ACIT CIRCLE-3(1)(1) INTERNATIONAL TAXATION, NEW DELHI vs. RAYTHEON COMPANY, GURGAON

PER SAKTIJIT DEY, JUDICIAL MEMBER: Captioned are a set of cross-appeals pertaining to assessment years 2012-13 and appeal by the Revenue for assessment year 2015-

• The assessee had throughout a substantial presence at the sale of execution of contract which constituted fixed place of business PE of the assessee. • The liaison office of the group from which marketing and support services were being rendered constituted fixed place of business of the assessee. • The project office/site office of he assessee and the liaison office of the group, for the execution of the contract in India constituted PE under Article 5(2)(a), (b) and (c) of DTAA between India and USA. • The installation work undertaken for he period of more than 120 days as per the terms of the contract constitutes PE of the assessee under Article 5(2)(k) of the Treaty and the installation was inextricably linked with the supply of the equipment and services. • That the presence of the personnel for more than 90 days in India and constituted PE under Article 5(2)(1) of the Treaty. 2) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing relief by deleting additions made by the A.O taxing 50% of assessee’s receipts from Gagan-FOP contract, receipts of Rs.1,79,27,151/- from RASAM Contract and receipts of Rs.16,62,122/- from Chennai Contracts as Royalty in Indi, ignoring AO's detailed findings to show that right to use software was conferred under software component of these contracts which was covered by article 12(4)(a) of the treaty being ancillary to enjoyment of right conferred. 3) The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.”

2. Grounds raised by the Revenue in are as under:

1) Whether on the facts and circumstances of the case, Ld. CIT (A) has erred in holding that the assessee had no PE in India ignoring the findings of fact marshaled by the AO to hold that • The liaison office of the group, M/s Raytheon International Inc. (RII) one of the divisions that represents the assessee worldwide had a liaison office in India since 1995. • The assessee had throughout a substantial presence at the site of execution of contract which constituted fixed place of business PE of the assessee. • The liaison office of the group from which marketing and support services were being rendered constituted fixed place of business of the assessee. • The project office/site office of the assessee and the liaison office of the group, for the execution of the contract in India constituted PE under Article 5(2)(a), (b) and (c) of DTAA between India and USA. • The installation work undertaken for the period of more than 120 days as per the terms of the contract constitutes PE of the assessee under Article 5(2)(k) of the Treaty and the installation was inextricably linked with the supply of the equipment and services. • That the presence of the personnel for more than 90 days in India also constituted PE under Article 5(2) (I) of the Treaty.

2) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that receipts of the assessee from the Contract for supply of ATM Material under MAFI Hardware and receipts under the contract ‘BEL Athena’ were not taxable in India in the absence of PEignoring the detailed findings of the AO that the assessee constitutes a PE in India. 3) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that receipts of Rs. 5,09,97,939/- of the assessee from Amendment to Hardware Repair Support Contract were not taxable in India in the absence of PE ignoring the detailed findings of the AO that the assessee constitutes a PE in India. 4) Whether on the facts and circumstances of the case the CIT(A) has erred in holding that the revenue of Rs. 31,64,12,157/- received from amendment to Hardware Repair Support Contract are not FIS (Fees for included services) as this revenue constituted the business income ignoring the detailed findings of the AO that the receipts of Rs. 31,64,12,157/- pertain to the services under Hardware repair support services and the sum of Rs. 31,64,12,157/- would qualify as Fee for included services (FIS) under the Article 12(4) of India-USA DTAA and Income Tax Act, 1961. 5) Whether on the facts and circumstances of the case the CIT(A) has erred in not holding that as per the contract, the assessee has to receive sum of Rs. 31,64,12,157/- to provide the repair support services, in case, the hardware is not functional. The services are in respect of primary Radar, Secondary Radar and Automation Equipments. The repair support enabled the person who has to operate the equipment, technically sound in hardware repair. In case, the same problem occurs in future, the recipient of the services may be able to tackle the situation. It shows that the independent knowledge or skill has been transferred. Hence, the same services are taxable as Fees for Included Services (‘FIS’) under Article 12(4) of India-USA DTAA. 6) Whether on the facts and circumstances of the case the order of the CIT(A) is perverse and liable to be quashed. 7) Whether on the facts and circumstances of the case, the Ld. CIT()A has erred in holding that the assessee does not have a Permanent Establishment (PE) in India in relation to all contracts of supply of equipments and maintenance as per the terms of India-US DTAA? 8) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that the receipts of the assessee from the contract for supply of UHF radio & Ancillaries (‘Bel

Contract’) [previously mentioned as ‘Bel Athena’ Contract] were not taxable in India in the absence of PE ignoring the detailed finding of the AO that the assessee constituted a PE in India?

Taxation of receipts under Network Centric Systems for supply of ATM Software for Modernisation of airfield infrastructure phase -1 (‘MAFI Software’)

5. The Ld.CIT(A) erred in holding that the revenues from supply of software are taxable as Royalty income under Article 12 of India-

USA DTAA without appreciating that the revenues earned were only on account of “right to use of a copyrighted article’' and “no right in the copyright” was granted by the Appellant to the Indian customer. 6. The Ld.CIT(A) has erred in relying on the Advance Ruling obtained by the customer under SSID contract for taxing the receipts under the MAFI Software contract as Royalty by treating it as a similar contract.

GROUNDS OF APPEAL

7. The Ld.CIT (A) erred in not appreciating that the revenues earned by the Appellant partook the nature of business income which were not taxable in India when the Ld.CIT (A) had deleted the constitution of PE of the Appellant in India. Taxation of receipts under Contract for supply of UHF Radio & Ancillaries (‘BEL Contract’)

8. The Ld.CIT(A) erred in holding that the revenues from supply of documentation are taxable as Royalty income under Article 12 of India-USA DTAA without appreciating that it’s a case of documentation which has been supplied along with the equipment, for the limited purposes of use to operate the equipment and not for any commercial exploitation.

9. The Ld.CIT (A) erred in not appreciating that the revenues earned were only on account of "right to use of a copyrighted article" being documentation and "no right in the copyright” was granted by the Appellant to the Indian customer.

10. The Ld.CIT(A) has erred in relying on the Advance Ruling obtained by the customer under SSID contract for taxing the receipts under the BEL contract as Royalty by treating it as a similar contract.

11. The Ld.CIT (A) erred in not appreciating that the revenues earned by the Appellant partook the nature of business income which were not taxable in India when the Ld.CIT (A) had deleted the constitution of PE of the Appellant in India. Taxation of contract for Automation Software Maintenance Services (‘ASMS’)

Taxation of receipts under Contract for Mumbai ATC Automation 16. The Ld.CIT(A) erred in holding that the revenues from supply of documentation are taxable as Royalty income under Article 12 of India-USA DTAA without appreciating that it’s a case of documentation which has been supplied along with the equipment, for the limited purposes of use to operate the equipment and not for any commercial exploitation.

The Appellant craves leave to add, amend, vary, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of hearing of the appeal. Any consequential relief, to which the Appellant may be entitled under law in pursuance of the aforesaid grounds of appeal, or otherwise, may thus be granted.

4. As could be seen from the grounds raised, the issues arising in these appeals are concerning taxability of income earned by assessee in India as royalty/fee for including services (FIS)/business profit) and whether or not assessee has Permanent Establishment (PE) in India.