COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) - 1 vs. ASPECT SOFTWARE INC.

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI 32 + ITA 909/2015 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) - 1 ..... Appellant Through: Mr. AshokK. 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 Digitally Signed By:AMULYA Signature Not Verified

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 ChoprawithMs. Asiya, Advocates. With 42 + ITA 4/2017 COMMISSIONER OFINCOME TAX (E^TERNATIONAL 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 2of7

ASPECT SOFTWARE INC. Respondent Through: Ms.Rashmi Chopra withMs. Asiya, Advocates. With 43 + ITA 6/2017 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) - 1 Appellant Through: Mr. AshokK. Manchanda, Senior standingcounsel 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 the reasons stated therein, these applications are allowed. The delay in re-filing the 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. ITANos. 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 the Income Tax Act, 1961 ('Act') by the Revenue against the impugned Order dated 18^*^ May 2015 passed by the 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 the Assessment Years ('AYs') 2008-09, 2004-05, 2010- 11, 2003-04, 2009-10 and 2007-08 respectively. 4. While admitting these appeals on 16^*^ January, 2017, this Court passed the following order: "Admit. The following questions of law arise for consideration: (i) Did the ITAT fall into error in holding that the transaction in question, i.e., supply of customized software was not "royalty" under Article 12 (4) of the Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9 (1) (vii) of the Income Tax Act, 1961, in the circumstances ofthe case. (ii) Did the ITAT fall into error in its interpretation of Section 234 (B) of the Income Tax Act, 1961, in the circumstances of the case," 5. Apart from the order as noted above, the Court decided that these present appeals would be considered in light of the judgment to be rendered by the Court in a 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 the Court by its decision in The Commissioner of Income Tax International Transaction -2 v. ZTE ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page4 of 7

Corporation 237 (2017) DLT 572 (DB). The questions that arose in the aforementioned batchof appeals also involved the questions that arise in the present batch of appeals. The questions were answered in favour of the Assessee and against the Revenue. 7. The first issue is whether the payment for supply of customized software would be treated as "royalty" under Article 12(3) of the Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9(l)(vi) of Act. In ZTE Corporation (supra), the Assessee being a resident of Republic of China the transactions were governed by the Indo-China DTAA containing identical clauses as the Indo-US DTAA. Relying on the decision of this Court in Director ofIncome Tax v. Ericsson AB (2012) 343 ITR 470, this Court in ZTE Corporation {supra) held in para 22 as under: "22. In the present case, the facts are closely similar to Ericson. The supplies made (of the software) enabled the use of the hardware sold. It was not disputed that without the software, hardware use was not possible. The mere fact that separate invoicing was done for purchase and other transactions did not imply that it was royalty payment. In such cases, the nomenclature (of license or some other fee) is indeterminate of the true nature. Nor is the circumstance that updates ofthe software are routinely given to the Assessee's customers. These facts do not detract from the nature of the transaction, which was supply of software, in the nature of articles or goods. This Court is also not persuaded with the submission that the payments, if not royalty, amountedto payments for the use ofmachineryor equipment. Such a submission was never advanced before any of the lower tax authorities; moreover, even in Ericson (supra), a similar provision existed in the DTAA between India and,Sweden." 8. The ITAT has, in its impugned order dated 18^ May 2015, also relied upon the 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 5of7

n -V InfrasoftLimited (2014) 220Taxman 273 (Del) and held 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 it- disagreement with the view taken" by the Kamataka 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 ofthe Hon'ble Delhi High Court. 42. In view of the above, respectfully following the decision of Hon'ble Jurisdictional High Court in the case ofEricsson A.B. (supra) and Infrasoft Ltd. (supra), we hold that the consideration received by the Assessee for supply of product along with license of software to End user is not royalty under Article 12 of the Tax Treaty. Even where the software is separately licensed without supply of hardware to the end users (i.e. eight out of 63 customers), we are of the view that the terms, of license agreement is similar to the facts of Infrasoft Ltd' (supra). Accordingly, we- hold' that there was no transfer of any right in respect of copyright by the Assessee and it was a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article. Hence, the payment for the same is not in the nature of royalty under Article 12 of the Tax Treaty. The receipts would constitute business receipts in the hands of the 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 the ITAT having followed the decisions of this Court and this Court having reiterated the legal position in Commissioner of Income Tax, International Taxation -2 v. ZTE Corporation {supra), the Court answers ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page6of 7

Question (i) in the negative and holds that the impugned order ofthe ITAT suffers from no legal infirmity. Question (i) is, therefore, answered in favour ofthe Assessee and against the Revenue. 10. Turning to Question (ii) regarding the interpretation of Section 234B of the Act, the Court finds that in Commissioner ofIncome Tax, International Taxation -2 v. ZTE Corporation {supra), the question has been answered in favour of the Assessee and against the Revenue following the decision in Director of Income Tax v. GE Packaged Power Inc. 373 ITR 65. Consequently, this issue is also answered against the Revenue and in favour ofthe Assessee. 11. These appeals are accordingly dismissed but in the circumstances of the 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 7of 7