws in force". While considering the Double Tax Avoidance Agreement the expression "laws in force" would not only include a tax already covered by the treaty but would also include any other tax as taxes of a substantially similar character subsequent to the date of the agreement as set out in article 1(2). Considering the express language of article 1(2) it is not possible to a....