TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 180
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.... assessment order 3314/Del/2013 2006-07 CIT(A)-XXIX, New Delhi, dated 12.03.2013 26.02.2010 144C(3) r.w.s. 143(3) 5671/Del/2011 2007-08 DRP dated 20.09.2011 u/s 144C(5) 27.09.2011 144C r.w.s. 143(3) 4054/Del/2014 2008-09 CIT(A)-XXIX, New Delhi, dated 15.01.2014 22.02.2012 143(3) r.w.s. 144C 1974/Del/2014 2009-10 DRP Directions dated 20.12.2013 u/s 144C(5) 29.01.2014 144C(13) r.w.s. 143(3) 2088/Del/2017 2010-11 CIT(A)-43, New Delhi, dated 31.01.2017 09.05.2014 144C/143(3) 2089/Del/2017 2011-12 CIT(A)-43, New Delhi, dated 31.01.2017 15.05.2015 143(3) r.w.s. 144C(3) 2090/Del/2017 2012-13 CIT(A)-43, New Delhi, dated 31.01.2017 03.05.2016 144C(3) r.w.s. 143(3) 2. At the outset, the Ld. counsel for the assessee, Shri G.C. Srivastava, Advocate brought to the notice of the Bench that the assessee has raised an additional ground of appeal in the respective years with respect to limitation i.e. that the assessment order passed by ld. AO u/s 143(3) is barred by limitation keeping in view the provisions of Section 144C of the Act with respect to assessment years in which draft assessment....
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....ade by the AO by mechanically following the consolidated order passed by CIT(A) dated January 20, 2009 in appellant's own case for AY 1997-98 to 2004-05 without any independent application of mind. 3. That on facts and in law the Learned Commissioner of Income Tax (Appeals) - XXIX, New Delhi ['Ld. CIT(A)'] has failed to appreciate the fact that the Appellant has already offered to tax Rs. 177,705,703 as royalty on account of revenue transfers received by Oracle India Private Limited {hereinafter referred to as "OIPL"} under Software Support Services Agreement ('SSSA') dated 01st June 2003 and has erred in holding that the entire compensation for services, under SSSA, of Rs. 330,861,280 received by OIPL constituted royalty payable to the appellant and that such alleged Royalty was chargeable to tax as such u/s 9(1)(vi) of the Act and/or under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and USA. 3.1 That on facts and in law the Ld. CIT(A) erred in not appreciating that payment of royalty is a matter of contractual arrangement and therefore in the absence of any agreement/arrangement to pay Royalty of an amount equivalent to the entire ....
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....uted to the alleged PE. 7. That on facts and in law the Ld. CIT(A) erred in confirming the action of the AO in withdrawing interest u/s 244A of the Act. 8. That on facts and in law the Ld. CIT(A) erred in confirming the action of the AO in levying interest u/s 234D of the Act. The appellant craves leave to add, alter, amend, modify or withdraw any one of the Grounds of Appeal herein and submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 6. The Grounds of appeal No(s).1 and 2 raised by the assessee in the Memorandum of Appeal filed with the Tribunal are general in nature, and does not require separate adjudication. Accordingly, Ground no(s). 1 and 2 stand dismissed. We order accordingly. 7. Ground No.3 raised by the assessee in the Memorandum of Appeal filed with the Tribunal concerns itself with the bringing to tax royalty on account of revenue transfers received by Oracle India Private Limited under ( In Short "OIPL") Software Support Services Agreement (In Short "SSSA") dated 01st June, 2003 wherein the authorities below have held and brought to tax the entire compensation for servi....
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....he point of dispute raised is with respect to Royalty on Revenue transfer on global deals under Sofware Support Services Agreement (SSSA) dated 01.06.2000, governing global deals between the assessee and OIPL. To understand the applicability of Section 9(1)(vi) of the Act and Article 12(7)(b), for treating the Revenue Transfer as Royalty, it would be prudent to refer the same as under: (9)(1)(vi) income by way of royalty payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Article 12 of DTAA 3.The term "royalties" as used in this Article means:....
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....angement and since there is no such clause in SSSA, there is no accrual/payable of royalty to the assessee. Furthermore, as RBI at the relevant point of time, permitted payment of royalty only when software is duplicated, there is hardly any scope to consider that royalty would accrue or arise to the assessee on Global deals since no duplication is carried out in Global deals. Furthermore, the licenses granted by the contracting regional/local Oracle entity are standard in nature without any customisation which has not been controverted by the CIT(A) with any cogent evidence. We are therefore of the view that considering 30% of the Revenue transfer on global deals as royalty u/s 9(1)(vi) of the Act and its subsequent enhancement by the CIT(A)'s to 100%, lacks any legal foundation and therefore is invalid. 46. In so far as Royalty under Article 12(3) r.w Article 12(7)(b) of the DTAA is concerned, the same would be attracted only if the payments of any kind received as a consideration for the use of, or the right to use, any copyrighted material. Moreover, the issue of Royalty has been settled by the Hon'ble Supreme Court decision in Engineering Analysis Centre of Ex....
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........ 50. In the above appeals, the facts and grounds are identical to the facts of the case discussed herein above. The decision rendered in ITA 1833/D/2009 for AY 2001-02 is equally applicable mutatis mutandis to the facts in the appeal as above for AYs 2002-03 to 2005-06.Apart from the issue of PE and revenue from Global deal, the AO in AY 2005-06, has also imputed notional royalty on revenue transfers on account of training and consulting services in respect of global deals. The AO has however, not substantiated the same with any evidence that there exist any contractual obligation to pay royalty on the same. Furthermore, we are of the view that the receipts in respect of training and consultancy will not give rise to royalty as there's no use or right to use any intellectual property including copyright. The appeal of the assessee on this ground is allowed." 7.3 Respectfully following the aforesaid decision of the Tribunal vide common order dated 02.01.2026 in assessee's own case in ITA No. 1833/Del/2009 to 1836/Del/2009 and ITA No.3313/Del/2013, for AYs 2001-02 to 2005-06, and by following the principles of consistency as laid down by Hon'ble Supreme Court in t....
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....ounds of improper assumption of jurisdiction u/s 147 which were affirmed by the Hon'ble High Court in ITA 414, 416, 418 and 424/2024 vide dated 28 Oct 2024. 27. We find that the AO has held that OIPL constitutes PE of Oracle Corp in India in respect of its software development activities. In order to adjudicate the issue of PE, it would be apposite to refer the relevant provisions enumerated in the India-USA DTAA as under: ARTICLE 5-Permanent establishment 1. For the purposes of this convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term " permanent establishment" includes especially: ******* (I) the furnishing of services, other than included services as defined in Article 12(Royalties and Fees for Included Services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continues within that State for a period or periods aggregating more than 90 days within any twelve-month period; or (ii) the services are performed within that S....
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....ication in the facts of the instant case. 29. Firstly, the AO has held that OIPL constitutes 'a fixed place of business' under Article 5(1) of the DTAA as the premises of OIPL in Hyderabad and Bangalore and machinery/equipment installed therein are owned by the assessee. The AO however, has not substantiated the said assertion by any cogent evidence/materials. On the other hand, the assessee statement that the assessee does not own, lease, or otherwise occupy any office premises or establishment in India, remains uncontroverted. We find that the premises in Bangalore and Hyderabad are leased by OIPL and the machinery/equipment are owned and operated by OIPL for its own business and it is OIPL which claims depreciation u/s 32 of the Act on premises and equipment. 30. The issue of 'fixed place of business' and PE is no longer res-integra as held by the hon'ble Supreme Court in the case of Hyatt International (supra), referring to the decision of Formula One World Championship Ltd (2017) 80 taxmann.com 347(SC), which held that for a place to be a Permanent Establishment (PE), two essential conditions must be satisfied (i) the place must be at 'disposal' of the enterp....
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....'core' activity of the assessee, is considered as invalid as the said Circular was withdrawn immediately within eight months on 09.08.2004. We therefore, are in conformity with the assessee's submission that the business of the OIPL, even if it relates to outsourced activity of the assessee, cannot be regarded as the business of assessee. We find support from the hon'ble Delhi High Court and endorsed by the Supreme Court in E-funds(supra) as under: 12.***Indian entity i.e. subsidiary company will not become location PE under Article 5(1) merely because there is interaction or cross transactions between the Indian subsidiary and the foreign Principal under Article 5(1). Even if the foreign entities have saved and reduced their expenditure by transferring business or back office operations to the Indian subsidiary, it would not by itself create a fixed place or location PE. The manner and mode of the payment of royalty or associated transactions is not a test which can be applied to determine, whether fixed place PE exists." 33. As far as the Service PE under Article 5(2)(l)of DTAA is concerned, the AO has to demonstrate that the assessee has 'furnished services' th....
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....ly and exclusively working for the assessee and does not develop software for any other entity, would not make OIPL as dependent agent of the assessee. We find that for considering OIPL as dependent agent of the assessee, it is essential for the Revenue to demonstrate that the conditions enumerated in the DTAA, available in Article 5(4), is met by OIPL. The AO is required to show that OIPL has the authority to habitually exercise authority to conclude contracts on behalf of the assessee under Article 5(4)(a) of the DTAA; or habitually maintains stock of products on behalf of the assessee under Article 5(4)(b) of the DTAA; or it habitually secures orders for the assessee under Article 5(4)(c) of the DTAA. We find that all the key conditions under Article 5(4) for the creation of an Agency PE remain unsatisfied. 35. We are also of the considered view that an entity acting in the ordinary course of business will be regarded as dependent under Article 5(5) of the DTAA only if both the conditions- (i) it acts for and on behalf of a single principle; and (ii) not being remunerated at arm's length, are satisfied cumulatively. As we have seen in the case of the assessee, OIPL ....
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.... result assessee's appeal in ITA No. 3314/Del/2013 for assessment year 2006-07 is partly allowed in the manner as indicated in the preceding para's of this order. We order accordingly. ITA No.5671/Del/2011 [AY : 2007-08] 11. The grounds of appeal raised by the assessee in Memo of Appeal filed with the Tribunal for assessment year 2007-08, reads as under: 1. That on facts and in law the Assessing Officer [herein after referred as the "AO"] / Dispute Resolution Panel [herein after referred as the "DRP"] have failed to appreciate the fact that the Appellant has already offered to tax Rs. 280,812,641 as royalty on account of revenue transfers received by Oracle India Private Limited {hereinafter referred to as "OIPL"} under Software Support Services Agreement ('SSSA') dated 01st June 2003 and have erred in holding that the entire compensation for services, under SSSA, of Rs 55,62,54,488 received by OIPL constituted royalty payable to the appellant and that such alleged Royalty was chargeable to tax as such u/s 9(1)(vi) of the Act and/or under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and USA. 1.1 That on facts and in law the AO/D....
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....he AO/DRP erred in attributing profits to the alleged Permanent Establishment of the appellant in India. 3.1 That without prejudice, on facts and in law, while computing the total taxable income of the alleged PE at Rs. 296,24,98,512, the AO/DRP erred in: (i) Attributing profit margins of Rs 623,68,38,972/- to such PE. (ii) Restricting the admissibility of deduction u/s 44C to 5% of the "net profits" ignoring the provisions of Article 26 of the DTAA. (iii) Holding that 50% of the profits were attributable to the activities of the PE in India. (iv) Not allowing a deduction of the revenues earned and offered to tax by OIPL in respect of software development services provided by it to the appellant. 4 That on facts and in law the AO/DRP further erred in ignoring the fact that the Software Development Services rendered by OIPL to the Appellant were at arm's length price and therefore nothing further can be attributed to the PE. 5. That on facts and in law the AO/DRP erred in levying interest u/ 234B of the Act. 6. That on facts and in law the Assessment Order under section 144C read with section 143(3) of the Act p....
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.... in A.Y. 2001-02 to 2004-05 & Ground No. 7 in A.Y. 2005-06], the claim of the assessee is that its income was subject to TDS obligations in hands of Indian payers. The AO is directed to charge interest u/s 234B of the Act as per law keeping in mind the decision of the hon'ble Supreme Court in the case of Director of Income-tax, New Delhi v. Mitsubishi Corporation (2021) 130 taxmann.com 276 (SC) which has held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax. The said ground is decided accordingly." 13.3 Respectfully following the decision of the Tribunal vide common order dated 02.01.2026 in assessee's own case for assessment year 2001-02 to 2005-06 and in order to maintain consistency, we direct AO to charge interest u/s 234B for assessment year 2007-08 keeping in view ratio of judgment and order of Hon'ble Supreme Court in the case of DIT v. Mitsubishi Corporatio(supra). Thus, the issue is restored to the file of the AO for re-computation of interest chargeable u/s 234B. Ground No. 5 is allowed for statistical purposes. We order accordingly. 14. Ground....
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....ire revenue transfers to OIPL of Rs. 40,481,519 on account of training, education etc under SSSA as royalty income in the hands of the Appellant, ignoring the fact that no royalty is receivable on such revenue transfers by the Appellant as per SSSA. 3.3 That on facts and in law the Ld. CIT(A) erred in not appreciating that payment of royalty is a matter of contractual arrangement and therefore in the absence of any agreement/arrangement to pay Royalty of an amount equivalent to the entire revenue transfers received by OIPL under global deals; the Appellant cannot be subjected to tax on notional imputed royalty to the extent of Rs. 266,949,524/-. 3.4 That on facts and in law the Ld. CIT(A) erred in not appreciating that once the Learned Additional Director of Income Tax, Transfer Pricing Officer-11(1) (hereinafter referred to as the Ld. TPO) had opined in affirmative on the issue of Arm's Length Price of the Royalty Income received by the appellant from OIPL vide order dated 21st October 2011, the Ld. AO was then required to compute the total income of the appellant in conformity with such order. 3.5 That on facts and in law the Ld. CIT(A) erred in confirm....
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....iting the deduction to 5% of head office expenses to the alleged PE for determining the profit attributable to the Indian activities relating to software development as against the actual expenditure incurred. (iii) Disregarding the business / commercial realities and the Functions, Assets and Risk ('FAR') analysis with respect to software development activities carried out by OIPL in India and estimating on a completely arbitrary / ad-hoc basis that 50% of the profits arrived at by allocating the Indian research and development expenditure over the Global research and development expenditure from the new software license business as attributable to the alleged PE of the Appellant in India. (iv) Not allowing a deduction of the revenues taxed in the hands of OIPL in respect of software development services provided to the Appellant while computing the profits attributable to the alleged PE of the Appellant in India. (v) Considering only sales and distribution expenses for arriving at the global profit and wrongly assuming that compensation paid to OIPL is already embedded in arriving at the profit margin; Also the Ld. AO has completely ignored all the othe....
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....evelopment activities carried out by OIPL in India. 1.1. That on facts and in law the AO/DRP erred in holding that OIPL constituted a: (a) Fixed Place PE {under Article 5(1) of the DTAA} allegedly through which the business of the appellant is being carried out. (b) Equipment PE allegedly through the equipment's installed at the Hyderabad premises of OIPL. (c) Service PE {under Article 5(2)(ii) of the DTAA} for allegedly rendering supervisory services. (d) Agency PE {under Article 5(4) read with Article 5(5) of the DTAA} for allegedly being a dependent agent and not being an independent agent. 1.2. That on facts and in law the AO/DRP erred in holding that: (i) OIPL transferred intangibles to the appellant in course of performing Software Development Services. (ii) Cost Plus Method adopted by the appellant while reimbursing OIPL is not adequate considering that OIPL is conducting core business activities in India. (iii) The activities of OIPL are devoted wholly and exclusively for the appellant. (iv) OIPL has not been compensated on the basis of the profit on business activity carried out in In....
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.... AO/DRP erred in levying interest u/s 234B of the Act. 6. That on facts and in law the Assessment Order under section 144C(13) read with section 143(3) of the Act passed by the AO, as per the directions of DRP is bad in law, void, arbitrary inter alia for non-applicability of judicious and objective mind and in complete violation of the rules of natural justice. 7. That on facts and in law the DRP erred in passing a non-speaking order and confirming the additions made by the AO by mechanically following the consolidated order passed by CIT(A) dated January 20, 2009 in appellant's own case for AY 1997-98 to 2004-05 without any independent application of mind and without providing any basis for doing so. The appellant craves leave to add, alter, amend, modify or withdraw any one of the Grounds of Appeal herein and submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 21. Ground No. 1 to 5 raised by the assessee in memo of appeal filed with the Tribunal for assessment year 2009-10 have similar issues as those were raised by assessee for the assessment year 2008-09. Both the parties before us ar....
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....ce PE [under Article 5(1) of the Tax Treaty], allegedly through which the business of the Appellant is being carried out; * Equipment PE, allegedly through the equipments installed at the Hyderabad premises of OIPL; * Service PE under Article 5(2)(l) of the Tax Treaty; and * Dependent Agent PE under Article 5(4) read with Article 5(5) of the Tax Treaty. 3.2 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding incorrect allegations of the Ld. AO in the assessment order inter alia including that: * OIPL developed and transferred intangibles to the Appellant in course of performing Software Development Services.- * Cost Plus Method adopted by the Appellant while reimbursing OIPL is not adequate considering that OIPL is conducting core business activities in India. * The activities of OIPL are devoted wholly and exclusively for the Appellant. * OIPL has not been compensated on the basis of the profit on business activity carried out in India. 4. Without prejudice to ground number 3 above, on the facts and circumstances of the case and in law, the Ld. CIT(A) has ....
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....nt, thus using incorrect global profit as the starting point for attributing profits to the alleged PE in India. 5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in passing a non-speaking order while confirming the action of Ld. AO who had erroneously levied tax at the rate of 42.23 percent on the returned income, which is taxable as 'royalty' at the rate of 15 percent under provisions of the Tax Treaty. 6. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not adjudicating on the Appellant's ground of appeal against initiation of penalty proceedings by the Ld. AO under section 271(l)(c) of the Act. That the Appellant prays for leave to add, alter, amend and / or vary the ground(s) of appeals as may be considered necessary and to submit such statements, documents and papers as may be considered either before or during the appeal hearing." 25. Ground of Appeal Nos. 1 & 2 are general in nature, and are dismissed accordingly. So far as Ground No. 6 relates to initiation of penalty u/s 271(1)(c) is consequential in nature, thus stands dismissed. We order a....
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.... other Contracting State, the tax so charged, inter-alia, shall not exceed 15% (rate relevant to the issue before us) of the gross amount of the royalties. The AO has held that OIPL is PE of the assessee under Article 5(1), 5(2), 5(4) and 5(5) of India-USA DTAA, and accordingly business profits attributable to PE were brought to tax. Keeping in view our decision in the preceding para's of this order wrt PE of the assessee in India, the exclusion clause 6 & 7 in Article 12 of India USA DTTA will then be not applicable. Thus, keeping in view facts and circumstances of the instant case before us, royalty income earned by the assessee is to be brought to tax @15% as provided under Article 12(2) of the India USA DTAA. So far as leviability of education cess and higher cess is concerned, Respectfully following the decision of ITAT in the case of M/s J C Decaux S.A. v. ACIT/DCIT in ITA No. 1630/Del/2015 & Ors reported in 2020(3) TMI 1075-ITAT Delhi, and with a view to maintain consistency, we hold that health & education cess cannot be further added to the aforesaid rate of 15% as provided for bringing to tax royalty income under India-USA DTAA. We also note that ITAT in several other dec....
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....f the Appellant is being carried out; * Equipment PE, allegedly through the equipments installed at the Hyderabad premises of OIPL; * Service PE under Article 5(2)(l) of the Tax Treaty; and * Dependent Agent PE under Article 5(4) read with Article 5(5) of the Tax Treaty. 3.2 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding incorrect allegations of the Ld. AO in the assessment order inter alia including that: * OIPL developed and transferred intangibles to the Appellant in course of performing Software Development Services.- * Cost Plus Method adopted by the Appellant while reimbursing OIPL is not adequate considering that OIPL is conducting core business activities in India. * The activities of OIPL are devoted wholly and exclusively for the Appellant. * OIPL has not been compensated on the basis of the profit on business activity carried out in India. 4. Without prejudice to ground number 3 above, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the erroneous and incorrect methodology adopted by the Ld. AO to ....
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.... to the alleged PE in India. 5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in passing a non-speaking order while confirming the action of Ld. AO who had erroneously levied surcharge and education cess while calculating tax liability on Royalty income (as offered to tax in the return of income), without appreciating that the rate of taxation on royalty should not exceed 15 percent as per the beneficial provisions of Article 12 of the Tax Treaty. 6. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not adjudicating on the Appellant's ground of appeal against action of the Ld. AO of erroneously increasing the tax demand by erroneous adjustment of refund in the assessment order. 7.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the action of the Ld. AO who had erroneously levied interest under section 234A and under section 234C of the Act 8.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not adjudicating on the Appellant's ground of appeal against ini....
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....olding additions of Rs. 5,54,16,01,858 made by the Learned Deputy Director of Income Tax, International Taxation, Circle 2(2)(2), Delhi ("Ld. AO"). 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has grossly erred in passing a non-speaking order and confirming the additions made by the Ld. AO by mechanically following the order passed by his predecessor in AY 2005-06 and AY 2006-07, without appreciating the submissions and contentions of the Appellant and independent application of mind. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the factually incorrect and legally untenable observations, allegations and conclusions of the Ld. AO that the Software Development Division of Oracle India Private Limited ("OIPL") constitutes a Permanent Establishment ('PE') of the Appellant in India as per the provisions of the Income Tax Act, 1961 ("the Act") and Article 5 of Double Taxation Avoidance Agreement between India and United States of America ("Tax Treaty"). 3.1 That on the facts and circumstances of the case and in law the CIT(A) has erred in upholding th....
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....ns made by the Appellant that attribution of profits to the PE involves Transfer pricing principle(s) and the attribution of profits to a PE needs to be undertaken by applying the transfer pricing provisions. 4.2 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in disregarding the fact that entire functions performed by OIPL (the alleged PE)- viz rendering of software development services have been examined and the arm's length price of these services has been determined by the Transfer Pricing Officer of OIPL, therefore, nothing further is left to be attributed to OIPL - the alleged PE of the Appellant in India. 4.3 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the action of the Ld. AO of considering only sales and distribution expenses for arriving at the global profit and wrongly assuming that compensation paid to OIPL is already embedded in arriving at the profit margin. 4.4 That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in upholding the action of the Ld. AO, who has completely ignored all the other....