Commissioner Of Income Tax (Internationaltaxation)- 1 v. Aspect Software Inc.respondentthrough: Ms. Rashmi Chopra With Ms. Asiya,Advocates

IN THE HIGH COURT OF DELHI AT NEW DELHI 32 +ITA 909/2015 COMMISSIONER OF INCOME TAX (INTERNATIONALTAXATION)- 1..... .....AppellantThrough: Mr. AshokK. Manchanda,Seniorstandingcounselwith Mr. RaghvendraSingh,Junior standing counsel. versus ASPECT SOFTWARE INC.RespondentThrough: Ms. Rashmi Chopra with Ms. Asiya,Advocates. With 33 +ITA 28/2016 COMMISSIONER OF INCOME TAX (INTERNATIONALTAXATION) - 1AppellantThrough: Mr. Ashok K. Manchanda, Seniorstanding counsel with Mr. Raghvendra Singh,Junior standing counsel. versus ASPECT SOFTWARE INC.RespondentThrough: Ms. Rashmi Chopra with Ms. Asiya,Advocates. With 40 +ITA 861/2016 COMMISSIONER OF INCOME TAX (INTERNATIONAL ITA Nos. 909/2015,28/2016,861/2016,944/2016,4/2017,6/2017 41 + + TAXATION) - 1 Appellant Through: Mr. Ashok K. Manchanda, Seniorstanding counsel with Mr. Raghvendra Singh,Junior standing counsel. versus ASPECT SOFTWARE INC. RespondentThrough: Ms. Rashmi Chopra with Ms. Asiya,Advocates. With ITA 944/2016 COMMISSIONER OF INCOME TAX (INTERNATIONALTAXATION)- 1 Appellant Through: Mr. Ashok K. Manchanda, Seniorstanding counsel with Mr. Raghvendra Singh,Junior standing counsel. versus ASPECTSOFTWAREINC. Respondent Through: Ms.RashmiChoprawithMs. Asiya,Advocates. With ITA 4/2017 COMMISSIONEROFINCOMETAX (E^TERNATIONALTAXATION)- 1 Appellant Through: Mr. Ashok K. Manchanda, SeniorstandingcounselwithMr. RaghvendraSingh,Junior standing counsel. versus ASPECT SOFTWARE INC.RespondentThrough: Ms.RashmiChoprawithMs. Asiya,Advocates. With 43 +ITA 6/2017 COMMISSIONER OF INCOME TAX (INTERNATIONALTAXATION)- 1 Appellant Through: Mr. AshokK. Manchanda,Seniorstandingcounsel with Mr. Raghvendra Singh,Junior standing counsel, versus ASPECT SOFTWARE INC. ..... Respondent Through: Ms. Rashmi Chopra with Ms. Asiya,Advocates. CORAM:JUSTICE S.MURALIDHARJUSTICE CHANDER SHEKHAR ORDER%25.04.2017 CM APPL 44805/2016(delay) in ITA 861/2016CM APPL 44866/2016(delay) in ITA 944/2016CM APPL 678/2017 (delay) in ITA 4/2017CM APPL 709/2017 (delay) in ITA 6/2017 1. For the reasons stated therein, these applications are allowed. The delay in re-filing the appeals is condoned. CM APPL 677/2017 (exemption)in ITA 4/2017CM APPL 708/2017 (exemption)in ITA 6/20172. Allowed,subjectto alljust exceptions. ITA Nos. 909/2015. 28/2016. 861/2016, 944/2016. 4/2017. 6/20173. These are appeals under Section 260A of the Income Tax Act, 1961('Act') by the Revenue againstthe impugnedOrder dated 18^*^ May 2015passed by the Income Tax Appellate Tribunal ('ITAT') in ITA Nos.04/Del/2012, 1124/Del/2014,1125/Del/2014,221/Del/2013,720/Del/2013,and 82/Del/2011 for the Assessment Years ('AYs') 2008-09, 2004-05, 2010-11, 2003-04, 2009-10 and 2007-08 respectively. 4. Whileadmittingtheseappealson 16^*^January,2017,this Courtpassedthefollowing order: "Admit. The following questions of law arise for consideration: (i)Did the ITAT fall into error in holding that the transaction inquestion, i.e., supply of customized software was not "royalty"underArticle12 (4)of theIndo-USDoubleTaxationAvoidance Agreement (DTAA) read with Section 9 (1) (vii) ofthe Income Tax Act, 1961, in the circumstancesof the case.question, i.e., supply of customized software was not "royalty"underArticle12 (4)of theIndo-USDoubleTaxationAvoidance Agreement (DTAA) read with Section 9 (1) (vii) ofthe Income Tax Act, 1961, in the circumstancesof the case.(ii)Did the ITAT fall into error in its interpretation of Section 234(B) of the Income Tax Act, 1961, in the circumstances of thecase,"(B) of the Income Tax Act, 1961, in the circumstances of thecase," 5. Apart from the order as noted above, the Court decided that these presentappeals would be considered in light of the judgment to be rendered by theCourtinabatchof appeals{The Commissionerof IncomeTaxInternationalTransaction -2 v. ZTE Corporation -ITA 904-909/2016). 5. Apart from the order as noted above, the Court decided that these presentappeals would be considered in light of the judgment to be rendered by theCourtinabatchof appeals{The Commissionerof IncomeTaxInternationalTransaction -2 v. ZTE Corporation -ITA 904-909/2016). 6. That batch of appeals has been decided by the Court by its decision inThe Commissioner of Income Tax InternationalTransaction -2 v. ZTE Corporation237 (2017) DLT 572 (DB). The questionsthat arose in theaforementionedbatchof appealsalso involvedthe questionsthat arisein thepresent batch of appeals. The questions were answered in favour of theAssessee and against the Revenue. 7. The first issue is whether the payment for supply of customized softwarewould be treated as "royalty" under Article 12(3) of the Indo-US DoubleTaxation Avoidance Agreement (DTAA) read with Section 9(l)(vi) of Act.In ZTE Corporation (supra), the Assessee being a resident of Republic ofChina the transactions were governed by the Indo-China DTAA containingidentical clauses as the Indo-US DTAA. Relying on the decision of thisCourt in Director ofIncome Tax v. Ericsson AB (2012) 343 ITR 470, thisCourt in ZTE Corporation {supra) held in para 22 as under: "22. In the present case, the facts are closely similar to Ericson. Thesupplies made (of the software) enabled the use of the hardware sold.It was not disputed that without the software, hardware use was notpossible. The mere fact that separate invoicing was done for purchaseand other transactions did not imply that it was royalty payment. Insuch cases, the nomenclature(of license or some other fee) isindeterminate of the true nature. Nor is the circumstance that updatesof the software are routinely given to the Assessee's customers. Thesefacts do not detract from the nature of the transaction, which wassupply of software, in the nature of articles or goods. This Court isalso not persuaded with the submission that the payments, if notroyalty, amountedto payments for the use of machineryor equipment.Such a submission was never advanced before any of the lower taxauthorities; moreover, even in Ericson (supra), a similar provisionexisted in the DTAA between India and,Sweden." 8. The ITAT has, in its impugnedorder dated 18^ May 2015, also relied of Income Tax v.upon the decision in Ericson {supra) and Director InfrasoftLimited(2014)220Taxman273 (Del) and held as under: 41. Before us, the learned counsel for the Assessee as well as thelearned D.R. relied on several decisions of the High Court andTribunal rendered on the subject. These decisions are not beingconsideredas theissueisextensivelydealtby theHon'bleJurisdictional High court in the cases of M/s Ericsson A.B. andInfrasoft Ltd. (supra)whichare bindingon this Tribunal.We observethat all the arguments put forth by the Revenue" and the Assessee areconsidered and answered in these decisions. Further, the Delhi HighCourt in Infrasoft has expressed it- disagreement with the viewtaken" by the Kamataka High Court in the case of SamsungElectronicsCo Ltd. Hence, the decisions relied by the learned CIT-DR in the case of Samsung Electronics and Gracemac Corporation(supra) does not help the case of the Revenue, as we are under theJurisdiction of the Hon'ble Delhi High Court. 42. In view of the above, respectfully following the decision ofHon'ble Jurisdictional High Court in the case of Ericsson A.B. (supra)and Infrasoft Ltd. (supra), we hold that the consideration received bythe Assessee for supply of product along with license of software toEnd user is not royalty under Article 12 of the Tax Treaty. Evenwhere the software is separately licensed without supply of hardwareto the end users (i.e. eight out of 63 customers), we are of the viewthat the terms, of license agreement is similar to the facts of InfrasoftLtd' (supra). Accordingly, we- hold' that there was no transfer of anyright in respect of copyright by the Assessee and it was a case of meretransfer of a copyrighted article. The payment is for a copyrightedarticle and represents the purchase price of an article. Hence, thepayment for the same is not in the nature of royalty under Article 12of the Tax Treaty. The receipts would constitute business receipts inthe hands of the Assesseeand is to be assessedas businessincomesubject to assessee having business connection/PE in India as peradjudication on Ground No.5." 9. With the ITAT having followed the decisions of this Court and this Court having reiterated the legal position in Commissioner of Income Tax,InternationalTaxation -2 v. ZTE Corporation {supra), the Court answers Question(i) in the negativeand holds that the impugnedorderofthe ITATsuffersfrom no legalinfirmity.Question(i) is, therefore,answeredin favourof the Assessee and against the Revenue. 10. Turningto Question(ii) regardingthe interpretationof Section234B ofthe Act, the Courtfindsthat in CommissionerofIncome Tax, InternationalTaxation-2 v. ZTE Corporation{supra),the questionhas been answeredinfavour of the Assessee and against the Revenue following the decision inDirector of Income Tax v. GE Packaged Power Inc. 373 ITR 65.Consequently,this issue is also answeredagainstthe Revenueand in favourof the Assessee. 11. These appealsare accordinglydismissedbut in the circumstancesof thecase, no orders as to costs. S.MURALIDHAR,J APRIL 25, 2017Rm CHANDER SHEKHAR, J