DCIT, INTERNATIONAL TAXATION, CIRCLE-1(1)(1), NEW DELHI vs. ALCATEL LUCENT INTERNATIONAL, FRANCE

This appeal by the revenue is preferred against the order of the CIT(A)-42, New Delhi dated 20.07.2017 pertaining to A.Y. 2013-14.

“1.1 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred In deleting the addition made by the AO, and in holding that the revenue received by the assessee from supply of software is not taxable in India as royalty/s 9(l)(vi) of the Income Tax Act, as well as Article 13(3) of the India - France.

1.2 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred deleting the addition made by the AO, without considering Explanation 5 and G to section 9(l)(vi), which have been inserted by clarificatory amendments with retrospective effect.

1.3 Thatin the facts and in circumstances of the case, and in law, the Ld. CIT(A)erredin deleting the addition made by the AO, after erroneously considering the claimed adequacy of compensation of Alcatel Lucent India while determining the income of the assessee, and in wrongly applying the ratio of Morgan Stanley 292 ITR416 (SC).

1.4 That in the factand in circumstance of the case, and in law, the Ld. CIT(A) erred in deleting the addition made by the AO by erroneously stating that he has relied on the assessee’s own case, whereas the first scrutiny assessment of Alcatel Lucent International was for 2013-14.

The appellant craves leave to add, modify, amend or alter any ground of appeal at the time of, or before, the hearing of appeal.”

3. At the very outset, the counsel for the assessee stated that the issues raised by the revenue are now well settled in favour of the assessee by the order of the Tribunal in assessee’s own case which was confirmed by the Hon’ble High Court of Delhi and the Hon’ble Supreme Court in a bunch of appeals have confirmed the order of the Hon’ble High Court of Delhi.

“The equipment supplies made by assessee included both hardware and software; however, the attribution of profit can only be applied to hardware supplies and not to the software supplies. In this connection, assessment order of Alcatel-Lucent France for AY 2006- 07 is being fallowed, wherein after considering the facts and circumstances of the case, it was held that consideration towards software is taxable as royalty as per the Act and under the corresponding provisions of the India France DTAA. In the present proceedings also, the assessee filed detailed submissions as to why the software component of the telecom equipment supplies should not be treated as royalties both under the IT Act as well as the India-France DTAA. The submissions of the assessee are considered but cannot be accepted for the reasons as in earlier years and as such it is held that software supplied by the assessee is taxable as Royalty as per the Act and also under the corresponding provisions of the tax Treaty.”