MOTOROLA INC,USA vs. DDIT, NEW DELHI

way of consolidated order for the sake of brevity and to avoid repetition of discussion.

Assessment Year 2002-03

“Based on the facts and circumstances of the case, Motorola Inc (hereinafter referred to as ‘the Appellant’), respectfully submits in respect of the order passed by the learned Deputy Director of Income -tax, Circle 3(2), New Delhi under section 144C(13)/147 of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) on the following grounds:

Reassessment proceedings bad in law

1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (‘AO’) has erred and the Hon'ble Dispute Resolution Panel (‘DRP’) has further erred in confirming the AO's action of reopening the assessment proceedings under section 147 of the Act by issuance of notice under section 148 of the Act dated 03 October 2008, after the expiry of four years from the end of the relevant assessment year. Thus, the impugned order passed under section 144C read with section 147 of the Act is without jurisdiction, bad in law and liable to be quashed; 1.1 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the AO's action of reopening the assessment proceedings under section 147 of the Act, after the expiry of four years even when there was no failure on the part of the appellant to fully and truly furnish all the material facts necessary for assessment; 1.2 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the AO’s

action of reopening the concluded assessment merely on the basis of change of opinion on facts already present at the time of original assessment proceedings u/s 143(3) of the Act; 1.3 On the facts and in the circumstances of the case and in law, the learned AO has erred in not considering the detailed submissions made by the appellant during the reassessment proceedings and completely disregarding the judicial precedents relied upon by the appellant to meet the ends of revenue and the Hon'ble DRP has further erred in confirming the above action of the learned AO. 1.4 That the impugned reassessment order as passed by the learned AO u/s 144C read with section 147 of the Act concluding the reassessment proceedings as confirmed by the Hon'ble DRP u/s 144C(13) read with section 147 of the Act is, therefore, bad in law and requires to be annulled.

Fee received by the appellant

2. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO of treating the fees received by the appellant from Motorola India Electronics Private Limited (‘MIEL’) and Motorola India Private Limited (‘MIPL’) as Fee for Included Services (‘FIS’) and taxing the same at the rate of 20% as per the provisions of Article 7 of the Double Taxation Avoidance Agreement (‘DTAA’) between India and USA read with section 115A and section 44D of the Act; 2.1 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in not appreciating that the amounts received by the appellant are mere reimbursement of expenses on a cost to cost basis and hence, the same are not chargeable to tax in India; 2.2 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in holding that the fees received by the appellant from the Indian Companies i.e. MIPL and MIEL are in the nature of FIS within the meaning of Article 13 of the DTAA); 2.3 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in proceeding on the assumption that the appellant has a permanent establishment in India; 2.4 Without prejudice to the objection mentioned in 2.3 above, on the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon’ble DRP has further erred by holding that the fees received by the appellant from the Indian companies are connected with alleged permanent establishment in India; 2.5 On the facts and in the circumstances of the case and in law, the learned

AO has erred in ignoring the submissions of the appellant and the judicial precedents cited during the reassessment proceedings and the Hon'ble DRP has further erred in confirming the above action of the learned AO.

General 3. On the facts and in the circumstances of the case and in law, the learned DRP has erred in placing reliance on its observation in appellant’s case for AY 2006-07 without granting the appellant any opportunity of being heard and present its case.

4. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO in charging interest under section 234A, 234B and 234D of the Act.

5. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO of initiating the penalty proceedings u/s 271(1)(c) of the Income-tax Act on the ground that the appellant has concealed the true and correct particulars of its taxable income.

6. All the above grounds of objection are independent and without prejudice to one another

7. The appellant craves leave to supplement, to cancel, to amend, to add and/or otherwise to alter/modify any or all the ground(s) of objection stated herein above.

The above grounds are independent and without prejudice to each other.

The Appellant prays for leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal.”

Assessment Year 2003-04

“Based on the facts and circumstances of the case, Motorola Inc (hereinafter referred to as ‘the Appellant’), respectfully submits in respect of the order passed by the learned Deputy Director of Income -tax, Circle 3(2), New Delhi under section 144C(13)/147 of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) on the following grounds:

Reassessment proceedings bad in law

Assessing Officer (‘AO’) has erred and the Hon'ble Dispute Resolution Panel (‘DRP’) has further erred in confirming the AO's action of reopening the assessment proceedings under section 147 of the Act by issuance of notice under section 148 of the Act dated 03 October 2008, after the expiry of four years from the end of the relevant assessment year. Thus, the impugned order passed under section 144C read with section 147 of the Act is without jurisdiction, bad in law and liable to be quashed; 1.1 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the AO's action of reopening the assessment proceedings under section 147 of the Act, after the expiry of four years even when there was no failure on the part of the appellant to fully and truly furnish all the material facts necessary for assessment; 1.2 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the AO’s action of reopening the concluded assessment merely on the basis of change of opinion on facts already present at the time of original assessment proceedings u/s 143(3) of the Act; 1.3 On the facts and in the circumstances of the case and in law, the learned AO has erred in not considering the detailed submissions made by the appellant during the reassessment proceedings and completely disregarding the judicial precedents relied upon by the appellant to meet the ends of revenue and the Hon'ble DRP has further erred in confirming the above action of the learned AO.

1.4 That the impugned reassessment order as passed by the learned AO u/s 144C read with section 147 of the Act concluding the reassessment proceedings as confirmed by the Hon'ble DRP u/s 144C(13) read with section 147 of the Act is, therefore, bad in law and requires to be annulled.

Fee received by the appellant

2. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO of treating the fees received by the appellant from Motorola India Electronics Private Limited (‘MIEL’) and Motorola India Private Limited (‘MIPL’) as Fee for Included Services (‘FIS’) and taxing the same at the rate of 20% as per the provisions of Article 7 of the Double Taxation Avoidance Agreement (‘DTAA’) between India and USA read with section 115A and section 44D of the Act; 2.1 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in not appreciating that the amounts received by the appellant are mere reimbursement of expenses on a cost to cost basis and hence, the same are not chargeable to tax in India; 2.2 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in holding that the fees received by the appellant from the Indian Companies i.e. MIPL and MIEL are in the nature of FIS within the meaning of Article 13 of the DTAA); 2.3 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in proceeding on the assumption that the appellant has a permanent establishment in India; 2.4 Without prejudice to the objection mentioned in 2.3 above, on the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon’ble DRP has further erred by holding that the fees received by the appellant from the Indian companies are connected with alleged permanent establishment in India; 2.5 On the facts and in the circumstances of the case and in law, the learned AO has erred in ignoring the submissions of the appellant and the judicial precedents cited during the reassessment proceedings and the Hon'ble DRP has further erred in confirming the above action of the learned AO.

Supply/ licensing of software

3. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon’ble DRP has further erred in confirming the action of the learned AO of treating the sums received by the appellant from licensing of software in India to Indian customers as royalty and taxing the same at the rate of 30% as per the provisions of section 115A read with section 44D of the Act; 3.1 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO of treating the sums received by the appellant as royalty since the licensing of software is in the nature of outright sale of copyrighted article and not sale of the copyright; 3.2 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO of treating the sums received by the appellant as royalty since the software is an essential requirement to make the hardware operational and hence, the sale of both the hardware and software are inextricably linked to each other; 3.4 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in proceeding on the assumption that the appellant has a permanent establishment in India;

Without prejudice to the gorunds of the appellant in 3.1, 3.2 and 3.3 above, on the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred by treating the sums received by the appellant as royalty and taxing the same at the rate of 30% as per the provisions of section 115A read with section 44D of the Act since, as per the effective date of agreements entered into by the appellant with Indian customers, entire sums should not have been taxed at a rate which is than 20%; 3.5 On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in ignoring the submissions of the appellant and the judicial precedents cited during the reassessment proceedings.

General 4. On the facts and in the circumstances of the case and in law, the learned DRP has erred in placing reliance on its observation in appellant’s case for AY 2006-07 without granting the appellant any opportunity of being heard and present its case.

5. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO in charging interest under section 234A, 234B and 234D of the Act.

6. On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon'ble DRP has further erred in confirming the action of the learned AO of initiating the penalty proceedings u/s 271(1)(c) of the Income-tax Act on the ground that the appellant has concealed the true and correct particulars of its taxable income.

7. All the above grounds of objection are independent and without prejudice to one another

The above grounds are independent and without prejudice to each other.

The Appellant prays for leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal.”

• During the course of assessment proceeding u/s 143(3) concluded vide passing of assessment order dated 30 Mrch 2005, the assessee submitted copies of agreements with the group companies i.e. Motorola India Electronics India Pvt. Ltd. (MIEL) and Motorola India Limited (MIL). • A perusal of the above agreements revealed that the assessee had made those agreements after 31 May 1997, therefore, income from these agreements should have been taxed at 20% u/s 115A read with 44D of the Act instead of 15% as done by erstwhile AO.

8. However, on the other hand, Ld. DR for the Revenue contended that the assessee has not brought on record the fate of the appeal filed by the assessee, before the Ld. CIT(A), against the order passed u/s 143(3) of the Act, as at the application of the assessee that the present appeals may be kept in abeyance till the disposal of the appeal before the Ld. CIT(A) filed against the order passed u/s 143(3) of the Act, and relied upon the decision rendered by Hon’ble High Court on reopening of cases u/s 147 of the Act, cited as Oracle Systems Corporation vs. Assistant Director of Income-Tax (International Taxation) [2016] 380 ITR 232.

“as to whether reassessment proceeding initiated by the AO u/s 147 of the Act are merely “change of opinion” as held by Ld.CIT(A) and that there is no failure on its part to disclose all material facts fully and truly necessary for assessment?” 10. To proceed further, we would like to extract the reasons recorded by the AO for reopening the assessment proceedings for AY. 2002-03 ready perusal as under:-

Reason for reopening the case u/s 148 of the Income Tax Act, 1961 in the case of M/s Motorola Inc., A.Y. 2002-03 Return of income in this case was filed on 2-12-2003 declaring an income of Rs. 26,31,124/-. The assessment was completed u/s 143(3) of the Income-tax Act on 30.3.2005 determining total tax liability of Rs. 23,48,71,812/-. During the year the assessee company showed a receipt of Rs. 7,20,41,146/- on account of rendering certain services to its group companies in India i.e Motorola India Electronics Pvt. Ltd. and Motorola India Ltd. The Services were in the nature of fee for included services as customized technical & engineering services and other related services earlier rendered. The TDS certificates issued by the MIEL and MIL also showed the nature of payment as profession & technical services. Since the assessee has a permanent establishment in India and the agreement leading to the payment of such fees was made after 31st May, 1997, the receipt should have been taxed @

20% u/s 115 r.w. Section 44D of the Income-tax Act instead of 15% which was applied in the assessment order. This resulted in escapement of income leading to loss of tax of Rs. 54.16 lakhs.

In view of this, I have reasons to believe that income chargeable to tax as mentioned above has escaped assessment for the A.Y. 2002-03. Approval may kindly be given to issue notice u/s 148.

Put up for kind approval of DIT.