GE Company: Software, Connectivity and Training Receipts Not Taxable: ITAT Mumbai

ADIT(IT)-3(1) Vs General Electric Company (ITAT Mumbai)

Summary: The Mumbai Bench of the Income Tax Appellate Tribunal partly allowed the appeal of Baker Hughes EMEA Unlimited Company, an Ireland-incorporated company formerly known as GE Sensing EMEA Unlimited Company, holding that receipts of ₹13,27,84,057 from offshore sales of equipment, consumables and spare parts could not be treated as fees for technical services (FTS) merely because the goods were sophisticated and their sale invoices contained standard terms relating to technical assistance. The Tribunal found that the Assessing Officer had failed to establish that any part of the consideration was received for rendering services.

The assessee was engaged in manufacturing and selling technologically advanced equipment intended for specific industrial applications. For AY 2018-19, it filed its return on 29 March 2019 declaring nil income. During scrutiny assessment, the Assessing Officer noticed receipts of USD 20,65,071 from Indian customers. The assessee explained that these receipts represented offshore sales of equipment and spare parts, amounting to ₹13.28 crore, with income accruing outside India. Accordingly, it claimed that the receipts were not taxable in India under Section 5 of the Income-tax Act, 1961.

The Assessing Officer disagreed with the assessee’s position. Referring to the technical sophistication of the equipment and standard terms and conditions accompanying the invoices, the officer concluded that the company was providing technical assistance and support services along with the equipment. Consequently, the entire amount of ₹13,27,84,057 was characterised as fees for technical services under Section 9(1)(vii) of the Income-tax Act and Article 12 of the India–Ireland Double Taxation Avoidance Agreement.

The assessee challenged the proposed assessment before the Dispute Resolution Panel, which rejected its objections. The Assessing Officer thereafter passed the final assessment order under Section 143(3) read with Section 144C(13) on 15 July 2022. Before the Tribunal, the assessee maintained that it had only sold goods offshore and had not entered into any agreement to provide services to Indian customers. It relied upon purchase orders and invoices showing descriptions, quantities, prices and shipment details of the equipment supplied.

The Tribunal examined the invoices placed at pages 22 to 103 of the paper book and found that they clearly recorded sales of equipment, consumables and spare parts. The documents identified the goods, quantities, prices and purchasers but did not indicate any consideration for services. The Tribunal observed that the Assessing Officer had not established how the receipts related to services or produced convincing evidence demonstrating that the assessee had actually rendered technical or consultancy services.

The Tribunal further observed that neither the Assessing Officer nor the Dispute Resolution Panel had controverted the factual evidence emerging from the invoices. In the absence of evidence establishing a service component, the authorities were not justified in recharacterising offshore sale proceeds as fees for technical services. Accordingly, the Tribunal allowed Grounds 2 and 3, relating to the characterisation and taxation of ₹13,27,84,057.

Grounds 1 and 5, concerning the assessment order and short credit of TDS, were dismissed as not pressed. Ground 4, concerning interest under Sections 234A and 234B, was dismissed as consequential. The Tribunal recorded that the appeal was partly allowed. Although Ground 6 concerned initiation of penalty proceedings under Section 270A, the operative portion did not separately adjudicate that ground.

Cases Discussed

• Vodafone India Services (P.) Ltd. v. Union of India — [2014] 368 ITR 1 (Bom.)
• Volkswagen Aktiengesellschaft v. DCIT (International Taxation) — [2025] 177 taxmann.com 312 (Mumbai–Trib.)
• DCIT v. TMW ASPF I Cyprus Holding Ltd. — [2019] 111 taxmann.com 212 (Delhi–Trib.)
• Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT — [2021] 432 ITR 471 (SC)
• GE India Industrial (P.) Ltd. v. ACIT — [2022] 145 taxmann.com 335 (Hyderabad–Trib.)
• DIT v. New Skies Satellite BV — [2016] 382 ITR 114 (Delhi)
• CIT (International Taxation) v. Telstra Singapore Pte. Ltd. — [2024] 165 taxmann.com 85 (Delhi)
• Telefonica UK Ltd. v. DCIT (International Taxation) — [2023] 154 taxmann.com 475 (Mumbai–Trib.)
• PCIT (International Taxation) v. Goodrich Corporation — [2025] 175 taxmann.com 177 (Delhi)
• Hindalco Industries Ltd. v. ACIT — [2005] 94 ITD 242
• Timken India Ltd., In re — [2005] 273 ITR 67 (AAR)
• Danfoss Industries (P.) Ltd., In re — [2004] 268 ITR 1 (AAR)
• US Technology Resources (P.) Ltd. v. CIT — [2018] 97 taxmann.com 642 (Ker.)
• InterContinental Hotels Group (Asia Pacific) Pte. Ltd. v. ACIT — [2021] 133 taxmann.com 99 (Delhi–Trib.)

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The aforesaid cross-appeals filed by the assessee and the Revenue pertain to assessment years 2003-04 and 2004-05 and arise from separate orders passed by the learned Commissioner of Income-tax (Appeals) in relation to the assessments framed for the respective years. Since the issues involved in both the assessment years are substantially common, emanate from an overlapping factual matrix and were also argued together before us, all the four appeals are being disposed of by this consolidated order. The facts and figures pertaining to assessment year 2003-04 are being referred to in the first instance and our findings thereon shall apply to the corresponding grounds for assessment year 2004-05, subject, however, to the separate amounts and factual variations which shall be noticed at the appropriate places. 2. The assessee, General Electric Company, is a company incorporated and fiscally domiciled in the United States of America and is entitled to the benefits of the Double Taxation Avoidance Agreement between India and the United States of America (“India-USA DTAA”). During the relevant assessment years, it entered into various transactions with its associated enterprises and other General Electric group entities in India. These transactions, insofar as material for the present appeals, comprised international connectivity services arranged through independent foreign telecommunication service providers; testing and quality-control activities in relation to electric motors; recovery of visa and immigrationrelated expenditure; soft-skills and management training programmes; supply of standardized or shrink-wrapped software; installation and commissioning services; and lease of certain aircraft engines to a US associated enterprise. Transfer-pricing adjustments were also made in relation to alleged interest on outstanding receivables, mark-up on certain support services and lease rentals.

3. The broad position emerging from the assessment orders is that the Assessing Officer treated the receipts from international connectivity services and supply of standardized software as royalty under section 9(1)(vi) of the Income-tax Act, 1961 (“the Act”) as well as Article 12 of the India-USA DTAA. The receipts from testing and quality-control activities, visa-related expenditure and soft-skills and management training programmes were treated as fees for technical services under section 9(1)(vii) and as fees for included services under Article 12(4) of the India-USA DTAA. The receipts from installation and commissioning services for assessment year 2003-04 were brought to tax under section 44D read with section 115A. The Assessing Officer also incorporated the adjustments proposed by the Transfer Pricing Officer, including an interest component computed on amounts allegedly remaining unrecovered from the associated enterprises and an adjustment in respect of lease rentals received from GE Packaged Power Inc., USA.

4. In the transfer-pricing proceedings for assessment year 2003-04, the transactions were broadly placed by the Transfer Pricing Officer in three categories. The first category comprised support services aggregating to ₹10,38,56,301, consisting of training charges of ₹46,74,783, onsite use of computers of ₹29,70,016, testing charges of ₹8,60,35,052, installation and commissioning fees of ₹32,20,260 and softskills and management training charges of ₹69,56,190. The second category comprised international connectivity charges of ₹9,92,14,998, standardized software receipts of ₹10,79,38,420 and reimbursement of expenses of ₹10,90,789, aggregating to ₹20,82,44,207. The third transaction related to lease rentals of ₹1,43,25,162 received from GE Packaged Power Inc. The Transfer Pricing Officer adopted a mark-up of 12.36% in respect of the first category and further loaded an interest component of 1.28% on the premise that the corresponding amounts had remained unrecovered. In the case of the second category, while accepting that the underlying costs had substantially been recovered on a backto-back basis and therefore did not warrant any service markup, he nevertheless applied an interest adjustment on the footing that the assessee had not furnished the dates of recovery. In respect of the lease transaction, the onward rental charged by GE Packaged Power Inc. to Larsen & Toubro Ltd. was treated as a comparable uncontrolled price and an adjustment was consequently proposed.

5. The learned CIT(A), after examining the nature of the respective receipts and the provisions of the India-USA DTAA, granted substantial relief to the assessee. He deleted the additions relating to international connectivity charges, testing and quality-control receipts, reimbursement of visarelated expenses and soft-skills and management training charges. The consequential transfer-pricing adjustments pertaining to the underlying receipts were also deleted, except the component attributed to interest on delayed recovery. The adjustment made on account of lease rentals was deleted on the ground that the underlying lease receipts between the two US entities were not chargeable to tax in India. The levy of interest under section 234B was also deleted, holding that the income sought to be assessed in the hands of the nonresident was subject to deduction of tax at source under section 195. However, the learned CIT(A) sustained the taxation of receipts from standardized software as royalty and also upheld the transfer-pricing adjustment pertaining to the alleged interest on outstanding receivables. Consequently, both the assessee and the Revenue are in appeal before us.

6. We have heard Shri Ajay Vohra, learned counsel appearing for the assessee, assisted by Shri Rishabh Malhotra and Shri Nimesh Agrawal, and Shri Sridhar G. Menon, learned Departmental Representative. We have also carefully perused the assessment orders, the orders passed by the Transfer Pricing Officer, the findings recorded by the learned CIT(A), the relevant agreements, invoices and other material placed in the paper books, as well as the written note filed by the assessee pursuant to the directions given at the conclusion of the hearing. The judicial precedents relied upon by both sides have also been considered. Since a number of issues recur in both assessment years, it would be apposite to correlate the grounds and amounts before dealing with them individually. 7. The issues arising in the assessee’s appeals may be summarised as under:

7.1. Ground No.1 in both appeals is general in nature and does not require separate adjudication. Insofar as the installation and commissioning receipts for assessment year 2003-04 are concerned, learned counsel stated at the time of hearing that the assessee did not wish to press the corresponding ground. The said ground shall, therefore, be disposed of accordingly at the appropriate stage. The broader grounds challenging the reference made under section 92CA were not independently pressed before us, apart from the transaction-specific objections raised in the concise grounds. They, therefore, require no separate adjudication.

8. The issues arising in the Revenue’s appeals are as follows:

9. While dealing with the lease-rental issue, the figures require some care. The difference between the rental received by the assessee from GE Packaged Power Inc. and the onward rental charged by the latter to Larsen & Toubro Ltd. was quantified by the Transfer Pricing Officer at ₹31,38,167. After adding the interest component, the total adjustment was determined at ₹33,61,698. The learned CIT(A), while deleting the lease-rental adjustment, separately sustained an amount of ₹43,029 as interest. We shall, therefore, deal with the constituent components independently so that there is no duplication or ambiguity in the operative direction.

9. Before proceeding issue-wise, it is necessary to delineate the legal framework which permeates several grounds before us. Chapter X of the Act provides a mechanism for determining the arm’s-length price of an international transaction and computing the income arising therefrom. Correspondingly, Article 9 of the India-USA DTAA recognises the arm’s-length principle in transactions between associated enterprises and permits an appropriate adjustment where conditions made or imposed between such enterprises differ from those which would have been made between independent enterprises. However, neither Chapter X nor Article 9 can be read in isolation from the charging provisions of the Act and the distributive provisions of the Treaty. Determination of an arm’s-length amount answers the question of quantum; it does not, by itself, dispense with the antecedent requirement that the income sought to be assessed must be chargeable to tax in India.

9.1. This distinction assumes significance in the present appeals because the impugned adjustments have been characterised by the authorities themselves as interest, royalty or consideration for services. Once the character of an amount is identified, its taxability in the hands of a resident of the United States has to be examined under the relevant Article of the India-USA DTAA. Article 9 may permit the profits of an enterprise to be recomputed on an arm’s-length basis, but it does not render Articles 7, 11 or 12 otiose. The provisions must operate harmoniously: Article 9 may determine the amount which could arise under arm’s-length conditions, whereas the relevant distributive Article governs whether and to what extent that amount may be taxed in India.

9.2. The Hon’ble Bombay High Court in Vodafone India Services (P.) Ltd. v. Union of India [2014] 368 ITR 1 (Bom.) has explained that Chapter X is not an independent charging provision and presupposes the existence of income arising from an international transaction. The computation mechanism cannot create taxable income where the charge itself is absent. The same principle has been applied in the treaty context by the coordinate bench in Volkswagen Aktiengesellschaft v. DCIT (International Taxation) [2025] 177 taxmann.com 312 (Mumbai–Trib.), wherein it was held that an arm’s-length adjustment, though determined under the transfer-pricing provisions, must still satisfy the condition of chargeability under the relevant treaty Article. Thus, while we shall examine every adjustment on its own facts and shall not treat non-taxability as an automatic consequence merely because the amount has originated from a transfer-pricing exercise, the final enquiry must necessarily remain whether the income, in its properly identified character, falls within the taxing jurisdiction allocated to India under the Act read with the India-USA DTAA.

9.3. The second recurring question concerns the expression “make available” appearing in Article 12(4)(b) of the India-USA DTAA. The Memorandum of Understanding dated 15 May 1989 accompanying the Treaty makes it clear that the mere rendering of a technical or consultancy service, or the employment of technical expertise by the service provider, is not sufficient. The service should transmit technical knowledge, experience, skill, know-how or processes in such a manner that the recipient is enabled to apply the technology independently in future without continued recourse to the service provider. At the same time, this test cannot be applied in the abstract merely by asking whether the recipient derived some benefit, acquired general proficiency or became more effective after receiving the service. The enquiry must remain anchored to the actual nature of the service, the material or capability transmitted, and whether what was imparted possessed the technical character contemplated by Article 12(4). 9.4. Similarly, in matters concerning royalty, the use by a service provider of sophisticated equipment, technology or an embedded process cannot be conflated with the grant to the customer of the use of, or right to use, such equipment, copyright or process. The distinction is between receiving the benefit or functionality of a service and acquiring a legally cognisable right in the intellectual property, equipment or process through which that service is rendered. It is in the backdrop of these principles that we now proceed to examine the grounds raised in the respective appeals.

10. We shall first take up Ground No.2 raised by the assessee in both the assessment years, which relates to the transfer-pricing adjustment made on account of alleged interest on outstanding receivables. The adjustment amounts to ₹42,18,416 for assessment year 2003-04 and ₹36,04,412 for assessment year 2004-05. During the transfer-pricing proceedings, the TPO observed that the assessee had not charged interest upon amounts allegedly remaining unrecovered from its associated enterprises. In respect of the first category of support services, the TPO adopted a service mark-up of 12.36% and added a further component of 1.28% towards interest, thereby applying an aggregate loading of 13.64%. In the second category, comprising international connectivity charges, standardized software receipts and reimbursement of expenses, no service mark-up was applied because the underlying costs had substantially been recovered on a back-to-back basis. Nevertheless, the TPO imputed interest at the applicable LIBOR on the premise that, in the absence of particulars regarding the dates of recovery, the entire amounts should be regarded as having remained outstanding. The learned CIT(A) upheld the adjustment, observing that the assessee had failed to establish that the payments were received within a reasonable period and that compensation for delayed payment was, therefore, warranted. He further held that the interest so determined would be taxable under Article 11 of the India-USA DTAA.

11. Before us, learned counsel submitted that the adjustment is entirely notional and has been made without identifying any invoice which remained unpaid beyond the contractual credit period. No interest was paid, credited, received or acknowledged as payable by any associated enterprise. It was contended that, even if an arm’s-length amount could be determined under Chapter X, the same could not be taxed as interest under Article 11 unless it was actually paid or placed at the disposal of the assessee. Reliance was principally placed upon the decision of the coordinate bench in Volkswagen Aktiengesellschaft v. DCIT (International Taxation) [2025] 177 taxmann.com 312 (Mumbai–Trib.) and

the decision of the Delhi Bench in DCIT v. TMW ASPF I Cyprus Holding Ltd. [2019] 111 taxmann.com 212 (Delhi– Trib.). Learned Departmental Representative, on the other hand, relied upon Article 9 of the India-USA DTAA and submitted that profits which would otherwise have accrued to an enterprise may be included in its profits where conditions between associated enterprises differ from those which would have prevailed between independent enterprises. According to him, the absence of an express stipulation for interest between the associated enterprises could not preclude an arm’s-length adjustment.

12. We have considered the rival submissions and examined the basis on which the impugned adjustment has been made. In our view, the adjustment suffers, at the threshold, from a material factual infirmity. The TPO has not identified the invoices which remained outstanding, the dates on which they were raised, the contractual period allowed for payment, the dates on which the corresponding amounts were actually realised or the period by which the permissible credit terms were exceeded. There is also no examination of the credit period allowed by the assessee to independent parties, if any, or of the period which comparable uncontrolled service providers ordinarily allowed to their customers. Nor is there any finding as to whether the effect of credit terms already stood subsumed in the pricing of the underlying transactions.

Instead, merely because the complete dates of recovery were stated not to have been furnished, the TPO proceeded to regard the entire amount of the relevant transactions as remaining unpaid and applied a uniform rate of 1.28%. Failure to furnish a particular detail may invite further enquiry or verification; it cannot, without any invoice-wise examination, supply affirmative evidence that the whole consideration remained outstanding for the entire period or that an independent party would necessarily have charged interest thereon. The adjustment is thus founded upon an assumption regarding both the quantum and duration of delay, neither of which has been established from the record.

12.1. There is a further and equally important aspect. The learned CIT(A) has expressly characterised the adjustment as interest taxable under Article 11 of the India-USA DTAA. Admittedly, no corresponding interest was paid, credited to the assessee’s account, acknowledged as a liability by the associated enterprises or otherwise placed at the disposal of the assessee during the relevant years. Article 11(1) contemplates interest arising in one Contracting State and “paid” to a resident of the other Contracting State. The coordinate bench in Volkswagen Aktiengesellschaft (supra), after examining the language of the corresponding Article 11 and the meaning of the expression “paid”, held that a transfer-pricing adjustment representing purely notional interest could not be taxed where no interest was in fact paid or placed at the disposal of the non-resident. The Tribunal also noticed the principle enunciated by the Hon’ble Bombay High Court in DIT v. Siemens Aktiengesellschaft that where the treaty provision predicates taxability upon payment, the domestic concept of accrual or a computation based upon a deeming fiction cannot displace the treaty stipulation. A similar view, in the context of hypothetical interest, was taken in DCIT v. TMW ASPF I Cyprus Holding Ltd. (supra).

12.2. We are unable to accept the Revenue’s contention that Article 9, by itself, concludes the issue of taxability. Article 9 permits determination of the profits which would have accrued under arm’s-length conditions; it does not obliterate the character of the income so determined or displace the specific treaty Article applicable to that category of income. Once the adjustment has been characterised and sustained by the learned CIT(A) as interest, its chargeability has to satisfy Article 11. Article 9 and Article 11 operate at distinct but complementary stages: the former concerns an arm’slength recomputation, while the latter governs the allocation of taxing rights over interest. To treat Article 9 as an independent source of charge, irrespective of the conditions contained in Article 11, would render the latter provision largely inconsequential. This would also be contrary to the principle explained by the Hon’ble Bombay High Court in Vodafone India Services (P.) Ltd. v. Union of India [2014] 368 ITR 1 (Bom.), that Chapter X constitutes a computational mechanism and cannot create taxable income in the absence of an otherwise sustainable charge. Thus, both on account of the absence of any invoice-level factual foundation and because the amount characterised as interest was neither paid nor credited, the adjustment cannot be sustained. Ground No.2 in ITA No.1414/Mum/2009 and Ground No.2 in ITA No.1415/Mum/2009 are accordingly allowed.

13. Ground No.3 in both the assessee’s appeals concerns the taxability of receipts from supply of standardized or shrink-wrapped software. The amounts involved are ₹10,79,38,420 for assessment year 2003-04 and ₹8,90,51,678 for assessment year 2004-05. The assessee had procured commercially available software licences from independent vendors, including Ansys Inc., Oracle and other software suppliers, and recovered the corresponding cost from General Electric group entities in India. The software products included ANSYS, used for engineering modelling and simulation, and Pro-E, used for three-dimensional product design and development. The assessee’s case was that it neither developed the software nor transferred any copyright, source code or proprietary right to the Indian entities; what was made available was only a restricted right to use standard software as an end-user.

14. The Assessing Officer rejected the claim on the reasoning that a computer programme operates through a series of programmed instructions and, therefore, constitutes a “process” within Explanation 2 to section 9(1)(vi). Alternatively, he regarded software as intellectual property analogous to a patent, invention, design, secret formula or process and treated the payment as royalty. The learned CIT(A) affirmed the conclusion. According to him, the transaction could not be regarded as a sale of a copyrighted article because the purchaser had not acquired a right to further transfer or commercially deal with the software. He further held that the software constituted a secret process because the source code was not made public. Before us, learned counsel submitted that this reasoning no longer survives in view of the decision of the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 432 ITR 471 (SC). It was further pointed out that Engineering Analysis Centre of Excellence Pvt. Ltd., one of the Indian entities whose withholding obligation was considered by the Hon’ble Supreme Court, had also made software payments to the present assessee. Reliance was also placed upon GE India Industrial (P.) Ltd. v. ACIT [2022] 145 taxmann.com 335 (Hyderabad–Trib.), wherein similar payments for GE-group software, including Pro-E software, were held not to constitute royalty.

15. We have examined the invoices and the nature of the rights stated to have been made available under the software arrangements. The software was commercially available and was procured from independent vendors. The Indian affiliates obtained a non-exclusive and restricted end-user facility to operate the programmes for their intended business functions. There is nothing in the material referred to by the lower authorities to indicate that the source code, programming architecture or any right of reproduction, modification, adaptation, commercial exploitation or sub-licensing was transferred. The inability of the end-user to resell or commercially transfer the software, upon which considerable emphasis has been placed by the learned CIT(A), does not establish transfer of a copyright. On the contrary, restrictions against reproduction, transfer and commercial exploitation are ordinarily indicative of the copyright owner retaining the proprietary rights and permitting only limited use of the copyrighted article.

15.1. The distinction between copyright in a computer programme and a copyrighted article has been authoritatively explained by the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. (supra). After examining section 14 of the Copyright Act, 1957, section 9(1)(vi) of the Act and the relevant royalty Articles, the Hon’ble Supreme Court held that consideration paid by an Indian end-user or distributor for use or resale of software does not constitute royalty where the agreement does not create any interest or right in the copyright and merely permits restricted use of the software product. The Court further held that Explanations 2 and 4 to section 9(1)(vi), to the extent they are less beneficial, cannot enlarge the meaning of royalty under an unamended DTAA. In reaching this conclusion, the Hon’ble Supreme Court approved the principle stated in DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi), that an amendment to the domestic law cannot be unilaterally transported into a bilateral treaty without a corresponding amendment to the treaty itself.

15.2. The reasoning that software constitutes royalty merely because it functions through an embedded “process” is equally misplaced. The relevant enquiry under Article 12 is not whether a process exists within the software, for virtually every computer programme necessarily operates through a sequence of instructions. The enquiry is whether the consideration is paid for the use of, or the right to use, that process or the copyright in the programme. A person who uses software for its intended functionality does not thereby acquire access to or control over the programming logic or the process embedded therein. The Delhi High Court in CIT (International Taxation) v. Telstra Singapore Pte. Ltd. [2024] 165 taxmann.com 85 (Delhi) has reiterated that derivation of a benefit from a service or process cannot, without conferral of an effective right over the underlying process or equipment, be equated with its use or the right to use it.

15.3. The decision of the Hyderabad Bench in GE India Industrial (P.) Ltd. v. ACIT (supra) furnishes an additional factual reinforcement, since it concerned acquisition of software, including Pro-E, from a GE-group entity under a non-exclusive and non-transferable licence. Following Engineering Analysis, the Tribunal held that restricted use of such software did not amount to transfer of copyright. We would, however, rest our conclusion primarily upon the nature of the rights actually conveyed in the present transactions and the law declared by the Hon’ble Supreme Court. The lower authorities have not identified any proprietary right contemplated under section 14 of the Copyright Act which stood transferred to the Indian affiliates. The receipts of ₹10,79,38,420 for assessment year 2003-04 and ₹8,90,51,678 for assessment year 2004-05 cannot, therefore, be characterised as royalty either under Article 12(3) of the India-USA DTAA or under section 9(1)(vi), insofar as the treaty provision is more beneficial. Ground No.3 in both the assessee’s appeals is accordingly allowed.

16. Ground No.4 in the assessee’s appeal for assessment year 2003-04 relates to the taxability of installation and commissioning receipts of ₹32,20,260 in connection with machinery supplied to GE India Technology Centre Pvt. Ltd. The Assessing Officer taxed the receipts under section 44D read with section 115A of the Act. At the time of hearing, learned counsel submitted that the assessee did not wish to press this ground. In view of the statement so made, Ground No.4 in ITA No.1414/Mum/2009 is dismissed as not pressed, without expressing any opinion on the merits of the underlying legal issue.

17. We now take up the Revenue’s appeals. Ground No.1 in ITA No.1340/Mum/2009 and Ground No.2 in ITA No.1341/Mum/2009 challenge the deletion of additions made on account of international connectivity charges of ₹9,92,14,998 and ₹5,03,07,976 respectively. The assessee, as part of the General Electric group, entered into arrangements with independent foreign telecommunication connectivity providers such as AT&T, MCI, WorldCom and Verizon for facilitating global communication across various group entities. The services broadly comprised private-line connectivity, dedicated internet access, virtual private networks, audio-conferencing, toll-free facilities and other telecommunication services. The assessee centrally incurred or coordinated the expenditure and recovered the allocable costs from the beneficiary entities. The underlying fibre networks, switches, routers, transmission systems and telecommunication infrastructure remained owned, operated and controlled by the independent service providers.

17.1. The Assessing Officer held that international connectivity involved sophisticated scientific and technological processes, including conversion of data into light signals, amplification, encapsulation, transmission through satellites or fibre-optic networks and reconversion into electrical signals. On this basis, he concluded that the Indian entities had used a “process” and treated the consideration as royalty under section 9(1)(vi) and Article 12(3)(a) of the India-USA DTAA. The learned CIT(A), after examining the nature of the arrangements, found that the actual connectivity was supplied by the independent foreign telecommunication providers; that the services were standard facilities available to customers willing to pay the prescribed tariff; and that neither the assessee nor the Indian entities acquired any right in the network or the underlying process. In the absence of a permanent establishment of the assessee nor the Indian entities acquired any right in the network or the underlying process. In the absence of a permanent establishment of the assessee in India, he treated the receipts as business income not chargeable to tax in India and deleted the additions.

18. Learned Departmental Representative relied upon the technical processes involved in data transmission and supported the reasoning of the Assessing Officer. Learned counsel, on the other hand, submitted that the Revenue had conflated the use of a telecommunication service with the use of the process employed by the service provider. It was submitted that the Indian entities did not possess, operate or control any part of the network and were merely recipients of connectivity. Reliance was placed upon Telefonica UK Ltd. v. DCIT (International Taxation) [2023] 154 taxmann.com 475 (Mumbai–Trib.), DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi) and CIT (International Taxation) v. Telstra Singapore Pte. Ltd. [2024] 165 taxmann.com 85 (Delhi). 19. We find no infirmity in the conclusion reached by the learned CIT(A). The assessment order describes in some detail the technology employed in international data transmission, but does not identify any right granted to the assessee or to the Indian entities in the equipment, network, technology or process through which connectivity was provided. The fact that a service cannot be rendered without deploying technology does not mean that the customer uses, or acquires the right to use, that technology. A recipient of connectivity obtains the facility of transmitting data; it does not, merely by availing such facility, acquire possession of the fibre-optic network, operational control over the routers or switches, access to the network architecture, or a proprietary right in the transmission process.

19.1. In Telefonica UK Ltd. v. DCIT (International Taxation) (supra), the coordinate bench, while dealing with international roaming and connectivity services, held that where the foreign operator uses its own equipment and network to render a service and no right in the equipment or process is transferred to the Indian customer, the consideration cannot be treated as royalty. The Tribunal further held that the expression “process” occurring in the royalty provision has to be understood in the setting of the species of intellectual property alongside which it appears, and that some legally recognisable right in the process must be conferred upon the payer. The mere fact that transmission takes place through satellite, cable, optic fibre or other technology does not dispense with the requirement that there must be a grant of the use of, or a right to use, the process.

19.2. The Delhi High Court in CIT (International Taxation) v. Telstra Singapore Pte. Ltd. (supra) has similarly held that a mere benefit derived by a customer from a service cannot be equated with the use of, or right to use, the process or equipment employed by the service provider. The correct enquiry is whether the customer has been accorded effective control or a legally enforceable right over the underlying property. In the present case, no such right has been identified. The telecommunication infrastructure continued to remain under the exclusive ownership and control of the independent foreign service providers, and the Indian entities could neither operate nor commercially exploit it.

19.3. We also find merit in the learned CIT(A)’s finding that the assessee substantially acted as a central coordinating and cost-recovery entity. The Revenue has not shown that the assessee owned the underlying infrastructure, licensed any intellectual property or transferred any process to the Indian affiliates. Even assuming that the expression “process” under the domestic law was subsequently enlarged by Explanations 5 and 6 to section 9(1)(vi), such unilateral amendment cannot, in the absence of a corresponding treaty amendment, be read into Article 12 of the India-USA DTAA. This principle stands explained in DIT v. New Skies Satellite BV (supra) and has been approved by the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. (supra). The receipts are, therefore, consideration for standard connectivity services and not royalty. Since the existence of a permanent establishment of the assessee in India has not been asserted or established, such business receipts cannot be brought to tax under Article 7. We accordingly uphold the order of the learned CIT(A) and dismiss Ground No.1 in ITA No.1340/Mum/2009 and Ground No.2 in ITA No.1341/Mum/2009.

20. We now take up Ground No.2 in the Revenue’s appeal for assessment year 2003-04 and Ground No.1 in its appeal for assessment year 2004-05, challenging the deletion of additions made in respect of testing and quality-control charges of ₹8,60,35,052 and ₹12,21,81,257 respectively. The assessee received these amounts from GE Motors India Ltd. (“GEMIL”) in connection with electric motors supplied by GEMIL under a warranty arrangement. Upon receipt of the motors in the United States, the assessee undertook testing and quality-control checks to verify whether the motors conformed to the prescribed quality and performance standards applicable in that market. Where a defect was noticed, the relevant component was repaired or replaced and the corresponding testing, repair and replacement costs were recovered from GEMIL. The testing and repair activities were carried out entirely in the United States.

20.1. The Assessing Officer treated the receipts as fees for included services under Article 12(4)(b) of the India-USA DTAA, observing that by conducting testing, quality checks and repairs, the assessee made available knowledge, experience, skill, know-how or processes which GEMIL could use in its business. The TPO simultaneously included the transaction among the support services and applied a mark­up of 13.64%, comprising the service mark-up of 12.36% and an interest component of 1.28%. The learned CIT(A), however, found that the assessee had merely carried out quality-control checks to ensure that the motors supplied by GEMIL met the required standards. Although technical inputs may have been employed by the assessee in performing those checks, no technical knowledge, experience, skill, know-how or process was transmitted to GEMIL. He accordingly deleted both the substantive addition and the corresponding service mark-up, while dealing separately with the interest component.

20.2. Before us, learned Departmental Representative supported the assessment order and submitted that testing and quality-control services necessarily involved specialised technical knowledge and that the benefit of such knowledge was made available to GEMIL. Learned counsel submitted that GEMIL received only the result of the testing exercise and, where necessary, repaired or replaced components. No testing protocol, technical design, methodology or process was transferred to GEMIL, nor was it enabled to carry out the testing independently thereafter. Reliance was placed upon the decision of the Hon’ble Delhi High Court in PCIT (International Taxation) v. Goodrich Corporation [2025] 175 taxmann.com 177 (Delhi), wherein receipts for repair and maintenance of aircraft equipment outside India were held not to satisfy the “make available” condition in Article 12(4) of the India-USA DTAA.

20.3. The expression “make available” requires something more enduring than the mere provision of a service or communication of its result. The recipient must acquire the technical knowledge, experience, skill, know-how or process in such a manner that it can apply the same independently in future without having to seek the service provider’s assistance for substantially the same function. The Memorandum of Understanding accompanying the India-USA DTAA clarifies that the fact that the service provider has employed technical knowledge in rendering a service does not, by itself, establish that such knowledge has been made available. The distinction is between a service which is technically performed and a service through which technical capability is transmitted. 20.4. In the present case, the material referred to by the lower authorities does not show that the assessee supplied to GEMIL any testing protocol, technical manual, design, methodology or know-how capable of independent future application. The activity was undertaken by the assessee in the United States in relation to motors purchased from GEMIL, principally to ascertain whether the products conformed to the required standards. GEMIL received the outcome of that examination and bore the costs of testing, repair or replacement under the warranty arrangement. The mere communication that a motor or a component had failed a prescribed standard cannot be equated with transmission of the technical process by which the failure was detected. The Assessing Officer has stated that GEMIL used the knowledge in its business, but has not identified what technical knowledge was transmitted, how it was transmitted or how GEMIL was thereby enabled to undertake the testing independently.

20.5. In PCIT (International Taxation) v. Goodrich Corporation (supra), the Hon’ble Delhi High Court upheld the finding that offshore repair and maintenance of aircraft equipment did not constitute fees for included services merely because technical expertise was applied in carrying out the repairs. The equipment was sent to the service provider’s facility in the United States, repaired there and returned to the Indian customer; in the absence of any technical knowledge or capability being transmitted to the customer, Article 12(4) was held inapplicable. The present case stands on a similar footing. The technical expertise remained with the assessee and was utilised by it in carrying out testing and qualitycontrol checks; it did not travel to GEMIL merely because GEMIL received the result of those checks.

20.6. We also agree with the learned CIT(A) that the consequential transfer-pricing adjustment relating to the service mark-up cannot survive. This conclusion does not follow merely from the deletion of the substantive addition. The more fundamental reason is that any amount determined by enhancing the consideration for the same testing activity would retain the character of the underlying receipt. Once the receipt constitutes business profit and the assessee admittedly has no permanent establishment in India, an arm’s-length enhancement of its quantum cannot create a permanent establishment or independently confer a taxing right upon India under Article 7. The interest component has already been adjudicated while deciding Ground No.2 in the assessee’s appeals. We accordingly uphold the order of the learned CIT(A) and dismiss Ground No.2 in ITA No.1340/Mum/2009 and Ground No.1 in ITA No.1341/Mum/2009.

21. Ground No.3 in both the Revenue’s appeals concerns reimbursement of visa and immigration-related expenses amounting to ₹10,90,789 for assessment year 2003-04 and ₹24,85,020 for assessment year 2004-05. The assessee had initially incurred expenditure through independent immigration and visa consultants, including Fragomen, Del Rey, Bernsen & Loewy LLP, for processing visa applications, immigration documents, work permits and travel-related formalities of employees of the Indian General Electric entities who were required to travel outside India for business purposes. The corresponding expenditure was recovered from the concerned Indian affiliates without any mark-up. The sample invoices and the profile of the service providers placed in the paper book show that the underlying activities related to immigration filings, visa processing, regulatory permissions, relocation assistance and employee mobility support.

21.1. The Assessing Officer treated the reimbursement as fees for technical services principally on the reasoning that the expenditure related to employees travelling for training or onjob assignments and was therefore incidental to training or secondment services. He also observed, without identifying any separate component, that there was a profit motive embedded in the reimbursement. In support, he referred to Hindalco Industries Ltd. v. ACIT [2005] 94 ITD 242, Timken India Ltd., In re [2005] 273 ITR 67 (AAR) and Danfoss Industries (P.) Ltd., In re [2004] 268 ITR 1 (AAR). The learned CIT(A), after referring to Article 12(4) and the Memorandum of Understanding accompanying the India-USA DTAA, held that the services did not make available any technical knowledge or process and that, in the absence of a permanent establishment, the receipts could not be taxed as business profits in India.

21.2. On an examination of the material placed on record, we find that the very factual premise adopted by the Assessing Officer is not borne out. The visa and immigration expenses arose under an arrangement distinct from the soft-skills training and any alleged secondment arrangement considered elsewhere in the assessment order. The expenses were incurred through independent immigration professionals for processing statutory and administrative formalities and were recovered from the beneficiary entities. No material has been brought on record to demonstrate that the recovery exceeded the actual cost or contained any identifiable profit element. The statement that a profit motive existed cannot take the place of a finding, founded upon the invoices or the contractual arrangement, that an amount over and above the third-party cost was recovered. Reimbursement does not assume the character of income merely because the expenditure was centrally incurred; what is material is whether the recovery contains an income element or represents consideration for an independently rendered service, neither of which has been demonstrated here.

21.3. Even otherwise, the receipts do not satisfy Article 12(4)(b). Assistance in obtaining visas, preparing immigration documentation, applying for work permits and facilitating employee relocation does not transmit to the Indian affiliate any technical knowledge, experience, skill, know-how or process which it can thereafter apply independently. These are administrative and professional support activities performed upon the requirements of each employee and each jurisdiction. The fact that an immigration professional may possess specialised experience does not mean that such experience stands transferred to the person for whom a visa application is processed.

21.4. In US Technology Resources (P.) Ltd. v. CIT [2018] 97 taxmann.com 642 (Ker.), the Hon’ble Kerala High Court explained, in the context of the India-USA DTAA and its Memorandum of Understanding, that Article 12(4) does not extend to every managerial or advisory service and is confined to technical or consultancy services satisfying the treaty conditions. Likewise, in InterContinental Hotels Group (Asia Pacific) Pte. Ltd. v. ACIT [2021] 133 taxmann.com 99 (Delhi– Trib.), services that included assistance in obtaining visas, work permits and defining relocation requirements were held not to satisfy the “make available” condition. We, therefore, find that the learned CIT(A) reached the correct conclusion. The receipts represent reimbursement of expenditure without any established income element and, independently, do not constitute fees for included services under Article 12(4). Ground No.3 in both the Revenue’s appeals is dismissed.

22 Ground No.4 in both the Revenue’s appeals relates to soft-skills and management training receipts of ₹69,56,190 for assessment year 2003-04 and ₹97,25,632 for assessment year 2004-05. The programmes were conducted for employees of Indian General Electric entities and included the Information Management Leadership Programme Boot Camp, leadership-development programmes,  managerial- effectiveness courses, communication and presentation workshops, business-writing skills, project-management orientation and other behavioural and professional-development programmes. The sample invoices identify the nature of the courses and the nominated participants, while the training material placed in the paper book indicates that the programmes were directed towards leadership, communication, employee development and managerial effectiveness.

22.1. The Assessing Officer treated the entire receipts as fees for included services on the reasoning that leadership and managerial training made available knowledge, experience and skill to the participants. The learned CIT(A), referring to Article 12(4) and the accompanying Memorandum of Understanding, held that managerial services were not, on that account alone, covered within the definition of fees for included services and that the programmes did not make available technical knowledge, experience, skill, know-how or processes. In the absence of a permanent establishment of the assessee in India, the corresponding business receipts were held not taxable.

22.2. The Revenue’s reasoning proceeds as if the acquisition of any skill or improvement in professional competence is sufficient to attract Article 12(4)(b). The provision, however, does not employ the word “skill” in isolation. It refers to technical knowledge, experience, skill, know-how or processes and must be construed in the setting of technical or consultancy services contemplated by Article 12(4). The treaty does not separately include managerial services within the definition of fees for included services. Therefore, every course which enables an employee to communicate better, lead a team more effectively or understand organisational practices cannot be characterised as a technical service merely because the employee gains some knowledge from it.

22.3. It is possible for specialised technical training to transmit technology or a technical process capable of future independent application. Hence, no general proposition can be laid down that training services would invariably fall outside Article 12(4)(b). The character of each programme must be determined from its contents and the capability transmitted. Here, the subjects comprise leadership development, business communication, writing and presentation skills, managerial effectiveness, project orientation and behavioural competencies. The Revenue has not identified any scientific or technological knowledge, technical design, specialised process or know-how transferred to the participants. Improvement in managerial or interpersonal ability is qualitatively different from the transfer of technical capability contemplated by the Treaty. Our conclusion is confined to the programmes and training material placed before us and should not be understood as laying down that specialised technical training can never fall within Article 12(4)(b).

22.4. In Russell Reynolds Associates Inc. v. DCIT [2022] 137 taxmann.com 443 (Delhi–Trib.), training and workshops conducted for newly recruited consultants, intended to familiarise them with their responsibilities, business model, policies and working procedures, were held not to constitute fees for included services because no technical knowledge, process, plan or design was transferred. The same principle applies here. While the participants may undoubtedly have benefited from the programmes, the benefit was in the field of general managerial and behavioural development and not the acquisition of any technical process or technology capable of independent application. We accordingly uphold the deletion made by the learned CIT(A). Ground No.4 in ITA No.1340/Mum/2009 and Ground No.4 in ITA No.1341/Mum/2009 are dismissed. The deletion of the corresponding service-mark-up adjustment also follows for the reasons recorded in paragraph 20.6 above; the Revenue has, in any event, not raised a separate and specific challenge to that component for assessment year 2003-04.

23. Ground No.5 in the Revenue’s appeal for assessment year 2003-04 challenges the deletion of the transfer-pricing adjustment in respect of lease rentals. The assessee leased certain aircraft engines in the United States to its associated enterprise, GE Packaged Power Inc. (“GEPP”), also a company incorporated and fiscally domiciled in the United States. The assessee received lease rentals of USD 302,410, equivalent to ₹1,43,25,162, from GEPP. GEPP, in turn, sub-leased the engines to Larsen & Toubro Ltd., an unrelated Indian entity, for USD 368,658, equivalent to ₹1,74,63,329. The lease rentals paid by Larsen & Toubro Ltd. to GEPP were subjected to deduction of tax in India pursuant to certificates issued under section 197.

23.1. The TPO treated the onward sub-lease rental charged by GEPP to Larsen & Toubro Ltd. as a comparable uncontrolled price and determined the difference at ₹31,38,167. After including a further interest loading, the total adjustment was quantified at ₹33,61,698. The Assessing Officer taxed the adjustment as royalty under Article 12, substantially on the footing that Larsen & Toubro Ltd. had paid lease rentals to GEPP and had deducted tax therefrom in India. The learned CIT(A) held that the rentals received by the assessee from GEPP were not taxable in India and that an arm’s-length adjustment in respect of a receipt which was itself beyond the Indian taxing jurisdiction could not be sustained. He, however, separately sustained ₹43,029 as an interest component by applying 1.28%.

24. The assessee’s contention that the transaction between it and GEPP does not constitute an international transaction merely because both parties are non-residents cannot be accepted. Section 92B applies to a transaction between two or more associated enterprises where either or both are nonresidents. A transaction between two non-resident associated enterprises can, therefore, fall within the statutory definition. However, the ability to determine an arm’s-length price and the chargeability of the resulting income in India are separate questions. Chapter X can substitute an arm’s-length quantum for the consideration recorded between associated enterprises, but such substitution does not relieve the Revenue of establishing that the income, so computed, is chargeable to tax in India under the Act read with the applicable DTAA.

24.1. The transaction under consideration is the lease between GEC and GEPP. The payer under that transaction is GEPP, a resident of the United States, and the recipient is the assessee, also a resident of the United States. Article 12(7)(a) of the India-USA DTAA provides that royalties shall be deemed to arise in a Contracting State where the payer is that State itself, a political subdivision, local authority or a resident of that State. An exception applies where the payer, irrespective of its residence, has a permanent establishment or fixed base in a Contracting State in connection with which the liability to pay the royalty was incurred and the royalty is borne by such permanent establishment or fixed base. There is no finding that GEPP’s liability to pay the rentals to the assessee was incurred in connection with or borne by a permanent establishment or fixed base of GEPP in India. Applying the source rule in Article 12(7)(a), the payment by GEPP to the assessee cannot be regarded as royalty arising in India.

24.2. The subsequent sub-lease between GEPP and Larsen & Toubro Ltd. is a separate transaction. Taxability of the rentals received by GEPP from Larsen & Toubro Ltd. and the deduction of tax by the latter pertain to that transaction. They do not change the residence of the payer under the preceding GEC–GEPP lease, nor do they establish that GEPP’s liability to GEC was borne by an Indian permanent establishment. The source of one payment cannot be attributed to another merely because the subject-matter of the two transactions is the same equipment. The Assessing Officer has, in fact, not taxed the lease rentals of ₹1,43,25,162 actually received by the assessee from GEPP. Having accepted that the underlying receipt was not chargeable in India, the Revenue cannot tax only the incremental amount computed by the TPO without demonstrating how that increment acquires a source in India different from that of the underlying receipt.

24.3. Even assuming that the onward rental charged by GEPP to Larsen & Toubro Ltd. could furnish an appropriate benchmark after considering the functions performed, assets employed and risks assumed by GEPP, the adjustment would only alter the amount receivable by the assessee from GEPP. It cannot alter the identity and residence of the payer or displace Article 12(7)(a). The learned CIT(A) was, therefore, justified in deleting the lease-rental adjustment. Ground No.5 in ITA No.1340/Mum/2009 is dismissed.

25. As regards the separate interest component of ₹43,029 sustained by the learned CIT(A), it was computed by applying 1.28% to the lease-rental adjustment. The TPO’s total adjustment of ₹33,61,698 had itself been derived after incorporating an interest element over the rental difference of ₹31,38,167. A further application of 1.28% to the composite adjustment would result in an unexplained duplication. More fundamentally, no invoice-wise delay, agreed credit period, date of recovery or enforceable liability to pay interest has been identified in relation to this lease transaction. For the reasons already recorded while deciding Ground No.2 in the assessee’s appeals, such a notional interest component cannot be sustained. To the extent the amount of ₹43,029 forms part of the interest adjustment challenged by the assessee for assessment year 2003-04, it shall stand deleted. The Assessing Officer is directed to ensure that neither the base lease-rental difference of ₹31,38,167 nor any interest loading forming part of the stated total of ₹33,61,698, nor the further sum of ₹43,029, is retained while giving effect to this order. 26. Ground No.6 in the Revenue’s appeal for assessment year 2003-04 and Ground No.5 in its appeal for assessment year 2004-05 challenge the deletion of interest levied under section 234B amounting to ₹1,93,04,618 and ₹84,80,880 respectively. The learned CIT(A) held that the income sought to be assessed in the hands of the non-resident represented payments from which tax was deductible at source under section 195 and, therefore, the assessee could not be held liable for failure to pay advance tax on such income. The Revenue contends that the levy is mandatory and that the assessee was obliged to discharge its advance-tax liability irrespective of the payer’s failure to deduct tax.

26.1. The issue is now concluded by the decision of the Hon’ble Supreme Court in DIT v. Mitsubishi Corporation [2021] 438 ITR 174 (SC). The Hon’ble Supreme Court held that, for the period preceding the amendment made by the Finance Act, 2012, tax deductible or collectible at source was required to be reduced while computing the advance tax payable under section 209(1)(d). A non-resident recipient could not be saddled with interest under section 234B merely because the payer failed to discharge the obligation to deduct tax at source. The same principle was earlier enunciated by the Hon’ble jurisdictional High Court in DIT v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.).

26.2. The assessment years before us are 2003-04 and 200405 and are, therefore, governed by the law applicable prior to the amendment introduced by the Finance Act, 2012. The receipts which the Assessing Officer sought to tax in the hands of the assessee were payments to a non-resident upon which tax, if chargeable, was deductible under section 195. This position remains the same even in respect of the installation and commissioning receipt for assessment year 2003-04, the corresponding ground concerning which has been dismissed as not pressed. The assessee could, therefore, take into account the tax deductible at source while computing its advance-tax liability and could not be visited with interest under section 234B for the payer’s failure, if any, to deduct such tax. The learned CIT(A) was justified in deleting the levy. Ground No.6 in ITA No.1340/Mum/2009 and Ground No.5 in ITA No.1341/Mum/2009 are accordingly dismissed. The corresponding grounds raised in the assessee’s appeals are consequential and stand disposed of in the same terms.

27. Before parting, we may observe that each category of receipt has been examined on its own contractual and factual attributes. The conclusion that the connectivity, testing, visa-support and managerial-training receipts are not taxable in India does not proceed merely from the nomenclature assigned by the assessee or from the fact that some amounts were recovered without a mark-up. It follows from the nature of the rights, services and capabilities actually provided. The connectivity arrangements conferred no right in the telecommunication network or process; the testing activity did not transmit the methodology or technical capability employed by the assessee; the visa-related expenditure represented a recovery of administrative and immigration-support costs without any demonstrated income element; and the training programmes were managerial and behavioural rather than technical in the treaty sense. Equally, the software receipts are outside the royalty provision because no copyright right was transferred, while the lease-rental adjustment fails because an arm’s-length substitution cannot displace the specific source rule contained in Article 12(7)(a). The conclusions reached are thus confined to the transactions and material placed before us for the relevant assessment years.

28. In the result:

(i) the assessee’s appeal in ITA No.1414/Mum/2009 for assessment year 2003-04 is partly allowed;

(ii) the assessee’s appeal in ITA No.1415/Mum/2009 for assessment year 2004-05 is allowed; and

(iii) the Revenue’s appeals in ITA Nos.1340/Mum/2009 and 1341/Mum/2009 for assessment years 2003-04 and 2004-05 respectively are dismissed.

Order pronounced on 31st August, 2026.