TaxTMI 
TaxTMI 
2020 (12) TMI 857
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....iable to be quashed." 3. An identical additional ground was raised in the case of Reliance Capital Markets Ltd. in ITA No. 1881/DEL/2014, 1583/DEL/2015, 753/DEL/2016 and 1763/DEL/2017 for A.Ys 2009-10 to 2012-13. The additional ground raised was dismissed by the coordinate bench in the impugned appeals. Respectfully following the decision of the co-ordinate bench [supra], the additional ground raised by the assessee in all the captioned appeals are dismissed. 4. The common grievances in all these appeals read as under: "1. That the Learned Assessing Officer ('AO') erred in passing the impugned draft assessment order dated March 28, 2013 (the 'Draft Assessment Older') and the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') erred in passing directions under Section 114C of the Income-tax Act 1961 (the Act') partially confirming the Draft Assessment Order, in summary, the Learned AO erred in assessing the income of the Appellant at Rs. 9,30,98,73,816 as against the returned income of Rs. 5,39,58,286 reported by the Appellant in its return of income. 2. On the facts and in the circumstances of the case and in law, the Learned AO erred not appr....
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....cts and circumstances of the case, the Learned AO and Hon'ble DRP erred in holding that existence of Appellant's wholly owned subsidiary, Huawei India, creates BC in India under Section 9(1)(i) of the Act. 5. On the facts and in the circumstances of the case and in law, the Learned AO has erred in proposing and the Hon'ble DRP further erred in confirming that the income of the Appellant is assessable to tax under the Tax Treaty on the ground that the Appellant constitutes a PE in India, viz. (a) Fixed Place PE under Article 5(2) read with Article 5(1) of the Tax Treaty; (b) Installation PE under Article 5(2) read with Article 5(1) of the Tax Treaty; (c) Service PE-under Article-5(2)(k) read with Article 5(1) of the Tax Treaty; and (d) Dependent Agent PE under Article 500 of the Tax Treaty. 6.1 On the facts and circumstances of the case and in law, the AO as well as the Hon'ble DRP erred in not appreciating that that since no part of activity relating to sale of network equipment and terminal equipments was carried out by the Appellant in India, the question of attributing-any income in India does not arise. 6.2 On the facts and circumstances of the cas....
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....onstitutes a PE in India). 7.4 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not following the decision of Jurisdictional Hon'ble Delhi High Court in case of Nokia Networks OY (253 CTR 417) and Ericsson A.B. (19 ITR (Trib) 341) and various other judicial precedents, supporting Appellant's above contentions 8. On the facts and circumstances of the case and in law, the Learned AO erred in. levying interest tinder Section 234B of the Act." 5. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also considered the judicial decisions relied upon by both the sides. 6. At the very outset, in our considered opinion, there cannot be any decision, which would be factually identical to the facts of the assessee, mutatis mutandis, in order to adopt the ratio laid down by various high courts as well as the Hon'ble Supreme Court. In fact, all the decisions of the Hon'ble High Court, relied upo....
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....ventorized. Statements of various senior executives were also recorded. 12. During the course of assessment proceedings, the assessee was confronted with the impounded documents and explanation was sought. The assessee was specifically asked to explain as to why revenue from supply and installation of equipment should not be taxed. 13. In its reply, the assessee stated that, it being a tax resident of China, has opted to be taxed in India, as per tax treaty entered into between India and China. It was explained that the income derived by HC from supply of telecommunication equipment to Indian customers qualifies as business profits and, accordingly, taxability of such income is governed by the provisions of Article 7 of India China tax treaty. It was explained that as per Article 7(1) of the India China tax treaty, business profits earned by a Chinese tax resident are taxable in India only if that Chinese resident carries on business in India through a PE in India. Supply contracts with Indian customers were negotiated through electronic means or through short visits of Huawei China's personnel at the customer locations in India and all contracts were accepted and concluded b....
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....n certain activities. 17. Referring to the decision of the Hon'ble Supreme Court in the case of CIT Vs. R.D. Agarwal and Co. 56 ITR 20 and the Hon'ble Bombay High Court in the case of Blue Star Engineering Co. versus CIT 73 ITR 283, the Assessing Officer came to the conclusion that the assessee has business connection in India u/s. 9(1)(i) of the Act. 18. Referring to the decision of the Tribunal in the case of Nokia Networks OY vs. JCIT 94 taxmann.com 111 (Del), the ld. counsel for the assessee stated that the ratio decidendi emanating from the aforesaid decisions is that the following conditions should exist to constitute 'Business Connection' in India: * A real and intimate relation must exist between the trading activities carried on outside India by a non-resident and the activities in India * The relation contributes directly and indirectly to the earnings of income by the non-resident in his business; * There should be an element of continuity between the business of the non-resident and the activity in India. To put it apparently, stray or isolated transaction is not normally regarded as a business connection. 19. Accordingly, if no operations of bu....
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....roviders. Thus, the dominant purpose is to set up the equipment as per requirement of the telecom service providers. 23. The Supreme Court in the case of BSNL [2006] 3 STT 245 has explained the dominant nature of an equipment. The relevant portion of the same is as under: "The reason why these services do not involve a sale for the purposes of Entry 54 of List - II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract fall....
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....allation projects, which have lasted for more than 183 days thereby creating 'installation PE' of the assessee in India under Article 5(2)(j). The Assessing Officer further observed that the employees of the assessee have rendered services in India other than in the nature of technical services and that such services have continued in India for more than 183 days thereby creating 'service PE' in India under Article 5(2)(K). Assessing officer further observed that the process of joint bidding done by the assessee and HI does result into 'dependent agency PE' under article 5(4) of the tax treaty. 32. Before us, the learned counsel for the assessee vehemently stated that the products in which the assessee deals are technically complex advanced products and it is the technology and manufacturing efforts which play an important role in product selling. Accordingly, it is the technology and not marketing which enables the appellant to effectively sell its products to customers. The ld. counsel explained that the assessee has entered into TSA with HI and the assessee provided certain technical personnel to HI. Fees for technical services accruing to the appellant ....
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..../goods or part thereof. In such an event, without in any way limiting any rights and remedies of owner under this agreement or applicable law in respect of such a rejected shipment/goods, the seller shall, at its own cost/expense, replace such a rejected shipment and/or the damaged/incorrect goods and supply the undelivered part of the short shipped within a period of 20 days from the date of notification by the owner of its rejection." 38. A similar clause is provided in the contract with HTL wherein under Article 7.3, it is provided: "The seller shall, at its own cost and expense replace all or any equipment which are defective." 39. Similarly, in the contract with Sterlite Optical Technologies Ltd. at clause 10.5.5, it is provided as under" "Any equipment rejected due to defect in quality arising during inspection by the buyer or by customer will be rectified by the supplier free of cost at site of place of equipment" 40. The ld. counsel for the assessee vehemently stated that risk may pass at a later point of time but the title passes at the intent of the parties and in the present case, title has passed outside India. 41. At this stage, it would be pertinent to understa....
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....s not only to the civil work, but also to the goods supplied under the supply contract; in all the contracts, the supplier becomes entitled to full payment only upon receipt of such certification; the payment is linked to successful inspection and certification; if the contract has an inspection or a certification clause, title does not pass till the inspection and certification are successful, and the buyer/owner has indicated his approval; the Supreme Court, in Usha Belltron 158, held that title passes only upon certification; and the petitioners contention that the taking over certificate was merely for ensuring proper quality of goods supplied, and does not relate to passing of property in the goods, is not tenable. 96. In Usha Beltron Ltd. 158, the petitioner contended that the property in the goods had passed to the Government of India before it entered the Municipal limits; this was a contract for sale of specific goods in a deliverable state; the property in the goods passed to the buyer when the contract was made; and it was immaterial as to what was the time of delivery of the goods. Clause 5.5, of the bid document therein, provided for the issue a taking over certifica....
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....ma-facie, passes with the property and, thereunder, unless otherwise agreed, the goods remain at the sellers risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyers risk whether delivery has been made or not. Section 26 is not attracted where the contract provides otherwise. While the question, as to when title to the goods is transferred from the seller to the buyer, must be determined from the conditions stipulated in the subject contracts, if the parties have agreed that the responsibility for risk of loss and damage to the goods would be that of the supplier till erection of the plant is completed, it is evident that transfer of title to the goods was intended to pass only on erection, and not prior thereto. 100. Section 41(2) of the 1930 Act stipulates that, unless otherwise agreed, when the seller tenders delivery of the goods to the buyer he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. Section 42 relates to acceptance and, thereunder, the buyer is deemed to ....
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....twork equipment to Indian customers/telecom operation who had no role to play in installation/commissioning of telecom network supply to Indian customers/telecom network operators. 50. Huawei India had executed independent contracts with telecom operators under which responsibility for installation, erection and commissioning of the telecom network equipment rested with HI. It is the say of the ld. counsel for the assessee that HI is fully equipped to perform installation activities independently and has necessary technical and operational capabilities at its disposal to render such services independently. Installation, testing and commissioning activities were undertaken by HI in its independent capacity under separate contracts with Indian customers/telecom operators. Invoices for installation, testing and commissioning services are independently raised by HI and paid for by the customers directly to HI. 51. The ld. counsel for the assessee further explained that HC has provided certain technical personnel capable of rendering technical services to HI under TSA. Such services, being technical in nature, were considered as 'Fees for Technical Services' as per Article 12 ....
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....on, installation or assembly project or supervisory activities in connection therewith, where such site project or activities continue for a period of more than 183 days. 58. Another contention of the ld. counsel for the assessee is that mere presence of an independent agent does not result in PE provided the agent is acting in the ordinary course of his business. It is the say of the learned counsel that the dependent agency PE can be said to result only where it can be established that such agent has or habitually exercised authority to conclude contracts in India on its behalf. The ld. counsel for the assessee vehemently stated that HI does not constitute Dependent Agent PE, as all strategy/policy and decision making functions reside with HC outside India and role of Huawei India was only restricted to providing local market inputs and interface and undertaking marketing activities for HC on principal to principal basis. 59. In its written submissions, the ld. counsel for the assessee further contended as under: "On perusal of Article (4) of DTAA, it is clear that mere presence of an independent agent does not result in a PE, provided the agent is acting in the ordinary cour....
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....advancement of business of HC in India. 62. As mentioned elsewhere, the claim of the assessee is that HI responsible only for preparatory work. If that be so, then where is the need for secondment of foreign expats with Indian entity. 63. The Hon'ble Supreme Court in the case of Formula One World Championship Ltd. 80 Taxmann 347 has raised the question as to whether the fixed place was put at the disposal of the appellant entity. The Hon'ble Supreme Court observed that this question can be answered only after analysing various agreements relevant to the event in wholesome manner in order to understand the entire arrangement between FOWC and its associates. Thus, the principle laid down by the Hon'ble Supreme Court is that all relevant agreements must be read in a wholesome manner and not in piecemeal. 64. The relevant extracts of the decision read as under: "We are of the firm opinion, and it cannot be denied, that Buddh International Circuit is a fixed place. From this circuit different races, including the Grand Prix is conducted, which is undoubtedly an economic/business activity. The core question is as to whether this was put at the disposal of FOWC? Whether t....
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....hysically conducted in India and from this race income was generated in India. Therefore, a commonsense and plain thinking of the entire situation would lead to the conclusion that FOWC had made their earning in India through the said track over which they had complete control during the period of race. The appellants are trying to trivialize the issue by harping on the fact that duration of the event was three days and, therefore, control, if at all, would be for that period only. His reply was that the duration of the agreement was five years, which was extendable to another five years. The question of the PE has to be examined keeping in mind that the aforesaid race was to be conducted only for three days in a year and for the entire period of race the control was with FOWC." 66. The Hon'ble Supreme Court further held as under: "Coming to the second aspect of the issue, namely, whether FOWC carried on any business and commercial activity in India or not, substantial part of this aspect has already been discussed and taken care of above. Without being repetitive and pleonastic or tautologous, we may only add that FOWC is the Commercial Right Holder (CRH). These rights can ....
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....lity; - The agent bears risk of loss from its own activities; and - The agent is not dependent wholly and exclusively on one principal. The number of principals represented by an agent is also determinative of economic independence of the agent." 70. As mentioned elsewhere, the Indian resources were involved in deal negotiations on behalf of the assessee. Reference is made to the email offer dated 30.01.2009 of Shri Arundeep Kakkar. Further, joint bidding shows the business activity including signing of bid documents from the office premises of HI and there is no denial that HI is participating in negotiations of deal with Indian clients on behalf of HC. 71. Facts on record clearly establish that HI is economically dependent on the assessee as it has handled the work of installation of telecom equipment supplied by HC on technical support provided by HC. Further, the business of HI is wholly and exclusively for equipment supplied by HC. In fact, HI came into existence with an intent to aid the business of HC in India. Facts on record clearly show that HI is not capable of supplying the equipment what it is bidding for. Products to be supplied must cater to the specific requir....
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....ween the client, its technical and financial experts and also its headquarters. Oftentimes the headquarters too had to be consulted on technical matters. After this consultative process ended and the terms of supply were agreed to, the final affirmative to the offer, to be made by the Indian customer, would be indicated by GEs headquarters." 75. As in the present case it is not a supply of standard product but product based on specific requirements of the customer. 76. Considering the facts in totality, in light of the judicial decisions discussed hereinabove, and considering from all possible angles, we have no hesitation to hold that HI not only constitutes dependent agent PE of HC but also Service PE and fixed place PE within Article 5 of Indo China DTAA. The counsel had vehemently argued that statements recorded at the time of survey do not have any evidentiary value in light of the decision of Hon'ble Madras High Court in the case of S. Kader Khan 301 ITR 157 which has been confirmed by the Hon'ble Supreme Court in 210 Taxmann.cpm 248. In our considered opinion, the said decision is totally on different set of facts. 77. We have to state that in the decision relied ....
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....t the issue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court. That in the case of Ericsson A.B., New Delhi (supra), Hon'ble Jurisdictional High Court held as under:- "Once one proceeds on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Act or under the DTAA. It is apparent that what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in holding that it was not permissible for the revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an integral part....
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....he Software are the exclusive property of Infrasoft. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensee's own business as defined within the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse engineer the Software without Infrasoft's written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect....
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....ernal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially coextensive with the owner/transferor who divests himself of the rights he possesses pro tanto." 17. That the facts of the assessee's case are identical with the facts before the Hon'ble Jurisdictional High Court. Though the learned counsel for the assessee has given all the agreements between the assessee and buyers, however, at the time of hearing before us, only one or two agreements were referred and....
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.... by MTNL for entire city of Delhi/Mumbai. ii) Certificate issued by MTNL for Compliance of 30% Value addition as per the tender condition. In case of deduction of Liquidated damages by MTNL on installation and commissioning, the buyer will submit such documentary proof issued by MTNL of such deduction to Bank and the same will be adjusted from the third payment. Any LD on account of Buyer that is deducted from the supplier's second payment will be settled duly paid to supplier in the third payment." 21. Learned DR, with reference to above paragraphs as well as the schedule to the agreement, pointed out that there is a separate price as well as separate payment schedule in respect of cost of equipment, i.e., hardware and cost of equipment i.e., software. Page 39 paragraph 25.8 of the agreement reads as under:- "25.8 In respect to the Equipment containing Software acquired under this Contract, the Buyer is hereby granted a non-exclusive, non-transferable and non-sub-licensable license to use the Software. Buyer is granted no title or ownership rights or interests in the Software, where such title, rights and/or interest in the Software shall remain with the Supplier or Suppli....