ITAT held that Considering the assessment order of the AO wherein he has followed the findings given in earlier assessment years and considering the fact that the same agreement is being carried on since A.Y.2005-06, we do not find any reason in differing with the view taken by this Tribunal (supra), therefore, respectfully following the finding of the coordinate Bench (supra) we hold that the royalty from BREW Operator agreement is not chargeable to tax in the hands of the assessee and also the revenue received under the test tools We direct the AO to delete the impugned additions.
FULL TEXT OF THE ORDER OF ITAT DELHI
ITA No.660/Del/2019 and 191/Del/2021 are two separate appeals by the assessee preferred against the two separate orders of the CIT(A)-43, New Delhi dated 03.05.2019 and 05.02.2020 pertaining to A.Y.2015-16 and 2016-17 respectively.
2. Since common grievances are involved in these appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity.
3. The common grievance relates to :-
1) Treating revenue received by the assessee under the BREW agreement as taxable under the provisions of article of India-US DTAA.
2) Treating revenue received by the assessee under the test tool agreements as income of the assessee.
4. At the very outset the counsel for the assessee stated that both the issues have been considered and decided by this Tribunal in earlier assessment years in favour of the assessee and against the revenue.
5. The DR strongly objected to this submission of the It is the say of the DR that the CIT(A) has elaborately discussed the facts of the case in hand and distinguish the judgment of Infrasoft which has been relied upon by the Tribunal in earlier assessment years.
6. We have given a thoughtful consideration to the rival contentions and have carefully perused the orders of the authorities below. We find force in the contention of the counsel. The AO himself has discussed the assessment proceedings of earlier assessment The relevant querry raised during the assessment proceedings read as under :-
6. During the assessment proceedings, the assessee was required to explain:
(a) / Why the revenue received by QTI under the BREW agreements should not be taxable as Royalty under the provision of section 9(1)(vi)(c) of IT Act, 1961 and Article 12 of the India USA DTAA?
(b) Why the revenue received under test Tools agreement should not be taxable as Royalty under the provision of section 9(1)(vi)(c) of the Act and Article 12 of the treaty?
(c) Why the assessment may not be completed on the basis of assessment for A.Y 2014-15 in case of the assessee company as the assessee is providing the services on the basis of same agreement after reorganization of the group.
(d) The assessee company has received an amount of 10,23,76,889/- from different Indian entities under the Brew agreement, test tool agreement and ultrason agreement during the year. The facts and circumstances of the case, services rendered and the amount received are identical to that of earlier years i.e, 2013:14 and 2014-15. In those earlier years the amount received against the above agreement was software license fee and test tools which was treated as royalty. In view of above please show cause as to why the same view may not be treated for this year also and the above amount of Rs. 10,23,76,889/- may not be treated as royalty and may not be taxed as per provisions of Section 9(1)(vi) of IT Act, 1961 and under Article 12 of DTAA between India and USA as the amount was received against the grant of license to manufactured the various products for the right to use products of assessee’s intellectual property portfolio which includes certain software right essential to and/ or useful in the manufacture and sale of certain wireless products.
7. After considering the submissions of the assessee the AO discussed the assessment history as under :-
9. Assessment History
In the earlier years, in case of Qualcomm, the AO made the following observations which are also identically applicable in assessee’s case for the current assessment year:
(a) The payment received by the assessee under the BREW operator Software agreements qualifies as royalty as per Indian Income Tax Act as well as India-US DTAA. The reasons have been mentioned in detail in the assessment orders for AY 2008-09 and 2011-12.
(b) The income of the assessee from licensing of BREW software Indian operators is taxable under section 9(1) (vi)of the I.T. Act and under article 12 of Indo -US DTAA.
(c) (i) Section 9(1 )(vi) of the I.T. Act is a deeming provision seeking to tax royalty payable by one non-resident to another non-resident in relation to income earned from a source in India. Under the provisions of section 9(1) (vi) (c) of the I.T. Act, it is not mandatory to bring the payer to tax before initiating the proceedings against the person receiving royalty income.
(ii) In terms of Article 12(7) (b) of the DTAA between India and USA, the royalty arising to QTI is clearly taxable in India. The relevant article is reproduced as under:-
“Where under sub-paragraph (a), royalties or fees for included services do not arise in one of the contracting states, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the contracting states, the royalties or fees for included services shall be deemed to arise in that contracting state.”
In view of above, Hon’ble DRP has confirmed the proposed additions of Royalty made on account of revenue received through BREW Operator Agreements in earlier years in case of M/s Qualcomm Incorporated.
Hence, the reasoning given in the earlier years orders in case of Mis Qualcomm Incorporated as confirmed by CIT (A) and DRP is followed in the current year also.
8. In so far as the grievance raised vide ground no. 2 is concerned the AO’s findings are as under :-
“11.5 As per assessee’s own submission, the amount received under Test Tools’ represents annual maintenance fee for the software. During AY 2015-16, there is no element of hardware in the said receipts. Therefore, the contention of the assessee is not acceptable. In view of the above it is clear that the nature of the amount received towards the annual maintenance of software is nothing but falls under the category of royalty. Therefore, the amount received under the head Test Tools’ is taxable as royalty under the provisions of IT Act, 1961 and also under the Indo-USA DTAA.
11.6 Further, the amount of 6,20,50,000/- received on account of development of Ultrason Software from Reliance Jib Infocomm Limited is nothing but the amount received under the test tool agreement (para 2.5 of assessee’s reply dated 01.11.2017). The facts of the agreement with Reliance Jio Infocomm Limited are identical and has same spirit. Hence, the same is also treated as Royalty under the provisions of IT Act, 1961 and also under the Indo-USA DTAA as mentioned above.
11.7 in the view of the above discussions the income of the assessee from licensing of BREW software, under the head Test Tools and development of Ultrason Software is taxable under section 9(1) (vi ) of the T.Act and under article 12 of Indo – US DTAA.
9. A perusal of the past history of the assessee show that the impugned quarrel started from A.Y.2005-06 and this Tribunal in ITA 3701 and 3702/Del/2009, 5343/Del/2010 and 4608/Del/2011 for A.Y.2005-06 to 2008-09 has considered the quarrel and held as under :-
10. Further in ITA 7231/Del/2017 for A.Y.2014-15 this Tribunal following the earlier orders of the coordinate bench held as under :-
11. In so far as the second issue is concerned the coordinate Bench held as under :-
12. Considering the assessment order of the AO wherein he has followed the findings given in earlier assessment years and considering the fact that the same agreement is being carried on since A.Y.2005-06, we do not find any reason in differing with the view taken by this Tribunal (supra), therefore, respectfully following the finding of the coordinate Bench (supra) we hold that the royalty from BREW Operator agreement is not chargeable to tax in the hands of the assessee and also the revenue received under the test tools We direct the AO to delete the impugned additions.
13. In the result, both the appeals filed by the assessee are allowed on the grounds argued before us.
14. Decision announced in the open court in the presence of both representatives on 16.11.2021.