TaxTMI 
TaxTMI 
2019 (9) TMI 304
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....ising of hardware and software) to Indian telecom operators is taxable in India on the basis that the appellant has a Permanent Establishment ('PE') in India under the provisions of Article 5 of the Double Taxation Avoidance Agreement between India and Finland ("India-Finland tax treaty"). 2. Not pressed 3. Without prejudice, based on facts and circumstances of the case and in law, the ld. CIT (A) has erred in applying global net operating margin of 16.46 percent to estimate the income from supply of telecommunication equipment. 4. Without prejudice, based on facts and circumstances of the case and in law, the ld. CIT (A) has erred in not considering the India specific Profit and Loss account furnished by the appellant, which reflected losses incurred from supplies made to customers in India. 5. Without prejudice, based on facts and circumstances of the case and in law, the ld. CIT (A) has erred in attributing 20 percent of the estimated income from supply of telecommunication equipment to the alleged PE in India, by completely ignoring the following facts submitted by the appellant: (a) Supply contracts/purchase orders, being high value contracts, were 'concluded/ac....
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....nts made by the appellant to Nokia India while computing the income from R&D activities undertaken in India. 9. Based on facts and circumstances of the case and In law, the learned CIT (A) has erred In upholding the levy of interest under section 2348 of the Income-tax Act, 1961, thereby ignoring the Judgment of the Hon'ble Tribunal In appellant's own case for AY 1997-98 and AY 1998-99." 3. The Revenue has raised the following grounds: "1. On the facts and circumstances of the case, Ld. CIT(A) has erred in attributing only 20% of profits to activity of the PE in India for supply of Hardware. 2. On the facts and circumstances of the case, Ld. CIT(A) has erred in attributing only 20% of profits of activity of the PE in India for supply of Operating Systems Software. 3. On the facts and circumstances of the case, Ld. CIT(A) has erred in attributing the profits on Research & Development (R&D) activities in the same proportion as the proportion of Global Profits are attributable to ratio of Global R&D Expenses & Global Expenses and thus disregarding the facts that Global Expenses even contain expenses of the branches where R&D activities are not even carried out." ....
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....ts attributable to such PE in India - Whether revenues from supply of software are in the nature of 'royalty' / 'fees for technical services' under the provisions of the Act and the India-Finland Tax Treaty - Whether the assessing officer has correctly imputed the income of Rs. 5,00,00,000/- as income from vendor financing (Relevant for Assessment Years 2003-04 to 2006-07) - Whether the appellant constitutes a PE in India on account of R&D activities undertaken in India under the terms of sub-contracting agreement executed between the appellant and Nokia India (Relevant for Assessment Years 2004-05 to 2006-07) 7. The orders of the ld. CIT (A) were mainly based on the order of the Special Bench of ITAT Delhi dated 22.06.2005 in the case of assessee. Later, the matter reached the Hon'ble High Court where the Hon'ble High Court has passed an order dated 07.09.2012 25 Taxman 225 dealing with the issues. Later, the Special Bench was constituted following the directions of the Hon'ble High Court and the ITAT Special Bench, Delhi passed an order dated 05.06.2018 65 ITR (T) 23 for the assessment year 1997-98 and 1998-99. 8. Ground Nos. 1, 3 to 5 of assessee's appeal in ITA Nos....
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....ce NTPL is a wholly owned subsidiary of the assessee in India and is consequently in a position to control and monitor its activities, the installation charges were directed to be so fixed that they were not commensurate with the services rendered by NTPL. The next question will be why would the assessee do so. We cannot think of any other reason except that the part of the price for installation of the GSM equipment was diverted as the price for the supply contract. Whether there is direct evidence or not for this conclusion, or whether it 1s permissible for us even to make such an inference from the circumstances of the case, is not really material for the present purpose. What it material is that there was ample scope for the assessee to control and monitor the activities of NTPL which, it should be remembered is a l00% subsidiary of the assessee, in such a manner that NTPL became a virtual projection of the assessee company in India. The other point made by the Income-tax authorities was that the assessee even represented to the Indian cellular operator that it will not dilute its share holding in the Indian subsidiary below 51% without the written permission of the Indian cell....
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....tanding, the test of permanency qua fixed place has been slightly diluted by the Hon'ble Court but not the "disposal test". Again this judgment of Hon'ble Supreme Court has been reiterated and referred extensively in a subsequent judgment by the Hon'ble Supreme Court in the case of Asstt. DIT v. E-Fund IT Solution (supra) , wherein the Hon'ble Apex Court had quoted extensively the same views and commentaries and also the judgment of Formula One World Championship Ltd. and held that there must exist a fixed place in India which is at disposal of foreign enterprise through which they carry on their own business. In that case, the Indian subsidiary company of the foreign enterprise was rendering support services which enabled the foreign enterprise in turn to render services to its client and the outsourcing of work to the Indian subsidiary was held to be not giving rise to fixed place of PE. This judgment of the Hon'ble Supreme Court nearly clinches the issue before hand in so far as role of Indian subsidiary while deciding the fix place PE. 44. Now in the light of the aforesaid principle we shall examine the various kinds of contracts/activities undertaken by ....
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....show that there was a place in the form of NIPL which was at the disposal of the assessee. 45. First of all, in so far as the allegation that the Country Manager of the LO continued to be the Managing Director of the Indian Company, the same has with reference to one employee, namely, Mr. Hannu Karavitra who was the Country Manager in LO and in that capacity has signed two contracts in the month of February and March, 1995. These contracts were signed when NIPL was not even in existence. After the incorporation of NIPL on 23.05.1995, not an iota of evidence has been brought on record that Mr. Hannu Karavitra had signed any contract on behalf of the assessee. He was a Managing Director of NIPL from 01.01.1996 to 31.07.1999 and after he was employed with NIPL, he has not signed any supply contracts with the Indian customers. All the installation contracts which have been signed by the NIPL have been executed by the NIPL independently with the Indian customers on principal to principal basis and any income received or accrued thereof, was subject to tax in India. During the course of the hearing, it was brought to our notice that on one assignment letter dated 24.05.1995 was signed....
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....39; and assessee was unable to furnish the details of employees working in NIPL alongwith the details of their duration and therefore, in absence of such details adverse view should be drawn for treating these employees constituting PE in India. The entire thrust of his argument simply whittles down for the reason that firstly, there is absolutely no concept of 'Service PE' in the then existing provision of Article 5; and secondly, other than off-shore supply of equipment, no other activities has been carried out by the assessee after the incorporation of the Indian subsidiary NIPL and this fact has been accepted by the Hon'ble High Court also. Thus, any activities relating to NIPL under the independent contract cannot be reckoned to constitute a PE in the context of Article 5(1); and even if for argument sake it is accepted that the activities of NIPL were managed by assessee, then also, it does not constitute PE qua activities of supply contract or any activity from where it can be held that any income has been received or accrued to the assessee in India or through or from any asset in India. NIPL is an independent entity and all its income from India operation is li....
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....that how the marketing support services have been provided by the Indian company to the assessee and also the administrative support services were provided by NIPL to assessee. Regarding marketing support services by NIPL to assessee we have already discussed above that it was done under separate contract and NIPL was remunerated at arm's length. In so far as administrative facilities being provided by the NIPL to the expatriates coming for signing of contract on behalf of the Nokia Finland, he had stated that, administrative support like office support, cars, telephones, etc. was being provided by NIPL; and earlier office of liaison office of NIPL are at the same premise in the year 1995. Relying on such statement, ld. CIT-DR has vehemently contended that this material facts itself goes to prove that there is a fixed place PE which was at the disposal of the assessee. In light of such contention, we have to see whether any place of business was provided by NIPL to the assessee which can be said to be at a disposal of the assessee for carrying out its business wholly or partly in India. The sequitur of the judgment of Hon'ble Apex Court as incorporated above is that, in ord....
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....in India. In fact the entire allegation of fixed place was qua the LO and never in the context of NIPL by the Assessing Officer. The entire case of the Assessing Officer was that NIPL is a DAPE of the assessee, because all employees of the assessee were either working for the NIPL or NIPL was undertaking certain marketing and technical support services for the assessee. The concept of DAPE would be discussed in succeeding paragraphs. However, so far as the issue of fixed place PE is concerned the same does not get established at all by making to reference of providing of telephone, fax and car facility to the employees of assessee visiting India. As regards allegation that expatriates employees of assessee in India were assisting the NIPL and hence used the office of NIPL, is of no relevance qua assessee's business, because, the technical expatriates were in India to assist/help NIPL with performance of installation activities of NIPL and not to carry out the business of the assessee which was manufacturing and sale of network equipments. This activity per se cannot be reckoned that the Indian office was being used for the purpose of assessee's business or assessee was unde....
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....nt Agent PE as provided in paragraph 5 of Article 5, the key consideration for holding an agent to be a deemed PE is that, a person/enterprise who is not an agent of independent status is acting in a contracting state (here in this case India) on behalf of an enterprise of other contracting state (here Finland) in respect of any activities where he habitually exercises an authority to conclude contracts on behalf of the enterprise; or if he has no such authority, but habitually maintains stock of goods or merchandise which he regularly delivers goods or merchandise on behalf of the enterprise, then he is deemed to be DAPE. From the material facts discussed in detail herein above are that the entire contract supply of off-shore equipments has been done by the assessee outside India and no activity relating to off-shore supply has been performed in India. There is no material fact on record that NIPL has negotiated or concluded any contract of supply of equipment on behalf of the assessee which binds the assessee. The title of the goods supplied is directly passed on to the customers in India and NIPL neither undertakes any negotiation process nor assist in delivery of goods. Under a....
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....employee of NIPL. Thus, the basic condition contained in Article 5(5) does not stand satisfied at all. The contract which has been signed by NIPL is installation which cannot be reckoned DAPE, because assessee in India has not carried out any installation activities on its own. In so far as the allegation of the Assessing Officer that NIPL was in complete control of the assessee and was subject to its instruction. This again in our opinion is not a relevant consideration at all for a creation of a DAPE as discussed above, because none of the supply activities of the assessee has been carried out by NIPL and the employees if at all were for the NIPL's activities in India for which it is liable to tax in India. Further, for the purpose of this clause also, if activities are of preparatory and auxiliary in nature, then again the same will not satisfy the threshold of DAPE. The Assessing Officer has also referred to the fact that in the accounts of LO for the period ending 31st December, 1995, there was an expenditure of Rs. 5 crores which suddenly from the year 1996, got shifted in the Indian company and from there he draws an inference that Indian company has not received any com....
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....rovided by NIPL's employee were monitored by assessee and for the installation work done by Indian company, some kind of note regarding installation contracts were sent to the assessee. This objection has no relevance for determination of PE, because, firstly, it would have been of some relevance in the case of composite contract situation; and secondly, managing or providing guarantee by assessee does not yield any income to the assessee, albeit to NIPL, which is taxed in India. Lastly, in so far as the expatriates of NIPL were responsible for installation work were employees of the assessee, only proves that assessee provided necessary assistance, information, knowledge and expertise to do the work. This observation of AO only goes to prove that that expatriates employees deputed in NIPL are in connection with the installation contracts executed by NIPL and since there is no concept of 'Service PE' in India, therefore, nothing turns around on such observation. Thus, on the facts and material on record, we hold that there is no DAPE within the scope and terms of Article 5(5) of the treaty. 50. Admittedly, paragraph 6 of Article 5 is not applicable. Paragraph 7 of Ar....
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....an customers for which it could be said that the installation activity of NIPL was wholly and almost wholly on behalf of the assessee. The two contracts which were signed earlier prior to the incorporation of NIPL were separate and assigned to it and income from such installation has been shown in the hands of NIPL in India. There is no income whatsoever from installation activities has been earned by the assessee in India or can be attributed either directly or indirectly through NIPL. Insofar as other activities like marketing and technical support services are concerned, same has been transacted at arm's length as discussed in detail in foregoing paras, hence no profit can be attributed from these activities as held by the Hon'ble High Court. Even if NIPL is held to be; subject to significant control with respect to the manner in which work is to be carried out; is subject to detail instructions from the assessee as to the conduct of work; is exercising less freedom in the conduct of business on behalf of assessee; seeking approval from the assessee for the manner in which the business is to be conducted; etc., then all such control if at all could be only in relation to....
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....sidiary answers most of the allegation made by the Department that NIPL being a subsidiary of the assessee itself will provide status of a PE. 52. In so far as the argument of the learned CIT DR that Indian subsidiary is a virtual projection of the assessee as employees of Assessee Company were practically performing all kinds of work, and therefore, it has to be treated as a permanent establishment of assessee. In support of such a concept of virtual projection, strong reliance has been placed on the judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Vishakapatnam Port Trust (supra) which the learned CIT DR submitted that have been referred and relied upon by the Hon'ble Supreme Court in the case of Formula One (supra) also. First of all, the concept of 'virtual projection' has to be seen in the context of any of the ingredient of PE enshrined in Article 5. Hon'ble Andhra Pradesh High Court while explaining the concept of fixed place PE, observed that the PE postulates existence of a substantial element of enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that ....
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....ttributed to India under Article 7. The Hon'ble High Court while remanding the matter back to the Tribunal in terms of paragraph 38 has also directed to examine as to whether the subsidiary of the assessee would provide business connection or is Permanent Establishment. Thus, for the sake of completeness, we shall discuss in brief, whether the assessee was having any kind of business connection in India or not. The provision of Section 5 of the Income-tax Act defines the scope of total income and sub section (2) reads as under:- "(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.'' First requirement is whether any income is deemed to have been received in India to non-resident. Here on the facts of the case this clause may not be applicable, because undisputedly the title of the goods of the GSM equipments supplied by the assessee has been transferred out....
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....apital asset situated in India shall be taxable in India if they come within the meaning of income deemed to accrue or arise in India as explained in Section 9 of the Act. Thus, where any income accrues or arises to a nonresident through or from any "business connection" in India where all the operations are not carried out in India only such income will be chargeable to tax in India as can be attributed to the operations carried out in India. In light of these provisions and facts of the case, we will analyse the rival contentions of the parties and the judicial proposition highlighted before us in this regard. 54. Before us, regarding the existence of business connection, Mr. Deepak Chopra relied upon the judgment of Hon'ble Supreme Court in the case of CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20 (SC) and submitted that mere performance of some activities in the Indian Territory does not afford a business connection of foreign company in India. What is important to examine here is that the trading activities within the territories should be linked with the trading activities carried on outside the taxable territories. Here, in this case, he submitted that the activity i....
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.... and acceptance was not determinative of this factor. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India............" Finally, he strongly relied upon the judgment of Hon'ble Delhi High Court in the case of Nortel Networks India International Inc. v. DIT [2016] 386 ITR 353/241 Taxman 464/69 taxmann.com 47 and submitted that this judgment squarely clinches the issue in favour of the assessee and strongly relied upon paragraphs 43 to 47 of the said judgment. Relying upon the aforesaid judgment, he submitted that mere existence of a business connection it is not enough to trigger taxability in India in respect of off-shore supply of telecomm equipment to Indian customers because there must be same activity carried out in India relating to the off-shore supply. 55. On the other hand, learned CIT-DR has reiterated the same set of arguments that right from negotiation of contract to supply was undertaken through employees of the assessee either independently or through NIPL and the entire marketing activities for such sale has been done through NIPL. Hence, it constitutes a busines....
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....ough admittedly a permanent establishment existed in the case of Ishikawajima, nevertheless, the Court held that no part of the profit arising from the supply of the equipment was chargeable to tax in India as the permanent establishment had no role to play in the transaction sought to be taxed as it look place abroad, whilst in the case of the assessee, it has been found as a fact by both the appellate authorities that no permanent establishment existed; (v) the mere signing of the contract pursuant to which the supply was made in India, in both cases does not result in giving rise to a tax liability in India; (vi) the existence of the overall responsibility clause was held to be irrelevant in Ishikawajima's case and likewise the overall agreement executed in the assessee's case should not make any difference to the taxability of the equipment supplied; (vii) giving the nomenclature of a turnkey project or works contract is not relevant in determining whether any profit arising from the supply of equipment pursuant to such contract was chargeable to tax in India; (viii) the Supreme Court relied upon Instruction No. 1829 to come to the conclusion that the existe....
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....ly of off-shore equipment which has been done outside India cannot be held to be taxable in India, then the same principle and proposition would also be applicable in the case of NIPL also, because, so far as the supply contracts are concerned there is absolutely no change in the facts and circumstances as even after the NIPL is incorporated in May, 1995, the off shore supply equipment and the supply contract remained the same. The marketing activities and installation contract undertaken by NIPL has been on principal to principal basis; and in the case of former agreement between assessee and NIPL, the payment has been made to NIPL on cost plus markup basis which has not been disturbed; and in the later agreement there is an independent contracts by NIPL with Indian customers which has nothing to do with the assessee. The income arising from both the contracts are taxable in the hands of the NIPL in India. Thus, the finding and the ratio of the Hon'ble High Court would apply mutatis mutandis though rendered in the context of LO will also apply in the case of NIPL as qua the supply contract there is no material change in any case. 58. Apart from the judgment of Hon'ble D....
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....on'ble High Court observed and held as under:- 'It is apparent from the plain reading of Section 9(1) of the Act that all income which accrues or arises through or from any business connection in India would be deemed to accrue or arise in India. In CIT v. R.D. Aggarwal & Co.: (1965) 56 ITR 20 (SC), the Supreme Court observed that business connection would mean "a relation between a business carried on by a non-resident and some activity in the taxable territories which are attributable directly or indirectly to the earnings, profits or gains of such business". However, by virtue of Explanation 1 to Section 9(1) of the Act, only such part of the income which is reasonably attributable to operations carried out in India would be taxable. Thus, if it is accepted that the Assessee has received only the consideration for the equipment manufactured and delivered overseas, it would be difficult to uphold the view that any part of Assessee's income is chargeable to tax under the Act as no portion of the said income could be attributed to operations in India. 44. There is little material on record to hold that Nortel India habitually exercises any authority on behalf of t....
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.... will not constitute a PE. For the sake of ready reference, paragraphs 69 to 72 are reproduced hereunder:- 69. The AO, CIT (A) and ITAT have held that the office of Nortel India and Nortel LO constituted a fixed place of business of the Assessee. As pointed out earlier, we find no material on record that would even remotely suggest that Nortel LO had acted on behalf of the Assessee or Nortel Canada in negotiating and concluding agreements on their behalf. Thus, it is not possible to accept that the offices of Nortel LO could be considered as a fixed place of business of the Assessee. In so far as Nortel India is concerned, there is also no evidence that the offices of Nortel India were at the disposal of the Assessee or Nortel Canada. Even if it is accepted that Nortel India had acted on behalf of the Assessee or Nortel Canada, it does not necessarily follow that the offices of Nortel India constituted a fixed place business PE of the Assessee or Nortel Canada. Nortel India is an independent company and a separate taxable entity under the Act. There is no material on record which would indicate that its office was used as an office by the Assessee or Nortel Canada. Even if it is....
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....igations of installation, commissioning, after sales service and warranty services. The ITAT also concurred with the view that since employees of group companies had visited India in connection with the project, the business of the Assessee was carried out by those employees from the business premises of Nortel India and Nortel LO. In this regard, it is relevant to observe that a subsidiary company is an independent tax entity and its income is chargeable to tax in the state where it is resident. In the present case, the tax payable on activities carried out by Nortel India would have to be captured in the hands of Nortel India. Chapter X of the Act provides an exhaustive mechanism for determining the Arm s Length Price in case of related party transactions for ensuring that real income of an Indian Assessee is charged to tax under the Act. Thus, the income from installation, commissioning and testing activities as well as any function performed by expatriate employees of the group companies seconded to Nortel India would be subject to tax in the hands of Nortel India and the same cannot be considered as income of the Assessee." This judgment of Hon'ble Delhi High Court clea....
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....been incorporated in earlier part of the order; therefore, same is not being discussed again. 61. After considering the relevant finding and rival contentions, we find that, it has not been brought on record that in any of the contract the assessee had charged any interest on delayed payment or providing any credit facilities to its customers or any customer has paid any such amount for each day elapsed from the due date to the actual payment. Once none of the parties have either acknowledged the debt or any corresponding liability of the other party to pay, then it cannot be held that any income should be taxed on notional basis which has neither accrued nor received by the assessee. Whence the benefit of credit period given to the customers has neither accrued to the assessee nor acknowledged by the other person, then it cannot be said that interest on notional basis should be calculated for the purpose of taxation. Otherwise, it is a well settled proposition that income cannot be generated, actual or accrued if no income has actually been accrued or received to the assessee. There has to be some income which has resulted to the assessee and even though in books, entries have ....
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.... Hence, no income can be said to accrue to the assessee on account of delayed payments as neither there was any corresponding liability on any of the debtors nor assessee had claimed any entitlement on such an interest. Accordingly, this issue is also decided in favour of the assessee. 62. The aforesaid findings and conclusions given in respect for the A.Y. 1997-98, will apply mutatis mutandis in the appeal for the A.Y. 1998-99 year, as exactly similar facts and issues are permeating in this year also. 63. In the result, all the issues which have been remanded back by the Hon'ble High Court to this Tribunal stands decided in favour of the assessee and against the Revenue." 11. Since, the matter of PE stands adjudicated in favour of the assessee, in the absence of any change in the material facts, following the earlier order of this Tribunal, we hereby hold that the assessee do not have a PE within the terms of Article 5 of India-Finland DTAA. Thus, this ground of appeal of the assessee is allowed. 12. Ground Nos. 4 to 6 of assessee's appeal in ITA No. 5819/Del/2010 and Ground No. 2 of departmental appeal in ITA Nos. 1236 to 1238/Del/2010 deals with supply of equipment....
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....at the 100% Indian subsidiary of the assessee, namely, NTPL, constitutes the assessee's PE in India, the payment for the software cannot be assessed under Article 15 for the reasons that it is not in the nature of royalty. However, a question may arise as to why the payment cannot be assessed as "business profits under Article 7. The reason is that the software has been held by us to be part of the GSM Cellular Systems as a whole, the sale of which has taken place outside India as held by us earlier." Accordingly, relying on the decision of the Honourable Special Bench of the Delhi ITAT, I hold that there is no need to bifurcate the payments from supply of telecommunication system separately into hardware and software. The entire receipts in respect of the contract for Supply of telecom equipment including hardware and software shall be treated as business Income." 15. This issue has been summarized in the judgment of Hon'ble High Court as under: "6.1 These questions have been decided by the Special Bench vide judgment dated 22.06.2005; however, in so far as the appeal relating to the assessee is considered, the following findings have been given by the Special Bench which ....
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....ome. Thus the observations in para 274(b) have no relevant to what has been discussed in this paragraph.' (6) Payment for supply of software was not in the nature of 'royalty' because the same was for a copyrighted article and 'not for a copyright. Further, software was held to be integral part of GSM equipment. Payment for supply of software was held not taxable both under the provisions of the Act and under DTAA. (7) Interest income from vendor financing was held to have been correctly added. (8) Following 3 activities were held to have been carried out by NIPL, the PE of Nokia in India: (a) Network Planning; (b) Negotiations in connection with the sale of equipment; & (c) Signing of supply and installation contracts. (9) 20% of the net profit determined on the basis of the global net profit of Nokia (10% towards signing of the contract and 10% towards other two activities) was attributed to the PE in India. This margin was directed to be applied on the Indian sales of Nokia (clarified by the Special Bench of the ITAT to mean revenues arising from supply of hardware and software). 7. The substantial question of law admitted by the Hon'b....
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....f supply of hardware has been dealt in point no. 2 at para 6.1 and supply of software which is integral to the supply of hardware and taxing it royalty has been decided vide Question No. 3 by the Hon'ble High Court of Delhi vide order dated 7th September 2012. It stands adjudicated that the sale of hardware took place outside India and hence no income from sale of hardware accrued to Nokia in India. The issue of royalty on the software has been held in favour of the assessee based on the order in the case of (343 ITR 470) DIT Vs Ericssion AB. It was held that these payments cannot be said to be in the nature of royalty either as per the Indian Income Tax Act or DTAA and hence cannot be held to be taxable. It was held that what was sold was a GSM which consisted both hardware as well as the software and hence they cannot be taxed under two different articles. For ready reference the relevant part of the judgment of the Hon'ble High Court is reproduced as under: "QUESTION OF LAW NOS. 3 & 5 25. This aspect has already been discussed in detail by us in DIT v. Ericsson A.B. [2012] 343 ITR 470 / 204 Taxman 192 / [2011] 16 taxmann.com 371 (Delhi) which reasoning equally applies to t....
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....ssette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. ..................... ................... 29. Our reasoning given in Ericsson A.B. (supra) therefore would apply to this case as well. Even otherwise, we find, as a fact, the assessee had entered into contract for supply of GSM equipment. Responsibility for installation and commissioning of the equipment ....
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....Rs. 5,00,00,000/- the assessing officer has not provided any basis for the same. The said income has been considered as "business income" and taxed at the rate of 40 percent (plus surcharge and cess) on the basis that such income is taxable in India as per provisions of the India-Finland tax treaty. In my view, this issue does not need any detailed discussion. The mere fact that no credit was taken in the account books for interest cannot stop the accrual thereof as the appellant's income. The Honourable Special Bench of the Delhi ITAT at Para 283 of the order has held that income from vendor financing has been rightly imputed since there is no evidence on record to substantiate that such interest was not charged. Para 283 of the order reads as under: "We have considered the facts and the rival contentions but we find no Substance in the assessed's case. The findings of the CIT (Appeals) have not been refuted before us on the basis of any material or evidence. The existence of the clause in the agreement for charging interest @ 18% p.a. is not denied. All that is contended is that the clause was not activated but this contention is without substance because if the agreeme....
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....e was entitled to receive such interest, and therefore, same should have been accounted for and in support he has relied upon the judgment of Hon'ble Supreme Court in the case of State Bank of Travancore (supra). Ld. counsel for the assessee had submitted that the said judgment has already been distinguished in the subsequent judgment of Hon'ble Supreme Court in the case of UCO Bank (supra) and secondly, only the real income can be brought to tax and not something on hypothetical basis, because there has to be corresponding liability to the other party to whom the income becomes due and here such a clause was never enforced by the parties. Already the arguments of both the parties have been incorporated in earlier part of the order; therefore, same is not being discussed again. 61. After considering the relevant finding and rival contentions, we find that, it has not been brought on record that in any of the contract the assessee had charged any interest on delayed payment or providing any credit facilities to its customers or any customer has paid any such amount for each day elapsed from the due date to the actual payment. Once none of the parties have either acknowled....
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.... has it been held by the Assessing Officer/CIT (A) that such an interest is legally claimable right against the Indian customers in respect of interest on delayed credit period on Vendor Financing. Thus, we hold that when assessee has neither treated the amount to be legally claimed nor has acknowledged any debt due too on its customer as delayed payment then it cannot be held that any interest accrued to the assessee, and therefore, such a notional charging of interest for each day elapsed from the due date to the actual payment cannot be held to be taxable to the assessee. This proposition has also been now well upheld by Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra). Hence, no income can be said to accrue to the assessee on account of delayed payments as neither there was any corresponding liability on any of the debtors nor assessee had claimed any entitlement on such an interest. Accordingly, this issue is also decided in favour of the assessee." As a result, appeal of the assessee on this ground is allowed. 20. Ground No. 8 of assessee's appeal in ITA Nos. 1006 to 1008/Del/2010, Ground Nos. 7 & 8 of assessee's appeal in ITA No. 5819/Del/2010 and G....
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.... out the weighted average of attribution ratio in accordance with the method discussed above and ii) He should then multiply the expenses incurred on R&D in India in a particular AY with the weighted attribution ration for that year. 23. Before us, during the hearing, the ld. AR argued that the similar matter has been adjudicated by the Hon'ble High Court of Delhi in the case of Adobe Systems Incorporated 69 taxmann.com 229 vide order dated 16th May 2016. The ld. DR relied on the order of the revenue authorities. 24. The brief facts of that case are the assessee was a company incorporated under the laws of Delaware in USA. It provided software solutions for network publishing which included web, print, video, wireless and broadband applications. The assessee had a wholly owned subsidiary in India, namely, Adobe India. Adobe India provided software related Research and Development (R&D) services to the assessee and the assessee did not have any business operations in India. The R&D services rendered by Adobe India, were paid for by the assessee on cost plus basis in terms of an agreement entered into between the assessee and Adobe India. For relevent years, the Assessing Offic....
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....ontinuous business connection as Adobe India is connected to the Assessee through a network of lease lines and other technological means". 13. On the basis of the above, the AO concluded that activities carried out by Adobe India were a part of the Assessee's core business activities and, consequently, Adobe India constituted the Assessee's PE under Article 5(1) of the Indo-US Double Taxation Avoidance Agreement (DTAA). He also observed that in terms of the agreement between Adobe India and the Assessee, the Assessee was obliged to provide assistance, specifications and supervision and was further entitled to audit the facilities of Adobe India for maintenance of the requisite standards. This, according to the AO, indicated that the Assessee had a Service PE in India in terms of Article 5(2)(l) of the Indo-US DTAA. According to the AO, Adobe India was also a dependent agent of the Assessee and thus, constituted its PE in terms of Article 5(5) of the Indo-US DTAA. 14. The AO reasoned that since the Assessee had a PE in India, a part of the profit accruing to the Assessee which is attributable to the activities in India was chargeable to tax under the Act. 15. The AO....
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....sposal. The AO has simply proceeded on the basis that the R&D services performed by Adobe India are an integral part of the business of the Assessee and therefore, the offices of Adobe India represent the Assessee's fixed place of business. Thus, clearly the right to use test or the disposal test is not satisfied for holding that the Assessee has a PE in India in terms of Article 5(1) of the Indo-US DTAA. 33. In E-Funds IT Solution (supra), this Court had expressly negated that an assignment or a subcontract of any work to a subsidiary in India could be a factor for determining the applicability of Article 5(1) of the Indo-US DTAA. The Court had further expressly held that : "Even if the foreign entities have saved and reduced their expenditure by transferring business or back office operations to the Indian subsidiary, it would not by itself create a fixed place or location permanent establishment. The manner and mode of the payment of royalty or associated transactions is not a test which can be applied to determine, whether fixed place permanent establishment exists. Reference to core of auxiliary or preliminary activity is relevant when we apply paragraph 3 of Arti....