TaxTMI 
TaxTMI 
2021 (7) TMI 91
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....ee's appeal against the final assessment order dated 06.11.2020 passed in pursuance to the directions of the Ld. Dispute Resolution Panel ("DRP") vide directions dated 14.09.2020for the Assessment Year 2017-18. Since these appeals and crossobjection pertain to same Assessee involving common grievances and were heard together, we are disposing them off by this common order for the sake of convenience and brevity. The Assessee has also filed stay application for assessment year 2017-18. 2. The brief facts of the case are that the assessee company is a tax resident of Republic of China and is engaged in the business of providing telecom solutions. It provides a wide array of telecommunications product line in the world, covering vertical sector or wireless networks, core networks, access & bearer networks, services and terminals markets. During the assessment year/s ("A.Y.") 2016-17 and 2017-18, the assessee was engaged in supply of telecommunication equipment - Network Equipment, Terminal Equipment (Handsets) and Software to Indian telecom operators. Whereas, the Indian subsidiary of the assessee, i.e., ZTE Telecom India Private Limited, was engaged in installation, commissioni....
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....eng visited India between 15.12.2019 to 29.12.2019 however, even during this period he inadvertently missed to take necessary steps for filing of appeal and also did not informthe other concerned persons in this regard. Thereafter, Mr. Cheng was relocated and sent on deputation to Vietnam. Afterwards, owing to the unprecedented outbreak of the pandemic in China, follow up of the appeal could not happen and it was only once the legal department of the assessee was updating the status of the pending litigation was when the said omissionin filing appeal was discovered. The Ld. AR has argued that the delay in filing of appeal is bona fide and the issues in question have continuously been agitated by the Assessee before various forums including the Hon'ble High Court of Delhi for the preceding years viz. A.Y. 2004-05 to A.Y. 2015-16, where on the issue of attribution, substantial question of law has also been framed in assessee's appeal/s and are pending consideration. It is argued that there was no question of not preferring an appeal for AY 2016-17, had it not been for the inadvertent error. The Assessee has also furnished an affidavit along with the application for condonati....
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.... the courts to apply the law in a meaningful manner which subserves the ends of justice - that being the life-purpose for the existence of the institution of courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that: "1. Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferr....
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.... to press the same." 5. This ground was accordingly not considered by the Tribunal in earlier assessment years. Since during the captioned assessment years before us the ld. counsel for the assessee has made a similar concession and on such concession, we decline to dwell into this issue." 15. Hence, respectfully following the co-ordinate bench, we too decline to dwell into this issue of existence of PE and the relevant grounds are disposed off accordingly. 16. The next issue raised in Assessee's appeal for AY 2016-17 [Grounds no. 5 to 10] and Assessee's appeal for AY 2017-18 [Ground No. 8 to 12] relates to the attribution of profit. 17. The Ld.AR submitted that the activities relatable to India and rate of attribution to be applied in relation to such activities undertaken has been adjudicated by this Hon'ble Tribunal in Assessee's own case vide common judgment for AY 2004-05 to AY 2009-10 and AY 2010-11 to AY 2015-16. He further submitted that the Department has accepted the said decision/s of Tribunal and accordingly, on this issue, no further appeal has been filed before the High Court on either the issue of activities identified or the method / rate of attribu....
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....ribution rate of 50% was applied. However, considering that now the said decision of Tribunal in Nortel Networks (supra) has been overruled by the Hon'ble Delhi High Court in Nortel Networks India International Inc. v. DIT (2016) 69 taxmann.com 47 (Delhi), thus, even on this basis the higher rate of attribution is not justified. 20. The Ld. AR submitted that for the AY 2017-18 the Department has applied operating profitability of 2.41% as against the net global operating profitability of (-1.91)% as mandated by the Tribunal in Assessee's own case vide common judgment for AY 2004-05 to AY 2009-10 and AY 2010-11 to AY 2015-16. 21. At this juncture, the Ld. AR fairly submitted that the legal issue on attribution of profit is sub-judice before the Hon'ble Delhi High Court in Assessee's appeal for AY 2004-05 to AY 2015-16, wherein the following substantial questions of law have been framed vide order dated 18.08.2017 in ITA No. 297 to 302 for AY 2004-05 to AY 2009-10 (subsequently, similar order/s were passed for AY 2010-11 to AY 2015-16): "3. Having heard learned counsel for the parties, the following questions of law are framed for determination: (i) Even assumin....
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....the customers on behalf of the assessee. These are all vital functions which are revenue generating. The AO in AY 2009-10, as noted earlier, has elaborated in detail the functions carried out by PE in connection with sale in India. At the cost of repetition, we reproduce the same:- "Activities performed by PE, summarized by AO as under, - Supervision and control of projects in India by MD of ZTE India - Meetings at Tendering/ Pre Bid stage in India - Preparation of Bidding Documents in India - Signing and submissions of bids in India - Price and contract negotiations in India - Preparation of draft agreements and MOUs in India - Signing of agreement in India - Entering contracts in India - Obtaining Purchase Orders/ other supply orders on behalf of ZTE China - LC opening and supply of equipments/ handsets - Shipment of equipments/ handsets - Customs clearances - Transportation and delivery - Installation and commissioning - Supervision of installation and commissioning - Technical support services - Quality assurances - After sales services and replacement - Concluding agreements and MOUs on behalf of ZTE China - Performance Guarantee o....
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....services of expatriate workers had also been taken as part of the execution of the work by the PE. Thus, the level of operation carried out in India were extensive and under such circumstances Tribunal had attributed 50% of the net profit arising out of Indian transactions as assessee's income. 50. Having discussed the entire case law and after considering the factual aspects, we find that the level of operations carried out by assessee through its PE in India are considerable enough to conclude that almost entire sales functions including marketing, banking and after sales were carried out by PE in India and, therefore, keeping in view the decision of Hon'ble Supreme Court in the case of Ahmedbhai Umarbhai & Co. (supra), the decision of Rolls Royce (supra) and Nortel Networks India International Inc. (supra), we are of the opinion that it would meet the ends of justice if 35% of net global profits as per published accounts out of transactions of assessee with India are attributed to PE in India in respect of both hardware and software supplied by assessee to Indian customers. At this juncture we may point out that while deciding the department's appeal in subsequent part of this....
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....y" as per published accounts whilst calculating the attribution. 26. The other issue raised in Department's Appeal for AY 2016-17 [Ground No. 1 to 3] and Assessee's appeal for AY 2017-18 [Ground No. 15 to 17]is regarding the taxability of income from supply of software as Royalty. 27. The Ld. AR submitted that this issue is covered in favour of Assessee and against the Department vide common judgment dated 30.05.2016 for Assessment Year 2004-05 to AY 2009-10 and common judgment dated 15.02.2019 for Assessment Year 2010-11 to AY 2015-16. He also drew our attention to the fact that Department's appeal on this issue has been dismissed by the Hon'ble Delhi High Court for AY 2004-05 to AY 2015-16. He further submitted that though Department's petition's challenging judgment of Hon'ble Delhi High Court is sub-judice before the Hon'ble Supreme Court, however, recently in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT (2021 SCC On Line SC 159) the ratio laid down by the High Court in the case of Assessee has been expressly approved. Alternatively, he also argued that considering that the sale of software was inextricably linked wi....
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....also, the question NO.3 proposed by the Revenue and admitted by their Lordships reads as under:- "Whether any part of the consideration for supply of software stated by the respondent to be integral to the equipment is taxable as 'royalty' either under section 9(1)(vi) or the relevant provisions of the Double Taxation Avoidance Agreement?" After detailed discussion, their Lordships answered the question in favour of the assessee and against the Revenue. Since the issue is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of the assessee as well as in the case of Ericsson A.B. (supra). respectfully following the same, we uphold the order of learned CIT(A) in this regard and reject ground No.2 of the Revenue's appeal." 74. Respectfully following the decision of Hon'ble Jurisdictional High Court, as noted by Tribunal, ground nos. 2 & 3 are rejected." 30. Thereafter, the Department agitated the said judgment dated 30.05.2016 passed by the Tribunal in Assessee's own case for AY 2004-05 to AY 2009-10 before the High Court. The Hon'ble Delhi High Court vide judgment dated 24.01.2017 passed in ITA No. 904 to 909 of 2016 for AY ....
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.... BE & P revenue and PE under the PMS contract. The AO rejected these contentions. 8. Aggrieved by the AO's order, the assessee appealed to the CIT (A). The appellate commissioner accepted the assessee's contentions and found as follows: (i) Assessee had fixed place PE and dependent agency PE in India. However, he did not accept the AO's plea as regards installation PE in India. (ii) On the issue of taxation of software embedded in telecom equipment mobile handsets, CIT (A) held it to be taxable as business profit. (iii) As regards the computation of profits attributable to PE, the CIT(A) held that 2.5% of total sales made by foreign ITA Nos.1930 & 1474 /Del/2020 company in India was to be attributed as business profits of PE (including the value of software). (iv) The CIT (A) also directed the AO to delete the interest levied under Section 234B. XXXX 20. The misconception that the revenue harbors stems from its flawed appreciation of a copyright license. True, "copyright" is not defined; yet what works are capable of copyright protection is spelt out in the Copyright Act. Sections 13 and 14 of the Copyright Act flesh out the essential ingredients that make....
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.... 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 the earlier part of Section 14 with clause (b) implies that in the case of computer programs, copyright would mean the doing or authorizing the doing in respect of work (i.e. the programme) or any substantial part thereof - (b) In the case of a computer programme, - (i) to do any of the acts specified in clause (a) (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commercial rental does ....
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.... 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 A.B. (supra), a similar provision existed in the DTAA between India and Sweden." 31. We also note that the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Private Limited v. CIT (2021 SCC On Line SC 159) at Para 118 of the judgments has quoted Para 20 to 22 of the said judgment dated 24.01.2017 passed by the Hon'ble Delhi High Court in Assessee's case and thereafter observed as follows: "119. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite inde....