TaxTMI 
TaxTMI 
2023 (9) TMI 215
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....returned income and assessed income and apparently, the difference is in view of royalty income not offered to tax in Return of Income which was accepted later in MAP resolution. (ii) Whether on the facts and circumstances of the case the Ld.CIT(A) has erred by relying on the decision of the Hon'ble Supreme Court of India in case of Engineering Analysis whereas in the instant case there is no dispute by the assessee that the Royalty income is taxable in India and keeping in view that the said decision of the Apex Court was not available to it while filing its Return of Income for the concerned year. (iii) Whether on the facts and circumstances of the case the Ld.CIT(A) has erred by relying on settled principle of law that where two views are possible, taking of one of the plausible views does not amount to concealment of particulars of income whereas in this case both assessee and the Department are having the same view that the assessee had taxable presence in India. (iv) Whether on the facts and circumstances of the case the Ld.CIT(A) has erred in holding that the assessee has not concealed any particulars of income and quashed the impugned penalty orde....
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....ng appeals before ITAT were dismissed. Consequent to MAP proceedings final orders were passed and the penalties were levied u/s 271(1)(c) of the Act for concealment of income against which the assessee preferred appeals before the Ld.CIT(A) and the Ld.CIT(A) deleted the penalty on the ground that the quantum additions made in the assessment orders passed u/s 143(3) r.w.s. 144C have been deleted by the Ld.CIT(A) on the ground that there is no PE existence for assessee in India. Ld. DR strongly placing reliance on the decision of the Karnataka High Court in the case of Toyota Kirloskar Motor Private Limited Vs. Union of India in WP No. 57865/2015 dated 11.06.2019 submits that even after MAP proceedings there is no bar in levying penalty u/s 271(1)(c) of the Act. The Ld. DR strongly supported the orders of the Assessing Officer in levying penalty u/s 271(1)(c) of the Act. 3. On the other hand, the Ld. Counsel for the assessee inviting our attention to the Ld.CIT(Appeals) order submits that in all these assessment years the quantum additions made while passing the assessment order u/s 143(3) r.w.s. 144C have been deleted by the Ld.CIT(Appeals). However, the assessee to by peace appr....
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....ot have a PE in India. 7. We also find that the Ld.CIT(A) while deleting the penalty levied u/s 271(1)(c) of the Act held that the assessee has not concealed any particulars of income and has disclosed all material facts during the assessment as well as MAP proceedings observing as under: - "5.1.1 I have perused the Penalty Order, Grounds of Appeal, and considered the submission of the Appellant. The AO levied Penalty under section 271(1) (c) of the Income Tax Act, 1961. The said Penalty under section 271(1) (c) of the Act is leviable upon satisfaction of either of the following two primary conditions: * If the Appellant has furnished Inaccurate Particulars of such income, or * If the Appellant has concealed particulars of his income. 5.1.2 Further, as per the explanation contained in the Section 271(1)(c) of the Act, it can be noted that, the penalty is leviable only when: i) A person fails to offer an explanation or offers an explanation which is found by the AO or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or ii) Such person offers an explanation which he is not able to substantia....
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....India] Ltd. (for short"Grintex"). As per the said agreement, which was extended/modified from time to time, the representative, namely, Grintex will promote and market the products and services and solicit orders from the customers and use its best efforts to secure sales contracts and to render other marketing assistance to Raytheon Company. We find no relevance of this contract in considering the question whether in relation to the contracts with which we are concerned, Raytheon has a PE through a dependent agent. Apart from the fact that the modified agreement describes the representative (Grintex) as an independent contractor having no authority to enter into contracts, there is nothing in the agreement which indicates that Grintex has been assigned any role or responsibility in the matter of implementation of hardware repair contract. True, there is a separate agreement between AAI (applicant) and Grintex India Ltd. for "in-country maintenance supports services for MATS - BD related hardware and software" - where under Grintex is required to provide support services in India in respect of the contracts with Raytheon. For instance, Grintex may have to provide services such as i....
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....thority referred to the provisions of the said Convention in extensor and accepted the contention of the applicant that the payments received by Raytheon from the applicant in connection with hardware repair contract were not liable to be taxed in India under the Income tax Act, 1961. This Authority held that the hardware and other equipment were the subject matter of outright sale in favour of the applicant and that the repair of hardware undertaken by Raytheon outside India did not amount to furnishing services as defined in Article 12 of the Convention. The payment was held to be in the nature of business profits when the meaning of Article 7 and in view of the admitted case that Raytheon had no PE in India, it was ruled that the payments under the hardware repair contract were not taxable in India by virtue of Article 7 of the Treaty"." 5.2.4 This office has provided a relief to the Appellant and has consistently concluded in multiple years from AY 2000-01 to AY 2017-18 that the Appellant does not constitute PE in India. The Hon'ble AAR in its rulings has also held that Appellant does not constitute a PE in India, accordingly payments under the hardware maintenance....
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....Centre of Excellence Private Limited vs. CIT [202 J] 432 ITR 471, it can be rightly said that the Appellant's supply of Software and document is not Royalty. The relevant extracts of the said ruling reported in 432 ITR 471 has been reproduced as under: "117. 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 independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. (iii) Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, o....
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........ Conclusion of the SC: 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 fax 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(l)(vi), along with explanations 2 and 4 thereofj, which deal with royalty, not being more beneficial to the Appellants, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in sec....
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....tware embedded in the Hardware earlier supplied. Accordingly, the same would amount to ancillary and subsidiary to the Software supplied. ........ 5.4.3 Further, it can be rightly said that the Software Maintenance services being ancillary to the Software supplied earlier cannot be regarded as FIS as the software against which the services were provided is itself not taxable as Royalty in purview of the Hon'ble Supreme Court judgment in the case Engineering Analysis Centre (Supra). 5.4.4 Further, the consideration received by Appellant under the subject contracts cannot be classified as 'FIS' under lndia~US DTAA and thus, not taxable in India. Also, the revenues under subject contracts would fall under Article 7 (Business Profits) of India-US DTAA, and in the absence of a PE of the Appellant in India (as discussed above}, the same shall not be taxed in India.'' 5.2.10 Thus, based the above, it can be said that there is force in Appellant's contentions as the Appellant's view regarding non-existence of PE in India and Taxability of Offshore Supply of Hardware/Equipment, Hardware Maintenance Services, Sale of Software and the Software Maintenan....
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....he pre-conditions for levying penalty as mentioned in section 271(l)(c) and explanation 1 to section 271 (l)(c) are satisfied in the present case. Accordingly, the impugned penalty order u/s 271(l)(c) is quashed. The AO is directed to grant relief accordingly." 5.2.13 Thus, as also held by this office in AY 2007- 08, the Appellant has duly disclosed all material facts and information during the assessment proceedings as well as MAP proceedings basis which the MAP settlement has been arrived with. The Appellant submitted that if it would not have submitted all relevant information and facts, the MAP settlement would not have been arrived as by the two Competent Authorities of India and USA. Thus, not by any stretch of imagination it can be said that the Appellant has concealed any particulars of income. 5.2.14 Further, as rightly said by the judgement passed by the Hon'ble Delhi High Court in the case of Bacardi Martini India Limited [2007] (288 ITR 585) relied by the Appellant in its submission, concealment must be accompanied with the intention of the Taxpayer to evade his tax liability. Merely because there was difference of opinion between the Taxpayer and the ....
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....e views does not amount to concealment of particulars of income. 5.4 Thus, in view of discussion above, I hold that none of the pre-conditions for levying penalty as mentioned in section 271(1)(c) and explanation 1 to section 271(1) (c) are satisfied in the present case. Accordingly the impugned penalty order u/s 271(1)(c) is quashed. The AO is directed to grant relief accordingly." 8. The Ld.CIT(A) has considered all the aspects of the material and concluded that the assessee has disclosed all material facts during the assessment as well as MAP proceedings and has not concealed any particulars of income. We see no infirmity in the order passed. We further observe that at best it is only a difference of opinion as to whether there exists PE in India for Assessee or not. There is no conclusive proof that the assessee has PE in India. In the penalty proceedings the AO simply relied on the MAP proceedings in holding that the assessee has PE in India which in fact is not correct. As we said earlier it is only on assumption that the assessee has PE in India and by way of deeming fiction the profits were attributed for such assumed PE by the authorities in the MAP proceedings....