TaxTMI 
TaxTMI 
2021 (11) TMI 585
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....al in respect of the other part of the order 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 ....
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.... reasonable opportunity is to be afforded to the assessee, the ITAT was correct in holding that such 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 avail....
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....assessee had fixed place of business in India as well as it is dependent agents in India by virtue of which PE of the assessee 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 ....
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....the contract with Bharti with reference to the 'rejection clause'. Therefore, it is an important finding that the facts of the case for the years in question are distinguishable 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 warr....
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....ontractor fails to act against such claims or actions JT MOBILES shall have the right to take appropriate legal action and shall be repaid any expenses in so doing; and e) that the infringement or alleged infringement is not arising out of the use of the System in combination or conjunction with any other 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 ....
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....ll notify Supplier, the names of persons authorised to issues an Acceptance Certificate. The Acceptance Certificate shall be issued promptly and at the latest three (3) days after Supplier's written request. Such Acceptance Certificate shall be conclusive evidence of the acceptance of the System and the date on such certificate shall be deemed to be the Date of Acceptance. 19.9 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 ....
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....;ble High Court of Delhi in assessee's own case in A.Ys 1997-98 and 1998-99 [supra]. The relevant findings of the Hon'ble High Court of Delhi read as under: " Article 15 of the Installation Agreement deals with acceptance test made by the Installation contractor which "includes the integrity of whole system and certificate binds the assessee". Article 17 provides warranties to rectify the defects in both hardware and software provided by the assessee. On this basis it 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 n....
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....ing the evidences collected during survey and called for specific comments of the assessee. This has been extracted by the ld. CIT(A) at pages 27 to 37 of his order which have been summarised as under: • Most of the documents collected during survey do not relate to the captioned AYs. • The documents collected during survey relate to a period when business model of the Appellant had changed because the changed business model was effective from April 1, 2006 and documents impounded during survey conducted 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....
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....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. 4.3 Proceedings were initiated by issuance of show-cause notices dated 29-5-2006 and 31-5-2006 to the appellant-2 wherein it was proposed to ; * Reject the values declared in respect of telecom equipments imported and re-determine the assessable value by adding the value of software separately imported under Rule 14 of the customs 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 ....
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....d softwares are found to be dupes copied in EIL, Gurgaon. Undisputedly, the impugned software is proprietary software. It has not been explained as to how the same was permitted to be copied by a third party, namely, EIL. It was claimed that it might be a cost-saving measure adopted by Ericsson AB Sweden. Allowing copying of proprietary software by a third party (even if the said party happens to be a subsidiary) was not a "cost-saving measure" but part of a design to evade customs duty. No records were kept for such copying of software. The copied software was sent to Sweden and dispatched back to India. The CDs/ODs were not in proper packing and not properly 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 ....
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....arketable as a separate commodity. We have not been shown that there was an option to buy the impugned software separately. (l) There is no justification for excluding the price of preloaded software from the value of equipments as claimed by the assessee-appellants. (m) There is clear evidence of deliberate under declaration of value of the imported equipments by the assessee-appellants through a grossly deceptive method with intention to e. see cs. duty In view of the above, the invocation of extended period for demand of duty, confiscation of the imported goods, and imposition of penalties or the assessees are justified." 46. And finally, at Clause 23(h), the following findings have been 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 em....
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....eal in favour of the assessee, which order has been upheld by the Hon'ble High Court of Delhi [supra], we are of the considered view that the property in goods have been passed outside India alongwith risks and reward. 51. No doubt the contract in question was signed in India and the acceptance test had to be performed in India would not justify the findings of the ld. CIT(A) in light of the judgment of the Hon'ble Andhra Pradesh High Court in the case of Additional CIT Vs. Skoda Export 172 ITR 358. The ratio laid down by the Hon'ble Supreme Court in the case of Ishibkawajima-Harima Heavy Industries Ltd Vs. DIT 288 ITR 408 squarely apply on the facts of the case wherein the Hon'ble Supreme Court has held that the fact that 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....
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.... circumstances of the case, and in law, the Ld. CIT(A) erred in holding that the payment In respect of supply of software was in nature of business income and cannot be characterized as Royalty either under the Income Tax Act or under the Indo-Sweden DTAA?" 60. This issue in now no more res integra by the judgment of the Hon'ble Supreme Court in the case of Enginering Analysis Centre of Excellence Pvt Ltd in Civil Appeal No. 8733 to 8734 of 2018 alongwith a bunch of 104 appeals. The relevant findings of the Hon'ble Apex Court read as under: "168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no app....