Ajay Vohra, Sr. Adv., Anshul Sachdeva, CA, Vibhu Gupta, CA for the Assessee. Satpal Gulati, CIT-DR for the Revenue.

The above captioned appeals are by the assessee preferred against the order framed u/s 143(3) r.w.s 144C of the I.T. Act, 1961 [hereinafter referred to as 'the Act' for short] pertaining to A.Ys 2009– 10 to 2016–17. Since common issues are involved in all these appeals, they were heard together and are disposed of by this common order for the sake of brevity and convenience.

2. The assessee has raised an additional ground in all the above captioned appeals, which is as under:

“That on the facts and circumstances of the case and in law, the impugned order passed by the Assessing Officer is barred by limitation and therefore, is liable to be quashed.”

3. An identical additional ground was raised in the case of Reliance Capital Markets Ltd in ITA No. 1881/DEL/2014, 1583/DEL/2015, 753/DEL/2016 and 1763/DEL/2017 for A.Ys 2009-10 to m2012-13. The additional ground raised was dismissed by the co- ordinate bench in the impugned appeals. Respectfully following the decision of the co-ordinate bench [supra], the additional ground raised by the assessee in all the captioned appeals are dismissed.

4. The common grievances in all these appeals read as under:

“1. That the Learned Assessing Officer (‘AO’) erred in passing the impugned draft assessment order dated March 28, 2013 (the ‘Draft Assessment Older’) and the Hon’ble Dispute Resolution Panel (‘Hon’ble DRP’) erred in passing directions under Section M4C of the Income-tax Act 1961 (the Act’) partially confirming the Draft Assessment Order, in summary, the Learned »AO erred in assessing the income of the Appellant at Rs.9,30,98,73,816 as against the returned income of Rs.5,39,58,286 reported by the Appellant in its return of income.

2. On tile facts and in the circumstances of the case and in law, the Learned AO erred <» not appreciating the factual position and legal principles brought on record by the Appellant. Further, the Loamed AO / the Hon’ble DRP erred in making / not rejecting allegations, incorrect observations and assertions on the basis of mere conjectures and surmises, without any relevant material on record inter-alia (lie incorrect assumptions/ inferences made / not rejected’ by the Learned AO / the Hon’ble DRP, are as under:

(a) The Appellant has Business Connection (‘BC’) and Permanent Establishment (‘PE’) in India in the form of Huawei Telecommunications (India) Co. Pvt Ltd (‘Huawei lndia’), which is: assessed to tax in New Delhi i;

(b) Employees of Huawei India have authority to negotiate and / or concluding / Securing contracts on behalf of Appellant in India

(c) The Appellant has shown Huawei India’s address as its local address for correspondence purposes and its employees are operating from the premises of Huawei India;

(d) Ignoring the fact that installation and commissioning projects were independently undertaken by Huawei India in accordance with the terms of contract entered diirectly with its customers and not on behalf of the Appellant;

(e) Title and Risk associated with Offshore supplies made by’ the Appellant are passed in India, and hence the sale is effected in India;

(f) The Learned AO is justified in the attributing income to the alleged PE of the Appellant; and

(g) The Learned AO is justified in allocating 30% of the total supplies towards software in the equipment and taxing the same oil gross basis as ’Royalty’ under the provisions of the Act and/or Double Tax Avoidance Agreement entered between India and China (‘Tax Treaty’).

3.On the facts and in the circumstances of the case and in law, the Learned AO erred in proposing and the Hon’ble DRP further erred in confirming the action of Learned AO in assessing the total income of the Appellant under the provisions of the Act and Tax Treaty without appreciating that income of the Appellant (other than the income offered to tax under the return of income for the year under appeal):

(a) had not accrued/ arisen in India under Section 5(2) of the Act;

(b) could not be deemed to have accrued/ arisen in India under Section 9 of the Act; and

(c) was not taxable in India under the provisions of the Act and / or Tax Treaty.

4. On the facts and circumstances of the case, the Learned AO and Hon’ble DRP erred in holding that existence of Appellant’s wholly owned subsidiary, Huawei India, creates BC in India under Section 9(1 )(i) of the Act.

5. On the facts and in the circumstances of the case and in law, the Learned AO has erred in proposing and the Hon’ble DRP further erred in confirming that die income of the Appellant is assessable to tax under the Tax Treaty on the ground that the Appellant constitutes a PE in India, viz.

(a) Fixed Place PE under Article 5(2) read with Article 5(1) of the Tax Treaty;

(b) Installation PE under Article 5(2) read with Article 5(1) of the Tax Treaty;

(c) Service PE-under Article-5(2Xk) read with Article 5(1) of the Tax Treaty; and

(d) Dependent Agent PE under Article 500 of the Tax Treaty.

6.1 On the facts and circumstances of the case and in law, the AO as well as the Hon’ble DRP erred in not appreciating that that since no part of activity relating to sale of network equipment and terminal equipments was carried out by the Appellant in India, the question of attributing-any income in India d9cs not arise.

6.2 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon’ble DRP erred in’ not appreciating that no portion of profits, if any, accruing to Appellant from off shore sale of terminal equipments to Indian customers can be attributed to the alleged PE in India given the nature of equipment, customer profile and modalities of undertaking sales.

6.3 On the facts and circumstances of the case and in law, the Learned AO has erred in proposing and the Hon’ble DRP has erred in confirming arbitrary estimation of profits to the extent of 725 percent on offshore sales of equipments in the hands of the Appellant in India while completely disregarding the global operating margin of the Appellant for the year under consideration.

6.4 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon’ble DRP erred in not appreciating that as the alleged PE of the Appellant has been remunerated at arms’ length price and the same has also been confirmed by Transfer Pricing Officer (‘TPO’) in his order dated January 29, 2013, no further income could be attributed and assessed to tax in India, in the hands of the Appellant.

7.1 On the facts and circumstances of the ease and in law, the Learned AO erred in proposing and the Hon’ble DRP further erred in confirming the action of Learned AO of allocating 30% of the total supplies towards software in the equipment mid taxing the same on gross basis as ‘Royalty’ under the provisions of the Act and Tax Treaty. Even otherwise, the subject allocation proposed by the Learned AO and confirmed by the Hon'ble DRP is incorrect and contrary to material furnished on record.

7.2 Without prejudice to above, in case it is held that the revenue from supply of software along with the hardware is taxable as Royalty under the provisions of Act and/or Tax Treaty, then the same being effectively connected with the alleged PE can at best be taxed oh net basis as ‘Business Profits’ under Article 7 of the Tax Treaty;

7.3 Without prejudice to above, on the facts and circumstances of the case and in law, the Learned AO as well as the Hon’ble DRP erred in not appreciating that the revenues from supply of software can at best be subjected to lax as ‘Business Profits’ under the Article 7 read with Article 5 of the Tax Treaty (i.e. in the event it is held that the Appellant constitutes a PE in India).

7.4 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon’ble DRP erred in not following the decision of Jurisdictional Hon’ble Delhi High Court in case of Nokia Networks OY (253 CTR 417) and Ericsson A.I3. (19 ITR (Trib) 341) and various other judicial precedents, supporting Appellant's above contentions.

8. On the fac1s and circumstances of the case and in law, die Learned AO erred in. levying interest tinder Section 234B of the Act.”

5. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also considered the judicial decisions relied upon by both the sides.

6. At the very outset, in our considered opinion, there cannot be any decision, which would be factually identical to the facts of the assessee, mutatis mutandis, in order to adopt the ratio laid down by various high courts as well as the Hon'ble Supreme Court. In fact, all the decisions of the Hon'ble High Court, relied upon by the learned counsel for the assessee, are based on specific facts where the Hon'ble High Court has laid down the propositions after analysing the intention of the parties on the basis of contracts/agreements entered into between them. However, we find that the only decision with identical facts is the decision of the Tribunal in assessee’s own case in ITA Nos. 5253 to 5256/2011 for A.Ys2005–06 to 2008–09, which we will consider later on.

7. Facts, as culled out from the record, show that the appellant is a company incorporated in People’s Republic of China and is primarily engaged in the business of supplying (on offshore basis) non-terminal products, that is, advanced tele-communication network equipment, namely, core and access network equipment, mobile network equipment and data communications equipment etc. for use in fixed and mobile phone networks and terminal products, that is, mobile phone handsets to various customers (including customers in India). As alleged, the said supplies were made on principal to principal basis and property in equipment was transferred to Indian customers outside India.

8. The appellant company, Huawei China (HC) had subsidiary in India, namely, Huawei Telecommunications India Company Private Ltd. (HI). During the year under consideration, HC provided services to HI under the terms of Technical Service Agreement [TSA]. HI is involved in the provision of integration, installation and commissioning services in relation to telecom network equipment supplied from outside India.

9. The appellant offered revenues accrued from provision of technical services to HI on gross basis and paid taxes in accordance with the provisions of Article 12 of the Double Taxation Avoidance Agreement [DTAA]. The appellant has also earned revenue on account of sale of telecom network equipment and terminal equipment/mobile handsets but has not offered the revenue for taxation.

10. The international transactions relating to provision of technical services and contract software development services were referred to the TPO, which transactions were studied/analysed by the TPO and no adjustments were recommended by the TPO.

11. On 17.02.2009, survey operation u/s 133A of the Act was conducted in the office premises of HI. During the course of survey, several incriminating documents were found, copies of which were obtained and inventorized. Statements of various senior executives were also recorded.

12. During the course of assessment proceedings, the assessee was confronted with the impounded documents and explanation was sought. The assessee was specifically asked to explain as to why revenue from supply and installation of equipment should not be taxed.

13. In its reply, the assessee stated that, it being a tax resident of China, has opted to be taxed in India, as per tax treaty entered into between India and China. It was explained that the income derived by HC from supply of telecommunication equipment to Indian customers qualifies as business profits and, accordingly, taxability of such income is governed by the provisions of Article 7 of India China tax treaty. It was explained that as per Article 7(1) of the India China tax treaty, business profits earned by a Chinese tax resident are taxable in India only if that Chinese resident carries on business in India through a PE in India. Supply contracts with Indian customers were negotiated through electronic means or through short visits of Huwei China’s personnel at the customer locations in India and all contracts were accepted and concluded by HC outside India. Therefore, there is no fixed place PE in India.

14. It was explained that the power to negotiate, decide, vary and accept the terms of supply contracts on behalf of HC vests in the Board of Directors of HC who reside in China. It was once again contended that the assessee does not have a dependent agent PE in India. In other words, it was explained that HI does not qualify as dependent agency PE of the assessee.

15. It was firmly contended that HI provided market support services and other preliminary and auxiliary services to the overseas Huawei, that is, the assessee. It was explained that the market support services provided under the service agreement are preparatory/auxiliary in nature and in terms of Article 5 of the tax treaty. Other than preliminary and auxiliary services provided by HI to HC, HI carried out the following activities in India on its own account under separate business arrangements with customers and not on behalf of the assessee:

1. Sale of telecom network equipment

2. Provision of installation, testing and commissioning services in relation to various telecom network equipment

3. Provision of training services to telecom operators in connection with operation of telecom networks,

4. Technical support services to telecom operators, and

5. Provision of manage services and annual maintenance services for various customers.

Therefore, there is no Service PE in India and also no installation PE in India.

16. After examining the documents impounded during survey proceedings, considering them in the light of the statements of the key employees, the Assessing Officer proceeded to decide whether there is any business connection of the assessee in India, within the meaning of section 9(1)(i) of the Act, read with the scope of ‘total income’ as provided in Section 5 of the Act. The Assessing Officer was of the opinion that, as per conjoint reading of Section 5(2) and Section 9(1)(i) of the Act, only if the income is arising directly or indirectly through or from any business connection in India, it can be taxed in India. The Assessing Officer noticed that the Finance Act, 2003 with effect from 1st April, 2004 has inserted two new Explanations to Clause (i) of Section 9(1) clarifying that the expression ‘business connection’ will include a person acting on behalf of non-resident and who carried on certain activities.

17. Referring to the decision of the Hon'ble Supreme Court in the case of CIT Vs R.D Agarwal and Co. 56 ITR 20 and the Hon'ble Bombay High Court in the case of Blue Star Engineering Co versus CIT 73 ITR 283, the Assessing Officer came to the conclusion that the assessee has business connection in India u/s 9(1)(i) of the Act.

18. Referring to the decision of the Tribunal in the case of Nokia Networks OY vs. JCIT 111 (Del), the ld. counsel for the assessee stated that the ratio decidendi emanating from the aforesaid decisions is that the following conditions should exist to constitute ‘Business Connection’ in India:

• A real and intimate relation must exist between the trading activities carried on outside India by a non-resident and the activities in India.

• The relation contributes directly and indirectly to the earnings of income by the non-resident in his business;

• There should be an element of continuity between the business of the non-resident and the activity in India. To put it apparently, stray or isolated transaction is not normally regarded as a business connection.

19. Accordingly, if no operations of business are carried out in the taxable territory of India, it follows that no part of the income accruing or arising abroad can be deemed to accrue or arise in India through or from any ‘Business Connection’ in India.

20. We do not find any force in this submission of the ld. counsel for the assessee. The facts on record show that real and intimate relationship exists between HC and HI, in as much as, the sale of telecommunication network equipment would serve no purpose of a buyer unless the telecommunication network equipment are installed and commissioned and this is done by HI in India. Hence, the activities of HC continue till the telecommunication network equipment are installed and commissioned in India. This entire sequence contributes directly to the earning of income of HC in its business even if the sale transaction has been concluded outside India.

21. The ld. counsel for the assessee, through written submissions, stated that the contention of the Assessing Officer that employees of the Huawei China performed negotiation and bidding activities from the office premises of Huawei India is factually incorrect. In this regard, it is submitted that the employees of the appellant who visited India did not have unrestricted access to Huawei India’s office premises. Further, copy of certificate from the Huawei India, Human Resource Head is enclosed at page 63A of the paper book, certifying that the premises and facilities of Huawei India were allowed to employees of Huawei China visiting India only on a case specific basis, that, too, on the basis of specific request made by Huawei China. Further, it is also been certified that even such personnel were not given free access to all areas and facilities within the premises.

22. We do not find much merit in this claim of the assessee. The entire transaction of the sale of equipment offshore has to be considered from another angle. In our consideration of the entire facts, the dominant purpose of the HC is not to sell telecommunication equipment but to commission it after due customisation of hardware and software in accordance with the requirement of tele- communication service provider. In other words, the Indian buyers business purpose would not conclude merely on purchasing of equipment from HC, the same has to be customised and commissioned to the satisfaction of the Indian telecom service providers. Thus, the dominant purpose is to set up the equipment as per requirement of the telecom service providers.

23. The Supreme Court in the case of BSNL [2006] 3 STT 245 has explained the dominant nature of an equipment. The relevant portion of the same is as under:

"The reason why these services do not involve a sale for the purposes of Entry 54 of List - II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is "the substance of the contract'. We will, for the want of a better phrase, call this the dominant nature test."

24. Before us, the ld. counsel for the assessee vehemently stated that the Indian PE i.e. HI has no role to play in supplying the terminal equipment. We do not accept this contention of the ld. counsel for the assessee as the evidence on record clearly shows that Indian resource was involved in deal negotiations on behalf of the appellant. Purchase order from HFCL Infotel Ltd dated 13.020.2009 clearly refers to the email offer of Shri Arundeep Kakkar who is an employee of HI. It is evident that Shri Arundeep Kakkar is representing the assessee for finalization of contract/purchase order.

25. Moreover, the joint bidding team included resources from Indian entity as well as HC, which clearly highlights that the Indian resources were participating the bid process including deal negotiations along with Chinese resources.

26. We find that there is a letter from BSNL, which is part of Annexure B– 14, which confirms the fact that the responsibility for installation and commissioning along with supply of equipment is with HC.

27. The letter is as under:

28. This also proves that the dominant purpose of the agreement is not the sale but to commission the equipment, which is possible only after taking certain activities in India in respect of the equipment supplied by the appellant.

29. Similarly purchase order in respect of Airtel which is part of Annexure B–16, dated 28.10.2005 relates to the installation/ commissioning. This also disproves the claim of the assessee that installation is not their scope of work. The letter is as under:

30. Having decided the business connection, the Assessing Officer proceeded by examining whether the assessee has any PE in India. The Assessing Officer found that the statements of senior employees, analysis of survey documents, analysis of agreements and analysis of submissions of the assessee established that how the business of the assessee is carried out in India with the help of their employees who regularly work from the premises in India belonging to HI and thereby creating a fixed place PE under Article 5(1) of the DTAA.

31. The Assessing Officer further observed that the employees of the assessee have visited India to perform activities relating to the installation projects, which have lasted for more than 183 days thereby creating ‘installation PE’ of the assessee in India under Article 5(2)(j). The Assessing Officer further observed that the employees of the assessee have rendered services in India other than in the nature of technical services and that such services have continued in India for more than 183 days thereby creating ‘service PE’ in India under Article 5(2)(K). Assessing officer further observed that the process of joint bidding done by the assessee and HI does result into ‘dependent agency PE’ under article 5(4) of the tax treaty.

32. Before us, the learned counsel for the assessee vehemently stated that the products in which the assessee deals are technically complex advanced products and it is the technology and manufacturing efforts which play an important role in product selling. Accordingly, it is the technology and not marketing which enables the appellant to effectively sell its products to customers. The ld. counsel explained that the assessee has entered into TSA with HI and the assessee provided certain technical personnel to HI. Fees for technical services accruing to the appellant as per the terms of TSA was duly offered to tax in India and the Income tax liability thereon was duly discharged by way of taxes withheld at source by HI.

33. Referring to various contracts with Indian customers, the ld. counsel for the assessee stated that these contracts clearly specify that the payments under the contract will be paid to the appellant in foreign currency and the title to the equipment shall pass to the buyer outside India. It is the say of the ld. counsel for the assessee that the risk and title of the goods passes from the seller to the buyer outside India as goods were handed over to buyer outside India. The ld. counsel for the assessee further explained that the telecom equipments were supplied to the Indian telecom operators/ customers directly from outside India which is clearly established from the contractual supply terms agreed with various customers and it clearly demonstrates that title in telecom equipment was transferred outside India and the consideration for supply of telecom equipment was received outside India.

34. The ld. counsel for the assessee repeatedly referred to the contracts and concluded by saying that the orders are directly placed by the customer against an international product catalogue enlisting the models along with features and such orders are accepted outside India and title in goods is transferred outside of India. It was once again explained that HI provided marketing support services and other preliminary and auxiliary services to the overseas HC. It was once again clarified that the market support services provided under the Service Agreement are ‘preparatory and auxiliary’ in nature in terms of Article 5 of the Tax Treaty.

35. The first and foremost issue to be decided is as to whether title and risk pass outside India or not.

36. We have carefully perused the clauses of various agreements brought to our notice. In the Good’s Sales Agreement between HC and Reliance Infocomm Ltd for supply of equipment, Article 6.3 clearly provides that the owner shall have the right to reject the entire shipment/goods or part thereof.

37. Article 6.3 reads as under:

“Risk of loss of goods shall pass from seller to owner upon acceptance of the goods. In the event any short/incorrect/damaged shipment [and or goods contained therein or damaged] owner shall have the right to reject the entire shipment/goods or part thereof. In such an event, without in any way limiting any rights and remedies of owner under this agreement or applicable law in respect of such a rejected shipment/goods, the seller shall, at its own cost/expense, replace such a rejected shipment and/or the damaged/incorrect goods and supply the undelivered part of the short shipped within a period of 20 days from the date of notification by the owner of its rejection.”

38. A similar clause is provided in the contract with HTL wherein under Article 7.3, it is provided :

“The seller shall, at its own cost and expense replace all or any equipment which are defective.”

39. Similarly, in the contract with Sterlite Optical Technologies Ltd at clause 10.5.5, it is provided as under”

“Any equipment rejected due to defect in quality arising during inspection by the buyer or by customer will be rectified by the supplier free of cost at site of place of equipment”

40. The ld. counsel for the assessee vehemently stated that risk may pass at a later point of time but the title passes at the intent of the parties and in the present case, title has passed outside India.

41. At this stage, it would be pertinent to understand that if the buyer had the right to reject the equipment on failure of acceptance test, then how the transactions can be considered as completed outside India when the buyer had the right to reject the equipment in India. For this proposition, we draw support from the decision of the Hon'ble High Court of Delhi in the case of Ericsson A.B in ITA No. 504/2007 and others order dated 23.12.2011 wherein the Hon'ble High Court held as under:

“41. We, find that the terms of contract make it clear that acceptance test is not a material event for passing of the title and risk in the equipment supplied. It is because of the reason that even if such test found out that the system did not conform to the contractive parameters, as per article 21.1 of the Supply Contract, the only consequence would be that the Cellular Operator would be entitled to call upon the assessee to cure the defect by repairing or replacing the defective part. If there was delay caused due to the acceptance test not being complied with, Article 19 of the Supply Contract provided for damages. Thus, the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test was not determinative of this factor. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India.”

42. From the above, it is clear that the Hon'ble High Court has made it clear that the position would be different if the buyer had the right to reject the equipment on failure of acceptance test carried out in India.

43. Our view is further fortified from the decision of the Hon'ble Andhra Pradesh High Court in the case of L & T Ltd [2015] TIOL 3055 and the Hon'ble Supreme Court in the case of Usha Beltron Ltd 7 SCC 58. The relevant findings of the Hon'ble Andhra Pradesh High Court as applicable to the present case read as under:

“94. In addition to post-despatch inspection, the supply contracts (as opposed to the erection contracts) also contemplate a certification after erection; by virtue of the said clause, the owner certifies as to the successful operation of the facility; the said certification is given after the owner inspects the facility, and finds that all the units and components, which have been supplied, are working; the scope of certification extends not only to the civil work, but also to the goods supplied under the supply contract; in all the contracts, the supplier becomes entitled to full payment only upon receipt of such certification; the payment is linked to successful inspection and certification; if the contract has an inspection or a certification clause, title does not pass till the inspection and certification are successful, and the buyer/owner has indicated his approval; the Supreme Court, in Usha Belltron158, held that title passes only upon certification; and the petitioners contention that the taking over certificate was merely for ensuring proper quality of goods supplied, and does not relate to passing of property in the goods, is not tenable.

96. In Usha Beltron Ltd.158, the petitioner contended that the property in the goods had passed to the Government of India before it entered the Municipal limits; this was a contract for sale of specific goods in a deliverable state; the property in the goods passed to the buyer when the contract was made; and it was immaterial as to what was the time of delivery of the goods. Clause 5.5, of the bid document therein, provided for the issue a taking over certificate when the performance tests had been successfully carried out; and, while issuance of such a certificate would certify receipt of goods in a safe and sound condition, it would not discharge the supplier of their warranty obligations. Clause 6.1 of the bid document stipulated that delivery of the goods shall be made by the supplier in accordance with the terms of the contract; and the goods were to remain at the risk of the supplier until delivery was completed. The Supreme Court held that clause 5.5 and 6.1 of the bid document clearly indicated that the property in the goods remained at the risk of the appellant till delivery was completed; it showed that delivery would be completed only after the take-over certificate was issued; as per Section 19 of the Sale of Goods Act, the property in the goods passes when the parties intended it to pass; in this case the contract provided that property in the goods does not pass till after delivery, and after successful testing and issuance of the take-over certificate; and the High Court was right in concluding that the property in the goods had not passed at the time the goods entered the municipal limits.

98. Section 23 of the 1930 Act stipulates that title, in a sale of future goods, passes only when the goods are in a deliverable state, they are unconditionally appropriated to the contract, and there is assent of the buyer. If the contract has a post-delivery inspection or a certification clause, the unconditional appropriation, ordinarily, takes place, and the assent of the buyer is also given, only upon inspection and certification. Under Section 24 of the 1930 Act title passes upon approval which, in the subject contracts, is only after inspection. The post-delivery inspection clauses in the subject contracts would fall within the ambit of the phrase on approval in Section 24 as delivery of the goods is taken only after inspection. The taking over certificate also shows that the buyer indicates his approval only after certification. The inspection and certification clauses in the contract would fall within the ambit of the phrase other similar terms in Section 24. The presence of an inspection and certification clause in the supply contract defers passing of title till the owner has expressed its assent. Such assent is given only after inspection and certification.

99. Section 26 stipulates that risk, prima-facie, passes with the property and, thereunder, unless otherwise agreed, the goods remain at the sellers risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyers risk whether delivery has been made or not. Section 26 is not attracted where the contract provides otherwise. While the question, as to when title to the goods is transferred from the seller to the buyer, must be determined from the conditions stipulated in the subject contracts, if the parties have agreed that the responsibility for risk of loss and damage to the goods would be that of the supplier till erection of the plant is completed, it is evident that transfer of title to the goods was intended to pass only on erection, and not prior thereto.

100. Section 41(2) of the 1930 Act stipulates that, unless otherwise agreed, when the seller tenders delivery of the 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 42 relates to acceptance and, thereunder, the buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller. The post-delivery inspection clauses, in the supply contracts, are in conformity with Section 41(2), and the certification clauses therein accord with the requirement of Section 42 of the 1930 Act.”

44. In light of the aforesaid decisions, we are of the considered view that the assessee continued to undertake the risk of rejection of the supply in India and therefore, there is extension of business of the assessee in India in respect of the supply of equipment to India.

45. Though the assessee has relied upon the decision of the Hon'ble Delhi High Court in the case of LG Cables 703/2009 dated 24.12.2010 but the decision of the Hon'ble Delhi High Court in the case of Ericsson AB is later than the decision in the case of LG cables [supra].

46. Answering to Question No. 96, given by Yang Kaijun, CEO of HI, stated that Mr Qin Bin and Mr. Jiang Sheng operated from the office of HI. In his answer, Yang Kaijun had specifically stated that Qin Bin and Mr. Jiang Sheng had sometimes operated from the office of HI.

47. One Shri Anshuman Sah, in reply to question No. 19, stated :

“We are working on BSNL Wimax Project for which BSNL had issued tender. The entire team has been deliberating on various aspects of technology and information pertaining to tender requirement.

We have different roles to play by different members like Mr. Farley advises on contracts, Mr Nitin is technical person, Mr. Vikas is sales person for BSNL, Mr. Zau Wei is another sales person from China. Mr. Daniel is technical support person from China. To the best of my knowledge, Mr. Nitin and Mr. Vikas are employees of HI and the other three gentlemen are from HC.”

48. On perusal of the key statements recorded at the time of survey operations shows that HI resources were involved in negotiations with customers in India. Representatives of HC were allowed to use the premises of HI.

49. One of the arguments of the ld. counsel for the assessee is that HC was not involved in installation or commission of telecom network equipment in India which was being done by HI under independent contracts with Indian customers/telecom operators. HC had merely supplied telecom network equipment to Indian customers/telecom operation who had no role to play in installation /commissioning of telecom network supply to Indian customers/ telecom network operators.

50. Huawei India had executed independent contracts with telecom operators under which responsibility for installation, erection and commissioning of the telecom network equipment rested with HI. It is the say of the ld. counsel for the assessee that HI is fully equipped to perform installation activities independently and has necessary technical and operational capabilities at its disposal to render such services independently. Installation, testing and commissioning activities were undertaken by HI in its independent capacity under separate contracts with Indian customers/ telecom operators. Invoices for installation, testing and commissioning services are independently raised by HI and paid for by the customers directly to HI.

51. The ld. counsel for the assessee further explained that HC has provided certain technical personnel capable of rendering technical services to HI under TSA. Such services, being technical in nature, were considered as ‘Fees for Technical Services’ as per Article 12 of the India-China Tax Treaty and accordingly, revenue from such services was offered to tax in the return of income.

52. This submission of the ld. counsel for the assessee has to be examined from the facts emanating from record. As mentioned elsewhere, the assessee itself had stated that its products in which the appellant deals are technically complex advanced products and it is the technology and manufacturing efforts which plays an important role in product selling.

53. Facts on record show that the foreign expats experts in the technology behind the equipment were present in India on site in order to supervise the installation and commissioning process. In assessee’s own contention, HI was not technically equipped to do installation and commissioning on its own and thus requisitioned the expats to supervise the installation process at site in India. Therefore, considering the facts on record, it is a wrong claim that the Indian entity was independent to carry out the installation and commissioning of the equipment.

54. Moreover, a letter dated 08.03.2006 from BSNL, which is part of Annexure B-14 mentions that M/s Huawei is also in the process of supplying and installation/commissioning of 2,10,000 additional ports of ADSL2 + in expansion phase through M/s HTL Chennai. The letter is as under:

55. This letter clearly confirms the fact that the assessee is responsible for installation/commissioning as the letter from BSNL does specify the name of Huawei to not only supply the ports but also the installation /commissioning of the same. This is another reason why claim of the assessee that installation/commissioning is independently handled by the Indian entity cannot be accepted.

56. There can be no denial that the installation and other managed services were carried on by HI under supervision of HC. It is a fact that FTS on account of such supervisory services has been offered to tax. Such being the case, the moot point is that HI is not equipped to install equipment supplied by HC and, therefore, the act of installation has been performed only with the supervision of HC resources which means that supply and its installation are integral.

57. Therefore, the activity of supervision in connection with installation does constitute ‘installation PE’ as per Article 5(2)(j) of India China DTAA which provides that a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site project or activities continue for a period of more than 183 days.

58. Another contention of the ld. counsel for the assessee is that mere presence of an independent agent does not result in PE provided the agent is acting in the ordinary course of his business. It is the say of the learned counsel that the dependent agency PE can be said to result only where it can be established that such agent has or habitually exercised authority to conclude contracts in India on its behalf. The ld. counsel for the assessee vehemently stated that HI does not constitute Dependent Agent PE, as all strategy/ policy and decision making functions reside with HC outside India and role of Huawei India was only restricted to providing local market inputs and interface and undertaking marketing activities for HC on principal to principal basis.

59. In its written submissions, the ld. counsel for the assessee further contended as under:

“On perusal of Article (4) of DTAA, it is clear that mere presence of an independent agent does not result in a PE, provided the agent is acting in the ordinary course of its business. Dependent agency PE can be said to result only where it can be established that such agent has or habitually exercises an authority to conclude contracts in India on its behalf.

At the outset, it is respectfully submitted that Huawei India does not constitute Dependent Agency as PE, as all strategy/ policy and decision making functions reside with Huawei China outside India and role of Huawei India was only restricted to providing local market inputs and interface and undertaking marketing activities for Huawei China on principal to principal basis.

It is submitted that in order to determine the status of the Indian enterprise (i.e., independent or dependent), the following tests need to be applied having regard to the provisions of the treaty and various international commentaries on interpretation of this article:

Whether or not the Huawei India is legally and economically independent of Huawei China?;

Whether Huawei India is acting in the ordinary course of business, when acting on behalf of Huawei China? and

Whether Huawei India’s activities are devoted wholly or almost wholly on behalf of Huawei China and the transactions are at arm’s length or not?

In this regard, it is submitted that:

- Huawei India is legally and economically independent of Huawei China; and

- It is acting in the ordinary course of business in respect of transaction with Huawei China; and

- Its activities are not devoted wholly or almost wholly on behalf of Huawei China

60. As mentioned elsewhere, Indian resources and China resources are working jointly on a bid submission for Indian customers. The documents impounded during the survey proceedings also establish this fact. Further, the statement of key employees like, Shri Avijeet Chaliya, Executive Director, answering to question No. 5 stated that:

“I confirm that the employees from HC visited India for negotiations, presentations/, signing of contracts etc, during their visits depending upon the circumstances operate from their hotel, our office in Gurgaon or the premises provided by the client.”

61. Facts on record show that Mr Horan Deng and Mr. Cheingwelhua visited to India to closely monitor the progress in project at various stages starting from bidding stage to final implementation phase. Facts on record also reveal that Chinese resources have been seconded to HI for advancement of business of HC in India.

62. As mentioned elsewhere, the claim of the assessee is that HI responsible only for preparatory work. If that be so, then where is the need for secondment of foreign expats with Indian entity.

63. The Hon'ble Supreme Court in the case of Formula One World Championship Ltd 80 Taxmann 347 has raised the question as to whether the fixed place was put at the disposal of the appellant entity. The Hon'ble Supreme Court observed that this question can be answered only after analysing various agreements relevant to the event in wholesome manner in order to understand the entire arrangement between FOWC and its associates. Thus, the principle laid down by the Hon'ble Supreme Court is that all relevant agreements must be read in a wholesome manner and not in piecemeal.

64. The relevant extracts of the decision read as under:

“We are of the firm opinion, and it cannot be denied, that Buddh International Circuit is a fixed place. From this circuit different races, including the Grand Prix is conducted, which is undoubtedly an economic/business activity. The core question is as to whether this was put at the disposal of FOWC? Whether this was a fixed place of business of FOWC is the next question.

We would like to start our discussion on a crucial parameter viz. the manner in which commercial rights, which are held by FOWC and its affiliates, have been exploited in the instant case. For this purpose entire arrangement between FOWC and its associates on the one hand and Jaypee on the other hand, is to be kept in mind. Various agreements cannot be looked into by isolating them from each other. Their wholesome reading would bring out the real transaction between the parties. Such an approach is essentially required to find out as to who is having real and dominant control over the Event, thereby providing an answer to the question as to whether Buddh International Circuit was at the disposal of FOWC and whether it carried out any business therefrom or not. There is an inalienable relevance of witnessing the wholesome arrangement in order to have complete picture of the relationship between FOWC and Jaypee. That would enable us to capture the real essence of FOWC's role.”

65. Based on the above findings of the Hon'ble Supreme Court, we are of the considered view that the control vests with the entity which is capable of delivering the critical business functions. The relevant extracts of the decision read as under:

“Service agreement is signed between FOWC and FOAM on October 28, 2011 (i.e. on the date of the race) whereby FOAM engaged FOWC to provide various services like licensing and supervision of other parties at the event, travel and transport and data support services. The aforesaid arrangement clearly demonstrates that the entire event is taken over and controlled by FOWC and its affiliates. There cannot be any race without participating/ competing teams, a circuit and a paddock. All these are controlled by FOWC and its affiliates. Event has taken place by conduct of race physically in India. Entire income is generated from the conduct of this event in India. Thus, commercial rights are with FOWC which are exploited with actual conduct of race in India.

Even the physical control of the circuit was with FOWC and its affiliates from the inception, i.e. inclusion of event in a circuit till the conclusion of the event. Omnipresence of FOWC and its stamp over the event is loud, clear and firm. Mr. Rohatgi is right in his submission that the undisputed facts were that race was physically conducted in India and from this race income was generated in India. Therefore, a commonsense and plain thinking of the entire situation would lead to the conclusion that FOWC had made their earning in India through the said track over which they had complete control during the period of race. The appellants are trying to trivialize the issue by harping on the fact that duration of the event was three days and, therefore, control, if at all, would be for that period only. His reply was that the duration of the agreement was five years, which was extendable to another five years. The question of the PE has to be examined keeping in mind that the aforesaid race was to be conducted only for three days in a year and for the entire period of race the control was with FOWC.”

66. The Hon'ble Supreme Court further held as under:

“Coming to the second aspect of the issue, namely, whether FOWC carried on any business and commercial activity in India or not, substantial part of this aspect has already been discussed and taken care of above. Without being repetitive and pleonastic or tautologous, we may only add that FOWC is the Commercial Right Holder (CRH). These rights can be exploited with the conduct of F-1 Championship, which is organised in various countries. It was decided to have this championship in India as well. In order to undertake conducting of such races, the first requirement is to have a track for this purpose. Then, teams are needed who would participate in the competition. Another requirement is to have the public/viewers who would be interested in witnessing such races from the places built around the track. Again, for augmenting the earnings in these events, there would be advertisements, media rights, etc. as well. It is FOWC and its affiliates which have been responsible for all the aforesaid activities. The Concorde Agreement is signed between FIA, FOA and FOWC whereby not only FOWC became Commercial Rights Holder for 100 years, this agreement further enabled participation of the teams who agreed for such participation in the FIA Championship each year for every event and undertook to participate in each event with two cars. FIA undertook to ensure that events were held and FOWC, as CRH, undertook to enter into contracts with event promoters and host such events. All possible commercial rights, including advertisement, media rights, etc. and even right to sell paddock seats, were assumed by FOWC and its associates. Thus, as a part of its business, FOWC (as well as its affiliates) undertook the aforesaid commercial activities in India.”

67. In light of the aforesaid extracts from the Hon'ble Supreme Court [supra] coming to the facts of the case in hand, there is no dispute that technology ownership is with the appellant. The Indian entity has no wherewithal to undertake technical work like installation/ commissioning of telecom network equipment without the aid of the assessee.

68. As held by the Hon'ble Supreme Court, the control and disposal go hand in hand. Thus, the disposal of fixed place is determined by the degree of control exercised by the foreign entity. Frequent visits of the expats from HC exert the control to carry out various business activities of the appellant.

69. In its written submissions, the ld. counsel for the assessee further contended as follows:

“The following principles have been enunciated in various commentaries in respect of economic independence for an agent:

- The agent’s business can stand on its own and does not look to the principal for its economic viability;

- The agent bears risk of loss from its own activities; and.

- The agent is not dependent wholly and exclusively on one principal. The number of principals represented by an agent is also determinative of economic independence of the agent. “

70. As mentioned elsewhere, the Indian resources were involved in deal negotiations on behalf of the assessee. Reference is made to the email offer dated 30.01.2009 of Shri Arundeep Kakkar. Further, joint bidding shows the business activity including signing of bid documents from the office premises of HI and there is no denial that HI is participating in negotiations of deal with Indian clients on behalf of HC.

71. Facts on record clearly establish that HI is economically dependent on the assessee as it has handled the work of installation of telecom equipment supplied by HC on technical support provided by HC. Further, the business of HI is wholly and exclusively for equipment supplied by HC. In fact, HI came into existence with an intent to aid the business of HC in India. Facts on record clearly show that HI is not capable of supplying the equipment what it is bidding for. Products to be supplied must cater to the specific requirement of customer’s business of HI is totally dependent on HC. In fact, the business of HC in India is also totally dependent on HI. Even where supplies have been made through HTL or Sterlite, the installations/commission have been done by HI.

72. Moreover, HI is not capable of supplying the equipment and since the technology know how and capability is owned by HC, HI could not have bid on its own, which means that HI is economically dependent on HC, the appellant.

73. Claim of the assessee that HC employees were required to join the discussion between HI and its customers for gathering preliminary and auxiliary information for the purpose of providing cost estimate to HI for supply of equipment on principal to principal basis can be looked from the decision of the Hon'ble Delhi High Court in the case of GE Energy parts Inc. ITA No. 621/2017 order dated 21.12.2018.

74. The relevant findings read as under:

As noticed by the tribunal, entering into contract with stakeholders (mainly service providers in these segments) involved a complex matrix of technical specifications, commercial terms, financial terms and other policies of GE. To address these, GE had stationed several employees and officials: high ranking, and in middle level. At one end of the spectrum of their activities was information gathering and analysis- which helped develop business and commercial opportunities. At the other end was intensive negotiations with respect to change of technical parameters of http://itatonline.org ITA 621/2017 & connected matters Page 64 of 85 specific goods and products, which had to be made to suit the customers. Standard “off the shelf” goods – or even standard terms of contract, were inapplicable. In this setting, a potential seller of equipment – like GE, had to create intricate and nuanced platforms to address the needs of customers identified by it, in the first instance.

After the first step, of gathering information, GE had to commence the process of marketing its product, understanding the needs of Indian clients, giving them options about available technology, address queries and concerns with respect to technical viability and cost efficacy of the products concerned and wherever necessary indicate how and to what extent it could adapt its known products, or design parameters, to suit Indian conditions as well as Indian local regulations. This process was time consuming and involved a series of consultations between the client, its technical and financial experts and also its headquarters. Oftentimes the headquarters too had to be consulted on technical matters. After this consultative process ended and the terms of supply were agreed to, the final affirmative to the offer, to be made by the Indian customer, would be indicated by GEs headquarters.”

75. As in the present case it is not a supply of standard product but product based on specific requirements of the customer.

76. Considering the facts in totality, in light of the judicial decisions discussed here in above, and considering from all possible angles, we have no hesitation to hold that HI not only constitutes dependent agent PE of HC but also Service PE and fixed place PE within Article 5 of Indo China DTAA. The counsel had vehemently argued that statements recorded at the time of survey do not have any evidentiary value in light of the decision of Hon'ble Madras High Court in the case of S. Kader Khan 301 ITR 157 which has been confirmed by the Hon'ble Supreme Court in 210 Taxmann.cpm 248. In our considered opinion, the said decision is totally on different set of facts.

77. We have to state that in the decision relied upon by the ld. counsel for the assessee in that case, the Hon'ble High Court also followed the Circular of the CBDT for arriving at the conclusion that materials collected and statements obtained u/s 133A would not automatically bind upon the assessee. However, in the case in hand, statements of key employees relied upon by the Revenue are well supported by documentary evidences in the form of emails which prompted the Revenue to take a stand that the office of HI in India was engaged in carrying out the business activities of HC. Moreover, in the case in hand, income has not been determined on the basis of any banal declaration by any witness but after analysing in detail the activities of the PE in India since its inception

78. At this juncture, it would be pertinent to mention that the ld. counsel for the assessee has repeatedly referred to various clauses of contracts/agreements entered into with Indian buyers for purchase/ sale of telecommunication network equipment. The contracts are contractual obligations between the parties, inter se, but who could be in a better position than the key employees of HI to tell how the transactions were actually undertaken, which is the ground reality.

79. In light of the above, and having held that the appellant had PE in India, the only issue which needs to be addressed now is the attribution.

80. At the very beginning, we had clearly mentioned that he impugned issues were examined and considered by the Tribunal in assessee’s own case in ITA Nos. 5253 to 5256/DEL/2011 for A.Ys 2005- 06 to 2008-09. However, at the behest of the ld. counsel for the assessee, we have once again extensively examined the facts of the case afresh.

81. We have given due consideration to all the written submissions filed by the ld. counsel for the assessee and have also considered the rebuttal to the written submissions of the ld. DR. Our findings are totally on the peculiar facts of the case in hand as discussed here in above.

82. In so far as the attribution is concerned, the findings of the Tribunal given in A.Y 2005-06 to 2008-09 [supra] are taken as it is. The relevant findings of the Tribunal read as under:

“15. We have carefully considered the submissions of both the sides and perused relevant material placed before us. After considering the facts of the case and the arguments of both the sides, we are of the opinion that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court. That in the case of Ericsson A.B., New Delhi (supra), Hon'ble Jurisdictional High Court held as under:-

“Once one proceeds on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Act or under the DTAA. It is apparent that what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in holding that it was not permissible for the revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an integral part thereof. A fortiorari when the assessee supplies the software which is incorporated on a CD, it has supplied tangible property and the payment made by the cellular operator for acquiring such property cannot be regarded as a payment by way of royalty. It is also to be borne in mind that the supply contract cannot be separated into two viz., hardware and software. No doubt, in an annexure to the supply contract the lump sum price is bifurcated in two components, viz., the consideration for the supply of the equipment and for the supply of the software. However, it was argued by the assessee that this separate specification of the hardware/software supply was necessary because of the differential customs duty payable. Be as it may, in order to qualify as royalty payment, within the meaning of section 9(1)(vi) and particularly clause (v) of Explanation - II thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, artistic or scientific work. Section 2(o ) of the Copyright Act makes it clear that a computer programme is to be regarded as a others literary work. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the presence case, this has not been established. It is not even the case of the revenue that any right contemplated under section 14 of the Copyright Act,1957 stood vested in this cellular operator as a consequence of the supply contract. Distinction has to be made between the acquisition of a 'copyright right' and a 'copyrighted article'.”

16. Similar view is expressed by Hon'ble Jurisdictional High Court in the case of Infrasoft Ltd. (supra), wherein their Lordships held as under:-

“86. The Licensing Agreement shows that the license is non- exclusive, non-transferable and the software has to be uses in accordance with the agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include Infrasoft‟s copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensee‟s own business as defined within the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse engineer the Software without Infrasoft‟s written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft.

87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a "copyright right" and a copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for “copyrighted” article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non- transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially coextensive with the owner/ transferor who divests himself of the rights he possesses pro tanto.”

17. That the facts of the assessee’s case are identical with the facts before the Hon'ble Jurisdictional High Court. Though the learned counsel for the assessee has given all the agreements between the assessee and buyers, however, at the time of hearing before us, only one or two agreements were referred and it was admitted by both the parties that the clauses of all the agreements are more or less similar. We, therefore, refer herein below only one agreement between the assessee and Sterlite Optical Technologies Ltd.

18. The agreement is dated 9th April, 2007. As per page 4 paragraph-C of the agreement, the supplier, i.e., the assessee, undertakes to supply equipments as defined in the agreement. The definition of the agreement is at page 5 paragraph (e) which reads as under:- “(e) “Equipment” shall mean the all hardware, software, material and components to be supplied by the Supplier as described in Annexure 1 (Equipment List).”

19 Thus, the equipment includes hardware as well as software both. Software is defined at page 6 paragraph (o) of the agreement and it reads as under:- “(o) “Software” shall mean the set of program embedded in the Equipment necessary for the control, operation and performance of the Equipment in accordance with the requirements of the specification and licensed or sublicensed by Supplier to Buyer under this Contract.”

20. From the above definition, it is evident that the software is the set of program embedded in the equipment necessary for control, operation and performance of the equipment. As per page 12 paragraph 5.1, the total contract price of supply of equipments for Phase I by the supplier is USD 15,749,438.97. Thus, there is a consolidated price for the supply of equipment which consists of hardware and software both. Page 14 of the agreement paragraph 5.8.4.3 and 5.8.4.4 provide for the payment schedule which reads as under:-

“5.8.4.3 Second payment of 20% of the cost of equipment (hardware) and 50% of the cost of equipment (software) on 60 th day from presentation of following documents after completion of validation by MTNL Testing team. Following document will be attached for negotiation of this payment. (i) Validation Test Certificate issued by MTNL. In case of deduction of Liquidated damages by MTNL, the buyer will submit the documentary proof issued by MTNL of such deduction to Bank and the same will be adjusted from the second payment. Second payment shall be made only after first payment is released to Supplier.

5.8.4.4 Third Payment of 10% of cost of Equipment (Hardware) and 30% of Equipment (Software) shall be paid on 60 th day from submission of following documents - i) Acceptance Test Certificate issued by MTNL for entire city of Delhi/Mumbai. ii) Certificate issued by MTNL for Compliance of 30% Value addition as per the tender condition. In case of deduction of Liquidated damages by MTNL on installation and commissioning, the buyer will submit such documentary proof issued by MTNL of such deduction to Bank and the same will be adjusted from the third payment. Any LD on account of Buyer that is deducted from the supplier’s second payment will be settled duly paid to supplier in the third payment.”

21. Learned DR, with reference to above paragraphs as well as the schedule to the agreement, pointed out that there is a separate price as well as separate payment schedule in respect of cost of equipment, i.e., hardware and cost of equipment i.e., software. Page 39 paragraph 25.8 of the agreement reads as under:-

“25.8 In respect to the Equipment containing Software acquired under this Contract, the Buyer is hereby granted a non-exclusive, non-transferable and non-sub-licensable license to use the Software. Buyer is granted no title or ownership rights or interests in the Software, where such title, rights and/or interest in the Software shall remain with the Supplier or Supplier’s supplier at all times.”

22. From the above, it is evident that the equipment, i.e., the hardware supplied by the assessee contained the software and the software was not separately supplied. Moreover, the buyer is granted a non-exclusive, non-transferable and non-sub-licensable license to use the software. It is also clarified that buyer is granted no title or ownership rights or interest in the software. After reading the agreement between the assessee and the buyers, especially the clauses which are referred above, we are of the opinion that the facts in the case of the assessee and the facts in the cases before the Hon'ble Jurisdictional High Court are identical. The only ground stressed upon by the learned DR was to point out the bifurcation of the contract price between the hardware and software. We find that the facts were identical before the Hon'ble Jurisdictional High Court in the case of Ericsson A.B., New Delhi (supra). In view of the above, we, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of Ericsson A.B., New Delhi (supra) and Infrasoft Ltd. (supra), hold that there was only one contract for supply of equipment which included hardware and software both and, therefore, the income from supply of the equipment is to be assessed as business income arising from the assessee’s business connection/PE in India. We, therefore, direct the Assessing Officer to rework out the assessee’s income accordingly.

83. Respectfully following the above findings of the co-ordinate bench in assessee’s own case, we direct accordingly.

84. Next issue relates to charging of interest u/s 234B of the Act.

85. We have given thoughtful consideration to the rival contentions and have carefully perused the relevant material on record. As per the provisions of section 234B of the Act, an assessee who is liable to pay advance tax under section 208 will be liable to interest under section 234B of the Act, if he fails to pay such tax, or the advance tax paid by him falls short of 90 percent of the assessed tax. In our understanding of the law, an assessee must first be liable to pay advance tax under the provisions of section 208 of the Act. As per the provisions of section 208 read with section 209(1)(d) of the Act, advance tax payable has to be computed after reducing from the estimated tax liability the amount of tax deductible/ collectible at source on income which is included in computing the estimated tax liability.

86. Under section 195 of the Act, tax is deductible at source from payments made to non-residents. Appellant is a non-resident and thus, tax is deductible at source from the payments made to it under section 195 of the Act. Since tax was deductible at source on all the payments made to Appellant, no advance tax was payable as per the provisions of the Act.

87. The Hon'ble Delhi High Court in the case of DIT v. GE Packaged Power Inc. 373 ITR 65 wherein the High Court held that no interest under section 234B of the Act can be levied on the assessee-payee on the ground of non-payment of advance tax because the obligation was upon the payer to deduct the tax at source before making remittances to them.

88. Amendment to the provisions have been brought by the Finance Act, 2012, w.e.f. 1.4.2012 by which a proviso below section 209(1)(d) of the Act has been added but applicable from A.Y 2013-14. Considering the law on this issue, we direct the Assessing Officer not to charge interest u/s 234B of the Act upto A.Y 2012-13. Interest can be levied as per provisions of law from A.Y 2013-14 onwards.

89. In the result, all the following appeals of the assessee are dismissed:

1. ITA No. 1500/DEL/2014 [A.Y 2009-10]

2. ITA No. 6921/DEL/2014 [A.Y 2010-11]

3. ITA No. 937/DEL/2016 [A.Y 2011-12]

4. ITA No. 6376/DEL/2016 [A.Y 2012-13]

5. ITA No. 6377/DEL/2016 [A.Y 2013-14]

6. ITA No. 6799/DEL/2017 [A.Y 2014-15]

7. ITA No. 5506/DEL/2018 [A.Y 2015-16]

8. ITA No. 8263/DEL/2019 [A.Y 2016-17]

The order has been pronounced in the open court in the presence of the representative of both the sides on 09.12.2020.

Sd/- Sd/-

[K. N. CHARY] [N.K. BILLAIYA]

JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 09th December, 2020