TaxTMI 
TaxTMI 
2021 (11) TMI 585
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....of the ld. CIT(A) which has been decided against it. 3. The brief history of the captioned appeals are that in the first round of litigation, vide order dated 12.03.2004, the Assessing Officer in Assessment Year 1999-2000, has made the additions as under: S. No. Income Head Goss income amount (Rs) Net taxable amount (Rs) Tax rate Tax amount (Rs) 1. Sale of hardware 1,003,309,774 7,22,88,469* 48% 3,46,98,465 2. Supply of software 253,263,779 253,263,779 10% 25,326,378 Total 1,256,573,553 282,181,224 6,00,24,843 4. While making the additions, the relevant observations of the Assessing Officer read as under: "As in preceding years (he claim of the assessee is that they had supplied the equipment at the port in Sweden and their income is not liable to tax in India as per provision of the Indian Income Tax Act, 1961 (the Act) and the Indo Swedish Double Taxation Avoidance Agreement (DTAA) vide Notification No. GSR 705(E). .This issue has been examined at length in the orders passed during earlier years for Assessment Year 1997-98, 1998-99 and 2000-01. In these orders my predecessors had held that the assessee company was liable....
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....h fact determination to the detriment of the assessee was unwarranted in the circumstances of the case. However, the problem is that the ITAT did not stop and remit the matter to proceed on a fresh determination of the same material. Its discussion - to be found in paras 24 and 27 of the impugned order, was rendered based on the findings with respect to the previous years (1997-98) and the failure to make out a new case. We are of the opinion that having primarily recorded that the CIT (Appeals)'s order was bad for the reason that he did not follow the procedure prescribed by the law, the ITAT ought not to have followed in the same manner, in appreciating the facts in the first instance as it did. We are conscious that this Court in its ruling in Ericsson (supra) had rendered findings on the question of taxability of the transaction of supply and concluded that the supply contracts did not lead to any inferences that income had arisen or accrued in India. The facts found by this Court also pointed that there was PE. However, that decision has to be seen in the light of the facts available to Court at that time. The question as to what was the material collected during the survey an....
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....was constituted in India within the meaning of Article 5 of the DTAA. 15. The views taken by the Assessing Officer/ ld. CIT(A) were duly considered by the Special Bench of the Tribunal in assessee's own case for A.Ys 1997-98 and 1998-99 which order of the Tribunal was upheld by the Hon'ble High Court of Delhi [supra]. 16. The ld. CIT(A) is of the firm belief that in light of the facts and documents and evidences unearthed during the course of survey operation conducted on 22.11.2007, the facts of the A.Y under consideration are clearly distinguishable from the facts of A.Ys 1997-98 and 1998-99 considered by the Special Bench of the Tribunal. 17. Referring to the judgement of the Hon'ble High Court of Delhi by which the Hon'ble High Court has upheld the order of the Special Bench of the Tribunal for A.Ys 1997-98 and 1998-99, the ld. CIT(A) was of the opinion that the Hon'ble High Court has categorically stated that "The position might have been different if the buyer had the right to reject the equipment on the failure of acceptance test carried out in India." 18. Taking a leaf out of the aforesaid observations of the Hon'ble High Court of Delhi, the ld. CIT(....
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....e from the AY 1997-98 and 1998-99 in the case of the assessee." 19. The above observations of the ld. CIT(A) are factually incorrect and he has misdirected himself by considering erroneous facts. Firstly, the contract which was considered was not of RPG but was of JT Mobile and this contracts is placed in Volume III of the paper book at pages 854 to 875. At clause (18), contents of acceptance read as under: "18. Acceptance test shall be carried out in respect of the System or parts thereof by the Installation Contractor which shall be binding on the Contractor herein. Acceptance shall be performed in accordance with the terms and conditions stipulated in the Installation Contract." 20. Clause (21) reads as under: "21.1 THE SYSTEM If the System upon installation by the installation Contractor, would not conform to and function and operate in accordance with the criteria and specifications set forth in the Specification (Annexes 1, 2 and 3), 'contractor warrants to repair or replace the System or parts thereof, in accordance with what is stated below, so that it will conform to and function and operate in accordance with the criteria and specifications set forth in the ....
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....item or the use thereof not supplied or manufactured by Contractor. 23.2 This Article 23, infringements, provides Contractor's sole liability and JT MOBILES' sole remedy for claims of infringements of intellectual property rights brought by a third party by reason of the proper use of the system." 22. The above clauses with the contract with JT Mobile will now be compared with the relevant clauses of contract with Bharti Cellular Contract. 32. Clause 19.2 reads as under: "19. Acceptance Test is the responsibility of Buyer or Buyer Affiliate and shall be performed by preferred Subcontractor nominated by Buyer or Buyer Affiliate and as approved by Supplier. Acceptance Test shall be carried out by the Subcontractor for each Purchase Order in respect of the System or each Part of the System supplied under the Purchase Order, as per Acceptance Test Procedure as mutually agreed between Parties as per Annexure 5. If any inspected or tested goods fail to conform to Specifications as specified in Annexure 3 and Annexure 4, during the Acceptance Test, Buyer or Buyer Affiliate may reject such goods and the Supplier shall either replace the rejected goods or make all alterations ne....
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....9.9 If Buyer or Buyer Affiliate does not issue the Acceptance Certificate within the period specified in Article 19.4 above, it shall be deemed to have been issued by Buyer or Buyer Affiliate to Supplier and all the provisions of Article 19.4 shall apply accordingly. 19.10. If the System or Part of System supplied by the Supplier is not installed due to reasons which can be attributable to the Buyer or Buyer Affiliate beyond 150 days, then such System or Part of System will be deemed to be Accepted. 33. Clause 23 reads as under: "23.1 Supplier shall indemnify and keep indemnified Buyer and Buyer Affiliate against all actions or claims brought by a third party for alleged infringement of patents, registered designs or any other intellectual property right by reason of the proper use of the System in the Territory where the System is installed, and Supplier shall promptly, at his option and own expense, either i) procure for Buyer and Buyer Affiliate the rights for continued use of the System in its present form, or ii) replace or modify the System so that it no longer infringes any such rights, or iii) settle or defend any further claim, suit or proceeding against Buyer o....
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.... was argued that the Assessing Officer rightly concluded that overall responsibility was on the assessee for supply, erection and after sale services and the assessee had complete control over the management, functions and the associates. The question that falls for consideration is as to whether this acceptance test, which was performed in India, would be relevant for determining as to whether income accrued in India in terms of Section 5 (2)(b) of the Act." 41. We, find that the terms of contract make it clear that acceptance test is not a material event for passing of the title and risk in the equipment supplied. It is because of the reason that even if such test found out that the system did not conform to the contractive parameters, as per article 21.1 of the Supply Contract, the only consequence would be that the Cellular Operator would be entitled to call upon the assessee to cure the defect by repairing or replacing the defective part. If there was delay caused due to the acceptance test not being complied with, Article 19 of the Supply Contract provided for damages. Thus, the taxable event took place outside India with the passing of the property from seller to buyer and....
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....onducted on November 22, 2007 relates to such changed business model. * The appellant clarified that with new business model effective from 01/04/2006, the appellant only interacted with EIL and then EIL started doing business with Indian cellular operators, 38. As can be seen from the above summary and documents confronted to the assessee, the so called evidences/documents did not pertain to Assessment Years 1999-2000 to 2004-05. At para 5.30, the ld. CIT(A) has observed that the telecom projects generally run over for three or more years. Therefore, the role of the appellant entity to supply the telecom solution is also spread across the years and the business model for such contracts remained same across the years. 39. In our considered opinion, such observations of the ld. CIT(A) should go against him because if nothing is changed, then why did he differ from the findings of the Special Bench of the Tribunal which order was upheld by the Hon'ble High Court of Delhi [supra]. 40. It is worth mentioning here that the business model of the appellant company changed from 01.04.2006 and therefore, any adverse inference drawn may be relevant for the Assessment Year commencing....
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....s Valuation Rules, 1998 read with Section 14 of the Customs Valuation Rules, 1962; * Demand duty of Rs. 5,80,10,601/- + Rs. 3,30,83,584/- under the proviso to Section 28(1) of the Customs Act, 1962 along with applicable interest under Section 28AB ibid: * Confiscate the equipment under Section 111(m) of the Customs Act, 1962; and impose penalty under Section 112(a)/114A of the Customs Act, 1962. 4.4 The show cause notices also proposed penalties on EIL, the third appellant." 45. At clause 21.4, the following observations have been made: (a) The ADG, DRI has only issued the show-cause notices and did not adjudicate the cases. ADG, DRI had been duly appointed as Collector by Notification No. 19/90-Cus. (N.T.), dated 26-4- 1990. Further, he had been specifically empowered by the Board vide Circular No. 4/99-Cus., dated 15-2-1999 to issue show cause notices and the said Circular has not been withdrawn. ADG, DRI had been duly appointed as Commissioner under Notification No 17/2002-Cus. (N.T.), dated 25-10-2002. Subsequently, Notification No. 44/2011 confers the functions of proper officers for the purposes of Section 17 and Section 28 of the Customs Act. Further, amendment (dat....
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....ly labelled defeating the claimed status of the software. They were not opened and not used till they were seized by the DRI authorities. The appellants have not chosen to ask for provisional release of the said items even though the total declared value was Rs. 113.50 crores. This is to be contrasted with their efforts to take provisional release of seized equipments worth Rs. 9.94 crores after furnishing bank guarantee worth Rs. 2,35,43,253/-. In fact, there was no proposal to confiscate the said seized software with declared value running to hundreds of crores. In other words, the Department has treated the said goods as unworthy of confiscation and the appellant has treated the same as unworthy of retrieval. (g) The equipment imported had the software preloaded, in fact, with a backup. In addition, undisputedly, the appellants could have downloaded the software through internet if the backup also crashes. Under these circumstances, what was separately imported as softwa«| classified under 85.24 can be appropriately considered only as e-waste. (h) The claim that the permission to use the software i.e., "licence" for use of the software was associated with the software ....
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....een given: "23(h) In view of the deliberate misdeclaration with intention to evade duty, the extended period of limitation is invocable. Penalties are also imposable on the appellant-assessees. However, in the absence of evidence no penalty can be imposed on EIL." 47. The entire basis of the findings of the ld. CIT(A) has been demolished by this order of the CESTST. 48. The ld. CIT(A), thereafter, proceeded by considering the place of signing of the contract to emphasize that EIL is PE of EAB in India and further observed that not only the contracts were signed in India, but a number of employees of the assessee company and their associated companies visited India for the purpose of net work survey and to negotiate the terms of the contract. 49. These adverse observations of the ld. CIT(A) have been duly considered by the Hon'ble High Court of Delhi in assessee's own case for Assessment Years 1997-98 and 1998-99 [supra] as under : "43. Thus, Overall Agreement does not result the income accruing in India. The execution of an overall agreement is prompted by purely commercial considerations as the India Cellular Operator would be desirous of having a single entity that he ....
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....hat the contract was signed in India is of no material consequence since all the activities in connection with off shore supplies were carried outside India. We are therefore, of the view that the decision in the case of Ishibkawajima-Harima Heavy Industries Ltd [supra] covers the issue as to whether any part of the profit arising from supply of equipment by the assessee is chargeable to tax. 52. Considering the facts of the case in totality, in light of the discussion hereinabove, we do not find any merits in the findings of the ld. CIT(A) in respect of addition sustained by him. We are of the considered view that the appellant has no business connection in India in respect of supply of GSM System by the appellant to cellular operators in India and further, there is no PE in any form in India in the captioned Assessment Years and therefore, the question of attribution of profit does not arise at all. 53. Before parting, the ld. DR has placed strong reliance on the decision of this Tribunal in the case of Huawei Technologies Co, Ltd ITA No. 1500/DEL/2014 and others for Assessment Years 2009-10 to 2016-17. However, we are of the considered view that the facts of the case in hand a....