IN HIGH COURT OF DELHI AT NEW DELHI 32 ITA 909/2015 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 1 Appellant Through: Mr. Ashok K. Manchanda, Senior standing counsel with Mr. Raghvendra Singh, Junior standing counsel. versus ASPECT SOFTWARE INC. Respondent Through: Ms. Rashmi Chopra with Ms. Asiya, Advocates. With 33 + ITA 28/2016 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 1 Appellant Through: Mr. Ashok K. Manchanda, Senior standing counsel with Mr. Raghvendra Singh, Junior standing counsel. versus ASPECT SOFTWARE INC. Respondent Through: Ms. Rashmi Chopra with Ms. Asiya, Advocates. With 40 ITA 861/2016 COMMISSIONER OF INCOME TAX (INTERNATIONAL ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 1 of 7 TAXATION) 1 Appellant Through: Mr. Ashok K. Manchanda, Senior standing counsel with Mr. Raghvendra Singh, Junior standing counsel. versus ASPECT SOFTWARE INC. Respondent Through: Ms. Rashmi Chopra with Ms. Asiya, Advocates. With 41 ITA 944/2016 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 1 Appellant Through: Mr. Ashok K. Manchanda, Senior standing counsel with Mr. Raghvendra Singh, Junior standing counsel. versus ASPECT SOFTWARE INC. Respondent Through: Ms. Rashmi Chopra with Ms. Asiya, Advocates. With 42 ITA 4/2017 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 1 Appellant Through: Mr. Ashok K. Manchanda, Senior standing counsel with Mr. Raghvendra Singh, Junior standing counsel. versus ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 2 of 7 ASPECT SOFTWARE INC. Respondent Through: Ms. Rashmi Chopra with Ms. Asiya, Advocates. With 43 ITA 6/2017 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 1 Appellant Through: Mr. Ashok K. Manchanda, Senior standing counsel with Mr. Raghvendra Singh, Junior standing counsel. versus ASPECT SOFTWARE INC. Respondent Through: Ms. Rashmi Chopra with Ms. Asiya, Advocates. CORAM: JUSTICE S.MURALIDHAR JUSTICE CHANDER SHEKHAR ORDER 25.04.2017 CM APPL 44805/2016 (delay) in ITA 861/2016 CM APPL 44866/2016 (delay) in ITA 944/2016 CM APPL 678/2017 (delay) in ITA 4/2017 CM APPL 709/2017 (delay) in ITA 6/2017 1. For reasons stated therein, these applications are allowed. delay in re-filing appeals is condoned. CM APPL 677/2017 (exemption) in ITA 4/2017 CM APPL 708/2017 (exemption) in ITA 6/2017 2. Allowed, subject to all just exceptions. ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 3 of 7 ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 3. These are appeals under Section 260A of Income Tax Act, 1961 ( Act ) by Revenue against impugned Order dated 18th May 2015 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA Nos. 04/Del/2012, 1124/Del/2014, 1125/Del/2014, 221/Del/2013, 720/Del/2013, and 82/Del/2011 for Assessment Years ( AYs ) 2008-09, 2004-05, 2010- 11, 2003-04, 2009-10 and 2007-08 respectively. 4. While admitting these appeals on 16th January, 2017, this Court passed following order: Admit. following questions of law arise for consideration: (i) Did ITAT fall into error in holding that transaction in question, i.e., supply of customized software was not royalty under Article 12 (4) of Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9 (1) (vii) of Income Tax Act, 1961, in circumstances of case. (ii) Did ITAT fall into error in its interpretation of Section 234 (B) of Income Tax Act, 1961, in circumstances of case. 5. Apart from order as noted above, Court decided that these present appeals would be considered in light of judgment to be rendered by Court in batch of appeals (The Commissioner of Income Tax International Transaction -2 v. ZTE Corporation ITA 904-909/2016). 6. That batch of appeals has been decided by Court by its decision in Commissioner of Income Tax International Transaction -2 v. ZTE ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 4 of 7 Corporation 237 (2017) DLT 572 (DB). questions that arose in aforementioned batch of appeals also involved questions that arise in present batch of appeals. questions were answered in favour of Assessee and against Revenue. 7. first issue is whether payment for supply of customized software would be treated as royalty under Article 12(3) of Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9(1)(vi) of Act. In ZTE Corporation (supra), Assessee being resident of Republic of China transactions were governed by Indo-China DTAA containing identical clauses as Indo-US DTAA. Relying on decision of this Court in Director of Income Tax v. Ericsson AB (2012) 343 ITR 470, this Court in ZTE Corporation (supra) held in para 22 as under: 22. In present case, facts are closely similar to Ericson. supplies made (of software) enabled use of hardware sold. It was not disputed that without software, hardware use was not possible. mere fact that separate invoicing was done for purchase and other transactions did not imply that it was royalty payment. In such cases, nomenclature (of license or some other fee) is indeterminate of true nature. Nor is circumstance that updates of software are routinely given to Assessee s customers. These facts do not detract from nature of transaction, which was supply of software, in nature of articles or goods. This Court is also not persuaded with submission that payments, if not royalty, amounted to payments for use of machinery or equipment. Such submission was never advanced before any of lower tax authorities; moreover, even in Ericson (supra), similar provision existed in DTAA between India and Sweden. 8. ITAT has, in its impugned order dated 18th May 2015, also relied upon decision in Ericson (supra) and Director of Income Tax v. ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 5 of 7 Infrasoft Limited (2014) 220 Taxman 273 (Del) and held as under: 41. Before us, learned counsel for Assessee as well as learned D.R. relied on several decisions of High Court and Tribunal rendered on subject. These decisions are not being considered as issue is extensively dealt by Hon'ble Jurisdictional High court in cases of M/s Ericsson A.B. and Infrasoft Ltd. (supra) which are binding on this Tribunal. We observe that all arguments put forth by Revenue" and Assessee are considered and answered in these decisions. Further, Delhi High Court in Infrasoft has expressed it disagreement with view taken" by Karnataka High Court in case of Samsung Electronics Co Ltd. Hence, decisions relied by learned CIT- DR in case of Samsung Electronics and Gracemac Corporation (supra) does not help case of Revenue, as we are under Jurisdiction of Hon'ble Delhi High Court. 42. In view of above, respectfully following decision of Hon'ble Jurisdictional High Court in case of Ericsson A.B. (supra) and Infrasoft Ltd. (supra), we hold that consideration received by Assessee for supply of product along with license of software to End user is not royalty under Article 12 of Tax Treaty. Even where software is separately licensed without supply of hardware to end users (i.e. eight out of 63 customers), we are of view that terms. of license agreement is similar to facts of Infrasoft Ltd' (supra). Accordingly, we- hold' that there was no transfer of any right in respect of copyright by Assessee and it was case of mere transfer of copyrighted article. payment is for copyrighted article and represents purchase price of article. Hence, payment for same is not in nature of royalty under Article 12 of Tax Treaty. receipts would constitute business receipts in hands of Assessee and is to be assessed as business income subject to assessee having business connection/PE in India as per adjudication on Ground No.5. 9. With ITAT having followed decisions of this Court and this Court having reiterated legal position in Commissioner of Income Tax, International Taxation -2 v. ZTE Corporation (supra), Court answers ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 6 of 7 Question (i) in negative and holds that impugned order of ITAT suffers from no legal infirmity. Question (i) is, therefore, answered in favour of Assessee and against Revenue. 10. Turning to Question (ii) regarding interpretation of Section 234B of Act, Court finds that in Commissioner of Income Tax, International Taxation -2 v. ZTE Corporation (supra), question has been answered in favour of Assessee and against Revenue following decision in Director of Income Tax v. GE Packaged Power Inc. 373 ITR 65. Consequently, this issue is also answered against Revenue and in favour of Assessee. 11. These appeals are accordingly dismissed but in circumstances of case, no orders as to costs. S.MURALIDHAR, J CHANDER SHEKHAR, J APRIL 25, 2017 Rm ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 7 of 7 Commissioner of Income-tax (International Taxation)1 v. Aspect Software Inc