QUALCOMM INCORPORATED,HYDERABAD vs. DCIT, CIRCLE- 3(1)(1), INTL. TAXATION, NEW DELHI

ORDER PER SAKTIJIT DEY, J.M.:

Captioned appeals have been filed by the assessee challenging the final assessment orders passed u/s. 143(3) read with section 144C(13) of the Income-tax Act, 1961 pertaining to assessment years 2014-15 and 2015-16, in pursuance to the directions of learned Dispute Resolution Penalty (DRP).

3. Briefly, the facts are, the assessee is a non-resident corporate entity incorporated in United States of America (USA) and tax resident of USA. As stated by the Assessing Officer, the assessee is a world leader in 3G/4G and next generation wireless technologies. The assessee holds a number of patents in the field of manufacture of subscriber units and network equipments capable of operating on Code Division Multiple Access (CDMA) technology. Basically, the assessee earns revenue from two divisions operated by it, viz., Qualcomm CDMA Technology (QCT) division, which develops and supplies CDMA based integrated circuits and systems software for wireless voice and data communication, multimedia functions and global positioning system products and Qualcomm Technologies Licensing (QTL) division, which grants license to manufactures of wireless products for the right to use qualcomm’s intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. In the assessment year under dispute, the assessee earned the following incomes :

S. No. Nature of Income Amount (Rs) 1. Royalty from Datawind Innovations Pvt. 29,67,500/- Lt. (OEMs) 2. Royalty from Innominds Software Pvt. 29,67,500/- Ltd. (OEMs in India) 3. Royalty on subscriber units (paid by 435,54,84,680/- OEMs outside India) 4. Royalty on Infrastructure equipments 5,36,96,200/- Total 441,51,15,880/-

4. Royalty income aggregating to Rs.59,35,000/- received from OEMs carrying on business in India through their Permanent Establishments (PEs) were offered to tax in India. Whereas, the royalty on subscriber units from OEMs outside India and royalty on infrastructure equipments received outside India were not offered to tax on the reasoning that no taxable event has happened in India in terms of section 9(1)(vi) of the Act as well as Article 12 of India-USA Double Taxation Avoidance Agreement (DTAA). The Assessing Officer, however, was not convinced with the submissions of the assessee. After calling upon the assessee to furnish various details relating to royalty received from OEMs and examining asessee’s submissions, the Assessing Officer was of the view that the royalty received by QTL division of the assessee from OEMs doing business in India by selling their CDMA products, such as, handsets and other equipments is taxable as royalty income under section 9(1)(vi)(c) of the Act. Though, the assessee tried to impress upon the Assessing Officer that neither of the limbs of section 9(1)(vi)(c) of the Act is applicable to the assessee, however, the Assessing Officer remained unconvinced. Even, assessee’s submission that the issue is covered by the decision of Tribunal in assessee’s own case for assessment years 2000-01 to 2004-05 was not accepted by the Assessing Officer. From the details furnished by the assessee, the Assessing Officer noticed that 49 OEMs have reported sales to India during the year under consideration. Referring to the past assessment history of the assessee, the Assessing Officer observed that in assessment year 2012-13, the Assessing Officer had examined the issue in detail and held that the royalty from use of CDMA technology in the products sold in India arise in India because the subscriber units (mobile handsets) and the infrastructure equipment, in which CDMA technology is embedded, are utilized in India. He observed that handsets or equipments by themselves will be of no use unless the network service provider installs the infrastructure equipment. Further, he observed that in assessment years 2005-06 to 2008-09, the royalty paid by the OEMs to assessee was determined as royalty income at the hands of the assessee accruing and arising in India. The Assessing Officer observed, while deciding assessee’s appeals on the issue, the Tribunal had restored the matter back to the Assessing Officer for re- examination after obtaining opinion of technical experts. He observed, in pursuance to the directions of the Tribunal, the Assessing Officer has obtained opinion of the technical experts, wherein, the technical experts have observed that OEMs are utilizing the CDMA technology by acquiring the chip set from the assessee and incorporating them in handsets manufactured by them. They further observed that technology is being used in India by the service providers for the benefit of the Indian customers. Thus, based on the assessment order passed for the assessment year 2012-13, the Tribunal’s order for assessment years 2005-06 to 2008-09 and the opinion of the technical experts, the Assessing Officer ultimately concluded that the OEMs have PE in India and the intellectual property is being used through PEs to earn revenue from India. He held that the intellectual property of the assessee, i.e., assembly, module, modem card including CDMA modem etc. is not manufactured by OEMs but it is manufactured by the assessee with its patent technology. He observed, the said intellectual property is provided to OEMs to incorporate or to embed in the equipments such as modem etc. manufactured by OEMs. He observed, though, the patent technology is not used by the OEMs, but the same is used by the end- user and in the instant case the end-user is in India. Hence, the technology is used in India and the royalty paid by the OEMs to the assessee, which was calculated on the number and sale consideration of subscribers units, i.e., modem etc. and equipments in India, is sourced from India. Therefore, the royalty paid by OEMs to the assessee is taxable as royalty income both under section 9(1)(vi)(c) of the Act as well as Article 12(7) of India-USA DTAA. Accordingly, he brought the amount to tax. Though, against the draft assessment order the assessee raised objections before learned DRP, however, the decision of the Assessing Officer was upheld.

5. Before us, learned counsel appearing for the assessee submitted that the assessee itself is not the owner of CDMA Technology, which was developed by a collaborative group known as 3rd Generation Partnership Project 2 (3GPP-2). He submitted, the assessee merely holds a large number of patents pertaining to CDMA technology. He submitted, the wireless telecom service providers in India are not under any contractual obligation to obtain approval of the assessee to use the CDMA products. However, if a manufacturer wishes to manufacture subscriber units or network equipments adopting the technology patented by the assessee, it is required to obtain a license from the assessee. He submitted, the end-customer, such as, the network carriers or individuals using the subscriber units do not deal with the assessee.

He submitted, as per agreement between the assessee and OEMs, the OEMs make lump sum payment at the time of entering into the patent license agreement followed by a running payment computed on the basis of selling price of such subscriber units or network equipments.

He submitted, except in the case of OEMs who carry on business in India through PE, in respect of OEMs located outside India, the activity relating to accrual of royalty on the manufacture of subscriber units or network equipment, happens outside India. He submitted, royalty is payable by the OEMs to the assessee irrespective of whether OEMs receive the sale consideration. He submitted, royalty is payable to assessee even in cases where OEMs use the manufactured subscriber units and network equipments for their own use. Thus, the receipt of royalty by the assessee is independent of the recovery of sale proceeds by OEMs. He submitted, payability of royalty based on sale price is merely a measure of royalty and nothing more.

6. He submitted, the patents held by the assessee in the field of manufacture of subscriber units and network equipments are generic in nature, in the sense that, the subscriber units and network equipments can be used anywhere in the world and are not India-specific. He submitted, even the license agreement entered with foreign OEMs are not geography specific and foreign OEMs could sell the products anywhere in the world. Further, he submitted, the functionalities such as locking of the phone to a particular network service provider or incorporating local languages or ringtones etc. have no connection with the patents of the assessee and no portion of the royalty is attributable to such functionalities. He submitted, the burden lies on the Revenue to prove that the OEMs have utilized the patents licensed by the assessee in India so as to bring to tax the royalty income. He submitted, this ratio has been laid down by the Tribunal in assessee’s own case for the assessment years 2000-01 to 2004-05 as well as in assessment years 2009-10 to 2012-13. He submitted, the Assessing Officer has not brought any fact or material on record to prove that the OEMs have utilized the patents of the assessee in India to bring to tax the royalty income.

7. He submitted, in assessment year 2000-01 to 2004-05, the Tribunal held that the foreign OEMs do not carry on any manufacturing activity in India and therefore, the royalty paid by the foreign OEMs cannot be taxable under the first limb of section 9(1)(vi)(c) of the Act.

He submitted, even in its decision for the assessment year 2005-06 to 2008-09, the Tribunal has concluded that as long as patents are used in the manufacturing process which has taken place outside India, such royalty cannot be taxed in India. He submitted, while deciding the issue in assessment years 2009-10 to 2012-13, the Tribunal has observed that where no evidence was brought on record by the Assessing Officer to establish that the OEMs are carrying on business in India, in which patents of assessee were used, such income cannot be taxed in India. He submitted, in the impugned assessment years, the Assessing Officer has not brought any evidence on record to prove that the OEMs carry on business in India, in which, patents of the assessee are used. He submitted, the conclusion drawn by the Assessing Officer that the OEMs carry on business in India is based on the responses received from the Assessing Officers of some of the OEMs during the assessment proceedings of assessment year 2010-11 and not of the impugned assessment years.

8. He submitted, while putting much emphasis on the Tribunal’s orders for the assessment years 2005-06 to 2008-09, restoring the issue to the Assessing Officer, the Assessing Officer has failed to notice that the Tribunal while directing for obtaining technical opinion, has recorded that the enquiry is relevant only for the assessment year 2010- 11 since, thereafter the locking of subscriber units stopped and the subscriber units available were open market handsets, which are not locked to any specific service provider. He submitted, the Assessing Officer has plainly placed reliance on the opinion of the technical experts without realising that the expert opinion was for the period 2010-11, after which open market handsets were launched in India discarding the old system of locking of subscriber units to any network carrier. Thus, he submitted, the report of the technical experts is of no consequence in so far as the present assessment years are concerned.

Further, he submitted, there are many factual inaccuracies in the observations of the Assessing Officer, as he has observed that assembly, module, modem including the CDMA modem etc. is not manufactured by the OEMs but it is manufactured by the assessee with its patent technology. Whereas, he submitted, the license agreement, under which royalty is paid by the foreign OEMs to the assessee is for the manufacture of those very items, i.e., subscriber units. Further referring to Assessing Officer’s observation that royalty income accrues in India, he submitted, the assessee does not earn any royalty from the end user.

End-user is purchaser of a product manufactured by OEMs using the patents of assessee, for the use of which the OEMs pay royalty to the assessee. Therefore, the end-user has no role to play or has no privity of contract with the assessee. Neither the assessee can call upon the end user to pay any royalty nor is the end user uses the subscriber unit under the permission or license of the assessee. As regard the basis for payment of royalty, ld. Counsel submitted, the mechanism of computing royalty on sale of subscriber units in India is just a measure, hence, cannot be considered for determining the source of income. As regards reliance placed by the Assessing Officer on the decision of Hon’ble Supreme Court in the case of GVK Industries (54 taxmann.com 347), ld. Counsel submitted, the said decision is of no relevance as the Hon’ble Supreme Court was concerned with the interpretation of section 9(1)(vii)(b) and not section 9(1)(vi)(c) of the Act. Further, he submitted, in that case, the burden was on GVK Industries to establish that it has used the service of foreign merchant banker for a business outside and therefore was covered by the exclusion contained in section 9(1)(vii)(b) of the Act. Whereas, he submitted, in case of the assessee, the burden to show that royalty income was for the use of patents by the foreign OEMs in a business carried on by them in India, is on the Revenue, which the Revenue failed to discharge. Further, he submitted, in case of GVK Industries, Hon’ble Supreme Court has held that for the fees to be taxable in India, the services should be utilized in India. He submitted, in assessee’s case, the patents were utilized in the manufacturing activities undertaken outside India by the OEMs and no evidence has been brought on record by the Revenue to prove otherwise. Thus, he submitted, since the issue is squarely covered by the decisions of the Tribunal in assessee’s own cases, the additions should be deleted.

“4.REVENUE SUBMISSION 4.1 It could be seen that the assessee mostly reiterated before the Hon'ble Bench the arguments as taken before AO/DRP, and also largely relied on the ruling of the Coordinate Bench for AY 2004-05 etc . However, based on the arguments of the Revenue in the same case during the course of hearing for I.T.A. Nos.: 3701 and 3702/Del/2009, 5343/Del/2010 and 4608/Del/ll Assessment years: 2005-06, 2006-07, 2007-08 and 2008-09 dated 20.02.2015 , a number of observations have been made by the Hon'ble Bench , highlighting the additional factual matrix which was not considered in the earlier ruling by the Hon'ble coordinate Bench , before remitting the matter back to AO to first put on record the complete factual matrix of transactions in India , including technical inputs to be obtained from telecom specialists, and then to examine the transactions for taxability under IT Act and Indo-US DTAA. 4.2. Observations made by Hon'ble ITAT in the decision dated 20.02.2015 on taxability of royalty received by assessee hold a strong bearing in deciding the present appeal. It is submitted that the Hon'ble ITAT in the aforesaid decision examined the facts of the case at length, and analysed the contentions of the parties and made various observations. Such observations of the Hon'ble Bench are divided into 4 categories namely (i) Observation relating to the additional facts which were not before the Hon'ble Bench, (ii) Chargeability of Royalty on Use of patents (iii) Applicability of provision of the Act to the transaction (iv) taxability of the transaction under the DTAA. Some of the relevant observations of the Hon'ble Bench on these issues are extracted below: (i) Observations of Hon'ble ITAT on Factual Matrix : Para-30. It would, therefore, appear to us that, in the understanding of Hon'ble AP High Court, the CDMA handsets were service provider specific. Para-33. Whether a CDMA handset, at that point of time, could be used on any CDMA network, in the unfettered discretion of the subscriber, or not, is a purely factual matter. Even as learned counsel for the assessee has relied upon the stand taken by the coordinate bench, which was given on the facts before the coordinate bench, we are unable to find any material to come to the same conclusion. In view of the discussions above- particularly the observations made by Hon'ble AP High Court in Asifuddin's case (supra), we have our reservations on the contentions of the assessee, even though these contentions have, in some other assessment years, have met approval of the coordinate bench. ……….. Judicial system cannot be an exception to this universal rule particularly when, unlike a binding judicial precedent from Hon'ble Courts above, a coordinate bench decision has only a persuasive value which cannot, and should not, take away our right, as indeed the corresponding duty, to ascertain the true facts in a comprehensive manner at this final fact finding forum. (ii) Observations of Hon'ble ITAT on Chargeabilitv of Use of patents as Royalty : Para-38. As the coordinate bench has very rightly held, and we are in full and considered agreement with the coordinate bench on that issue, as long as patents are used in the manufacturing process which has taken place outside India, such a royalty cannot have tax implications in India. Para-39. However, that is not the point here. As a careful analysis of facts before us would show, the subject matter of dispute, in our humble understanding, is the taxation of royalty in respect of use of patents in handsets which have been sold in India. It appears that the royalty which has been paid by the OEM of CDMA handsets is not only royalty for patents used in the manufacturing process, even if any, but predominantly, even if not wholly, for the use of the handsets so manufactured. That aspect of the matter is even more glaring when we realize that the royalty is charged on each handset sold or used and not each handset manufactured. We will, however, come to that aspect of the matter in detail a little later. Para-40.The actual controversy, therefore, is with respect to the royalties for use of the handsets rather than for the manufacturing of the handsets. This aspect becomes all the more glaring as we see that the royalties is not with respect to the handset units manufactured by the assessee but with respect to the handset units actually sold by the assessee. Para-41. Thequestion that really arises therefore is whether the royalty paid by the assessee With respect to commercial use of the handsets which are sold by the assessee will be taxable in thetax jurisdiction in which the handsets are manufactured, i.e. the situs of manufacture of handsets, or in the tax jurisdiction where the handsets are used, i.e. the situs of use of handsets. Para-55. The event triggering taxation in connection with the patents is thus (i) Granting of a right, license or sub license in a patent, or (ii) sharing of information concerning use or working of a patent.

(iii) Observations of Hon'ble ITAT Applicability of Provisions of Domestic Act to the Royalty Payment : Para-56. A plain look at the definition of royalty, in conjunction with Section 9(l)(vi)(c), makes it clear that the taxation of royalties is in the source jurisdiction in which related business is being carried on by a person, rather than the jurisdiction in which he is tax resident, and it extends to, inter alia, "the use of any patent, invention, model, design, secret formula or process or trade- mark or similar property". Where does an assessee use a patent in business is, therefore, the decisive factor in determining taxability of royalties, rather than where is the assessee located. Para-57. It is important to bear in mind the fact thattaxation of royalties is not a taxation of business profits of any entity, but, quite contrary thereto, it is taxation of the consideration of a patent or knowhow etc. which belongs to the person who owns the patents. It is thus taxation of income of the person owning the patents and it is taxation in the jurisdiction of end use of patents. The emphasis is on the situs of use of the patent rather than situs of the entity making payment for the royalty. A fortiorari, if the use of patent is used in the manufacturing process, for example, the taxation should be in the tax jurisdiction in which manufacturing activity is carried on rather in the tax jurisdiction in which ultimate consumer of product is located. However, if the patent is used by the end consumer and the manufacturer of a product is only a conduit for collection of such a consideration for use by the end consumer, the taxation would be warranted in the end use jurisdiction. Para-58. It is in this light of the scheme of taxation of royalties as provided in Section 9(l)(vi)(c ), that we have to examine the contextual connotation of payment of royalties for any right, property or information used or service utilized use 'for the purpose of business or profession carried on' by a non-resident in India and 'for the purposes of making or earning any income from any source" by a non-resident in India. Para-71. We find that there is major change in the facts of the case before the coordinate bench vis-a-vis the facts of the case as before us. While there was nothing to suggest that the OEMs were subjected to tax in India in respect of their business income, and this was, as we have noted from the extracts reproduced earlier in this order, one of the factors leading to the conclusion that the OEMs were not carrying on any business, right now we have reasonable evidences to suggest the OEMs in question, who have made payments of the impugned royalty, were carrying on business in India leading to their taxability in India. Para-72. It is also important to bear in mind that in the contemporary global scenario, the place of business of an entity is not merely the place of manufacturing the products. In our considered view, even a place where the entity has a permanent establishment is also a place where the assessee is carrying on its business inasmuch as the very definition of the permanent establishment, under the basic PE rule, is a "fixed place of business through which the business of enterprise is wholly or partly carried on". When an entity accepts the taxability by the virtue of having a PE, normally it cannot be said that the assessee is not carrying out business in that tax jurisdiction. Para-80. In view of the above discussions, even going by the coordinate bench decision in the case of Metro & Metro (supra), the royalty paid by the OEMs to the assessee, if it is held to be in respect of use of patents in CDMA handsets sold in India, will be taxable under second limb of Section 9(l)(vi)(c) but then we have to examine whether or not, as a matter of fact, the royalty paid by the OEMs to the Qualcomm, i.e. the assessee, was for use in the manufacturing process or for use of patents in the CDMA handsets by the end consumer. We will deal with this issue a little later.

Para -87. The question whether or not the payment of royalty was for intellectual property by way of patented technology, other than software, in the CDMA handsets sold in India was thus, perhaps inadvertently, left intact. Learned counsel's defense on that legal issue primarily consists Para - 93. We may also add that no doubt the application of second limb of Section 9(l)(vii)(c) was not examined in sufficient detail by the Assessing Officer but then as long as the subject matter of assessment remains the same as was dealt with by the Assessing Officer, the Tribunal is duty bound to deal with all the related legal aspects of the matter. The proceedings before the Tribunal are not adversarial proceedings. While the subject matter of dispute before the Tribunal may not be enlarged, and, to that extent, the case of the revenue authorities cannot be improved, there is no bar on examining all the related factual and legal aspects of the subject matter of issue before the Tribunal. The subject matter of dispute before us is taxability of royalty paid by the OEM to Qualcomm in respect of CDMA handsets sold in India. Whether this income is taxable under first limb of Section 9(l)(vi)(c) or in second limb of Section 9(l)(vi)(c), in our humble understanding, does not make much of a material difference so far as scope of proceedings before us is concerned. As the Assessing Officer held that the said royalty income was taxable under the first limb, he may not have seen any need to examine the application of the second limb of the same clause- though ideally he should have examined that aspect of the matter as well, but then, even if we are to hold that the said income is not taxable in the first limb, it would indeed be appropriate for us to examine remaining limbs of the same legal provision. In support of this proposition, we may refer to the following observations made by a Special Bench of this Tribunal in the case of Tata Communications Limited Vs JCIT [ (2009) 121 ITD 384]: (iv) Observations of Hon'ble ITAT Chargeabilitv to tax of Royalty Payment under DTAA: Para- 97. As evident from a plain reading of Article 13(7)(b), in a situation in which the income of royalty does not arise under Article 13(7)(a) but "the royalties relate to the use of, or the right to use, the right or property, —. in one of the Contracting States", the taxability of royalty in the source jurisdiction, i.e. the jurisdiction in which the property is ordinarily used, may arise. However, the taxability under this clause will essentially depend on whether the property, including intellectual property such as patent, design or model etc, for the use of which the royalty arises is actually in respect of the use in handsets and equipment or in respect of use in the manufacturing process. As we have already remitted the matter in respect of factual findings on this aspect we see no need to deal with this aspect of the matter any further at this stage. 4.3 Directions of remand to the AO by the Honble Bench in the order dated 20.02.2015 and the findings of the Assessing Officer thereon in the Impugned Assessment Order: Directions in Para-35- In view of all these factors, as also bearing in mind entirety of the case, we deem fit and proper to remit the matter to the file of the Assessing Officer for recording categorical findings in this regard by obtaining expert technical opinion, by recording witnesses, if necessary, of experts and after confronting the assessee with whatever material he brings on record in this respect. It is only after such an exercise has been carried out that a call can be taken on whether the stand of the assessee, on this purely factual but highly technical aspect, can be accepted. Directions in Para- 71- We findthat there is major change in the facts of the case before the coordinate bench vis-a-vis the facts of the case as before us. While there was nothing to suggest that the OEMs were subjected to tax in India in respect of their business income, and this was, as we have noted from the extracts reproduced earlier in this order, one of the factors leading to the conclusion that the OEMs were not carrying on any business, right now we have reasonable evidences to suggest the OEMs in question, who have made payments of the impugned royalty, were carrying on business in India leading to their taxability in India. Directions in Para-75- However, in all fairness, as the issue regarding existence of the permanent establishments, in India, of the OEMs has been taken up for the first time before us, this aspect of the matter needs to be examined in detail, after giving assessee a reasonable opportunity of hearing and after confronting the assessee with all the material that the revenue authorities may gather in support of their claim, at the assessment stage. On this aspect of the matter also, the matter deserves to be remitted to the file of the Assessing Officer. Directions in Para-76- As we part with this issue, we may mention that the coordinate bench in assessee's own case had observed as follows: "A sale to India without any operations being carried out in India would amount to business with India and not business in India. For the business to be carried out in India there should be some activity carried out in India. Thus the argument that if manufacturing is done in one jurisdiction and sales in the other jurisdiction, then there is business in another jurisdiction is devoid of merit". We are in complete agreement with the views so expressed by the coordinate bench. However, that was a case in which not only that there was no material to suggest that any activity is carried out in India, there was no evidence of taxability of income of those OEMs in India. In the present case, however, primary evidence about the taxability of these OEMs in India is now placed on record. We have also noted that it is a case in which even such basic information as the price and number of CDMA handsets sold by these OEMs in India, in respect of which the assessee had received the royalty, was not furnished by the assessee and the assessee had, instead of parting with precise information about the quantity and price of handsets sold in India, requested the Assessing Officer to "adopt the information available on your records and apply the rate of royalty as determined in the assessment order for the AY 2006-07 for computing the royalty income on handsets for AY 2007- 08". The assessee has been behaving in a somewhat evasive manner all along. In these circumstances, in our considered view, the ends of justice require that this matter is restored to the file of the Assessing Officer for ascertaining correctness of foundational facts furnished by the assessee to the effect that the OEMs were not carrying on any business in India, which, prima facie, seems to be highly doubtful even if not conclusively incorrect. When an OEM has a PE in India, it could not be open to him to say that he was not carrying on any business in India. Of course, this is still to be examined whether the royalties paid were used "for the purposes of" the business which was carried on in India.

Directions in Para-95- It is in this light that it is necessary to examine whether the use of patents, for which the impugned payments have been made by the OEMs to the assessee, was in manufacturing process of the handsets or in the use of the patented technology embedded in the CDMA handsets. However, as this aspect of the matter, no matter how fundamental it is, is a highly technical aspect which may also need benefit of expert advice, we deem it fit and proper to remit it to the file of the Assessing Officer for recording necessary factual findings after obtaining technical reports on the same, collecting such details, as may be necessary, and after giving due opportunity of hearing to the assessee and confronting the assessee with all such material as he may use against the assessee, by way of a speaking order. Directions in Para-97- As evident from a plain reading of Article 13(7)(b), in a situation in which the income of royalty does not arise under Article 13(7)(a) but "the royalties relate to the use of, or the right to use, the right or property, …………..in one of the Contracting States", the taxability of royalty in the source jurisdiction, i.e. the jurisdiction in which the property is ordinarily used, may arise. However, the taxability under this clause will essentially depend on whether the property, including intellectual property such as patent, design or model etc, for the use of which the royalty arises is actually in respect of the use in handsets and equipment or in respect of use in the manufacturing process. As we have already remitted the matter in respect of factual findings on this aspect we see no need to deal with this aspect of the matter any further at this stage. Directions in Para-98- It is in this backdrop that we decline to deal with, at this stage and in the light of the limited facts on record, the taxability of impugned royalties in terms of the provisions of the Indo US tax treaty as well. Directions in Para- 99- For the reasons set out above, we are of the considered view that further examination about certain basic facts of the case is required, and a categorical finding about those factual aspects, which have been elaborated upon earlier in these discussions, is a necessary for proper adjudication on the grievances raised by the assessee. In the absence of such findings, in our humble understanding, it is not appropriate to decide the matter one way or the other. We, therefore, remit the matter to the file of the Assessing Officer in terms of our directions set out earlier in this order. 4.4 AO's findings in Assessment Order for AY 2014-15 on above observations of Hon'ble ITAT 4.4.1 (Ref, refer Pas 21 to 31 for Technical Expert's Report. Para 7) Para-7 The Revenue has sought the technical opinion of Mr. Mr. Ambrish Aggarwal (ITS) (Graduated in Engineering from IIT Roorkee), Gl General Manager, Department of Telecom, Government of India and Mr. V. Mitra (ITS), Engineering Post Graduate from IIT Roorkee, Ex Deputy Director General, Telecom Commission, Government of India, for their technical opinion on the use of CDMA Technology. The enquiries have been conducted from the Telecom Department which reveal that these two Ex-officers of the Telecom Department are an authority on the subject and have co-authored— book namely "Mobile Communication and Wireless LAN (GSM, GPRS, EGDE, CDMA, 30 Communication, UMTS, CDMA 2000 lx EV DO, Wireless LAN WiMax". These facts give a strong reason to believe that these officers will be in a position to impart a technically sound and objective opinion In the matter to fulfill the judicious requirement of the directions of the Hon'ble ITAT. In this regard, they both were supplied with the copies of agreements between the assessee and OEMs, OEMS and Reliance/ Tata and technical agreement between Qualcomm and Reliance/Tata and were requested vide this office letter no. 849 dated 14.10.2016, to give their technical opinion on the following issues: “(a) What is the nature of intellectual property (CDMA) sought to be Transferred by Qualcomm to OEMs along with its technical details, (b) Whether the OEMs make any use of such technology or the OE simply incorporate the patented product in the handsets /equipments, (c) Where the technology is actually used, whether by the OEMs or by the Reliance or Tata being the end user, (d) Whether the handsets as made available by Reliance/ Tata in those years were India specific or these could be used in any other network globally. (e) Whether the CDMA Technology as developed by the Qualcomm is Whole-some technology and whether it can be broken down into the handsets and equipments. (f) Whether it can be said that Qualcomm had no role to play in the transfer of technology to India." Para 7.2 (Pg 31) Keeping in view of the Technical opinion and facts of the case for A.Y2005-06 to 2008-09, the Royalty received by assessee from OEM's was treated as taxable as provisions of Section 9(l)(vi)(c) of the IT Act as well as Article 12(7) (b) of DTAA between India and USA. 4.4.2 (Ref. Assessment order Pas 43 to 951 Para-9 ............. In case of Huawei Technology Company Ltd China, Hon'ble ITAT in it's order dated 21.03.2014 in to 5256/Del/2011 for A.Y 200506 to 2008-09 has categorically confirmed the existence of PE in India. In para 8 of the order, the Tribunal has explained that the Assessing Officer has categorically established the PE of the assessee on the basis of documents collected and statement of personnel's recorded during the survey conducted u/s 133A. In para No. 9 it has been mentioned that the assessee has filed objections before DRP on the issue of establishing the PE in India and Hon'ble DRP has rejected the objection of the assessee and upheld the decision of the AO. In pars no. 10, the Hon'ble ITAT has given the following observation: "All these facts recorded by the Assessing Officer and upheld by the DRP have not been controverted before us. In view of the above, we do not find justification to interfere with the order of learned DRP in this regard. Accordingly, ground no. 5 & 6 of the assessee's appeal are rejected." From the above, it is clear that Hon'ble ITAT has confirmed that M/s Huawei Technology Company Ltd China and ZTE have PE in India. In cases of all other OEMs, the PE has been established by the AO. In those cases either the issue of PE is pending before the Appellate authorities or has been decided in favour of department. From the above, it is clear that the OEMs of the assessee have PE in India and the intellectual property is being used through the PEs to earn the Revenue from India. In view of above, the objections of the assessee do not have any merit to be considered, hence, are rejected. Further it not a case of taxability of OEMs. The issue is related to that the OEMs were carried out their business activities in India through its PE. Para- 11. TAXABILITY OF ROYALTY ARISING FROM LICENSING OF CDMA TECHNOLOGY TO OEM (ORIGINAL EQUIPMENT MANUFACTURERS) FOR CDMA INFRASTRUCTURE EQUIPMENT AND HANDSETS. Para-11.1 Two important streams of the assessee's income are from Qualcomm CDMA Technologies (QCT) which develops and supplies CDMA- based integrated circuits and systems software for wireless voice and data communications, multimedia functions and global positioning system products and Qualcomm Technologies Licensing ('QTLj which grants licenses to manufacture of wireless products for the right to use Qualcomm's intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. For the Indian income tax assessment of the assessee we are only concerned with the revenues of QTL that to the extent they are sourced in India. Para-11.2 As per the business model adopted by the assessee "licensees typically pay a nonrefundable license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property." Para-11.3 To determine the taxability of assessee's receipts under this revenue stream first thing which is required to be examined is the nature of receipts. The assessee enters into various types of agreements with the OEMs which enables the OEMs to use the Qualcomm's worldwide patents and I PR portfolio for the purposes of their business of manufacturing and selling various types of CDMA equipments, handsets and other smart phones based on Qualcomm's technology. The assessee has never submitted these agreements during assessment proceedings. However redacted versions of some of these agreements were submitted during appellate proceedings. Relevant portions of some of these agreements are reproduced hereunder:- DS-CDMA Technology Agreement QC000414 "Affiliate" means as to a party any present or future subsidiary of the party: For purposes of this definition, the term "subsidiary" of an entity means a corporation or other legal entity (i) the majority of whose shares or other securities entitled to vote for election of directors (or other managing authority) is now or hereafter owned or controlled by such entity either directly or indirectly or (ii) which does not have outstanding shares or security but the majority of the equity interest in which is now or hereafter owned or controlled by such party either directly or indirectly, but only for so long as such ownership or control exists; QC000418 "Net Selling Price" means, with respect to any product Sold, the greater of (i) the selling price which a seller would realize from an unaffiliated buyer in an arm's length sale of an identical product in the same quantity and at the same time and place as such sale, or (ii) the selling price actually obtained for such product in the form in which it is Sold, whether or not assembled (and without excluding there from any components or subassemblies thereof which are included in the selling price). In determining "selling price," the following shall be excluded: (a), (b) costs, (c) costs of and (d) import, export, excise, sales and value added taxes custom duties; Patent License agreement from Internal Page No QC 000398 to QC 000411 Clause 1.01 on PC0003981 - Grant (b) The CORPORATION grants to Licensee under CORPORATION'S PATENTS worldwide, nonexclusive, personal, and non-transferable licenses for Components, FNE and Subscriber Units for use only in CELLULAR APPLICATIONS. 1.03-Scope The licenses granted herein are licenses to (i) make, have made, use, lease, sell and (in accordance with Section 5.01) import LICENSED PRODUCT (ii) make, have made, use and import machines, tools, materials and other instrumentalities, insofar as such machines, tools, materials and other instrumentalities are involved in or incidental to the development, manufacture, testing or repair of LICENSED PRODUCT which are or have been made, used, leased, owned, sold or imported by the grantee of such licenses (but only to the extent necessary to develop, manufacture, test or repair LICENSED PRODUCT); (Hi) convey to any customer of the grantee, with respect to any LICENSED PRODUCT which is sold or leased by such grantee to such customer, rights to use and resell such LICENSED PRODUCT as sold or leased by such grantee (whether or not as part of a longer combination); provided, however, that no rights maybe conveyed to customers with respect to any invention which is directed to(iv) a combination of such Licensed Product (as sold or leased) with any other product, (v) a method or process which is other than the inherent use of such Licensed Product itself (as sold or leased), or (vi) a method or process involving the use of a Licensed Product to manufacture (including associated testing) any other product. Notwithstanding anything to contrary contained above, (1) to the extent that Corporation's Patents are incorporated in the transceiver, Licensee may not have made any transceiver (in which Corporation's Patents are incorporated) unless (i) such transceiver is of Licensee design and specification (which design and specification is engineered by or on behalf of Licensee or (ii) Licensee has such transceiver made by a manufacturer licensed under the DS- CDMA TA and (2) to the extent that Licensee Patents are incorporated in the transceiver, Corporation may not have made any transceiver (in which Licensee Patents are incorporated) unless (i) such transceiver is of Corporation's design and specification (which design and specification is engineered by or on behalf of Corporation) or (ii) Corporation has such transceiver made by a manufacturer licensed under the DS-CDMA TA. Notwithstanding anything to contrary contained above, (1) Corporation may have made staple articles of commerce (including but not limited to handset, cables and standard analog ASICs, etc.) and Corporation may have made parts of the transceiver which are of Corporation's own design and specification, (which design and specification is engineered by or on behalf of Corporation) and (2) Licensee may have made staple articles of commerce (including but not limited to handset, cables and standard analog ASICs, etc) and Licensee may have made parts of the transceiver which are of Licensee own design and specification (which design and specification is engineered by or on behalf of Licensee). Subscriber Unit License Agreement on Internal Page No QC 000453 to QC000496 Para 2 on QC000489 WHEREAS, QUALCOMM and Licensee have entered into that certain Subscriber Unit License Agreement (the SULA) and the Software Agreement (the SA), each effective date (the SULA and the SA are collectively hereinafter referred to as the "CDMA Agreements), pursuant to which QUALCOMM granted Licensee a right to sub-license QUALCOMM's Intellectual Property (as defined in the SULA) to the Sub licensees to provide such Sub licensees a right to manufacture and sell Subscriber Units (as defined in the SULA); List of Licensed Patents for Subscriber Units in Exhibit D on Internal Page No QC000491 to QC000494. Exhibit F on Internal Page No QC000496, showing "Certificate" as to how the Royalty income is computed. Infrastructure and Subscriber Unit License and Technical Assistance Agreement- from Page No QC000499 to QC000532 Recitals on QC000499 Whereas, QUALCOMM has developed certain proprietary Code Division Multiple Access (CDMA) technology which may be useful in providing greater capacity and improved quality and reliability compared to other cellular telephone technologies; Whereas, Licensee has been selected by the agency of country to obtain a license from QUALCOMM to make and sell Subscriber Units and Infrastructure Equipment; WHEREAS, LICENSEE desired to obtain from QUALCOMM a license to use QUALCOMM's Intellectual Property (as defined below) and technical assistance necessary for the manufacture and sell Subscriber Units and Infrastructure Equipment (as defined below) and QUALCOMM desired to provide LICENSEE WITH SUCH license and technical assistance in exchange for the license fees, royalties and other provisions hereof, each in accordance with the terms and conditions set forth in this Agreement; and Definition of CDMA Enabling Infrastructure Equipment on Page No'QC000500 CDMA Enabling Infrastructure Equipment" shall mean the (i) CDMA selector associated with the vocoder bank (or other special implementation, including a switch implementation, of hard or soft handoff) which incorporates all or any part of QUALCOMM Intellectual Property, (ii) the CDMA controller, whether or not such CDMA controller is separate from or incorporated as part of the main Base Station controller, (Hi) distributed': antenna, meaning a multi-node antenna system and related circuitry (excluding the fair value of the antenna element) that is designed to make use of delays in CDMA signal transmission and/or reception so that the rake receiver functionality can be utilized and (iv) SBS, meaning the selector Bank Subsystem that includes (a) selectors that support soft and/or hard handoff (b) the vocoder; (c) data services based on any QUALCOMM Intellectual Property, (d) fax services based on any QUALCOMM Intellectual Property and/or (e) other service options based on any QUALCOMM Intellectual Property. If so handoff is implemented as a pad of the switch function, the royalty payable to QUALCOMM with respect to the soft handoff implementation will be based upon the fair market value of the soft handoff function, the parties agree to negotiate in good faith to determine the fair market value of (i the soft handoff implementation if implemented as part of the switch function (the parties recognize and agree that the contribution of the soft handoff function to the switch would be percentage of the overall value of the switching equipment performing the soft handoff function), and (ii) the CDMA controller, and if such CDMA controller is incorporated as part of the main Base Station controller (the parties recognize and agree that the contribution of the CDMA controller if it is part of the main Base Station controller would be a percentage of the overall value of the main Base Station controller not to exceed percent and not be less than percent. The Base station controller shall not include the GPS clock, MUX, any piece of equipment providing switching functions and any piece of equipment whose prime function is to provide operational alarm and maintenance functions. On Page No QC000504 "QUALCOMM Intellectual Property" means both QUALCOMM'S Technically Necessary IPR and QUALCOMM'S Commercially Necessary IPR. "QUALCOMM Commercially Necessary IPR" means the following intellectual property of QUALCOMM: Qualcomm's (and its Affiliate's) patents and patent applications (including divisions, reissues, renewals, continuations and continuations-in-part), copyrights, other intellectual property rights, trade secrets, know-how and technical information which QUALCOMM (or its Affiliates) has acquired or developed and is in possession of as of the Effective Date, which QUALCOMM (or its Affiliate) has the right to license to LICENSEE in accordance with this Agreement and which are commercially necessary to use, make and/or sell Subscriber Units, Cordless Base Stations, Channel Units and/or CDMA Enabling Infrastructure Equipment, and any Improvements to any of such Commercially Necessary IPR developed or acquired during the Improvement Period; but the term QUALCOMM'S Commercially necessary IPR does not include any trade name, trademark, service mark or similar symbols, abbreviations, contractions or simulations identifying QUALCOMM (except as set forth in Section 9). "QUALCOMM's Technology Necessary IPR" means the following intellectual property of QUALCOMM: QUALCOMM's (and its Affiliate's) patents and patent applications (including divisions, reissues, renewals, continuations and continuations-in-part), copyrights, other intellectual property rights, trade secrets, know-how and technical information, including but not limited to that intellectual properly that is incorporated into the CAI, which QUALCOMM (or its Affiliates) has acquired and is in possession of as of the Effective Date, which QUALCOMM (or its Affiliates) has the right to license to LICENSEE in accordance with this Agreement and which are technically necessary IPR developed or acquired during the Improvement Period; but the term QUALCOMM's Technically Necessary IPR does not include and trade name trademark, service mark or similar symbols, abbreviations contractions or simulations identifying QUALCOMM (except as set forth in Section 9). On Page No QC000505 "Subscriber Unit License" means a complete CDMA and/or Dual Mode CDMA telephone, including but not limited to mobile, transportable and portable telephones, which incorporates all or any part of QUALCOMM Intellectual Property and can be used, without any additional equipment or components being attached thereto, to initiate and receive Wireless telecommunications transmissions. On page No QC000507 Documentation: In full satisfaction of its obligations to deliver documentation to LICENSEE, QUALCOMM shall promptly deliver to LICENSEE after the Effective Date the documentation (and shall also promptly deliver to LICENSEE any updates to such documentation available during the Improvement Period) specified in Exhibit A attached hereto. Infrastructure and Subscriber Unit License and Technical Assistance Agreement on page No QCD00535 to QC000566 Recitals on Page no QC000535 WHEREAS, QUALCOMM has developed certain proprietary Code Division Multiple Access (CDMA) technology which may be useful in providing greater capacity and improved quality and reliability compared to other cellular telephone technologies; WHEREAS, LICENSEE has been selected by Agency Country to obtain a license from QUALCOMM to make and sell Subscriber Units and Infrastructure Equipment; WHEREAS LICENSEE desired to obtain from QUALCOMM a license to use QUALCOMM's Intellectual Property (as defined below) and technical assistance necessary for the manufacture and sell Subscriber Units and Infrastructure Equipment (as defined below) and QUALCOMM desires to provide LICENSEE with such license and technical assistance in exchange for the license fees, royalties and other provisions hereof, each in accordance with the terms and conditions set forth in this Agreement; and - WHEREAS, QUALCOMM desires to obtain a License of LICENSEE'S Intellectual Property (as defined below) to manufacture and sell Subscriber Units and Infrastructure Equipment and Licensee desires to grant such license in accordance with the terms and conditions set forth in this Agreement.

Definition on Page no QC000537 Channel Units means a Base station module(s) implementing any of Qualcomm's Intellectual Property with or without radio baseband functions and having one or more voice or data channels for communication between a Base Station and Subscriber Units. Common Air Interface or CAI means the technical description of Qualcomm's CDMA digital an interface specification for communication between cell site or other Base Station transceivers and Subscriber Units as may become adopted as a standard by the Telecommunications Industry Association (TIA) and other international standard bodies. Components means application specific integrated circuits (ASICs), electronic devices, integrated circuits, including firmware thereon, and/or families of devices intended for use in Subscriber Units and/or Infrastructure Equipment for Wireless Applications. Cordless Base Station means a residential device that provides wireless receive and/or transmit functionality to and/or from Subscriber Units, which incorporates all or any part of Qualcomm Intellectual Property, and which is connected to a public or private switched telecommunications network. Dual Mode CDMA means, as applied to Subscriber Units, having a capability to operate with CDMA technology and existing analog FM cellular technology for such backward compatibility with currently existing cellular infrastructure and terminal as may be required by the marketplace. On Page No QC000540- "QUALCOMM Intellectual Property" means both QUALCOMM'S Technically Necessary IPR and QUALCOMM'S Commercially Necessary IPR. "QUALCOMM Commercially Necessary IPR" means the following intellectual property of QUALCOMM: Qualcomm's (and its Affiliate's) patents and patent applications (including divisions, reissues, renewals, continuations and continuations-in-part), copyrights, other intellectual property rights, trade secrets, knowhow and technical information which QUALCOMM (or its Affiliates) has acquired or developed and is in possession of as of the Effective Date, which QUALCOMM (or its Affiliate) has the right to license to LICENSEE in accordance with this Agreement and which are commercially necessary to use, make and/or sell Subscriber Units, Cordless Base Stations, Channel Units and/or CDMA Enabling Infrastructure Equipment, and any Improvements to any of such Commercially Necessary IPR developed or acquired during the Improvement Period; but the term QUALCOMM's Commercially necessary IPR does not include any trade name, trademark, service mark or similar symbols, abbreviations, contractions or simulations identifying QUALCOMM (except as set forth in Section 9). "QUALCOMM's Technology Necessary IPR" means the following intellectual property of QUALCOMM: QUALCOMM's (and its Affiliate's) patents and patent applications (including divisions, reissues, renewals, continuations and continuations-in-part), copyrights, other intellectual property rights, trade secrets, knowhow and technical information, including but not limited to that intellectual property that is incorporated into the CAI, which QUALCOMM (or its Affiliates) has acquired and is in possession of as of the Effective Date, which QUALCOMM (or its Affiliates) has the right to license to LICENSEE in accordance with this Agreement and which are technically necessary IPR developed or acquired during the Improvement Period; but the term QUALCOMM's Technically Necessary IPR does not include and trade name trademark, service mark or similar symbols, abbreviations contractions or simulations identifying QUALCOMM (except as set forth in Section 9). On Page QC000541 "Subscriber Unit License" means a complete CDMA and/or Dual Mode CDMA telephone, including but not limited to mobile, transportable and portable telephones, which incorporates all or any part of QUALCOMM Intellectual Property and can be used, without any additional equipment or components being attached thereto, to initiate and receive Wireless telecommunications transmissions. Clause 5 on Page QC000545 on Qualcomm License — Subscriber Unit and Cordless Base Station License. Subject to the terms and conditions of this Agreement, including but not limited to timely payment of the license fees and royalties set forth herein, QUALCOMM, on behalf of itself and its Affiliates, hereby grants to LICENSEE a personal, no transferable, worldwide and nonexclusive license (without the right to sublicense, except to Affiliates of LICENSEE as permitted in Section 5.3) to use QUALCOMM's Intellectual Property solely for Wireless Applications to (a) make (and have made) Components that have been exclusively designed by LICENSEE (which design is owned exclusively by LICENSEE) and use, sell lease or otherwise dispose of Components, provided, however that if such Components incorporate any of QUALCOMM's CDMA Intellectual Property (e.g., CDMA AS/Cs, vocoder DSP, vocoder ASIC, etc.) then such Components may only be used, sold, leased or otherwise disposed by LICENSEE if they are Included and used, sold, leased or otherwise disposed of by LICENSEE as part of and within complete Subscriber Units and/or Cordless Base Stations Sold by LICENSEE(or as replacement pads for Subscriber Units previously sold by LICENSEE). No other, further or different license is hereby granted or implied. Infrastructure Equipment License Subject to the terms and conditions of this Agreement, including but not limited to timely payment by LICENSEE of Up-Front License Fee and royalties, QUALCOMM, on behalf of itself and its Affiliates, hereby grants to LICENSEE a personal, non transferable, worldwide and nonexclusive license (without the right of sublicense, except to Affiliates of LICENSEE as permitted in Section 5.3) to use QUALCOMM's Intellectual Property solely for Wireless Application to (a) make (and have made and use, sell, lease or otherwise dispose of Infrastructure Equipment and (b) to make (and have made)Components that have been exclusively designed by LICENSEE (which design is owned exclusive by Licensee and use, sell, lease or otherwise dispose of Components; provided, however that if such Components incorporate any of QUALCOMM's CDMA Intellectual Property (e.g., CDMA AS/C's vocoder DSP vocoder ASIC, etc.) then such Components may only be used , sold leassed or otherwise disposed by LICENSEE as part of and within complete Channel Units sold by LICENSSEE (or as replacements parts for Channel Units previously sold by LICNSEE). No other or different Lincese is hereby granted or implied.

Clause 10 on Page QC000553 on Quality Control General Quality of Subscriber Units and Infrastructure Equipment. Throughout the term of this Agreement, LICENSEE shall maintain, for the Subscriber Units and Infrastructure Equipment manufactured or Sold by it, at least the same manufacturing, servicing and quality standards currently utilized by licensee in connection with its analog subscriber units and infrastructure equipment. Standards Compliance Testing. LICENSEE represents and warrants that the Subscriber units and Infrastructure Equipment that it makes or has made will adhere with and conform to, in all respects, the specifications contained in the CAI and/or the standard for Wireless Applications adopted in the applicable country that such Subscriber Units and Infrastructure Equipment are being sold for use in and that LICENSEE shall comply with the rules, regulations or other requirements set by such authorized standards body. LICENSEE shall, at QUALCOMM's reasonable written request, permit QUALCOMM or entities designated by QUALCOMM and accepted by LICENSEE, which acceptance shall not be unreasonably withheld or delayed, to perform tests of LICENSEE'S Subscriber Units and Infrastructure Equipment to ensure compliance and conformity with the CAI. If such tests indicate maternal noncompliance or nonconformity therewith, such tests shall be at LICENSEE cost and LICENSEE shall reimburse QUALCOMM for any such reasonable tests performed by QUALCOMM at QUALCOMM's Costs plus a twenty percent (20%) foe of the Costs. Nonconforming Subscriber Units and Infrastructure Equipment, if any, shall not be sold or marketing by LICENSEE until the non-conformity is corrected. Exhibit A- on page QC000565 License Agreement Documents Exhibit A Title D Base Station ASIC Questions and Answers Baseband Analog ASIC Questions and Answers CDMA Base Station ASIC User Manual, January 1993 CDMA Baseband Analog ASIC Data Sheet, December 1992 CDMA Baseboard System Document, Ver. 1.1. 03/10/92 CDMA Cell Processing, 09/09/92 CDMA Capacity 2.0 Test Report CDMA Cell Partition Trade-Offs, Ver. 1.2, 08/24/90 CDMA Data Analysis Tool Analysis Guide CDMA Data Analysis Tool User's Guide CDMA Digital Cellular DM Mobile Station HLD, Executive Overview, Ver. 1.1, 07/02/92 CDMA Digital Cellular Technology Forum February 1993 CDMA Digital Cellular Technology Forum January 1992 CMDA Dual-Mode Mobile Cellular Telephone Operating Instructions CMDA Dual-Mode Mobile Terminal High Level Overview, VI.1 CDMA Mobile Station Modem ASIC Specification Sheet, August CDMA Network Engineering Handbook CDMA Portable Block Diagram and Architecture CDMA System Manual CDMA Training Documents Forward Channel Performance at Low Vehicle Speeds Memo Forward Channel Performance Simulation Memo, 03/28/91 Mobile Station — Base Station Compatibility Standard for DM Wideband Speed Spectrum Cellular Sys. Mobile Station Modem ASIC Questions and Answers Mobile Station Modem ASIC Exhibit B on Page QC000566 — Qualcomm CDMA Patents Title: Spread spectrum multiple access communication system using satellite or terrestrial repeaters U.S. Patent No. 4901307 Issued: February 13,1990 Title: Method and apparatus for controlling transmission power in a CDMA cellular telephone system U.S. Patent No. 5056109 Issued: October 8,1991 Title: Linear gain control Amplifier U.S. Patent No. 5099204 Issued: March 24,1992 Title: Method and system for providing a soft handoffin communications in a CDMA cellular telephone system U.S. Patent No. 5101501 Issued: March 31,1992 Title: System and method for generating signal waveforms in a CDMA cellular telephone system U.S. Patent No. 5103459 Issued: April 7, 1992 Title: High dynamic range closed loop AGC circut U.S. Patent No. 5107225 Issued: April 21,1992 Title: Diversity Receiver in a CDMA cellular telephone system U.S. Patent No. 5109390 Issued: April 28,1992 Exhibit Don Page QC000568- Certificate Contract between Qualcomm Incorporated and LICENSEE for the License of Certain Technology for the Manufacturing and Sale of Certain CDMA Subscriber Units on Page No QC000572 to QC000628 Dual-Mode Subscriber Station (DMSS) Software: The DMSS Software controls the operation of QUALCOMM's Subscriber Unit Reference board incorporating QUALCOMM'S MSM CDMA ASIC. It is written in C and runs under the REX operating system on the ARM microprocessor that is contained in QUALCOMM's MSM CDMA ASIC. Specific release of DMSS Software to be selected by Licensee. Para-11.4 Analysis of the above Extracts I. Qualcomm holds ’patents"- which is defined in the Definitions Appendix on page QC000408 to mean every patent issued in any country of the world. Such patents are technically and commercially necessary for implementation of DS-CDMA in FNE, Components and Subscriber Units or which/s technically or commercially necessary for implementation of existing analog FM cellular technology in Dual Mode subscriber Units. II. The components have been defined on Page QC000411 to mean ASICs, electronic devices, integrated circuits, including firmware thereon, and/or families of devices incorporating DS- CDMA technology and intended for use in FNE (including Channel Units and DS-CDMA Enabling Infrastructure Equipment) and SUBSCRIBER UNITS, but the term does not mean any Channel Unit, FNE or SUBSCRIBER UNIT III. DS-CDMA has been defined to mean Direct Sequence Code Division Multiple Access technology. IV. The above extracts show that Qualcomm is in possession of certain patents which are technically and commercially necessary for use in Cellular Applications (defined on oaae QC000410). The licensee is granted various rights as mentioned in the Scope of the Agreement- to manufacture and sell the Licensed Products. V. Licensed Products are various products which are defined in the Definition Column of various agreements- some of which have been extracted above. Many of products which are licensed by Qualcomm are "Patented Products" VI. The Royalty arises, mainly, from Patents and not from Copyrights-referred to as Licensed Products in the agreements under review. The agreements always mention Patents and nowhere has it spoken about copyright. VII. For the purposes of the agreements under consideration, the alleged non resident OEMs and their Affiliates worldwide are considered one and the same. The Licensees as identified in the various agreements include the foreign entity as well as its Affiliates world over. VIII. Further, the royalty accrues when the licensed product is sold/used by the OEM to an independent purchaser. Sale to Affiliate is not recognized for purpose of computation of Royalty. IX. The business Connection of the alleged Non resident OEMs in India by way of their Affiliates in India cannot be denied. All the leading OEMs have affiliates and/or presence in some form or the other in India- like Huawei, ZTE, LG, Samsung etc which are even assessed to tax in India.

X. The redactions in the agreements make it difficult for the Department to arrive at logical inferences from the, agreements under consideration regarding the taxability of income,' source of income as well as correct XI. quantification of the income (Licensee and/or its affiliate may be Indian entity; the "Affected Country" as appearing in certain places may be India) Para-11.5 From the above analysis it is clear that receipts of the assessee under this revenue stream is income arising out of licensing of various Patents and IPRs belonging to Qualcomm and is received from various OEMs. This clearly falls under the definition of Royalty under Explanation 2 to section 9(i)(vi) of Income Tax Act 1961 as well as under Article 12 of India - USA DTAA. The assessee also recognizes this receipts in its books of accounts as Royalty income only. Thus, there remains no dispute on the characterization of income under this revenue stream. It is undisputed as Royalty both under the Income Tax Act 1961 and under India - USA DTAA. What remains to be examined is as to whether this royalty income falls in any of the sub clauses of section 9(i)(vi) which are reproduced as under:- "(vi) by way of royalty payable by— a) the Government; or b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Para-11.6. First condition to be examined to decide whether the royalty income received by the assessee accrues or arises in India is to see who is the payer of royalty. In the case of receipts arising out of Patent licensing agreements which are entered between the assessee and the OEMs. Assessee has not submitted the list of OEMs with whom it has agreements. Assuming that most of the OEMs with whom the assessee has Patent licensing agreements are nonresidents or Foreign Companies the payers of royalty to the assessee are Non residents and therefore in the instant case applicability of section 9(i)(vi)(c) is required to be examined, Para-11.7 Next, it is required to be seen as whether the non resident payer is carrying on any business or profession? If yes, where such business or profession is carried on ?whether in India or outside India. If such person is carrying on business in India also, then it is required to be seen as to whether the Patents for which the royalties are paid are utilized in that business which the payer is carrying on in India. Under the Act The chargeability of royalty income in the hands of the Assessee in India, has to be examined with reference to the provisions of section 9(0(4(c) read with section 5(2) of the Income Tax Act, 1961.with section 5(2) of the Income Tax Act, 1961. Para-11.8 Section 9(l)(vi)(c) raises a deeming fiction to bring to charge any income by way of royalty if such royalty is payable by a Non resident in respect of any right, property or information used either a) for the purpose of business carried on; by such non- resident person in India; b) for the purpose of making or earning ^ any income from any source in India. Para-11.9 Section 9(l)(4(c) and section 9(l)(vi0(c) of the Act are payment based taxations. The language employed in section 9(l)(vi) is used for the purpose of in contra distinction to "utilized in the business" as appearing in section 9(l)(vii)(c). The property maybe used anywhere i.e. in or outside India, but the use should be for the purpose of business or profession carried on in India and for the purpose of earning income from a source in India. The situs of the use of the property is not material what is material is the purpose of the use of the property, whether it is for business carried on in India or for a source in India. Para-11.10 For applying these tests on the facts of the instant case the foremost requirement is the names and residential status of the OEMs who have Patent licensing agreements with the assessee. Section 9(1) (vi) (c) - Payment from one NR to another NR In respect of any right, property or information used For the purpose of business or profession carried on by the latter in India Or For earning any income from any source in India The import of the above is that the/payer-AIR must have a business or any source of Income in India. Para-11.11. Whether OEMs carrying on business in India. a. Business as defined in section 2(13) of the Act, is admittedly an expression of wide import. The business is not only manufacturing or trading but encompasses many other activities which together constitute a business. Example of MNCs was cited to prove the point that different activity of a composite business are carried out in different locations e.g. manufacturing in one jurisdiction and sales in another jurisdiction and that it cannot be said that business is done in one of the jurisdictions only. b. That handsets or equipments although manufactured outside India are not off shell products or standard product which can be sold to anyone in any location and that the sale by OEMs is India's specific. c. The entire supply of handsets/ equipments by the OEMs is India Specific. This is evident from the stipulations in the agreements that OEMs will manufacture the handsets/ equipments as per the design made by the OEMs and approved by a particular operator, at the technical standards and specifications and for an agreed price. d. That hand sets are manufactured with codes which are programmed to be specific to net work provider. These codes are not of the kind which can be put to the handsets after these are received in India. e. Reliance was placed in the case of Syed Asifuddin and another (AP) 200 L CR1LJ 4314 for the proposition that handsets provided by LG and Samsung to Reliance prior to 2005 was specifically designed and programmed for Reliance. Further, it was submitted that the following findings of the fact by the Hon'ble High Court leave no room for any doubt in this regard, i. Hand sets are proprietary to Reliance; ii. there is an agreement between Reliance and manufacturer of hand sets' Hi. that handsets are computer program (software) with source code within the meaning of Indian Copy Right Act and Indian Information Technology Act. f. The test is to determine whether the property has been used by OEMs "for the purpose of carrying on business in India" in terms of section 9(l)(vi)(c) and that it is not necessary to look at the arrangements between QCOM and OEMs. The use of technology by the OEMs for the purpose of carrying on business in India is sufficient nexus for the purpose of section 9(l)(v)(c) of the Act. The use of technology by QCOM in India or use of technology by OEMs in various other jurisdictions has no relevance or consequence for the purpose of applicability of section 9(l)(4(c) of the Act. g. That when handsets and equipments are manufactured for use of a specified service provider, then the OEMs have used the technology for the purpose of carrying on business in India. h. The license for use of technology embedded in a hand set/equipment is also granted to specific operators in India under the agreement and hence it is used by the OEMs for manufacturing India specific supplies. i. On the Assessee's argument that sale to different jurisdictions cannot be considered as a source i.e. each party to whom a product is sold by the manufacturer cannot be regarded as a source, it was submitted that this is of no consequence for the reason that products manufactured by the OEMs are not standard products which are sold anywhere and everywhere. Besides, one may have different source of income lying in different jurisdictions if the supplies differ in technical specifications, customization and are location specific. j. Regarding the taxability of royalty income under the Act, the assessee has submitted that the OEMs do not have a source of income in India. The assessee has also referred to the ITAT's consolidated order in assesses own case where in the ITAT for the AY 2000-01 to AY 2004-05 in 3697, 3698, 3699 and 3700/Del/2009 has held that the royalty income received by Qualcomm from the OEMs on manufacture of handsets and infrastructure equipment is not liable to tax in India under section 9(l)(vi)( c) of the Act. Further, Para 135 of the order the ITAT held that to tax the royalty income earned by Qualcomm, the Revenue must show that the OEMs have used Qualcomm's patents for a business carried on in India or for making or earning income from a source in India, which leads to the taxability of the OEMs. Therefore, the taxability of Qualcomm directly depends on the OEMs taxability in India': Accordingly, the ITAT has held that for the AY 2000-01 to AY 2004-05 the Revenue has failed to discharge this burden and hence the royalty income earned by Qualcomm cannot be brought to tax under section 9(l)(vi)(c) of the Act. k. However, this office is in possession of information, that the OEMs have presence in India, through a permanent, establishment in India and accordingly OEMs have a source in India. Further, as already mentioned earlier, there lies some factual in accuracy in considering the issues by Hon'ble ITAT in the aforesaid order which has been duly corrected by Hon'ble ITAT while passing the orders for the assessment years 2005-06 to 2008-09 vide their order dated 20.02.2015 through which Hon'ble ITAT has restored back for considering afresh the issue of taxability of Royalty from the OEMs in the hands of the assessee. Accordingly, the argument of the assessee is not tenable in law and on fact, due to the reasons mentioned above. I. To support the above conclusions, letters were sent by the AO during the assessments years (A. Y. 2010-11) during assessment proceeding to the Assessing Officers of the foreign companies (OEMs) who themselves or any of their AEs are manufacturing mobile handsets / telecommunication equipments and having patent licensing agreements with the assessee (i.e Qualcomm Inc). Being the same parties involved with identical facts and circumstances, I rely and follow the verifications made by the AO in this regard during the A.Y. 201011, which were also followed while completing the assessment for the AY 201112 too. All the following OEMs listed below have paid Royalty to the assessee and a portion of that pertains to the sale of handsets/equipments in India. Most of the above foreign companies (OEM's) are same with the list of companies from whom India specific Royalties are received by the assessee for the current relevant period too. During the course of assessment the AR also submitted some of the copies of agreements (although redacted versions) of all companies who are paying Royalty to Qualcomm for sale of equipments/handsets in India (other than those companies which are already on record, which were submitted by the assessee before the CIT(A) and also produced before the ITAT). However, during the course of assessment the AR confirmed that these agreements are in operation during the subject A. Y. AR also submitted the details of these OEMs from which it is seen that all the OEMs are Non-residents although some of them are having their Indian subsidiaries registered and doing the business in India. The relevant extracts of those letters sent to the various AOs in during the assessment proceeding for A.Y. 2010- 11, are as under :- Seeking information regarding assessment proceeding in the case of M/s Qualcomm Incorporated, FY 2009-10— Regarding- Please refer to the subject mentioned above.

In continuation to this office letter No. F.No. Addl. DIT/Range-2/lntl. Tax./2012-13 dated 10.12.2012 on the subject mention above your requested to provide the following information On the basis of assessment completed in past years in the case of Huawei Technology Company Ltd.

1. Whether the OEM has a PE in India in respect of the sale of mobile handsets / equipments.

2. Whether the OEM's are manufacturing mobile handsets/equipment in India.

3. How the sale of mobile handsets/equipments in effected in India-whether through PE or subsidiary or direct.

4. Whether the co. has a business connection in India & in what form.

Huawei Technology AddL. DIT Range 3 International 2 Company Ltd. Taxation, New Delhi 3 ZTE Corporation, China AddL. DIT Range 3 International Taxation, New Delhi Samsung Electronics Ltd. Dy. Director of Income-Tax, Circle 2(2), 4 International Taxation, AddL. DIT Range 2, International 5 Nokia Corporation Taxation, New Delhi

Nokia Siemens Networks Addl.DIT Range 2, International 6 Oy Taxation, New Delhi Sony Ericsson Mobile Communication 7 Dy. Director of Income-Tax, Circle 2(2), International Taxation, New Delhi. Dy. Director of income-Tax, Circle 3(2), 8 Motorola Solution Inc. International Taxation, n. The reply of DDIT Circle 1(2) International Taxation New Delhi is reproduced as under- In this regard, on the basis of records available, this is to submit that Ericsson AB manufactures and supplies GSM equipments. Further, as desired, kindly find the information as under- S. Query Reply Whether the Ericsson AB has a PE in India in Yes, Ericsson AB has a PE in India in respect of the 1. respect of the sale of mobile sale of equipments in the form of 2. Whether the Ericsson AB is manufacturing Ericsson AB is not manufacturing equipments in mobile handsets/equipments in India. India. However, EIL manufactures equipments in India.

3. How the sale of mobile Ericsson AB sells the equipments to EIL and to the handsets/equipments in effected in India Indian Cellular operators directly also. whether through PE or subsidiary or direct

4. Whether the co. has a business connection Yes the co. has a business in India & in what form. connection in India and a PE in India in the, form of Ericsson., India Ltd. The sale of equipments is attributable to PE directly.

5. Please also provide the last assessment Copy of the Ericsson AB assessment order for the order of the Ericsson AB assessed in your A. Y. 08-09 is attached herewith charge.

a The reply of AddL. DIT Range 3 International Taxation, New Delhi is reproduced as under In this regard, on the basis of records available, this is to submit that Huawei Technology Company Ltd. manufactures and supplies GSM equipments. Further, as desired, kindly find the information as under:-

S. Query Reply 1 Whether the Huawei Technology Company Yes, Huawei Technology Company Ltd. has a PE Ltd. has a PE in India in respect of the sale in India in respect of the sale of equipments in of mobile handsets/equipments the form of Huawei India (Indian) 2 Whether the Huawei Technology Company Huawei Technology Company Ltd. is not Ltd. is manufacturing mobile manufacturing equipments in India. handsets/equipments in India.

3 How the sale of mobile handsets in effected Huawei Technology Company Ltd. sells the in India whether through PE or direct. equipments to EIL and to the Indian Cellular operators directly also. The sale of equipments is attributable to PE directly. 4 Whether the co. has a business connection Yes, the co. has a business connection in India in India & in what form. and a PE in India in the form of Indian Subsidiary.

5 Please also provide the last assessment Copy of the Huawei Technology Company Ltd. order of the Huawei Technology Company assessment order for the A. Y. 08-09 is attached Ltd. assessed in your charge. herewith p. The reply of DDIT Circle 3(2) International Taxation New Delhi is reproduced as under- in this regard, on the basis of records available, this is to submit that, Motorola Solution Inc. manufactures and supplies GSM equipments. Further, as desired, kindly find the information as under- S. No. Reply Query

2. Whether the Motorola Solution Inc. is Motorola Solution lnc. is not manufacturing mobile manufacturing equipments in India. handsets/equipments in India.

3. How the sale cf mobile Motorola Solution Inc. sells the handsets/equipments in effected in India- equipments to PE through which whether through PE or subsidiary or direct. they are sold to the end user.

4. Whether the co. has a business connection Yes,the co. has a business in India &in what form. connection in India and a PE in India in the form of Indian Subsidiaries

5. Please also provide the last assessment Copy of the Motorola Solution Inc. order of the Motorola Solution lnc. assessment order for the A.Y. 08-09 Assessed in your charge. is attached herewith q. The reply of DDIT Circle 2(2) International Taxation New Delhi is reproduced as under:-

In this regard, on the basis of records available, this is to submit that, Samsung Electronics Ltd. manufactures and supplies GSM equipments. Further, as desired, kindly find the information as under:-

S. No. Query Reply i. Yes, Samsung Electronics Whether the, Samsung Ltd., has a PE in India in Electronics Ltd. has a PE in India in respect of respect of the sale of…. the sale of mobile handsets/equipments 2. Whether the Samsung Electronics Ltd. is manufacturing mobile handsets/equipments Samsung Electronics Ltd. is in India. not Manufacturing 3. Now the sale of mobile handsets/equipments Samsung Electronics Ltd. in effected in India- whether through PE or sells the equipments to subsidiary or direct. Samsung Electronics India Pvt. Ltd. through which

4. Yes, the co. has a business Whether the co. has a business connection in connection in India and a India & in what form. PE in India in the form 5- Please also provide the last assessment order Copy of the Samsung of the Electronics Ltd. In this regard, on the basis of records available, this is to submit that, Sony Ericsson Mobile Communication manufactures and supplies GSM equipments. Further, as desired, kindly find the information as under:-

S. No. Query Reply 1. Whether the , Sony Ericsson Mobile Communication has a PE in India in Yes, Sony Ericsson Mobile respect of the s a 1 e of mobile Communication, has a PE in India handsets/equipments in respect of the sale of equipments in the form of Sony Ericsson Mobile Communication

2. Whether the Sony Ericsson mobile Sony Ericsson Ltd. is not communication. is manufacturing Manufacturing equipments in mobile handsets/equipments in India. India.

3. How the sale of mobile handsets/equipments in effected in India-whether through PE or subsidiary or direct. Sony Ericsson Mobile Communication sells the equipments to PE through which 4. Whether the co. has a business Yes, the co. has a business connection in India & in what form. S. Please also provide the last assessment Copy of the Sony Ericsson Mobile order of the Sony Ericsson Mobile Communication assessment order Communication assessed in your for the A.Y. 08-09 is attached herewith The erstwhile AO of the assessee that time, happened to be also the Assessing officer of Nokia Corporation, Finland and Nokia Siemens Networks OY_ The information about these companies in the same tabular fashion is as under:- In this regard, on the basis of records available, this is to submit that, Nokia Corporation manufactures and supplies mobile handsets/ telecom equipments S. No. Query Reply 1 Whether the , Nokia Corporation has a Yes, Nokia Corporation has a PE in PE in India in respect of the sale of India in respect of the sale of mobile handsets/equipments equipments in the form of Nokia India Pvt.Ltd.

2 Whether the Nokia Corporation . is Nokia India Pvt. Ltd.. is not manufacturing mobile Manufacturing equipments in handsets/equipments in India. India.

3 How the sale of mobile Nokia Corporationsells the handsets/equipments in equipments to PE through which effected in India-whether through PE or they are sold to the end user. subsidiary or direct.

4 Whether the co. has a business connection in India & in what form. Yes, the co. has a connection in India and a PE in India in the form of Indian Subsidiaries t. In this regard, on the basis of records available, this is to submit that, Nokia Siemens Networks OY. manufactures and supplies GSM equipment S. No. Query Reply i. Whether the , Nokia Siemens Networks Yes, Nokia Siemens Networks Oy.., Oy. has a PE in India in respect of the has a PE in India in respect of the sale of mobile handsets/equipments sale of equipments in the form of Nokia Siemens Networks India pvt.

2. Whether the Nokia Siemens Networks Nokia Siemens Networks Oy..is not Oy. is manufacturing mobile manufacturing equipments in handsets/equipments in India. India.

3. Now the sale of mobile Nokia Siemens Networks sells the handsets/ equipments in effected in equipments to Nokia Siemens India – whether through PE or Networks India pvt.ltd. and subsidiary through 4. Whether the co. has a business Yes, the Co. has a business connection in India & in what form. connection in India and a PE in India , in the form of Indian Subsidiary The facts narrated above makes it clear that the OEMs manufactured the equipments after incorporating the intellectual property of Qualcomm and selling the same in India to earn the revenue and the Royalty is paid to the assessee is accrued and arisen in India. Therefore, in simple words, the OEMs have used the CDMA technology for earning income from source in India. From the replies received from various AOs, it is amply clear that all the OEMs have a strong business connection and also the PE in India. The sale of handsets and equipments in which Qualcomm's patented technology is used is directly attributable to the PE of these OEMs in India. It may also be pertinent to mention here that in the Patent licensing agreements all the AEs of the OEMs are treated as a single entity and any sale between them is not considered for computation of Royalty. It is only when the handset/equipment is sold to an end user or a third party reseller, a mutually agreed proportion is computed as Royalty and become payable to Qualcomm. The business of these OEMs consists of manufacturing and selling of the handsets/ equipments . Only manufacturing of handsets/equipments can never be called as business, That can at best be one of the activities of the business of OEMs. As per the Act the technology to which the Patents relate should be used in the 'business' of OEM carried on in India. It is a matter of record as narrated in the replies of the AOs of OEMs that they are carrying on business in India through PE and the business revenues are connected to these PEs in India. Suppliers like Alcatel, ZTE, Huawei, Nokia, Samsung etc are assessed to tax in Delhi Charge and their cases are also well documented. Without prejudice to this, it must be emphasized that it is not the taxability of OEMs that is our concern at this point. The Act, in Section 9(l)(4(c) envisages that the NR payer of royalty must have some business c/source of income in India. As to the taxability of those OEMs in India, here, DTAAs of respective OEMs will come into play and that requires the business connection to cross a threshold (inform of PE) so as to become taxable. The assessee has only filed the copy of some amended agreements, which are also redacted and excluding some basic related information. During this current scrutiny proceedings, the AR has also stated that the basic and modus operandi of the transaction of the assessee with the OEM's, remained same as that of the last year. Further, no details/deception regarding the changed/new clauses of the amended agreements vis a vis the earlier/original agreement, have been filed. Accordingly, the verifications made and information gathered by the AO for the A. Y. 2011-12 & 2010-11, are relied upon for the current assessment proceedings also. Para-11.12. Whether OEMs have source of income in India a. The agreement between the OEMs and the Indian operators demonstrate in no uncertain terms that what is sold by them is the hardware and the not the software embedded therein. b. OEMs are not only supplying the equipment but they are licensing the software, the ownership of which is not transferred to the operators in India. The software is licensed for the use of the operators. Thus, the intellectual property for which the payment is made by OEMs to Qualcomm is licensed for Use in India which yields income and becomes a source of income for the OEMs. c The two agreements which Indian operators entered with Motorola and ZTE make a categorical difference between the sale of the equipment and licensing of the software embedded in the firmware. The Indian operator has also agreed to purchase the equipment and license to use the software separately (Clause 2.1 of Motorola agreement). Clause 2.2 of the agreement with ZTE also clearly states the the;SIV3plier has agreed to "sell and license" and the Indian operators have agreed to purchase the equipment and take license for the software. Both OEMs and Indian operators treat the software embedded in the handset/equipment as distinct from hardware. d. Clause 19.5 (page 43) of ZTE agreement further records that all licensed material are the property of "the supplier or its suppliers". The supplier of OEMs is Qualcomm which has supplied the intellectual property to be used under a license for manufacturing of handsets/equipment. e. The agreement between Qualcomm and OEM states in the preamble itself that OEM desiresto obtain a license of Qual chipsets and other definition of "CDMA ASIC" appearing on page 231 clearly shows that OEMs have been given license to use chipset/ASIC purchased from Qualcomm in manufacturing equipment/handsets. The CDMA technology belonging to Qualcomm is embedded in chipsets which are used by OEMs and licensed to Indian customers for further use by them. There is absolutely no material to, suggest that Qualcomm has not licensed its technology to OEMs. f. Clause 5.1 states that Qualcomm has guaranteed worldwide licenses under Qualcomm intellectual property to make, import, use, sell, or lease or otherwise dispose of subscriber units and (b) to make components and use and sell such components. This clause does not make any reference to what kind of intellectual property is being licensed. OEMs do riot need any license to manufacture handsets/equipment unless there is an intellectual property belonging to Qualcomm, which is going to be used by OEMs. These intellectual properties have to be used for making the chipsets going to be embedded in the handsets/equipment. g. In common understanding, Qualcomm has made available to OEMs its patented technology of CDMA in the form of chipsets/ASIC. OEMs have incorporated these chipsets/ASIC in the handsets/equipment manufactured by them and have in turn licensed these to Indian operators. Therefore, it is not only OEMs who are using the intellectual property of Qualcomm in manufacturing the equipment/handsets, the Indian operators are also using the technology embedded in the hardware under a license from OEMs. h. There is no dispute on the fact that the patent portfolio of Qualcomm is licensed to the OEMs. This patent portfolio mainly consists of the essential patents required to manufacture any handset/equipment, which will be compatible in CDMA network environment. Qualcomm owns all essential patents for CDMA . It is not clear so far from the facts gathered as to where these patents are used. They are definitely used by the OEMs in their business in India at the point of manufacturing of handsets/equipment. The CDMA equipment is installed in India. The CDMA handsets are sold in India. Both are separate hardware items in which essential CDMA patents owned by Qualcomm are used. Both need to communicate to each other for making the CDMA system functional. This communication is not possible without the use of some appropriate technology. Without this technology the CDMA system cannot function or rather it cannot achieve the purpose for which it is meant. Whatever be the name of this technology, it has to be patented and should form part of the essential patents required for making the CDMA system functional. Undoubtedly, such technology patents should be part of Qualcomm's patent portfolio. This technology has to be used in India as without it the CDMA network cannot be made operational in India . It cannot be disputed that CDMA network is successfully in operation in India. As a corollary, the technology referred above and the essential patents of CDMA belonging to Qualcomm is also getting used in India . In view of this discussion , it is clear that, the Qualcomm's Patents are used for the business in India. i. The Finance Act of 2012 has introduced explanation 4 to section 9(l)(vi) to clarity for removal of doubts that transfer of any right in an intellectual property includes transfer of any right for use of a computer software irrespective of the medium through which such right is transferred. The amendment comes into operation with retrospective effect from 1.6.1976. In view of this clarificatory amendment it is immaterial that the properties or rights are embedded in handsets/equipment. The entire argument to the effect that OEMs sell copyrighted article and do not give any right in the copyright is of no consequence post this amendment. j. Qualcomm is in not giving license to OEMs for manufacturing some engineering or mechanical products. Qualcomm is having its patents for wireless technology, which has to have software and computer programs to transmit or receive data/signals and provide connectivity and make the network functional. This activity is possible only through the use of software, which are in other words only computer programs. Handsets are dumb equipment unless software providing connectivity to the networks embedded in if so is the case with equipment. Therefore, when OEMs license the intellectual property for a consideration (forming part of the overall consideration) to Indian operators, they definitely have a source of income in India, k. Reliance was placed on the decision of the Privy Council in the case of Rhodesia Metals Limited reported-9AR45 (Sup) where the Privy Council held the view that the source does not mean a legal concept but something which a practical man would regard as a real source of income. It is not in doubt that in commercial parlance, OEMs definitely have a source of income in India in the given facts and circumstances and all technical argument about the nature of use etc. is really of no consequence. l. The source of income in terms of monies received is in the form of the Indian carriers. Such source, in terms of spring or fount from which a clearly defined channel of income flows- or activity giving rise to income, can also be traced to India in form of supply of equipments having CDMA technology to the Indian carriers. The activity includes the whole gamut of operations starting from manufacturing and ending in the installation/commissioning/sale of the CDMA equipment. Therefore there exists sufficient nexus between the activities of the OEMs and the Indian Territory so as to qualify the definition of source of Income. Para-11.13. whether the title passes in India or outside India a. Section 19(1) of the Sale of Goods Act provides in a contract for the sale of goods, the property is transferred to a buyer at such time as the parties to the contract intend it to be transferred. However section 19(2) of the Act provides that for the purpose of ascertaining the intention of the parties, regard shall be had to; i. the terms of the contract; ii. the conduct of the parties; and iii. the circumstances of the case b. The contract has to be read as a whole to ascertain the intention of the parties. In the Motorola agreement, Clause 14.1 provides that the title and the risk shall pass upon delivery in accordance with the CIP Inco terms 2000 port of shipment. The word delivery has been defined on page 44 of the agreement to mean physical delivery by the supplier of the equipment ordered by TTSL on CIP terms at airports/ seaports mutually designated by the parties" CIP has been defined on the page 43 of the agreement to mean "cost, insurance paid to airport/seaport in India" as defined in Incoterms2000. c The definition of these terms clearly indicates that the entire risk is borne by the supplier and carnage and insurance charges paid till their delivery at airport/ seaport in India. The repeated reference by the Assessee to Incoterms 2000 does not alter the situation because the expression by its very definition in the agreement means the obligation to bear the carriage and insurance charges upto airport/ seaport in India. It would be illogical to read that the parties particularly Tata in India, can agree to the delivery at any airport/ seaport outside India: This becomes further evident from the definition of "Site" on page 47 of the agreement which reads to mean "the land building and/or any other place where the equipment is to be delivered". It is obvious that the reference to the "sites" is to the place where the network is to be installed and commissioned. d. Clause 4.15 of the agreement further provides that the supplier shall ensure that the equipment is "as per agreed scope of the purchase order". Clause 7.5 gives the right to buyer to change the location at which the equipment is originally required to be delivered. It further provides that the purchase order given by the buyer does always mention the location of the delivery of the equipment. e. In view of all the above referred clauses, if the agreement is read as a whole, the intent of the parties is clear that the title to the equipment passes in India at the site where the deliveries are made or in a worst scenario at the airports/seaports in India. f. In the agreement between Tata and ZTE, Clause 14.1 on page 33 it is stated that the "title shall pass in high seas before arrival in India and the risk of loss shall pass upon provisional acceptance". Under normal circumstances, the risk and title would go together. In the present case, the terms of the agreement read as whole and the conduct of the parties go to indicate that the terms indicated in clause 14.1 do not demonstrate the true intent of the parties. The fourth preamble to the agreement on page 2 of the agreement provides that buyer has asked the supplier to supply/deliver the "equipment in full and guaranteed working condition to the full satisfaction of TTSL". This condition of the supply cannot be met if the goods are delivered on High seas. The "full satisfaction" can be reached only in India after the provisional acceptance. Clause 2.8 of the agreement on page 3 defines the scope of the supplies and includes various task including, network planning and RF optimization. The provisional acceptance is referred to in clause 4.1 of page 16 to define the supplier's obligation and clause goes on to provide that the supplier shall manufacture, supply, deliver, all the equipment "to achieve provisional acceptance and final acceptance of the equipment in accordance with schedule A". This clause further indicates that supplies and delivery of equipments is subject to achieving provisional acceptance. One cannot pick up one part of supply obligation and contend that the title has passed with the discharge of that obligation. g. The definition of 'delivery" on page 5 of the agreement stipulates "physical delivery by the supplier of the equipment ordered by TTSL on DDU terms at the site". DDU is defined on the same page to mean "site or sites in India" as defined in Incoterms 2000. The clause goes on further to state that it means the supplier fulfils his obligation "when goods had been made available at the named sites in the Country of importation". The word "site" has been defined on page 9 of the agreement to mean "the land, building and/or any other places where the equipment is to be delivered. Carrying out of the deliveries as directed by TTSL in writing': It is obvious that the reference is to the "sites" in India and delivery obligation is on the supplier for delivering the goods to a site in India. It is needless to repeat that Incotenns 2000 only refer to the terms of the agreement generally acceptable between the contracting parties with regard to obligation to bear the cost of transportation, insurance till the point of delivery. Thus, if the agreement is viewed as a whole, it demonstrates that the supplier has the obligation to deliver the goods at the relevant sites in India and the declaration in clause 14.1 that the title passes in High seas does not reflect the actual mode and delivery of the supply nor the true intent of the parties. Section 19(2) of Sales of Goods Act provides for the factors to determine the intent of the parties and if despite the declaration to the contrary under the section 19(1), if it is found as a matter of fact that the deliveries had been made in India it would be open to Revenue to assert that title to the goods had passed in India.

h. Section 21 of the Sales of Goods Act provides that where there is contract for sale of specific goods and seller is bound to do something to goods for the purpose of putting them in a deliverable state the property does not pass until such thing is done and the buyer has notice thereof In the present case, the sale is not of standard goods but of components of a wireless network. Unless the compatibility of the handsets and equipment is established with CDMA network setup in India, these supplies would be worthless. These handsets and equipment reached the deliverable state only when their compatibility with existing network is established through the provisional or final testing. The supplier has definite obligation to achieve this milestone and unless this is done the property cannot pass. Unlike other kinds of overseas supplies where the supplier has no other obligation beyond the point of shipment, in the present case, the obligation of the supplier extends to the geographical limits of India where he has to put the supply into a deliverable state. In CDMA technology, handsets and equipment are integral part of the wholesome technology and these cannot be viewed independently. i. In view of the above, there is no room for any doubt that the title to the goods has passed in India despite the declaration in clause 14.1 to the contrary. In this scenario, it is not open to argue that OEMs do not carry out business in India. If one leg of the business operations is in India and other is in Korea, it cannot be said that OEMS carry business only in Korea and not in India. j. It is evident that the OEMs have used the property for the purpose of carrying out business in India and the first limb of 9(l)(vi) (c) of the Act stands satisfied. Further, the sample contracts produced before the ITAT between OEMs like Motorola and ZTE and TTSL, adds strength to the argument that source of income lies in India. Ref is invited to the Preamble between TTSL and ZTE contract which says that TTSL is desirous of equipment in full and guaranteed working condition for establishing CDMA based wireless networking services in accordance with the agreed technical specifications. Such specifications are met once the installment is done on Site in India. (Ref is invited to definition of site in the contract). The risk of loss does not pass to TTSL unless Provisional Acceptance is given by TTSL. Such PAT is also done in India on Site. The installation is done by an entity recommended and approved by the OEM thereby indicating that installation is done by the OEM. Ref is invited to the Sale of Goods Act, section 19(2) and Section 20- 24. Section 21: Specific goods to be out into a deliverable state.- Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. K. Further regarding Acceptance of goods by buyer - Contract of Sale is completed not by mere delivery of goods but by acceptance of goods by buyer. 'Acceptance' does not mean mere receipt of goods. It means checking the goods to ascertain whether they are as per contract. — Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract (Section 41(1)] l. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract (Section 41(2)] M. Further Suppliers scope as per clause 2.8 includes of TTSL/ZTE contract spells out the following: Supply of Hardware/Software/Firmware for 4GVC 1. Supply of Hardware/Software/Firmware for number portability 2. Network planning and RF optimization for EV DO deployment including Radio network optimization 3. Setting up and running a specific team In R&D Organization exclusively for TTSL for CDMA Equipment research and evaluation in order to improve services; 4. Ensuring that the Equipment supplied/ to be supplied will support prepaid and postpaid convergence feat res: 16 ether with other network elements required in TSNL network e.g. HLR&IN and up gradation thereon from time to time during the Term of this Agreement; N. It is necessary to decide whether property in goods has been transferred to buyer to determine rights and liabilities of buyer and seller. Generally, risk accompanies property in goods i.e. when property in goods passes, risk also passes. The clause 14.1 of agreement says Extract from Contract Without prejudice to TTSILs right to reject as set forth in article 6.4 of this agreement the title of all equipment sold hereunder shall pass from TTSIL in high seas before arrival in India and the risk of loss to the hardware portion of all equipment shall pass from supplier to TTS1 upon provisional acceptance. m. It is seen that title of all Equipment sold was to pass from suppliers in high seas before arrival in India but the risk of loss shall pass only upon provisional acceptance by TTSL. However when we examine the terms of the contract, the conduct of the parties and the circumstances of the case. (Section 19(2)1 it is seen that this is a Composite Equipment Purchase Agreement dated: 19.02.2007 for supply/delivery of equipment in full and guaranteed working condition for establishing CDMA based wireless networking services in accordance with the agreed technical specifications. n. This clearly shows that operational utilization and full and guaranteed working condition in accordance with technical specifications are the requirements for the contracted goods to be put into a deliverable state and the property does not pass until such thing is done i.e. working condition as per technical specifications and the buyer has notice thereof though the provisional acceptance test. Note that final Acceptance tests which are conducted after one year of the successful completion of the probation period of one year in service post the event of achieving provisional acceptance (pg. 5 of 65) thus conforming to the guaranteed working condition part of the contract. o. A reading of the aforesaid sections of the Sale of Goods Act will show that where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. p. In view of the discussion above, the OEMs (the payers of royalty) are found to have used the property for carrying on business in India and also for earning income from a source in India. Therefore the royalty income shall be deemed to have arisen in India and would be chargeable to tax and that nothing further needs to be established for the chargeability under the domestic law. The two limbs of S.9(l)(vi)© carrying on business in India and having the source of income in India are not inter dependent on each other and may operate independent of each other. q Accordingly, the above submissions of the assessee that the OEMs do not have a source of income in India deserve to be rejected and the royalty income received from the non-resident OEMs on sale of CDMA handsets and CDMA infrastructure equipment is deemed to have accrued or arose in India and therefore taxable in India Para-12. UNDER THE INDIA- USA DTAA Article 12 of the India-US DTAA defines royalty as follows- 3. The term ’royalties" as used in this article means: payments of any kind received as a consideration for the use of, or the right to use, any copyright or a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or. scientific experience, including gains derived from the alienation of any such right or properly which are contingent on the productivity, use, or disposition thereof; and Para-12.1. Applicability of Article 12(7) (b) - Indo- US DTAA The definitions of term "royalty" as appearing in Explanation 2 to section 9(1)(4 and paragraph 3 of Article 12 of lndo-US DTAA are identical. The relevant article 12 (7)(b) is reproduced as under.:- "Where under sub-paragraph (a), royalties or fees for included services do not arise in one of the contracting states, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the contracting states, the royalties or fees for included services shall be deemed to arise in that contracting state."

Para-12.2 As per Paragraph 7(b) the royalties relate to the use of or the right to use, the right or property, in one of the contracting States, the royalties shall be deemed to are initial Contracting State. The considerations received by the non-resident assessee are for the use of or the right to use copyright, patent, invention or process in India and consequently liable to tax in India u/s 9(l)(w) of income tax Act, 1961. Para-12.3 The patented technology is being utilized by the OEMs for their business of telecom network equipments in India- thus royalty is accruing/arising in India. As Per Explanation inserted by the Finance Act, 2010 w.e.f. 1.4.1976 the income by way of royalty of a non-resident shall be deemed to accrue or arise in India under clause (vi) irrespective of the fact whether the non-resident has a residence or a place of business or business connection in India. Para-12.4 The assessee's argument that the technology license is used by OEMs outside India and what Indian Carriers are using is only copyrighted items is misplaced. There is no such thing as copyrighted article either in DTAA or any domestic legislation in India. Further, if any term is not defined in DTAA, then domestic legislation must be referred to. Indian Income tax Act has done away with the distinction between copyright and copyrighted article vide Explanation 5 to the Section 9. Para-12.5. OEMs use the technology and design developed and owned by Qualcomm [pls refer the preamble of sample agreements b/w OEMs and Qualcomm] to manufacture, commission, install and sell various CDMA architectural equipments. It can be seen that other than mobile station i.e. the handset, all other network equipments enumerated in the pars above require specialized technical expertise for installation, commissioning and making them compatible with the handsets. Therefore the sale of these network equipments cannot be said to be completed unless they are properly installed and tested. All these network equipments use the technology developed by QUALCOMM which is also required for their installation and commissioning. Therefore OEMs use of QUALCOMM technology extends very much into the territory of India where these equipments are installed. [Please refer to the relevant clauses in the Agreement between equipment OEMs and Qualcomm wherein Qualcomm is required to render requisite technical support to OEMs as and when required.] Para-12.6 The Indian carriers also use the design and technology owned and developed by Qualcomm for their network operations in India. This is done by way of procurement of various components of CDMA Architecture and installing those equipment and then running and maintaining them. Here, Qualcomm's involvement does not stop with granting license for its technology to OEMs. Qualcomm goes a step further and provides a gamut of technical assistance to the India carriers in their business of setting up and operating the CDMA based wireless communication business. This is evident from the Technical services Agreement between Indian carders and Qualcomm and also the MOU furnished in the paper book.

Para-12.7 The use of licensed material is further evident from the clauses on IPRs in the sample contract between Indian Carrier and OEM (ZTE/TTSL contract). It says that the licensed material will remain the property of the Supplier or its suppliers and TTSL has received only right to use this property in India. Further, the EULA agreement terms between TTSL and ZTE also strengthen Revenue's argument- such EULA says that " CDMA technology licensedis used by TTSL for its business in India….. " Para-22.8 The assessee has tried to argue that the licensed material which is subject matter in the above clause does not belong to Qualcomm Inc because it has only licensed technology and not any software to the OEMs for use. Further, it tries to argue that the software licensing has not been sought to be taxed by Indian Revenue Authorities. Its software business is distinct and what has been sought to be taxed by Revenue Authorities is royalty accruing from patent division. With respect to the revenue's argument w.r.t EULA clause, the assessee appears to be silent. Para-12.9 Here it may be mentioned that the four principal business units of Qualcomm are as follows: Qualcomm CDMA Technologies (’QCT) — QCT develops and supplies CDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products. Qualcomm Technologies Licensing ('QTL') — QTL grants licenses to manufacturers of wireless products for the right to use portions of Qualcomm's intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and safe of certain wireless products. Qualcomm Wireless & Internet ('QWI') — QWI is comprised of: Qualcomm Internet Services ('QIS) — QIS provides technology to support and accelerate the convergence of the wireless data market, including in it BREW, QChat and QPoint products and services; Qualcomm Government Technologies ('QGOV) — QGOV provides development, hardware and analytical expertise to United States government agencies involving wireless communications technologies; and Qualcomm Wireless Business Solutions ('QWBS) — QWBS provides satellite- and terrestrial- based-„two, way data messaging, position reporting and wireless application services to transportation companies, private fleets, construction equipment fleets and other enterprise companies.

(d) Qualcomm Strategic Initiatives (QSI) — QSI manages the Company's strategic investment activities, and makes strategic investments to promote the worldwide adoptions of CDMA-based products and services. Para-12.10. Perusal of earlier year assessment orders would show that the AO observed that two important streams of the assessee's income are from Qualcomm CDMA Technologies (’QCT) which develops and supplies CDMA based integrated circuits and systems software for wireless voice and data communications, multimedia functions and global positioning system products and Qualcomm Technologies Licensing ('QTL') which grants licenses to manufacture of wireless products for the right to use Qualcomm's intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. AO sought to tax revenues of these units and quantified it in form of income from CDMA handsets and CDMA infrastructure equipments. Attention is invited to the profile of QCT which develops and supplies CDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products. The assessee's attempt to distinguish between its patent division and software division is artificial constructed and does not hold water. Para-12.11. In the earlier year assessment proceedings, the income from CDMA handsets and CDMA infrastructure equipments has been taxed by the AO after observing that:

1. 1. Under the provisions of section 9(1) (vi) (c) of the income-tax Act income by way of royalty payable by a person who is a non resident will be taxable in India if, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India, or for the purposes of making or earning any income from any source in India.

2. Section 9(l)(vi) of the I. T. Act is a deeming provision seeking to tax royalty payable by one non resident to another non resident in relation to income earned from a source in India. Under the provisions of section 9(1) (vi) (c) of the I.T. Act, it is not mandatory to bring the payer to tax before initiating the proceedings against the person receiving royalty income.

3. In this case, we are concerned Dilly with the royalty paid by the OEMs to Qualcomm based on network equipment/ handsets sold by them to parties in India. It is not the Department's case to tax the royalty arising out of the global contract between OEM's and Qualcomm but only so much of royalty which pertains to sales made in India. The source of income of OEM's is sales made to parties in India based on which royalties are paid to Qualcomm. Thus in terms of section 9(1) (vi) (c) of the I.T. Act royalties payable to Qualcomm are deemed to accrue or arise in India. In terms of Article 12(7) (b) of the DTAA between India and USA, the royalty arising to Qualcomm is clearly taxable in India.

4. It is not a case, where the royalty has been paid lump sum for the use of CDMA technology but is an ongoing payment dependent on the volume of sales. The relevant clause of the agreement is as under: а. "Sold", "Sale", "Sell" means sold, leased or otherwise transferred or put into use and a sale shall be deemed to have occurred upon first shipment, invoicing or putting into use, which ever shall first occur. Notwithstanding the forgoing, a Licensed Product shall not be deemed to have been sold by Licensee For purposes of paying royalties to Qualcomm under this Agreement until such time as such Licensed Product has been (a) sold, leased, shipped or otherwise transferred to a person or entity outside of the definition of Licensee or (b) put into use by anyone, including but limited to by... Licensee whichever shall first occur."

5. It has been stated that the definition of sale could mean invoiced, shipped etc_ and sale would occur upon the first such occurrence. The fact that sale means invoiced shipped etc. by itself implies that a party has been recognized to which the goods are invoiced or shipped. In this case, unless the OEM has raised a bill/shipped the goods to a party in India i.e. Tata or other Indian carriers no royalty would be payable to Qualcomm. The assessee's submission that the royalty received by Qualcomm is independent of whether the network equipment/ handsets are sold into India is therefore, incorrect and royalty clearly arises at the time of goods are sold to a particular customer, in this case customers in India. The method of computation cannot be a basis for levy of royalty is not correct. The method of computation has been laid down separately as per the definition of "net selling price" and the clause on "Royalties". The point at which royalties accrue or become payable is clearly when the product is sold or put to use whichever is first. б. Lastly it may be said that the royalty for the use of CDMA technology is arising in India because the subscriber unit (handsets) and the infrastructure equipment in which the CDM A technology is embedded are utilized in India. The handsets by themselves will be of no use unless the network service provider also installs the infrastructure equipment. Regarding the contentions raised by the assessee on factual inaccuracies contained in the CIT (A)'s order, it was observed that the same does not alter the position of taxability of the royalty income in India under the provisions of Section 9(1) (vi) (c) of the Act as it is still an admitted fact that royalty arises to Qualcomm only when the customer is identified by the OEMs. In the Indian situation since the customers (Tata and Reliance) are based in India, they necessarily constitute a source of income for the OEMs in India and the taxability under the deeming provisions of Section 9(1) (vi) (c) cannot be denied/ overlooked. 7. The above position is strengthened in the view of the assessee's own submissions that the Indian Carriers may request specific features to be incorporated in the phones to be sold in India. Therefore, whether the specific features are driven by the assessee's technology or not is immaterial since the phone will then unequivocally be saleable only to India thereby bringing creating a strong Indian nexus for source based taxation.

8. In view of the above discussions, royalties arising to Qualcomm from the sale of infrastructure equipment and handsets by the OEMs to Indian customers is taxable in India as per section 9(1) (vi) and article 12(7) (b) of the India- US tax treaty. Para-12.12. Regarding taxability of the royalty income under the treaty, the assessee vide submissions dated 07 March 2013 has submitted as follows: "In the facts of the instant case, it is undisputed that the royalty income earned by Qualcomm from non-resident OEMs does not accrue or arise in India. Consequently, it is not under dispute that the Article 12(7)(a) of the India-USA tax treaty is irrelevant for the purposes the present assessment. Article 12(7)(b) of the treaty provides as follows: "Where under sub-paragraph (a) royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, MO: right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State." Qualcomm wishes to submit that for the royalty to relate to the use of or right to use the right or property in India, the agreement between Qualcomm and the OEM should: a) Be confined to India or (b) India should be one of the countries where the right or property must be specified as being used. In Qualcomm's case, neither of the aforementioned conditions is satisfied. Hence, the royalty cannot be regarded to have deemed to arise in India. In light of this, it is submitted that Article 12(7) does not apply in Qualcomm's case and hence, royalty does not "arise" in India. In light of the detailed technical submissions outlined in Annexure 3, it is submitted that for the royalty income of Qualcomm to be taxable in India under Article 12(7)(b) of the treaty, the patents licensed by Qualcomm to the OEMs situated outside India must be used in India. It is clear from the facts and our submissions that sale of products to Indian carriers cannot be treated as use of the patents in India. Hence under the treaty, royalty paid outside India for the use of patents outside India cannot be held as taxable in India under the treaty." Para-13. DISTINCTION WITH DECISION OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF ERICSSON A. B Further, the Jurisdiction High Court decision in the case of Ericsson A.B. [246 CTR 422 (Del)), is totally inapplicable to the facts of the present case . That in the case of Ericsson, the issues under consideration were: i.Whether Foreign Company has any business connection in India or-not? ii. Whether Foreign Company has PE in India or not? iii. Whether the income from the supply contract can be treated as 'royalty' under section 9(l)(vi)?

Para-13.1 In this case it was held that the Foreign co. has no business connection in India and it was also held that if the assessee did not have any business connection in India, it is not necessary to go into the issue whether the assessee had any Permanent Establishment in India or not during the relevant period. However, in the present case, we are not into determination of taxability of "OEMs" but the taxability of "Qualcomm Incorporated" which is to determined having regard to section 9(l)(vi)( c). It has nothing to do with the taxability of "OEMs". The provisions of section 9N(i) on which the decision was rendered by the High Court is totally out of context in the present case. Para-13.2 Further, if a non resident (OEM) is paying royalty to another non resident (Qualcomm) in respect of any right, property or information used or services utilized for the purpose of a business carried on by such non resident (OEM) in India or earning any income from any source in India would not necessarily give rise to taxable income in the hands of such non resident (OEM) since the taxability would depend upon other factors also such as whether such non - resident has PE in India or not and whether there is any exclusion in the respective treaty etc. Source of income is distinct from the place of accrual of Income. In the case of Ericsson, the other issue before the Hon'ble Delhi High court was whether the income from the supply contract can be treated as 'royalty' under section 9(l)(vi) read with Explanation 2 of the Act. But in the present case the nature of payment is not in dispute. The royalty is paid by a non resident to another non- resident, which would be taxable under clause (c) of section 9(0(vi) and not under clause (b) of S. 9(0(4 of the Act. Para-13.3 Further, in the case of Ericsson, the fact that the title of the goods passed outside India was not in dispute whereas in the present case it is under serious dispute. In the case of Ericsson, it was an admitted position that installation and commissioning of the equipment was done by two separate corporate entities where as in the present case it is still in dark who did the installation and commissioning of the equipment. The mere fact that the agreement does not cast obligation for installation and commissioning on the OEMs does not throw adequate light as to who else was competent to install and commission such highly technical equipment Several provisions of Sale of Goods Act were not discussed by the Delhi High Court like section 19(2), 9(3), 20- 24, 41. In Ericsson, the installation part was already contracted out to another entity. In ZTE's case, the installation part would be done by supplier recommended and approved entity and there is no separate contract for that as per records available. Further, subsequent amendments in Act have done away with the distinction between copyright and copyrighted article.

Para-14. DISTINCTION WITH DECISION OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF NOKIA The assessees have relied upon the decision of High Court of Delhi in the case of Nokia for the following reasons:- i. Softwqre was integrated, to .GSM Equipment and incapable of independentuse and hence the transaction ii. Payment was not taxable under India Finland DTAA as it was for Copy righted article and not for a Copyright. iii. The definition of "royalty" under the said DTAA differs from the amended definition of Royalty under the Act.

2. In the context, Question raised before Hon'ble High Court of Delhi as responded on Page 7 of the Judgment were: Questions 1 and 2 on whether Nokia has any business connection and/or PE in India. Question no.3 on whether the amount was Taxable as royalty.

11. It is a very significant and important fact that up to the year 2004, Qualcomm had already got nearly 400 patents registered in India which figure has swelled up to roughly over 1300 patents by now. 12.lt is highly illogical for the assessee to rely on cases pertaining to software and draw distinction between Copyright and Copyrighted article when, according to their assertion, their case is in the realm of patents which is an altogether genre of intellectual property. 13.Had it been the case of the use of patent, the Hon'ble High Court of Delhi could not have reached the same conclusion as it did in the case of Nokia (or Ericsson). Para-14.1. Reference is also invited to Nokia Special bench decision wherein inspite of title being passed outside India, PE/BC was upheld considering the activities of Indian subsidiary in Network planning Marketing and installation. In the case of OEMs and Indian carder, installation is done by OEM recommended and approved party therefore responsibility lay with OEM and network planning is also done by OEM along with a host of other activities set out in Supplier's scope. Para-14.2 In the impugned case, the question under review is whether the Non-resident payer has business /source of income in India and whether Qualcomm is earning royalty from use of technology, which is patented in its name, in India. So, we have to answer two questions: The Non-resident payer has business connection/source of income in India The technology which is held by Qualcomm is used in India. The whole arrangement between the Qualcomm and OEMs and OEMs and Indian carriers and the Indian carriers and Qualcomm should not be looked at in isolation. Each stage is part and parcel of the bigger arrangement wherein Qualcomm owns CDMA technology, it Licenses it to OEMs for manufacture of equipments, renders services to them, OEMs Supply these to Indian carriers which with the help of Qualcomm are able to deploy these equipments and exploit the technology for their business. (Refer to agreement between (i) Qualcomm and OEM (ii) Mob' between Reliance and Qualcomm) (Hi) OEM and Indian Carrier (iv) Technical services agreement as also BREW agreement between TTSL/RCL and Qualcomm. The Supreme Court in the latest Vodafone decision has re-iterated the look at principle enunciated in Ramsay case, in which it was held that the Revenue or the Court must look at a document or a transaction in a context to which it properly belongs. It is the task of the Revenue/Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole, and not adopt a dissecting approach. The Supreme Court's judgment favors a "look at" test in which Revenue looks at the entire arrangement, holistically, and not adopt a dissecting approach. 14.3. The contentions of the assessee are not acceptable as, undoubtedly the technology is used in India and therefore the provisions of Article 12 (7) (b) are attracted. Further, the ITAT did not examine the taxability of the royalty income under Article 12 (7) (b). The Hon'ble ITAT also did not consider the fact that the OEM's were held taxable in India. Accordingly, the position adopted during the earlier years survives in the case of the assessee for taxability of the income under the provisions of the India-USA DTAA."

13. Further, during the year under consideration, the AR of the assessee has filed the copies of different agreements. As per Subscriber Unit License agreement dated 13.01.2012 between assessee and Unique Mobinet Surfers Private Limited (now known as Data wind Innovation Private Limited the following definitions elaborate the actual business module of the assessee company a. The agreement says that the assessee has developed certain proprietary code division technology which may be useful in providing greater capacity, higher data rates and improved quality and reliability compare to other cellular wires technologies and it manufactures and sells CDMA components and equipments. b. It explains that CDMA Access Point means a complete device which (i) incorporates all or any part of Qualcomm's Intellectual Property,(ii) connects to CDMA network infrastructure equipment over a CDMA wireless network utilizing a wireless air interface in compliance with the CAI, (Hi) does not incorporate a speaker or keypad c. It explains that CDMA means either a complete module, modem car, or other electronic assembly (a "Module") which (a) incorporates all or any part of Qualcomm's Intellectual Property, and (b) solely when embedded within, coupled with, or connected JO a 'Communications Device, is capable of being used to implement wireless communications transmissions in mince with any wireless air interface standard include/id in the definition of CAI. d. It explains that Embedded application means the use of any assembly, module or modern card, Including a CDMA Modem, embedded within another product in such a way that such assembly, module or modem card is rio4 attachable to or detachable from such other product by an end-user consumer without the use of a tool. e. It explains that Embedded CDMA Module means a CDMA Modern which is capable of being used to implement wireless communications transmissions h accordance with any wireless air Interface standard included in the definition of CAI when used in an Embedded Application.

14. From the above, It is clear that the intellectual property of the assessee company i e. assembly, module, modem card including CDMA modem etc, is not manufactured by OEMs but it is manufactured by the assessee company with its patent technology. The said intellectual property is provided to OEMs to incorporate or to embed in the equipments such as modem, etc manufactured by OEMs. The patent technology is not used by the OEMs but the same is used by the end-user. In the it instant case the end- user is in India, Hence, the technology is used in India and the royalty paid by the OEMs to the assessee company which was calculated on the number and sale consideration of subscribers units i.e. modem, etc. and equipments in India is sourced from India. Therefore, the royalty on Subscriber Units i.e. module, assembly, modem card, CDMA modem, etc., earned from India and paid by OEMs to the assessee company, is accrued

and arisen in India and is taxable in India. Further, the network infrastructure equipments are also used in India by way of supporting the connectivity of intellectual property of the assessee company. Therefore, the royalty on infrastructure equipments is accrued or arisen in India and is taxable in India. Para-14.1 In view of above, the royalty on Subscriber Units and Royalty on infrastructure equipments is taxed as Per of section 9(l)(vi)(c) of IT Act as well as Article 12(7) of DTAA between India and USA. " 4.5 In view of the clear finding of the AO in regard to taxability of Royalty relating to use of patent on the handsets sold by the service provider in India, the observation made by Hon'ble ITAT in respect of its ruling for AY 2005-06 to 2008-09 has been complied with. These Assessment orders for these Assessment years, however could not be adjudicated by the Hon'ble Bench due to allowing of the appeals on technical ground but not on merit. Thereafter the assessment orders for assessment years 2014-15 and 2015-16 dealt with in detail the compliance of the Hon'ble ITAT directions taking into a account the technical experts report, the additional facts and the applicability of both the limbs of section 9(l)(vi)(c) in regards to OEMs business in India and income on from a source located in India, and also on the issue of applicability of Article 12(7)(b) of the Indo-US DTAA. Therefore, during the course of the current hearing the revenue vehemently, argued before the Hon'ble Bench regarding taxability of Royalty income received by the appellant towards sale of handsets in India to the Indian customer/the service providers, by relying on the aforesaid sets of facts and law. 4.6 During the course of hearing, in response to Hon'ble Bench's specific query to explain is to how the transaction leads to earning of Royalty by the applicant from a non-resident for the purpose of making or earning any income from any source in India, it is submitted that the source of income is always link to the source of payment to complete a transactions. The Hon'ble Supreme Court has given a clear ruling as to what constitute a source of income in the case of M/s GVK Industries wherein it is held that income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. In the present case it is not in dispute that the payment of royalty to the assessee has been made by the OEMs in respect of business carried on by them in India as well as for the purpose of earning Income from a source located in India as the payment of royalty is exclusively related to the handsets sold by the OEMS in India. It is in material whether the OEMs are having any permanent establishment in India or their income is chargeable to tax under the provisions of income tax in India or not, the carrying of a business activity in India alone suffices. 4.7 In view of above, and taking into an account the finding of the AO and the direction of the Hon'ble DRP, it is submitted before the Hon'ble Bench that the royalty paid by the assessee, which is directly linked to the number of handsets which are sold by the OEMs for commercial use is taxable in the India i.e. the tax jurisdiction where the handsets are used by the customer after exclusive facilitation for its use by the Indian service providers and therefore, the royalty on Subscriber Units and Royalty on infrastructure equipments is taxed as Per of section 9(l)(vi)(c) of IT Act as well as Article 12(7) of DTAA between India and USA. "

Therefore, the royalty income cannot be taxable under the first limb of section 9(1)(vi)(c) of the Act. Even, in the second order passed for the assessment years 2004-05 to 2005-06, the Tribunal has agreed with the observations made in earlier order to the effect that as long as patents are used in the manufacturing process, which has taken place outside India, such royalty income cannot have tax implications in India.

"(vi) income by way of royalty payable by—

The Government; or a person who is a resident except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or a person who is a non-resident where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India."

Sec. 9(l)(vi)(c) is a deeming provision and has to be construed 128. strictly. A plain reading of this section shows that any income by way of royalty is taxable in India, if such royalty is payable by a non-resident in respect of any right, property or information used or services utilized : for the purposes of business, or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India.

Equipment purchase agreement between the Tata Tele Services and Motorola Inc. dt. 8th Dec., 2007; Equipment purchase agreement between the Tata Tele Services and ZTE Corporation dt. 19th Feb., 2007. We agree with Mr. Dastur, that cognizance cannot be taken 135. of these agreements as they relate to the financial year 2006-07 relevant to asst. yr. 2007-08 and asst. yr. 2007-08 have no relevance to the case on hand. The learned special counsel sought to make out a new case with the aid of these additional agreements. Nevertheless we consider Mr. G.C. Srivastava's submission 136. that these agreements of Tata Tele Services can be relied upon for the limited purpose of understanding the business model of the OEMs in relation to sale of CDMA products to India. The plea that similar agreements would have been entered into by the India Telecom operators with the OEMs for purchase of network equipment, cannot be accepted as it would be a conjecture and surmise.

ii. Subscriber unit and infrastructure equipment license agreement between Qualcomm and the OEM; iii. We also extract the clauses relied upon by the Revenue in the following agreements to consider the without prejudice arguments of the assessee. iv. Equipment purchase agreement between the Tata Tele Services and Motorola Inc. dt. 8th Dec, 2007; v. Equipment purchase agreement between the Tata Tele Services and ZTE Corporation dt. 19th Feb., 2007. In addition, certain clauses from the following two 138. agreements are also extracted as reliance was placed on the same : i. MoU dt. 26th March, 2001 by and between Reliance and Qualcomm (Revenue paper book dt. 29th June, 2012) ii. Technical services agreement between Qualcomm and Reliance dt. 16th Oct., 2001. Subscriber unit license agreement between Qualcomm and the OEMs for manufacture of CDMA handsets (Agreement reference page No. 226 to page No. 263 of the appellant's paper book) Extract of relevant clauses from the agreement in relation to grant of license. Clause 5.1 Grant of License "Subject to the terms and conditions of this agreement, including but not limited to timely payment of the royalties set forth herein, Qualcomm hereby grants to licensee a personal, non-transferable, worldwide and non- exclusive license under Qualcomm's Intellectual property solely for wireless applications to (a) make (and have made), import, use and sell, lease or otherwise dispose of subscriber units, and (b) to make (and have made) components (provided such components have been exclusively designed by licensee and which design is owned and used exclusively by licensee) and import, use and sell, lease and otherwise dispose of components but only if such components are included as part of and within subscriber units sold by licensee or as replacement parts for subscriber units previously sold by licensee. No other, further or different license is hereby granted or implied." Qualcomm's Intellectual property (page No. 236 of the paper book) 'Qualcomm's Intellectual Property' means Qualcomm's Technically Necessary IPR and Qualcomm's Included Commercially Necessary IPR and company 3 patents; provided that, notwithstanding the foregoing, the term 'Qualcomm's Intellectual Property' shall not include any intellectual property, including but not limited to patents, owned by Snap Track. Inc. Subscriber unit (page No. 238 of the paper book) : 'Subscriber unit' means a complete CDMA telephone, a cordless base station and/or a CDMA subscriber knockdown kit and 'subscriber units' means a complete CDMA telephone, a cordless base station and CDMA subscriber knockdown kits. Components (page No. 233 of the paper book) :

Components' means application specific integrated circuits ('ASIC's'), electronic devices, integrated circuits, including firmware thereon and accompanying software, and or families of devices for use in wireless subscriber equipment. CDMA ASIC (page No. 231) : 'CDMA ASIC' means Qualcomm's mobile station modem (MSM) CDMA application specific integrated circuit, and any revision, generation, modifications or integration to or of the MSM, purchased by licensee from Qualcomm. (ii) Subscriber unit and infrastructure equipment license agreement between Qualcomm and licensee (i.e. OEM). (Agreement reference-page No. 264 to page No. 316 of the appellant's' paper book) Extract of relevant clauses from the agreement in relation to grant of license Clause 4.1- Grant of license from Qualcomm (page No. 279) : Subject to the terms and conditions of this agreement, including but not limited to timely payment of the license fees and royalties set forth herein, on the effective date, 'Qualcomm hereby grants to licensee, solely for wireless applications, a personal, 'non-transferable, worldwide and non- exclusive license (without the right to sublicense) (1) under Qualcomm's applicable subscriber patents to (a) make (and have made), import, use, sell, offer to sell, lease or, otherwise dispose of subscriber units and radiomodules and (b) to make (and have made) components and import, use, sell, offer to sell, lease and otherwise dispose of components but only if such components are included as part of and sold within licensee subscriber units or .licensee radiomodules or as replacement parts for subscriber units or radiomodules previously sold by licensee and (2) under Qualcomm's applicable infrastructure patents to (a) make (and have made), import, use sell, offer to sell, lease or otherwise dispose of infrastructure equipment and (b) to make (and have made) components and import, use, sell, offer to sell, lease and otherwise dispose of components but only if such components are included as part of and sold within licensee infrastructure equipment or as replacement parts for infrastructure equipment previously sold by licensee. No other, further or different license is hereby granted or Implied. Notwithstanding the foregoing, licensee, may exercise its 'have made' rights above with respect to components not designed by or for licensee (according to specifications provided by licensee) only to the extent that the third party benefiting from such 'have made' rights does not assert, through itself or its affiliated entities patent infringement litigation against Qualcomm or licensee and Qualcomm agrees that it will not charge royalties to any third party with restrict to the sale by such third party of components to licensee to the extent that such third party is making such sale under licensee 'have made' rights and is not using or otherwise infringing upon any of Qualcomm's patents not the subject of such 'have made' rights.' Qualcomm's applicable subscriber patents (page No. 275) : 'Qualcomm's applicable subscriber patents' means Qualcomm's early patents and only if licensee elects under sec. 4.4.6, either Qualcomm's later patents or Qualcomm's other patents, as the case may be. Subscriber unit (page No. 278) : 'Subscriber unit' means a complete CDMA and/or multi-mode CDMA user terminal, including but not limited to mobile, transportable, and portable telephones, which can be used, without any additional equipment or components being attached thereto, to transmit and/or receive transmissions for wireless applications. Radiomodule (page No. 277) : 'Radiomodule' means an electronics sub-assembly for wireless applications which (i) includes, at a minimum, a printed circuit board, multiple individually packaged integrated circuits mounted on the printed circuit board, a CDMA component, and any embedded software, and (ii) provides RF/analog and digital and baseband processing necessary to implement the functions of a CDMA subscriber unit such as to initiate and/or receive wireless telecommunications transmissions; provided that a Radiomodule shall not be capable of initiating and/or receiving wireless telecommunication transmissions without being incorporated into or attached to the product of which it is intended to be a sub- assembly. Components (page No. 271): 'Components' means application specific integrated circuits (ASIC's), electronic devices, multi-chip modules, integrated circuits and/or families of devices, including firmware thereon and software associated therewith, for use in wireless applications. Qualcomm's applicable infrastructure patents (page No. 275) : 'Qualcomm's applicable infrastructure-patents' means (i) every patent issued or to be issued to Qualcomm in any country of the world which claims priority from a patent application filed anywhere in the world on or prior to the effective date and (ii) every patent issued or to be issued to Qualcomm in any country of the world which (a) claims priority from a patent application filed anywhere in the world during the life of the applicable CDMA wireless standard and (b) are technically necessary to use, make and/or sell Infrastructure Equipment compliant with such standard. Infrastructure equipment (page No. 272) : 'Infrastructure equipment' means network equipment for use as a part of any land mobile radio-telephone system for wireless applications, including but not limited to BTSs, BSCs and system switches (and equipment and software for corporation therein), but the term does not include, by way of example and not by way of limitation, components, subscriber units, radiomodules or any other subscriber equipment. Agreement between Tata Teleservices Ltd. and ZTE Corporation 2. for supply of CDMA equipment (reference-agreement 2 filed by the Revenue as additional evidence) Extract of relevant clauses from the agreement on transfer of title and risk of the equipment Clause 14.1 - Title and risk of loss (page No. 33) : 'Without prejudice to TTSL's right to reject as set forth in art. 6.4 of this agreement, the title of all equipment sold hereunder shall pass from the supplier to TTSL in high seas before arrival In India and the risk of loss to the hardware portion of all equipment shall pass from supplier to TTSL upon provisional acceptance.' 3. Agreement between Tata Teleservices Ltd. and Motorola Inc. for supply of equipment (agreement 1 filed by the Revenue) Extract of relevant clauses from the agreement in relation to transfer of title and risk of the equipment Clause 14.1- Title and risk of loss (page No. 14): 'Without prejudice to TTSL's right to reject as set forth in art. 6.4 of this agreement, the title and the risk of loss to the hardware portion of all Equipment sold hereunder shall pass from supplier to TTSL upon delivery in accordance with CIP Incoterms 2000 port of shipment.'

Based on the above, we now proceed to answer the first 139. question as to whether the OEMs have carried on the business in India and that they have used the appellants for the purpose of carrying on such business in India.

OEMs carry out installation of equipment in India for the Indian Telecom operators;

The entire supply of handsets and equipments though manufactured outside India are India specific and not off the shelf products which can be sold to anyone in any location. The technology is used by the OEMs to manufacture India specific supplies. Hence there is a certain degree of use of the property for the purpose of carrying on business in India;

Placing reliance on the decision of the Hon'ble Andhra Pradesh High Court in the case of Syed Asifuddm (supra), he submitted that the handsets are specifically designed and programmed for Reliance.

Relying on various clauses in the equipment purchase agreement entered by Tata with ZTE and Motorola, he contended that despite the declaration in cl. 14.1 to the agreements, the agreement has to be read as a whole to ascertain the intent of the parties. He submitted that if the agreement is read as a whole, the intent of the parties is amply clear that the title of the equipment passes in India at the site where the deliveries are made or in a worst scenario at the airport/seaports in India. We are unable to agree with the contention of the learned 142. special counsel for the following reasons :

Accepting such a proposition would lead to a situation where every purchase and sale of goods made by any party in India with any party in other countries would be considered as if those parties are doing business in India and sale to India without any operations being carried out in India would amount to business with India and not business in India. For the business to be carried out in India there should be some activity carried out in India. Thus the argument that if manufacturing is done in one jurisdiction and sales in the other jurisdiction, then there is business in another jurisdiction is devoid of merit. Further on the facts of the case, for the reasons given later in this order, even the sale cannot be said to have been done in India.

The contention of the Revenue that OEMs (i.e. Motorola and ZTE) carries out installation work for Tata and hence there is some business activity being carried by the OEM in India is factually incorrect and contrary' to the clauses in the equipment purchase agreement which clearly states that installation of the equipment is carried out by a third party appointed by the purchaser (i.e. Tata) in consultation with the supplier.

Even presuming for a moment that the installation of the equipment is done by the OEMs in India, the Revenue has failed to demonstrate/prove that the patents licensed by Qualcomm are used by Motorola/ZTE for carrying out such installation activities in India.

The next contention of the Revenue (is) that the patented technology is used by the OEMs to manufacture India specific products and that the handsets are customized and programmed to include a code assigned to a specific operator. Hence there is a certain degree of use of the property for the purpose of carrying on business in India.

During the course of hearing it is admitted that handsets in question embody two technologies (a) technology with respect to the functionality of the handsets and technology with respect to CDMA connectivity.

The patents of Qualcomm are admittedly for manufacture of handsets and infrastructure equipment which are sold worldwide. There are no patents of Qualcomm which are used for customization of handset with respect to CDMA connectivity. The patents in question, on which royalty is sought to be taxed, have nothing to do with the functionality of the handsets. Functionality of the handsets may be customer specific or operator specific or India specific but technology with respect to CDMA connectivity, is a universal technology and is not customer specific.

Customisation such as locking the handset to enable operation only with a specific operator and other operators with whom reciprocal or other arrangements are available, inclusion of Hindi or other regional languages, calculator, music, ring tones, browsers and numerous other features are no way connected .with patents of Qualcomm in these 16 agreements which are for manufacture of CDMA handsets and equipments. In fact in each handset a number of patented technologies other than patents with respect to CDMA connectivity are also used. Hence the argument that patents relating to CDMA, technology are customer specific, service provider specific or country specific is factually incorrect. There is no customization of handset qua the CDMA connectivity.

Coming to the argument that handsets are programmed to a particular network service provider and hence it is India specific is not tenable. As rightly pointed out by Mr. Dastur locking of a handset to network is a requirement of the network service provider depending upon its business plans and exigencies and does not affect the ability of the handset to operate on any CDMA telecom network, which is evident from the fact that once the network lock is broken the handset can operate on any network. This fact is also supported by the decision of the Andhra Pradesh High Court in the case of Asifuddin (supra). Hence it cannot be concluded that CDMA technology was service provider specific. Network locks are requested by network service providers to keep the subscribers with them for an extended period. There is no dispute that the locked handset is capable of working anywhere in the world. This is evident from the scheme on international roaming using CDMA handsets downloaded from the website of Reliance Communications. Further there is also no dispute that all telecom operators permit International roaming. Though handsets that may have been purchased under certain terms are locked with a particular network service provider, the handset is capable of working in any country of the world with which that particular network service provider has commercial understanding. This clearly demonstrates that the CDMA connectivity of the phone is in no manner connected with the locking of the phone with a network service provider. Hence, in our view the decision of the Andhra Pradesh High Court in the case Syed Asifuddin (supra) is not relevant. Even otherwise, we are unable to understand as to how sale 144. of India specific handsets can be a basis of coming to the conclusion that the OEMs are carrying on business in India. There are numerous patented IPRs belonging to not only 'Qualcomm- but also to a number of other parties, as well as the OEM's themselves and all these patented IPRs are used for manufacturing certain products which are sold to parties in India. The purchaser may have the option to choose the technologies available or even specify certain additional requirements. Sale of such customised products by no stretch of imagination can be considered as business being done in India. A buyer of a product may specify his requirements and when the product is manufactured to such specification it does not tantamount to carrying on business in India. It does not cease to be a sale of a product. No such allegation was made with respect to network equipment being India specific. Technology for manufacturing products is different from products which are manufactured from the use of the technology for which Qualcomm has patents. The role of Qualcomm ends when it licensed its patents on IPRs pertaining to CDMA products for manufacture and when it collects royalty from OEMs on these products, when they are shipped out of the country of manufacture. There is no activity for Qualcomm after this sale and shipment under these 16 agreements. For the OEMs it is a sale of a product which is the end of the activity. The revenues are generated on sale only. There are no revenues either to the OEMs or to Qualcomm after the sale of the products. The sale is of a chattel as a chattel. The product is a combination of hardware, integrated circuits, designs multiple application software, CDMA components, chipsets with embedded software etc. The Revenue attempt to break down the sale into various components is not supported by the terms of the agreements and the facts of this case. It cannot be said that every item other than software was sold and that software which is embedded has been separately licensed. It is not the case of the Revenue that the OEMs have income in India from these sales or that they have income from licensing of software in these products which is assessable to tax. There is no finding that the OEMs have carried on business in India much less that a part of the sale consideration is attributable to any sale or licensing of software carried out in India. When OEMs itself are not brought to tax, to hold that Qualcomm is taxable is not correct. This is not a case of the OEMs being not taxed due to a lapse of the officer concerned or being let off by the Revenue by mistake or oversight. It is not brought to our notice that the OEMs have been brought to tax in any of the subsequent years. Thus the argument that two wrongs do not make a right does not apply to the situation on hand.

The title in the goods passed to the buyer before the goods reached the Indian shores and hence no profit could accrue to the non-resident. Sec. 19 of the Sale of the Goods Act would have application.

The fact that the contract itself is signed in India or that the freight charges are borne by the importer would make no difference to the inference as was pointed out by the Hon'ble Andhra Pradesh High Court in the case of Addl. CIT v. Skoda Exports.

The fact that the insurance risk was with the supplier before landing does not alter the situation.

Acceptance test cannot also lead to a different conclusion as it was meant for ensuring that the supply conforms to the contract parameters.

The right to get back the goods after landing, if the importer does not take delivery for whatever reason, could also make no difference since the title has passed to the buyer before landing.

Since the installation was also not undertaken by the assessee company, no income therefrom can be brought to tax.

The issue whether the assessee had a PE in India during the year is academic in the light of the fact that the assessee has no business connection.

That since software is loaded on the hardware in terms of contract, it did not have any independent existence, so as to justify the inference that there has been supply of software.

The decision of the Hon'ble Supreme Court in the case of Tata Consultancy Services v. State of A.P. [2004] 192 CTR (SC) 257 making a distinction between assignment of "copyright right" and sale of "copyrighted product" could not be disregarded.

Computer programmes are goods and merely because the software was unloaded from dumb CD from the computer, usable only when it is activated, it does not cease to be goods.

The payment to the assessee cannot be split up as between supply and royalty/technical fees.

There is no assignment of any copyright in the facts of the case, in the sense contemplated under sec. 14 of the Copyrights Act, 1957 as a consequence of either the overall agreement or the supply contract.

The difference between acquisition of a "copyright right" and a "copyrighted product" was pointed out.

agreements with various Indian telecom/cellular operators and entered into three contracts with them, namely, (1) overall agreement, (2) supply agreement and (3) installation agreement. The assessee supplied GSM equipment, i.e. both hardware and software manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis under independent buyer/seller arrangements. Installation activities were undertaken by NIPL under its independent contracts with Indian telecom operators. The AO held that the assessee was carrying on business in India through a PE. Both the LO and NIPL constituted a PE of the assessee in India. 70 per cent of the total equipment revenue attributed to sale of hardware. The remaining 30 per cent of the equipment revenue attributed towards supply of software and the same was taxed as royalty both under sec. 9(l)(vi) and under art. 12 of DTAA between India and Finland holding that software was not sold but licensed to the Indian telecom operators. The Hon'ble High Court held as follows : if supply agreement is taken as a standalone agreement, the property in the goods passes to the buyer outside India and hence not taxable in India.

Sec. 19 of the Sale of Goods Act, 1930 makes it clear that property in the goods passes when the parties intend it to pass. The intention of the parties is manifest in art. 13 of the supply contract/and provisions of art. 15 in no manner militate against such intention. There is nothing in the conduct of the parties, which would suggest that the express provision of art. 13 have been given a go by.

The fact that the supply contract was signed in India does not change the circumstance. Acceptance test, which was performed in India, is not a relevant circumstance for determining as to whether income has accrued in India. Acceptance test is not material even for passing of title and risk in the equipment supplied.

The submission of the Revenue that the /three agreements, namely overall agreement, supply agreement and installation agreement, are to be taken to form an integrated business arrangement between the parties which was governed by the overall agreement proceeded on the basis that the assessee had entered into contracts with cellular operators in India for setting up of GSM system in India, the hardware and software for which were supplied by the assessee, and the installation thereof was also overseen by the assessee. who was to ensure that it was carried out to the satisfaction of Indian buyers in accordance with the terms of the contract. This was also considered by the Court and it was held that the taxable event took place outside India with the passing of the property from seller to buyer. The decision might have been different if the buyer had the right to reject the equipment on failure of acceptance test.

The overall agreement does not result in the income accruing in India. The execution of the overall agreement is prompted by pure commercial considerations.

Board Instruction No. 1829, dt. 29th Jan., 1989 must continue to govern the assessment for the relevant years, despite withdrawal of this Instruction by CBDT by virtue of Circular No. 7 of 2008 (sic-of 2009), dt. 22nd Oct.. 2009 [(2009) 226 CTR (St) 57].

The place of negotiation, the place of signing of agreement, or formal acceptance thereof or overall responsibility of the assessee are irrelevant circumstances as the transaction relates to the sale of goods and the relevant factor and determinating factor would be as to where the property in the goods passes. In the instant case the property passed on the high seas.

Even if it is a case of a composite contract, the supply has to be segregated from the installation and only then the question of apportionment would arise.

That the amendment to sec. 9 vide Finance Act, 2012 wherein Explns. IV, V and VI have been added to s. 9 seeking to clarify the scope of cl. (vi) of sub-sec. (1) of sec. 9, it was held that the amendment cannot be read into the treaty.

The reasoning given in Ericsson A.B.'s case (supra) would apply to Nokia Net Work OY.

i. The AO assessed the royalty arising from licensing of CDMA patents by Qualcomm to OEMs. The royalty which is brought to tax by the AO does not refer to any software being provided. It is not demonstrated by the Revenue that the software is provided as part of the licensing of Qualcomm patents. ii. The software embedded in the hardware sold to Indian Carriers by the OEMs belong to the OEMs. The software may have been self- generated or procured by the OEMs. iii. None of the 16 agreements between Qualcomm and OEMs which form the basis for assessment in these cases, refer to licensing of software. Thus to argue that software is licensed by Qualcomm to OEMs and which are in turn sub-licensed to the Indian Carriers is contrary' to the facts of the case. The software which is licensed at best relates to the functionality aspect of the product and has nothing to do with the capability to provide CDMA connectivity.

The object code version of the software and related documentation could i. only be used along with the equipment;

Tata has no right to sell or sub-license the licensed materials or modify, ii. decompile or disassemble the software furnished as object code to generate the corresponding source code (part of firmware ) embedded in the equipment; iii. Tata shall hold the licensed materials in confidence and shall not, without Motorola and ZTE's consent, disclose, provide or otherwise make available, in whole or in part, any licensed material to anyone, except to its employees having a need-to- know. Tata shall not copy software' embodied in the firmware. iv. Tata is obligated to return all copies of the licensed materials to Motorola and ZTE when the licensed materials are no longer needed by Tata or if Tata's license in respect thereof is cancelled or terminated by the supplier. v. Further, equipment has been defined under the agreement to mean and include certain CDMA equipment, including but not limited to the hardware, the software, the firmware, the licensed material, and parts thereof and related spares to be supplied by the supplier to Tata under the agreement. vi. Further firmware and software have, been defined in the agreements as under : "Firmware" shall mean a combination of hardware and software represented by a pattern of bits contained in such hardware. "Software" shall mean a set of man and machine readable instructions on magnetic or other appropriate media, including firmware, which is necessary for the control, operation and performance of the equipment in accordance with the requirements of the specification contained in the agreement.

95. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof f or the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial.

Order pronounced in the open court on 13/06/2023.