ASPECT SOFTWARE INC.,USA vs. DCIT (INTERNATIONAL TAXATION), NEW DELHI

PER BENCH ITA No. 1452/Del/ 2017 has been preferred by the assessee

against the final assessment order dated 12.01.2017 for

assessment year 2012-13 whereas ITA 1453/Del/2017 is against

the final assessment order dated 12.01.2017 for assessment year

2013-14.

2.0 Brief facts of the case are for the assessment year 2012-13

the assessee filed its return of income for Assessment Year 2012- 1

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13 on 29.09.2012 declaring income of Rs. 4,15,35,230/-. The

case was selected for scrutiny and notice u/s 143(2) of the I.T.

Act, 1961, was issued and served upon the assessee. During the

assessment proceedings, the assessee was asked to explain how

the factual matrix and business model of this year is different

from Assessment Year 2007-08 and why the assessment should

not be completed on the lines of earlier Assessment Years. Vide

its reply dated 02.02.2016, the assessee submitted that there

was no change in the business model of assessee vis-à-vis the

earlier years. The assessee contended that it does not have a

Permanent Establishment (PE) in India. It further contended,

without prejudice to the contention regarding the absence of PE

in India, that there cannot be any basis for attributing 15% of the

revenues earned from the sale of hardware to the end users in

India, Middle East and Sri Lanka. The Assessing Officer

(A.O.)/Ld. Disputes Resolution Panel (DRP) considered the

contentions raised by the assessee and found that these were

similar contentions raised during the assessment proceedings

for Assessment Years 2007-08, 2008-09 & 2010-11. The A.O.

made addition in the hands of the assessee on similar basis,

which was confirmed by the Ld. DRP.

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2.1 Aggrieved by the final assessment, the assessee is in appeal

before the ITAT on the following grounds of appeal:-

“General

1.1 That on the facts and circumstances of the case and in law, the order passed by the Ld. Assessing Officer pursuant to the directions issued by the Hon’ble DRP is bad in law inasmuch as failed to appreciate the facts involved and law thereon.

1.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon’ble ITAT in the case of Appellant’s itself for earlier years.

1.3 That on facts and circumstances of the case and in law, while passing the assessment order, the Ld. AO has erred in computing the total income of the Appellant at Rs. 29,85,32,019 as against Rs 4,15,35,230 income returned by the Appellant and therefore, the order of the Ld. AO is bad in law and needs to be annulled.

1.4 That the Ld. AO/DRP has grossly erred both on facts and in law by following the assessment order for AY 2007-08 without realizing that each year is self-contained with respect to the assessment of that year and the decision taken in any one assessment year is conclusive only for that assessment year and does not operate as res-judicata in respect of other years.

That on facts and circumstances of the case and in law, the 2.1 Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant amounting to Rs. 5,66,95,292 from supply of software to customers in India as ‘royalty’ under section 9 (l)(vi) of the Act as well as under Article 12 of the Double Taxation

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Avoidance Agreement between India and United States of America (‘India - US tax treaty’).

That on facts and in law, the Ld. AO/ DRP have erred in not 2.2 following the decision of Hon’ble ITAT in assessee’s own case for earlier years’ where the Hon’ble ITAT by following the decisions of jurisdictional High Court has held that the consideration received by the Appellant for supply of software is for copyrighted article and is not in the nature of royalty under Article 12 of the India-US tax treaty. That on facts and circumstances of the case and in law, 2.3 Hon’ble DRP has grossly erred in confirming the observation of the Ld AO that software ‘made available’ a ‘process’ to customers who used the ‘process’ while carrying out their business.

2.4 That on facts and circumstances of the case and in law, Ld AO / DRP has erred in relying on nomenclature “license” written in the agreements rather than the substance of the transaction which was sale of good, i.e. sale of software.

That on facts and circumstances of the case and in law, the 2.5 Ld AO has erred in placing reliance on decision of Gracemac Corporation [134 TTJ 257 (Delhi)], which is not a good law in view of various legal and factual inaccuracies in the observations recorded and which has been distinguished by various courts subsequently.

That on facts and in law, the Hon’ble DRP and Ld. AO have 2.6 erred in not appreciating that:

the definition of Royalty is different in the Act and the India- 2.6.1 US tax treaty;

the benefits available under the India-US tax treaty would 2.6.2 still be available to the Appellant as the amendments in the Finance Act 2012 would not impact the treaty interpretation of the term royalty.

That on facts and in law, the Hon’ble DRP and Ld. AO have 2.6.3 failed to appreciate that the sale of software is a sale of

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‘Copyrighted Article’ and not ‘Copyright’ and accordingly, the revenue from sale of software is in the nature of business income not taxable under Article 7 of India-US tax treaty in the absence of the PE of the Appellant in India.

That on facts and in law, the Ld. AO/ DRP have erred in not 2.7 relying and distinguishing the decisions relied upon by the Appellant including the Hon’ble Apex Court and the jurisdictional High Court in the cases of Tata Consultancy Services (2004) (271 ITR 401) (SC), Infrasoft Ltd. (264 CTR 239), Ericsson A.B. and Metapath (343 ITR 370) (Del HC), Nokia Networks OY (TS-700-HC- 2012) (Del HC) on the one side and rather relying on the decisions of other courts and AAR in the cases of Samsung Electronics [(203 taxman 477) (Kar HC) / (TS-696-HC-2011)], Millenium IT Software [(338 ITR 391) (AAR) / (TS-585- AAR-2011)], ING Vysya Bank Ltd. DDIT (61 DTR 401, ITAT Bangalore), Citrix Systems (343 ITR 1 (AAR No. 822 of 2009)) on the other side.

3.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant from rendering of maintenance and implementation services to customers in India amounting to Rs. 19,59,55,424 and Rs. 15,90,987 respectively as ‘royalty’ / ‘fee for technical services’ under Article 12 of India-US tax treaty as well as under Section 9(i)(vi)/(vii) of the Act.

That on facts and in law, the Ld. AO/ DRP have erred in not 3.2 following the decision of Hon’ble ITAT in assessee’s own case for earlier years’ by mentioning that Hon’ble ITAT has not appreciated that the provisions of Article 12(4)(a) would apply to the revenue earned.

That on facts and in law, the Ld. AO has erred in holding that 3.3 Arm’s Length Payment made to Aspect India for the services received, does not cover all the services rendered by Aspect India and failed to appreciate that no adverse inference has been drawn by the Assessing officer/Transfer pricing officer with respect to the

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international transaction undertaken by the Appellant with Aspect India for the year under consideration.

That on facts and circumstances of the case and in law, the 4.1 Ld. AO/DRP have grossly erred in concluding that Appellant has a PE in India in the form of Aspect Contact Center Software India Private Limited (‘Aspect India’) and ignoring the fact whether a Permanent establishment exists or not is a fact based exercise which needs to be carried out every year which has not been carried out in the subject year. The Ld. AO/DRP has grossly erred both on facts and in law 4.2 in proposing to hold that the assessee has an ‘installation PE’ in India in terms of Article 5(2)(k) of the India-USA tax treaty.

The Ld. AO/DRP has grossly erred both on facts and in law 4.3 in proposing to hold that the assessee has a ‘dependent agent PE’ in India in terms of Article 5(4) of the India-USA tax treaty.

That on facts and in law, the Ld. AO/ DRP have erred in not 4.4 following the decision of Hon’ble ITAT in assessee’s own case for earlier years’ by mentioning that appeal against the order of Hon’ble ITAT has been filed with High Court without appreciating the fact that appeal has not been filed Hon’ble High Court with respect to existence of PE in India.

5.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant from supply of software and rendering of professional, maintenance, implementation and integration services amounting to Rs. 1,69,19,072 from the customers based in Sri Lanka and Middle East under the provisions of Article 12 of the India-US tax treaty and Section 9(l)(vi)/ (vii) of the Act.

5.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon’ble ITAT in assessee’s own case for

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

earlier years’ by mentioning that appeal against the order of Hon’ble ITAT has been filed with High Court. 5.3 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in attributing 15 percent of the revenue earned from supply of hardware to customers in Sri Lanka and Middle East to the alleged PE in India, Aspect India.

6.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon’ble ITAT in assessee’s own case for earlier years’ by mentioning that appeal against the order of Hon’ble ITAT has been filed with High Court. 7 Deduction of remuneration paid to alleged PE not allowed 7.1 Without prejudice to Ground 1 to 6 above, on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in allowing only the proportionate remuneration of Rs.2,07,81,552 and not the entire remuneration of Rs. 16,81,35,534 paid to Aspect India by the Appellant as a deduction form the profits attributed to the PE.

7.2 Without prejudice to above, the Ld. AO has erred in not following the order of earlier years passed by his office wherein his office has allowed complete deduction of remuneration paid to Aspect India from the profits attributed to the PE while computing the taxable profits.

Alleged PE has been remunerated at Arm’s length price 8.

Without prejudice to Ground 1 to 7 above and our contention that the Appellant does not have PE in India, the Learned AO has erred 7

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on facts and in law in attributing unreasonable and excessive profits to the alleged PE of the Appellant without considering that Aspect India has been remunerated at arm’s length price for the services provided to the Appellant.

DRP directions are laconic with respect to how TP provisions 9. apply to Appellant

Without prejudice to our other grounds of appeal, the order 9.1 issued by the Hon’ble DRP is laconic as the DRP has failed to issue directions to the Ld. AO ascribing cogent and germane reasons for their agreement with the findings of the Ld. AO in the Draft order of assessment under section 144C of the Act.

That on facts and in the circumstances of the case and in 9.2 law, the Ld. AO/DRP have erred in holding that the transfer pricing provisions are applicable to the Appellant. The Appellant’s transaction of sale of its products in India directly to third parties or through channel partners does not qualify as an “international transaction” (defined under the Act) as it does not entail a transaction between two “associated enterprises”.

That on facts and in the circumstances of the case and in law, the Ld. AO/DRP have erred by not appreciating that transfer pricing provisions are not applicable in the instant case and therefore, erred in initiating penalty proceedings under section 271 BA of the Act for not furnishing the Accountant’s Report in Form 3CEB as prescribed under Section 92E of the Act.

Non grant of TDS credit 10.

That the Ld. AO, on facts and circumstances of the case and 10.1 in law, has erred in granting TDS credit only to the extent of Rs. 2,50,90,499 asagainst TDS credit of Rs. 3,33,78,415 claimed by the appellant in its return of income.

Levy of interest under section 234B of the Act 11.

That the Ld. AO, on facts and circumstances of thecase and 11.1 in law, has erred in charging interest under section 234B of the Act.

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Initiation of Penalty Proceedings 12.

That on facts and circumstances of the case and in law, the 12.1 Ld. AO has erred in initiating the penalty proceedings under section 271(l)(c) of the Act holding that the Appellant has concealed the particulars of its income as also furnished inaccurate particulars thereof.

The above grounds of appeal are mutually exclusive and without prejudice to each other.

The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”

3.0 Brief facts of the case for assessment year 2013-14 are

that the assessee filed its return of income for Assessment Year

2013-14 on 30.09.2013 declaring income of Rs. 98,92,790/-.

The case was selected for scrutiny and notice u/s 143(2) of

the I.T. Act, 1961, was issued and served upon the assessee.

During the assessment proceedings, the assessee was asked to

explain a s t o how the factual matrix and business model of

this year was different from Assessment Year 2007-08 and

why the assessment should not be completed on the lines of

earlier Assessment Years. Vide its reply dated 07.03.2016,

the assessee submitted that there has been no change in the

business model of assessee vis-à-vis the earlier years. The

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

assessee contended that it does not have PE in India. It further

contended, without prejudice to the contention regarding the

absence of PE in India, that there cannot be any basis for

attributing 15% of the revenues earned from the sale of

hardware to end users in India, Middle East and Sri Lanka.

The A.O. / Ld. DRP considered the contentions raised by the

assessee and found that these are similar contentions raised

during the assessment proceedings for t h e Assessment Years

2007-08, 2008-09 & 2010-11. The A.O. made addition in the

hands of the assessee on similar basis, which was confirmed by

the Ld. DRP.

3.1 Aggrieved by the final assessment, the assessee is in

appeal before the ITAT on the following grounds of appeal:-

“Based on the facts and circumstances of the case and in law, the Appellant, respectfully craves leave to prefer an appeal under Section 253 of the Act against the order dated January 12, 2017, passed by the Ld. AO under Section 143(3) read with section 144C(13) of the Act pursuant to the directions issued by the Hon'ble Dispute Resolution Panel - I ("Hon'ble DRP"), New Delhi on the following grounds:

That on facts and circumstances of the case and in 1.1 law, the order passed by the Ld. AO pursuant to the 10

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directions issued by Hon'ble DRP is bad in law in as much as failed to appreciate the facts involved and law thereon.

That on facts and in law, the Ld. AO/ DRP have erred 1.2 in not following the decision of Hon'ble IT AT in the case of Appellant's itself for earlier years.

That on facts and circumstances of the case and in 1.3 law, while passing the assessment order, the Ld. AO has erred in computing the total income of the Appellant at Rs.33,33,57,812/- as against Rs. 98,92,789/- income returned by the Appellant and therefore, the order of the Ld. AO is bad in law and needs to be annulled.

That the Ld. AO has grossly erred both on facts and in 1.4 law by following the assessment order for A Y 2007-08 without realizing that each year is self contained with respect to the assessment of that year and the decision taken in any one assessment year is conclusive only for that assessment year and does not operate as res- judicata in respect of other years.

2.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant amounting to Rs.15,54,19,304/- from supply of software to customers in India as 'royalty' under section 9 (1)(vi) of the Act as well as under Article 12 of the Double Taxation Avoidance Agreement between India and United States of America ('India - US tax treaty'). 2.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT in assessee’s own case for earlier years where the Hon'ble ITAT by following the 11

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14 decisions of jurisdictional High Court has held that the consideration received by the Appellant for supply of software is for copyrighted article and is not in the nature of royalty under Article 12 of the India-US tax treaty. 2.3 That on facts and circumstances of the case and in law, Hon'ble DRP has grossly erred in confirming the observation of the Ld. AO that software 'made available' a 'process' to customers who used the 'process' while carrying out their business. 2.4 That on facts and circumstances of the case and in law, Ld AO has erred in relying on nomenclature "license" written in the agreements rather than the substance of the transaction which was sale of good, i.e. sale of software. 2.5 That on facts and circumstances of the case and in law, the Ld AO has erred in placing reliance on decision of Gracemac Corporation [134 TTJ 257(Delhi)], which is not a good law in view of various legal and factual inaccuracies in the observations recorded and which has been distinguished by various courts subsequently. 2.6 That on facts and in law, the Hon'ble DRP and Ld. AO have erred in not appreciating that: 2.6.1 the definition of Royalty is different in the Act and the India- US tax treaty; 2.6.2 the benefits available under the India-US tax treaty would still be available to the Appellant as the amendments in the Finance Act 2012 would not impact the treaty interpretation of the term royalty. 2.6.3 That on facts and in law, the Hon'ble DRP and Ld. AO have failed to appreciate that the sale of software is a sale of 'Copyrighted Article' and not 'Copyright' and accordingly, the revenue from sale of software is in the nature of business income not taxable under Article 7 of India- US tax treaty in the absence of the PE of the Appellant in India. 2.7 That on facts and in law, the Ld. AO/ DRP have erred in not relying and distinguishing the decisions relied upon by the Appellant including the Hon'ble Apex Court and the jurisdictional High Court in the cases of Tata Consultancy Services (2004) (271 ITR 401) (SC), Infrasoft Ltd. (264 CTR 239), Ericsson A.B. and Metapath (343 ITR 370) (Del HC), Nokia Networks OY (TS-700-HC-2012) (Del. HC) on the one 12

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14 side and rather relying on the decisions of other courts and AAR in the cases of Samsung Electronics [(203 taxman 477) (Kar. HC) / (TS-696-HC-2011)], Millenium IT Software [(338 ITR 391) (AAR) / (TS-585- AAR-2011)], ING Vysya Bank Ltd. DDIT (61 DTR 401, ITAT Bangalore), Citrix Systems (343 ITR 1 (AAR No. 822 of 2009)) on the other side.

3 Revenue earned from rendering of Maintenance and Implementation Services taxed as Royalty/ FTS is incorrect

3.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant from rendering of maintenance and implementation services to customers in India amounting to Rs.15,01,65,574/- and Rs. 3,09,13,099 respectively as 'royalty' / 'fee for technical services' under Article 12 of India-US tax treaty as well as under Section 9(i)(vi)/(vii) of the Act. 3.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT in assessee’s own case for earlier years by mentioning that the Hon’ble ITAT has not appreciated that the provisions of Article 12(4)( a) would apply to the revenue earned. 3.3 That on facts and in law, the Ld. AO has erred in holding that Arm’s Length Payment made to Aspect India for the services received, does not cover all the services rendered by Aspect India and failed to appreciate that no adverse inference has been drawn by the Assessing officer/ Transfer pricing officer with respect to the International transaction undertaken by the Appellant with Aspect India for the year under consideration.

4 PE of the Appellant alleged in India is incorrect

4.1 That on facts and circumstances of the case and in law, the Ld. Assessing Officer/DRP have grossly erred in concluding that the Appellant has a PE in India in the form of Apect Contact Center Software India Private Limited ('Aspect India') and ignoring the fact whether a Permanent establishment 13

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14 exists or not is a fact based exercise which needs to be carried out every year which has not been carried out in the subject year. 4.2 That the Ld. Assessing Officer/DRP has grossly erred both on facts and in law in proposing to hold that the assessee has an ‘installation PE’ in India in terms of Article 5 (2)(k) of the India-USA tax treaty. 4.3 The Ld. AO/DRP has grossly erred both on facts and in law in proposing to hold that the assessee has a 'dependant agent PE' in India in terms of Article 5(4) of the India-USA tax treaty. 4.4 That on facts and in law, the Ld. AO/DRP have erred in not following the decision of Hon'ble ITAT in assessee’s own case for earlier years by mentioning that appeal against the order of Hon'ble ITAT has been filed with High Court without appreciating the fact that the appeal has not been filed Hon’ble High Court with respect to existence of PE in India.

5 Revenue earned from the customers in Sri Lanka and Middle- East taxed in India incorrectly

5.1 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in taxing the revenue earned by the Appellant from supply of software and rendering of professional, maintenance, implementation and integration services amounting to Rs.37,17,389 from the customers based in Sri Lanka and Middle East under the provisions of Article 12 of the India-US tax treaty and Section 9(l)(vi)/ (vii) of the Act.

5.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT in assessee’s own case for earlier years by mentioning that appeal against the order of Hon'ble ITAT has been filed with High Court.

5.3 That on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in attributing 15 percent of the revenue earned from supply of hardware to customers in 14

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Sri Lanka and Middle East to the alleged PE in India, Aspect India.

6 Incorrect Attribution of Income to the PE in India

6.1 Without prejudice to the Grounds above, on facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred in attributing 15 percent of the hardware sale revenue earned by the Appellant from customers in India and from customers in Sri Lanka & Middle East, amounting to Rs. 29,35,021 to the alleged PE, Aspect India by following the assessment orders for earlier years. 6.2 That on facts and in law, the Ld. AO/ DRP have erred in not following the decision of Hon'ble ITAT in assessee’s own case for earlier years by mentioning that appeal against the order of Hon'ble ITAT has been filed with High Court.

7 Deduction of remuneration paid to alleged PE not allowed. 7.1 Without prejudice to Ground 1 to 6 above, on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in allowing only the proportionate remuneration of Rs.96,85,364 and not the entire remuneration of Rs. 17,80,39,781 paid to Aspect India by the Appellant as a deduction from the profits attributed to the PE.

7.2 Without prejudice to above, the Ld. AO has erred in not following the order of earlier years passed by his office wherein his office has allowed the complete deduction of remuneration paid to Aspect India from the profits attributed to the PE while computing the taxable profits.

8 Alleged PE has been remunerated at Arm's length price

Without prejudice to Ground I to 7 above and our contention that the Appellant does not have PE in India, the Learned AO has erred on facts and in law in attributing unreasonable and excessive profits to the alleged PE of the Appellant without considering that

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14 Aspect India has been remunerated at arm's length price for the services provided to the Appellant.

9 DRP directions are laconic with respect to how TP provisions apply to Appellant

9.1 Without prejudice to our other grounds of appeal, the order issued by the Hon'ble DRP is laconic 'as the DRP has failed to issue directions to the Ld. AO ascribing cogent and germane reasons for their agreement with the findings of the Ld. AO in the Draft order of assessment under section 144C of the Act. 9.2 That on facts and in the circumstances of the case and in law, the Ld. AO/DRP have erred in holding that the transfer pricing provisions are applicable to the Appellant. The Appellant's transaction of sale of its products in India directly to third parties or through channel partners does not qualify as an "international transaction" (defined under the Act) as it does not entail a transaction between two "associated enterprises".

That on facts and in the circumstances of the case and in law, the Ld. AO/DRP have erred by not appreciating that transfer pricing provisions are not applicable in the instant case and therefore, erred in initiating penalty proceedings under section 271 BA of the Act for not furnishing the Accountant's Report in Form 3CEB as prescribed under Section 92E of the Act.

10 Non grant of TDS credit

10.1 That the Ld. AO, on facts and circumstances of the case and in law, has erred in granting TDS credit only to the extent of Rs. 2,03,48,782 as against TDS credit of Rs. 2,14,50,734 claimed by the appellant in its return of income.

11 Initiation of Penalty Proceedings

11.1 That on facts and circumstances of the case and in law, the Ld. AO has erred in initiating the penalty proceedings under section 271(1)(c) of the Act holding that the Appellant has 16

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concealed the particulars of its income as also furnished inaccurate particulars thereof. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”

4.0 Since both the appeals involve identical issues, these were

heard together and are being disposed of by this consolidated

order for the sake of convenience.

5.0 At the outset, it was submitted by the Ld. AR that the issues

raised in the present appeals are squarely covered by the orders

of this Tribunal for the previous assessments years. Further, the

appeals filed by the Department against such orders also stand

dismissed by the Hon’ble Delhi High Court. It was further

submitted that there was no change in the factual matrix in both

the years under consideration vis-a-vis the previous assessment

years 2003-04, 2004-05, 2007-08, 2008-09, 2009-10, 2010-11 &

2011-12.

6.0 The Ld. C.I.T. DR agreed that all the issues in assessee’s

appeals were identical to the issues in the previous assessment

years which had been adjudicated by the ITAT in assessment

years 2003-04, 2004-05, 2007-08, 2008-09 and 2009-10 and

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

2010-11 and 2011-12 but all the same submitted that he was

placing reliance on the orders of the lower authorities as well as

the directions of the Ld. DRP and was supporting them.

7.0 Ground no. 1 in both the appeals being general in nature

are not being adjudicated upon.

7.1.0 With regard to Ground no. 2 in ITA 1452/Del/2017, it

was submitted that this ground has been dealt extensively by the

ITAT in its order dated 18.5.2015 in ITA Nos. 1124 and

1125/Del/2014 wherein the relevant findings are in Para 41 and

42 which read as under:-

“41. Before us, the learned counsel for the Assessee as well as the learned D.R. relied on several decisions of the High Court and Tribunal rendered on the subject. These decisions are not being considered as the issue is extensively dealt by the Hon'ble Jurisdictional High court in the cases of M/s Ericsson A.B. and Infrasoft Ltd (supra) which are binding on this Tribunal. We observe that all the arguments put forth by the Revenue and the assessee are considered and answered in these decisions. Further, the Delhi High Court in Infrasoft has expressed its disagreement with the view taken by the Karnataka High Court in the case of Samsung Electronics Co Ltd. Hence, the decisions relied by the learned CIT-DR in the case of Samsung Electronics and Gracemac Corporation (supra) does not help the case of the Revenue, as we are under the Jurisdiction of the Hon’ble Delhi High Court.”

7.1.1 It has also been submitted that the Department had

challenged the aforesaid order of the ITAT before the Hon’ble 18

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Delhi High Court and the Hon’ble Delhi High Court in ITA

909/2015 affirmed the findings of the Tribunal. This order was

also followed by the ITAT in assessee’s own case for assessment

year 2011-12 in ITA 1842/Del/2016 vide order dated

27.06.2016.

7.1.2 The Ld. CIT DR could not dispute the contentions of the

Ld. AR.

7.1.3 Since there is no change in the factual position for the

year under consideration vis-a-vis the previous assessment years

and also in view of the pronouncement of the Hon’ble

Jurisdictional High Court as afore mentioned, we agree that the

additions made by the Assessing Officer in this regard cannot be

sustained. Accordingly, we allow the ground no. 2 raised by the

assessee.

7.1.4 Ground no. 2 in ITA 1453/Del/2017 is identical to the

assessee’s appeal bearing ITA No. 1452/Del/2017 for assessment

year 2012-13 which we have already allowed in favour of the

assessee in the preceding paragraphs. Accordingly, there being

no change in the factual position for the year under consideration

and on the same reasoning as mentioned in the preceding

paragraphs, we allow ground no.2 in ITA 1453/Del/2017 also.

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7.2.0 With respect to ground no. 3 in ITA 1452/Del/2017, it has

been submitted that this ground also has been dealt extensively

by the ITAT in ITA No. 1124 and 1125/Del/2014 vide order dated

18.05.2015 in paragraphs 52 and 56 as under:-

“52. We have heard both the parties at length and perused the relevant clauses of the agreement which deal with the above services. “Services” have been defined in the agreement “to include installation services, maintenance services, education services, professional services and T&M services, all as hereinafter defined, and any other services provided to Customer by or on behalf of Aspect, together with the related deliverables provided under services”. …….. “56. In the present case, the undisputed fact is that the implementation service is inextricably and essentially linked to the supply of software. In view of our decision in Ground No 2 that the supply of software is not taxable as “royalty” under the Tax Treaty, the provision contained in clause (a) to Article 12 (4) would not apply to both Implementation and maintenance services. Further there is nothing to show that these services provided by the assessee actually made available to the End User/ Channel Partners any technical knowledge, experience, skill, know-how or processes so as to enable them to apply the said technology. Under these circumstances, we uphold the arguments of the learned Counsel of the assessee and allow the ground.”

7.2.1 It has also been submitted that on the Department

approaching the Hon’ble Delhi High Court against this finding,

the Hon’ble High Court declined to frame a substantial question

of law on this issue and further this decision was also followed by

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

the Tribunal in assessee’s own case for assessment year 2011-12

also in ITA No. 1842/Del/2016.

7.2.2 The Ld. CIT DR could not dispute the contentions of the

Ld. AR.

7.2.3 Accordingly, as it is undisputed that there is no change in

the factual position for the year under consideration, the

additions proposed by the Assessing Officer on this ground also

are set aside. We also note that the department itself has

accepted the assessee’s stand on this issue in the subsequent

assessment year 2014-15.

7.2.4 Ground no. 3 in ITA 1453/Del/2017 is identical to

ground no. 3 raised by the assessee in ITA No. 1452/Del/2017

and on similar reasoning, we allow ground no. 3 in this year also.

7.3.0 Regarding ground no. 4 in ITA 1452/Del/2017, it has

been submitted that this ground is also covered by the order of

the ITAT dated 18.05.2005 in ITA No. 1124 and 1125/Del/2014

and the relevant paragraph is 91 which is reproduced as under:-

“91. We have considered the rival contentions and the material on record. The existence of PE in India is the matter of dispute in this ground. Revenue has contended that the assessee has fixed PE, installation PE and Dependent Agent PE in India. Our finding in respect of each of the forms of PE is as under:

……………………… 21

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Installation PE: The revenue contends that since installation and support services are provided by Aspect India, there exists an installation PE of the assessee in India. As per Article 5(2) of India – USA Treaty, the term ‘Permanent Establishment’ includes especially the following:

Clause (j): An installation or structure used for the (i) exploration or exploitation of natural resources, but, only if so used for a period of more than 120 days in any twelve-month period; Clause (k): A building site or construction, installation (ii) or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period.

There is no dispute that clause (j) above is not applicable. The dispute is with regard to existence of PE under clause (k) above. As per Article 5(2)(k), a building site or construction, installation or assembly project or supervisory activities in connection therewith is regarded as PE is such project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period. Article 5(2)(k) should be read as a whole. The term ‘in connection therewith’ would apply for the entire preceding words viz., a ‘building site or construction, installation or assembly project or supervisory activities’. The term installation project cannot be read de-hors the words accompanying it. Thus, when the entire clause is red as a whole, it would be evident that the installation or assembly project or supervisory activities should be in connection with the building site or construction. In the present case, there is no dispute that the assessee does not carry on business in India through a building site or construction. Consequently, we are of the view that there is no installation PE of the assessee in India. 22

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Dependent Agent PE: Article 5(4) of India – USA Treaty deals with the Dependent Agent PE. It reads as under: Notwithstanding the provisions of paragraphs 1 and 2 where a person-other than an agent of an independent status to whom paragraph 5 applies –is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if:

(a) He has and habitually exercises in the first mentioned State an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph;

(b) He has no such authority but habitually maintains in the first mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise; or

(c) He habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise. The first and foremost requirement under Article 5(4) is that the said Article will apply to a person other than an agent of an independent status to whom paragraph 5 applies. Paragraph 5 of Article states as under:

“5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are 23

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm’s length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph.”

Paragraph 5 lays down conditions as to when can an agent; broker is regarded as dependent agent or independent agent. If the agent is devoted wholly or almost wholly on behalf of the enterprise and the transactions between the agent and the enterprise are not made under arm’s length conditions, the agent is not considered as agent of ‘independent status’. In such circumstances, the agent would be regarded as ‘dependent agent’. Further, the dependent agent has to satisfy any of the tests laid down in (a),(b) or (c) above in order to constitute a dependent agent PE of the non- resident. Coming to the facts of the present case, the assessee has argued that Aspect India neither secures orders nor habitually exercises an authority to conclude on behalf of the assessee. It is, therefore, contended that there is no dependent agent PE in India. The revenue, on the other hand, has argued that the assessee has not submitted proper facts to substantiate its contention. It is submitted that the assessee has not submitted information on sale of equipment and licensing of software that are done directly by Aspect India to customers and those done through channel partners. It is contended that the assessee has not demonstrated that it identifies customers and make sales. The statement recorded from the Director, sales of Aspect India is stated to be contrary to the claim of the assessee that Aspect India only acts as a communication channel between the assessee and the customers. Similarly, the assessee’s claim that majority of sales are made to channel partners is stated to be factually incorrect since information on all the channel partners, date of agreement and sales made through them is not submitted. It is argued that copy of ‘I Approve’ system has not been submitted by the assessee for factual 24

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

verification. Considering these facts, we are of the view that both the revenue and the assessee have not been able to demonstrate the existence or otherwise of the ‘dependent agent PE’. In the absence of proper information in this regard, we are unable to decide whether the assessee has a ‘dependent agent PE’ in India. We accordingly, set aside the issue of ‘dependent agent PE’ and restore to the assessing officer for fresh consideration.”

7.3.1 It has also been submitted that the Revenue has not filed

any appeal before the Hon’ble High Court on the issue of

Installation PE which has been decided in favour of the assessee

by the Tribunal and thus this issue stands accepted by the

Revenue. It has also been submitted that the ITAT has also

followed this order in assessee’s own case for assessment year

2011-12 in ITA No. 1842/Del/2016.

7.3.2 The Ld. CIT DR could not dispute these contentions of the

Ld. AR.

7.3.3 Accordingly, there being no change in the factual position

of the year under consideration, this ground also stands allowed.

7.3.4 Ground no. 4 in ITA 1453/Del/2017 is identical to

ground No. 4 raised in ITA No. 1452/Del/2017 and on similar

reasoning as contained in the preceding paragraphs, we allow

ground no. 4 in this appeal also.

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

7.4.0 Regarding ground no. 5 in ITA 1452/Del/2017, it was

submitted that this grounds is also covered by the Tribunal’s

order dated 18.05.2015 in ITA No. 1124 & 1125/Del/2014 in

Para 92 to 106. The relevant paragraphs were brought to our

notice which read as under:-

“103. We have heard the rival contentions and perused the record. We find it difficult to accept the arguments of the learned CIT-DR for taxing the said receipts. In view of our observations in Ground No 2, 3 and 4, we hold that the revenues earned from customers located in Sri Lanka/ Middle East are not taxable under the Tax Treaty. Even otherwise, we are of the opinion that the said revenue is not taxable under Sec. 9 of the Act. We state our reasons below:

for the purposes of business, or profession (a) carried on by such person (i.e. customers located in Sri Lanka/ Middle East) in India; or

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

for the purpose of making or earning any income (b) from any source in India.

Thus to tax the income earned by Aspect US from customers located outside India under Sec. 9(I)(vi)(-c)/ 9(1)(vii)(c ) of the Act, the Revenue must prove that the customers located in Sri Lanka / Middle East carry on business in India and that they have used Aspects US rights in the IPs/ services for the purposes of such business in India; or that they have used rights in the IPs/ Services for the purpose of making or earning income from a source in India. In the present case, the Revenue taxed the said income on the sole reason that these services are provided by Indian subsidiary of the assessee and the assessee is earning huge income from these customers. The AO has not brought anything on record to show that the customers located in Sri Lanka! Middle East has used the rights in the IPs/ services for carrying on business in India or for the purpose of making or earning income from any source in India. Under these circumstances, we agree with the arguments of the learned counsel for the assessee that the revenue in question cannot be brought to tax under the Act.

7.4.1 It has also been submitted that in the Department’s

appeal before the Hon’ble High Court, the Hon’ble High Court

declined to frame a specific question of law on this issue and

thus, the order of the Tribunal had become final. It has also

been submitted that the Tribunal’s order was followed by the

Coordinate Bench of the Tribunal in assessee’s own case for

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

assessment year 2011-12 in ITA No. 1842/Del/2016 also and the

department’s appeal before the High Court was dismissed vide

order dated 25.04.2017 in ITA 7/2017.

7.4.2 The Ld. CIT DR could not controvert the contentions of the

Ld. AR.

7.4.3 Accordingly, there being no change in the factual position

for the year under consideration, the additions proposed by the

Assessing Officer on this ground are set aside.

7.4.4 Ground no. 5 in ITA 1453/Del/2017 is also identical to

ground no. 5 in ITA No. 1452/Del/2017 and on similar reasoning

as contained in the preceding paragraphs, we allow ground no. 5

in this appeal also.

7.5.0 With regard to ground no. 7 in ITA 1452/Del/2017, it has

been submitted that this issue has been set aside by the ITAT to

the file of the Assessing Officer in ITA No. 1124 and 1125 vide

order dated 18.05.2015 and a similar set aside was directed in

assessment year 2011-12 in ITA 1842/Del/2016.

7.5.1 The Ld. CIT DR had no objection to the issue being set

aside to the file of the AO/TPO.

7.5.2 Accordingly, as there is no change in the factual position

for the year under consideration, we direct the Assessing Officer

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

to refer the matter to the TPO for determining the ALP and thus

decide on the issue of attribution of profits for fresh adjudication

in accordance with law. Thus, this ground stands allowed for

statistical purposes.

7.5.3 Ground no. 7 in ITA 1453/Del/2017 is also identical to

ground no. 7 raised in ITA No. 1452/Del/2017 and on the same

reasoning, we set aside the issue on the attribution of profits in

accordance with law. Thus, this ground is also allowed for

statistical purposes.

7.6.0 Regarding ground nos. 6 and 8 in ITA 1452/Del/2017, it

has been submitted that this ground has been dealt extensively

by ITAT in its order dated 18.05.2015 in ITA No. 1124 &

1125/Del/2015 in Para 126 and 128. The relevant paragraphs

are reproduced as under:-

“126. In view of the above, we agree with the learned counsel of the assessee that where an associated enterprise (that also constitutes a PE) is remunerated on arm’s length basis taking into account all the risk taking functions of the multinational enterprise, nothing further would be left to attribute to PE. 127………………. 128. For the other A.Ys under appeal, we direct the AO to refer the matter to the TPO wherever there is no existing reference either in the case of Aspect US or Aspect India. The TPO shall determine ALP and attribute the profits accordingly. In this regard, we place reliance in the case of Ranbaxy Laboratories Ltd. Vs. CIT (345 ITR 193, Del 29

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

HC) wherein the validity of the instruction no.3 dt.25-5- 2003 issued by the CBDT u/s 119 of the Income Tax Act was upheld and the reference to TPO for determination of ALP was considered mandatory.”

7.6.1 It has also been submitted that this order was

challenged by the Department before the Hon’ble Delhi High

Court and the Hon’ble Delhi High Court declined to frame a

specific question of law on the issue and further this order was

also followed by the Tribunal in assessee’s own case for

assessment year 2011-12 in ITA No. 1842/Del/2016 and the

Department’s appeal against the said order before the Hon’ble

Delhi High Court was dismissed vide order dated 25.04.2017 in

ITA 7/2017.

7.6.2 The Ld. CIT DR could not point out any factual or legal

infirmity in the contentions of the Ld. AR.

7.6.3 Accordingly, there being no change in factual position in

the year under consideration, these grounds also stand allowed.

7.6.4 Ground nos. 6 & 8 in ITA 1453/Del/2017 are also

identical to ground nos. 6 & 8 in ITA No. 1452/Del/2017 and on

similar reasoning, there being no change in the factual position

for the year under consideration, we allow this ground in this

year also.

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

7.7.0 Regarding ground no. 9 in ITA 1452/Del/2017, it has

been submitted that this issue has been dealt by the Tribunal in

its order dated 18.5.2015 in ITA 1124 & 1125/Del/2014 and the

relevant observations are as under:-

“Similar issues have been dealt with by us earlier in this order while dealing with attribution of profits to the PE. As the criteria for adjudication of both the issues is similar, consistent with the view taken by us, we direct the A.O. to accept the TPO analysis of Aspects India wherever the same is available.” 7.7.1 It has also been submitted that the Coordinate Bench

of the Tribunal also followed this decision in assessment year

2011-12 in assessee’s own case in ITA 1842/Del/2016 vide order

dated 27.06.2016.

7.7.2 The Ld. CIT DR could not dispute the contentions of the

Ld. AR.

7.7.3 Since there is no change in the factual position for the

year under consideration, this ground also stands allowed.

7.7.4 Ground no. 9 in ITA 1453/Del/2017 is also identical to

ground no. 9 raised in ITA No. 1452/Del/2017 and on similar

reasoning, there being no change in the factual position for the

year under consideration, we allow this ground in this year also.

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

7.8.0 Regarding ground no. 10 in ITA 1452/Del/2017, it has

been claimed that the entire TDS claimed by the assessee was

not allowed by the Assessing Officer. On the basis of evidence

placed on record, it is apparent to us that the claim of the

assessee regarding grant of TDS is bona fide and we accordingly

direct the Assessing Officer to allow the assessee’s claim of TDS

after proper verification. This ground stands allowed for

statistical purposes.

7.8.1 Similarly Ground no. 10 in ITA 1453/Del/2017 pertains

to the assessee’s claim that the entire TDS credit claimed by it

was not allowed by the Assessing Officer. On the basis of

evidence placed on record, it is apparent that the claim of the

assessee regarding the credit of TDS is bona fide. Accordingly,

we direct the Assessing Officer to allow the same after proper

verification. Thus, this ground stands allowed for statistical

purposes

7.9.0 With respect to ground no. 11 in ITA 1452/Del/2017, it

has been submitted that this ground has been dealt extensively

by the Tribunal in assessee’s own case in ITA No. 1124 &

1125/Del/2014 vide order dated 18.5.2015 and the relevant

paragraphs 148 and 149 are reproduced here in under:-

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

“148. The undisputed fact in the present case is that tax on the entire income received by the assessee was required to be deducted at appropriate rates by the respective payers under section 195(2). Had the payer made the deduction of tax at the appropriate rate, the net tax payable by the assessee would have been Nil. 149. In the case of Alcatel, Alcatel has not offered the income to tax while filing the tax return and also the deductees had not withheld tax on the same. However, in the present case, tax was deducted at source by the customers and payers in India on payments made to the assessee company and the assessee company is claiming refund of this tax deducted. The interest obligation has arisen on account of the AO holding ACC as PE of asseseee in India which resulted in higher assessed income. Further, the Revenue has not brought anything on record to prove that the assessee has led the Indian payers to believe that tax was deductible at lower rates. Under these circumstances, we allow this ground in favour of the assessee.” 7.9.1 It has been further submitted that this view of the

Tribunal was affirmed by the Hon’ble Delhi High Court and was

further followed by the ITAT in assessee’s own case in

assessment year 2011-12 in ITA 1482/Del/2016 vide order dated

27.06.2016. It was also submitted that the Departmental appeal

against this order was dismissed by the Hon’ble Delhi High Court

vide order dated 25.04.2017 in ITA 7/2017.

7.9.2 The Ld. CIT DR could not point out any factual inaccuracy

in the contentions of the Ld. AR.

7.9.3 Since there is no change in the factual position for the

year under consideration and in view of the judgment of Hon’ble 33

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14

Jurisdictional High Court affirming the order of the ITAT, we

allow the ground raised by the assessee.

7.10.0 Ground no. 12 in ITA 1452/Del/2017 challenges the

initiation of penalty proceedings u/s 271(1)(c) of the Income Tax

Act, 1961 (hereinafter referred to as "the Act"). This ground being

premature is dismissed.

7.10.1 Similarly, Ground no. 11 in 1453/Del/2017challenges

the initiation of penalty proceedings u/s 271(1)(c) of the Act.

Since this ground is premature, the same is also dismissed.

allowed.

Order pronounced in the Open Court on 27th September,

2018.

Sd/- Sd/-

(G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER

Dated: 27th SEPTEMBER, 2018 ‘GS’

ITA No. 1452 & 1453/D/2017 Assessment years 2012-13, 2013-14