AI Drafter 
TaxTMI 
TaxTMI 
2019 (10) TMI 512
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....we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused. 3. The appellant, M/s Siemens Mobile Communications [SMCS for short], is a company incorporated under the laws of Italy. The appellant was engaged in the business of manufacture and supply of microwave transmission equipment. During the years under consideration, SMCS supplied microwave transmission equipment (including both hardware and software components) to its customers in India, being independent telecom operators viz., BPL Mobile Communications Ltd., Usha Martin Telecom Ltd., Tata Communications Ltd., Modicom Network Pvt. Ltd. and Aircel Digilink Pvt. Ltd. 4. The quarrel is in respect of taxability of offshore supplies made by SMCS to the aforementioned telecom operators in India. The Revenue has taken the consistent position that some portion of the profit relating to these offshore supplies should be brought to tax in India. The basis for this position taken by the Revenue is the activities relating to installation, commissioning and maintenance, which would require the presence of SMCS i....
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....5(4) of the DTAA? 8. The Hon'ble Supreme Court in the case of Formula One World Championship Ltd. 394 ITR 80 and ADIT v. E-Funds IT Solution Inc. 399 ITR 34 has held that there triggers no taxability in respect of offshore supplies in the absence of a PE of the non-resident assessee in India. In so far as the attribution of profit is concerned, as enshrined in Article 7 of the DTAA, the same would be inapplicable in absence of any activity relating to the offshore supplies being carried out in India. 9. Interestingly, in 1998-99, the ld. CIT(A) has decided the issue involving the existence of a PE in favour of the appellant. However, in subsequent years, the successor ld. CIT(A) did not follow the order passed by his predecessor. 10. As mentioned elsewhere, the appellant has supplied items to independent telecom operators and such supplies have been made offshore. A perusal of the contracts with the telecom operators shows that supply was concluded with the title and risk in the components passing on to the concerned telecom operators offshore. 11. However, the ld. DR has analyzed the contracts in a Tabular Form as under: 12. It seems the ld. DR has misconstrued the ....
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.... expatriate employees were coming for negotiation and signing of contracts, these activities are not revenue generating activities and since no expatriate employees visited in the subsequent years, issue of fixed PE in any case would not arise. For this proposition, we draw support from the decision of the Hon'ble High Court of Delhi in the case of DIT v. Ericsson A.B., New Delhi [2012] 343 ITR 470. 17. It would be pertinent to understand the role of SPCNL. The appellant had entered into an agreement dated 01.10.1997 with its sister concern, SPCNL, where under SPCNL was required to carry out marketing and promotional activities; inform SMCS about the programs and plans of various public bodies, corporations or private entities; call for tenders; enable commercial, technical, administrative and legal support; etc. For these services rendered, SPCNL was remunerated on arm's length basis. 18. On 01.10.1997, SPCNL also entered into independent contracts with the telecom operators in India for undertaking installation, testing and commissioning of the components supplied to them by the appellant. In addition to these activities, the scope of activities performed by SPCNL also enco....
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....ance on the decision of the Tribunal in the case of Hitachi Hitech Technologies ITA Nos. 2683 to 2688/DEL/2015 and pointed out that the Tribunal has held that the existence of the LO constituted a PE of Hitachi Hitech Technologies. 25. In our considered opinion, the decision in the case of Hitachi Hitech Technologies [supra] was delivered on different set of facts wherein pursuant to survey operation, certain facts were unearthed and on the basis of these facts, the Tribunal came to the conclusion that the LO constituted a PE of Hitachi Hitech Technologies. The case in hand is devoid of all those facts and hence the said decision of the Tribunal would do no good to the Revenue. 26. As mentioned elsewhere, the Revenue has strongly alleged that title in components passed to telecom operators in India onshore. SMCS had a significant role to play in the process of carrying out acceptance tests and the same was done by SPCNL on behalf of the appellant. 27. Another point raised by the ld. DR in support of the assessment order is that It is difficult to envisage that the appellant would have chosen to remain unrepresented either by itself or through a representative during a cruc....
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.... the contracts and had carefully scrutinized the same while holding in favour of the assessee. 33. Coming to the issue relating to Power of Attorney, facts on record show that the PoA dated 13.09.1997 was not executed for signing of contract dated 26.02.1997 entered into between SPNCL and BPL Mobile Communications. The contract dated 26.02.1997 was signed by Shri Binotti under a separate PoA dated 16.02.1997. This is evident from the contract dated 26.02.1997, exhibited at page no. 2 of paper book no. 1, for which the PoA was executed on 16.02.1997. The said PoA has also been exhibited at page no. 1014 of paper book no. 4. Contract dated 17.09.1997, at page no. 61 of paper book no. 1, PoA was executed on 15.11.1997. This PoA has also been exhibited at page no. 1018 of paper book no. 4. In our considered view, signing of the contract is merely putting signature on a paper and does not, in any manner, lead to an inference of PE or business connection. 34. As mentioned elsewhere, the Revenue has alleged that the appellant has failed to provide information with respect to employees who visited India during the subject AYs which precluded the Revenue to analyse whether the appella....
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.... 39. In so far as the issue relating to fixed place PE is concerned, the allegation is that supply of components is linked to a fixed place and also the activity of installation, commissioning and maintenance. In our understanding of the facts, since the offshore contract for supply of components cannot be read together with the onshore contract of rendering installation, commissioning and maintenance, and has to be seen in the light of the provisions of India- Italy DTAA and tests set out in the decision of the Hon'ble Supreme Court in the case of Formula [supra] and which are (a) Place of business (b) Disposal test and (c) Virtual projection. 40. Considering the facts on record, SPCNL should not be considered a fixed place from which business of the appellant was wholly or partly carried out. The business of SPCNL is not dependent on the appellant as the facts show the variance in the scope of activities nor it can be said that SPCNL is at the disposal of the appellant. 41. We will now address to the issue of installation PE. The allegation of the Assessing Officer is that since the appellant is engaged in the activity of manufacture and supply of components as well as ....
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.... was by way of separate contracts between SPCNL and the telecom operators. SPCNL cannot be regarded as DAPE of the appellant in India. 47. Contracts between the appellant and telecom operators show that the appellant was not even responsible for performing pre-network surveys or software updates. The appellant does not hold any equity capital in SPCNL and the sphere of activities performed by SPCNL was much broader than those envisaged under the agreement entered into between SMCS and SPCNL. 48. Assuming, yet not accepting that the installation activities were undertaken by SPCNL at the behest of the appellant, the same would still not render the income of the appellant to be taxable in India, since the supply of hardware components, i.e., the taxable activity, was completed before the installation activities. 49. The ld. DR had placed reliance on the decision of the co-ordinate bench in the case Daikin Industries Ltd., Gurgaon [2018 - TII- 165, which is distinguishable on facts, because in that case the Indian entity involved was identifying customers, approaching customers, negotiating prices, and finalizing products sold by it in the capacity of a distributor, as well b....
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....nism provided in Section 195(2) of the Act. The failure of the payers to do so does not leave the Revenue without remedy; the payer may be regarded an assessee-in-default under Section 201 and the consequences delineated in that provision will visit the payer. The appeal of the Revenue is accordingly dismissed without any order as to costs. " It may be pointed out that the Finance Act, 2012, w.e.f. 1.4.2012 added proviso below section 209(1)(d) of the Act. But the said proviso is applicable from assessment year 2013-14 and, therefore, prospective in operation. 28. In our understanding, the insertion of the proviso cannot be considered to have retrospective effect so as to expose a nonresident company to levy of interest u/s 234B of the Act for the assessment years prior to assessment year 2013-14. In the light of the above, we direct the Assessing Officer to not charge interest u/s 234B of the Act." Respectfully following the findings of the co-ordinate bench, we hold that no interest is leviable u/s 234B of the Act. Accordingly, we direct the Assessing Officer not to charge interest u/s 234B of the Act. 53. Considering the facts of the case in totality, the....
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.... as per Article 7 of the DTAA. Rather, it is taxable under Article 13 of the DTAA. The Assessing Officer, accordingly, computed the liability of the assessee as under: Income from supply of hardware 9,90,36,601/- Tax on above @ 48% 4,75,37,568/- Tax on supply of software 7,58,33,736/- 60. The assessee carried the matter before the ld. CIT(A) but without any success. 61. Before us, the ld. counsel for the assessee, at the very outset, stated that the impugned issue is directly covered in favour of the assessee and against the revenue by the decision of the Hon'ble High Court of Delhi in the case of ZTE Corporation 392 ITR 80. 62. The ld. DR could not bring any distinguishing decision in favour of the Revenue. 63. We have given thoughtful consideration to the orders of the authorities below and have also considered the decision of the Hon'ble High Court of Delhi [supra]. We find force in the contention of the ld. counsel for the assessee. Similar issue was considered and decided by the Hon'ble High Court of Delhi [supra]. The relevant findings of the Hon'ble High Court read as under: "20. The misconception that the revenue harbor....
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....case of a cinematograph film- (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public (e) In the case of a sound recording- (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) To communicate the sound recording to the public Explanation - For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation." Thus, Section 14 categorically provides that copyright "means the exclusive right to do or authorizing the doing of any of the acts mentioned in Section 14 (a) to (e) or any ―substantial part thereof". The content of copyright in respect of computer programmes is spelt out in Section 14 (b). A joint reading of the controlling provisions of....
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....r kind of right termed as "copyright". 22. In the present case, the facts are closely similar to Ericson. The supplies made (of the software) enabled the use of the hardware sold. It was not disputed that without the software, hardware use was not possible. The mere fact that separate invoicing was done for purchase and other transactions did not imply that it was royalty payment. In such cases, the nomenclature (of license or some other fee) is indeterminate of the true nature. Nor is the circumstance that updates of the software are routinely given to the assessee's customers. These facts do not detract from the nature of the transaction, which was supply of software, in the nature of articles or goods. This court is also not persuaded with the submission that the payments, if not royalty, amounted to payments for the use of machinery or equipment. Such a submission was never advanced before any of the lower tax authorities; moreover, even in Ericson (supra), a similar provision existed in the DTAA between India and Sweden." 64. Respectfully following the findings of the Hon'ble High Court [supra] we direct the Assessing Officer to delete the impugned addition....
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....Final quantities of TPR-1, p.29eauinment will & 88] he confirme on the basis of ioint surve reports of the assesse and BPL [PB-1; Art-4 0: n.7 & 661 - After the arrival of th equipments at the port destination. the assesse shall furnish to BPL th details of the quantities the equipment delivered an the equipments shall b checked jointly by representative of th assessee and one of BPI Document 2 01-08-97 Assessee shall make available all the test instruments ион ант во to the system....in accordance with CIF required for acceptance [PB-1; AT MOOMI Mumbai. [PB-1; Art-17, p.12 Annx-8, p.56 & 121] 8 130 ВИ Ðова-З - Specific documentation, as agreed will be detailed in the Service Contract (PB-1: Annx-5 glidoMenem9i2 p.117 of TATE & EOISTOE & 018.0й ATI 80-S00s of ee-seer eros\80\0 гÑиоион ÑUDY ÐГÐЗІЯ TI YAN 091-9265 od odt tuA noizzimdu2 1911 Violenplayhi orth UMTL called for proposals from intending suppliers for the manufacture, delivery (CIF Calcutta Airport), In....
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....tay? p.350]; on al bris noitelleten Commissioning" means to en putting installed and tested system at site into service. 88q.S-xonnA подqие O to boiroq olls to 2) 19110 lliw [PB-2; cl.14, p.350] -Advance payment by UMTL 10 against the presentation of Advance Payment Bond" of equivalent amount by the pitcassessee.[PB-2; cl.4.2.1, 99 p.380] Now - UTML to provide access to the site to the assessee. etot pnirmohe uneM 180T ons [PB-2, p.372] Contract includes provision for "Local Supplies" [PB-2, Document 3 15-01-98 30-01-98 price shall be paid against the "Certificate of Acceptance". [PB-2; cl.4.2.1, p.381] Supply of Equipment and other Tata Villenebi 916 (28 p.381] obligations as per Annexure-V. Telecom [PB-2; cl.3 r.w. cl. 13 & Annex-V. p.394,400 & 493] Title to the Equipment shall pass to TCL after arrival of the equipment at the port of entry in India. [PB-2; cl. 17, p.401] Various tests [PB-2, cl.1.2 to 1.4; p.391-393] and payment schedule of the invoiced amount [PB-2; cl.7 r.w.cl.8; p.396-398] are interlinked and dependent upon each ....
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.... on provision of the formal Test Report, TCL shall issue the Final Acceptance Certificate (FAC) and the release of 'Down Payment Bank Guarantee of 10% of the contract value.[PB-2; cl.1.3; p.392 r.w. cl.8.4; S-89) uitp.398] After completion of the M392 of eldays System Stability Acceptance TCL will issue buce o yd ng 10 HIO Test 069 Network (818 Acceptance Inupgedue yns no Certificate (NAC) and the 2019verelease of 'Performance erit mcGuarantee of 15% of the purchase order.[PB-2; cl.1.4; p.393 r.w. cl.8.4; p.398] SPCNL shall submit Acceptance Test Report to TCL within 1 week after the & (SPCNL) (1) 2-A 19bu completion bexi of s the (1)2-19b 39.90 Acceptance Test as well as a corrective solution plan 00-eeer Y.A 101 19b70 hou in case of failure. [PB-2; to 292imshq 9d 16 sq.1.2, p.499 r.w. cl.1.2 16 duob on 21 919T p.392] niedzi edit to gi9xham bas noitomo znizd Document 4 TIT-TO- 97 IPB-2: n.522 & 4111 & Annex- III IPB-2: p.5578.4851 are identically worded with that of the Supply agreement. Especially all the antecedents to the award of contract to....