The ACIT, 3(1), v. M/s V A Tech Hydro India P. Ltd.,

1 BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI V.K. GUPTA ACCOUNTANT MEMBER ITA NOS.112 TO 115/IND/07 A.YS 1999-00 TO 2002-03 ASSTT. COMMR. OF INCOMETAX 3(1) BHOPAL APPELLANT VS M/S V.A. TECH HYDRO INDIA (P)LTD. MANDIDEEP DISTT. RAISEN PAN BPLV00336A RESPOND ENT DEPARTMENT BY SHRI K.K. SINGH CIT DR ASSESSEE BY SHRI S.S. DESHPANDE AND SHRI R.N . GUPTA DATE OF HEARING 9.4.2010 O R D E R PER BENCH THESE APPEALS BELONGING TO THE SAME ASSESSEE ARE FILED BY THE REVENUE AND INVOLVE COMMON ISSUES HENCE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CON SOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PER USED THE MATERIAL ON RECORD. FOR THE SAKE OF READY REFERENCE WE REPRODUCE THE GROUND RAISED BY THE REVENUE IN ITA NO. 112/IND /07 :- 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAS ERRED IN :- 1. CENCELLING THE DEMAND RAISED U/S 201 FOR NON DEDUCTION OF TAX AT SOURCE AMOUNTING TO RS.41 41 83 1/- AND DEMAND RAISED U/S 201(1A) FOR INTEREST DEFAULT OF RS.31 85 723/- HOLDING THAT THE PAYMENTS FOR DESIGN MADE TO NON-RESIDENT COMPANY BY THE INDIAN ASSESSEE COMPANY ARE NOT IN THE NATURE OF ROYALTY AND NO TAX NEEDS TO BE DEDUCTED U/S 195 OF THE INCOME TAX ACT. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPA NY IS A MANUFACTURER OF DYDROELECTRIC AND TURBO-GENERATORS FOR HYDEL AND TURBO PROJECTS AND SELLING THE SAME IN INDIA AND AB ROAD. THE ASSESSEE IS A 100% SUBSIDIARY OF VA TECH HYDRO GMBH AUSTRIA FROM 1.4.2001. VA TECH HYDRO IS AN ESTABLI SHED NAME IN THE WORLD IN THE FIELD OF MANUFACTURING AND ERECTIO N OF HYDRO AND TURBO PROJECTS SINCE LAST ABOUT 100 YEARS. THE ASSE SSING OFFICER ON SCRUTINY OF BOOKS OF ACCOUNTS OF THE ASSESSEE CO MPANY AND FORM NO. 27 FOR THE ASSESSMENT YEARS IN QUESTION FOUND THAT THOUGH THE ASSESSEE COMPANY HAS SPENT HUGE AMOUNTS AS EXPENDITURE ON TECHNICAL DRAWINGS AND DESIGNS ON AC COUNT OF PAYMENTS TO PARENT COMPANY NEITHER THE TAX WAS DED UCTED AT SOURCE NOR THE ASSESSEE COMPANY OBTAINED NO DEDUCT ION CERTIFICATE FROM THE ASSESSING OFFICER. THE ASSESS ING OFFICER CALLED FOR THE EXPLANATIONS OF THE ASSESSEE AND AFT ER CONSIDERING THE SAME MADE THE FOLLOWING OBSERVATIONS :- 3 6.1 ARGUMENTS OF THE ASSESSEE ARE HOVERING AROUND INCORRECT REASONING THAT A) IT HAS PURCHASED THE DESIGN ON OUT RIGHT BASIS AS COMMODITY AND B) ON THE DICTIONARY MEANING OF ROYALTY. 6.2. ROYALTY HAS BEEN GIVEN WIDER MEANING BOTH IN T HE INCOME TAX ACT AND DTAA WHICH INCLUDES PAYMENT FOR DESIGN/DRAWING. ASSESSEE HAS RELIED ON JUDGMENT IN THE CASE OF CIT V/S DAVY ASHMORE INDIA LTD. 190 ITR CIT VS. NEYVELI LIGNITE CORPORATION LTD. 2 43 ITR 459 ETC. HOWEVER THESE CASES ARE DISTINGUISHAB LE ON FACTS WHICH ARE DIFFERENT AND NOT OF ANY SUPPORT TO THE ASSESSEE. THE DESIGN PURCHASED BY THE ASSESSEE ARE NOT IN RESPECT OF COMMISSIONING OF PLANT BUT TH ESE ARE IN RESPECT OF A PARTICULAR GENERATOR WHICH IS B EING MANUFACTURED AND SOLD TO THE CUSTOMERS. SUCH DESIGN S ARE PURCHASED SEPARATELY FOR EVERY GENERATOR THE ASSESSEE HAS MANUFACTURED SO FAR. IN THESE CASE LA WS THERE WAS AN OUTRIGHT PURCHASE OF PLANT ALONG WITH DESIGN THROUGH A BID PROCESS. WHERE AN ASSESSEE IS GETTING THE DESIGN PREPARED FOR EVERY GENERATOR FRO M THE PARENT AUSTRIAN COMPANY. ASSESSEES ARGUMENTS AREBASELESS AND DENYING THE BASIC DEFINITION OF ROY ALTY AS MENTIONED IN ARTICLE 12 OF DTAA AND EXPLANATION 2 TO SECTION 9(VI) OF THE I.T. ACT ACCORDING TO WHIC H PAYMENTS IN THE HEAD OF DESIGN IN REFERENCE TO ASSESSEES CASE IS WITHIN THE AMBIT OF THE DEFINITI ON OF ROYALTY AS PROVIDED THEREIN. IN FACT THE CASE ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES COMPANY LTD. IN RE (AAR) 271 ITR 193 MAKES THE POSITION OF TAXABILITY CLEAR. 6.3. THE NON-RESIDENT AUSTRIAN PARENT COMPANY IS NO T MARKETING DESIGN AS GOODS FOR SALE TO ALL. AND AL SO THE ASSESSEE COMPANY V A TECH INDIA IS NOT KEEPIN G NOR HAS ANY INTENTION TO KEEP THE DESIGN AS GOODS. IT IS IN FACT MORE LIKE A SECRET FORMULA. THE WEB SIT E OF THE ASSESSEE COMPANY GIVES THE DETAILS ABOUT THE ALGORITHMS AND THE DESIGN PROCESS (ENCLOSED AS ANNEXURE A). THAT DESIGN IS BEING USED BY IT TO MANUFACTURE THE END PRODUCT (GENERATOR) WHICH IS MEANT FOR SALE AFTER THAT IT IS OF NO USE TO THE AS SESSEE. THEREFORE DESIGN OF A GENERATOR CANNOT BE EQUATED 4 WITH SOFTWARE PACKAGE OR ANY OTHER COPY RIGHTED ARTICLES WHOSE UNLIMITED NUMBER CAN BE SOLD IN MARK ET. 6.4. NO OUTRIGHT SALE OF DESIGNS HAS TAKEN PLACE. I T IS ONLY THE LIMITED USE FOR MANUFACTURING THAT THE ASSESSEE COMPANY IS HOLDING AUTHORITY TO USE DESIGN. ASSESS EE COMPANY CANNOT PURCHASE THESE DESIGN FROM ANY OTHER THIRD COMPANY AS THE TRADE NAME UNDER WHICH ASSESSEE COMPANY AND NON-RESIDENT AUSTRIAN COMPANY ARE MANUFACTURING AND SELLING THE GENERATOR IS SAME AND BOTH THE COMPANIES ARE KNOWN FOR THEIR SPECIFIC DESIGNS OF GENERATORS. IT HAS SPECIFICALL Y BEEN MENTIONED ON THE DESIGNS THAT IT IS THE PROPERTY OF THE PARENT AUSTRIAN COMPANY. THE ASSESSEE HAD RIGHT TO USE A PARTICULAR DESIGN FOR SINGLE TIME. THE ASSES SEE HAS BEEN BARRED TO SALE THE DESIGN AS SUCH TO ANOTH ER MANUFACTURER BY THE SPECIFIC CONDITION AND WARNING PRINTED ON THE DESIGN. WHEN THE DESIGN CANNOT BE SOLD AS ABOVE HOW IT CAN BE TERMED AS OUTRIGHT PURCHASE AS CLAIMED BY THE ASSESSEE. THUS THE ASSESSEE HAS ONLY BEEN GIVEN THE RIGHT TO USE THE DESIGN. 6.5. THE DESIGNS ARE NOT PURCHASED THROUGH OPEN TEN DER OR BID BECAUSE ASSESSEE IS MANUFACTURING GENERATORS WITH A UNIQUE TECHNOLOGY WHICH IS POSSESSED BY THE PARENT AUSTRIAN COMPANY ONLY HENCE THE DESIGNS ARE SPECIFIC TO THE PARENT COMPANY. BECAUSE OF THIS SPECIAL RELATIONSHIP ASSESSEE IS BOUND TO PURCHASE THE DESIGN FROM ITS PARENT AUSTRIAN COMPANY ONLY. THE DESIGN IS FIRST RECEIVED THROUGH INTERNET AND ITS H ARD COPY ALONG WITH BILL IS RECEIVED THROUGH CUSTOMS TO JUSTIFY THE PAYMENTS MADE TO THE PARENT COMPANY FRO M THE ANGLE OF ALLOWABILITY OF EXPENDITURE. 6.6. THERE IS NO AGREEMENT/TERMS AND CONDITIONS IN PURCHASE OF THE DESIGNS FROM THE PARENT AUSTRIAN COMPANY. ASSESSEE IS JUST PLACING THE ORDERS FOR SUPPLY OF THE DESIGNS TO ITS PARENT COMPANY AND IN EACH CASE THE COST OF THE DESIGN IS ALSO DETERMINED BY THE AUSTRIAN COMPANY ON ITS OWN PARAMETERS. 6.7. THE DESIGN PURCHASED BY THE COMPANY ARE NOT AVAILABLE OFF THE SHELF. THESE DESIGNS ARE PREPARED AND SUPPLIED EXCLUSIVELY AS PER THE SPECIFICATION AND 5 REQUIREMENTS OF THE CUSTOMERS WHICH IS PROVIDED TO AUSTRIAN COMPANY BY THE ASSESSEE. AS INFORMED BY THE ASSESSEE THESE DESIGNS ARE DIFFERENT FOR EACH GENERATOR ASSESSEE HAS MANUFACTURED. 6.8. INCOME IS ARISING TO THE PARENT AUSTRIAN COMPA NY ON SALE OF GENERATORS BY ITS 100% SUBSIDIARY COMPANY I N INDIA ORDERS FOR WHICH ARE RECEIVED IN INDIA AND B EING MANUFACTURED IN INDIA AS PER DESIGNS PROVIDED BY TH E PARENT AUSTRIAN COMPANY. ASSESSEE COMPANY HAS NOT OBTAINED THE DESIGN FROM ANYWHERE ELSE AND IT MANUFACTURES EVERY GENERATOR ON THE DESIGN PROVIDED BY THE PARENT AUSTRIAN COMPANY ONLY. THUS THE INCOME IS ACCRUING/ARISING IN INDIA DIRECTLY THROUG H BUSINESS CONNECTION OF AUSTRIAN COMPANY WITH ITS 100% SUBSIDIARY COMPANY IN INDIA AS ENVISAGED IN SECTION 9(1)(VI) OF THE INCOME TAX ACT 1961 AND AR TICLE 12(2) OF THE DTAA. 6.9. THE LEGAL PROVISIONS HAVE BEEN EXAMINED IN PAR A 2 SUPRA AND THE DTAA IN PARA 3. THE PAYMENT MADE BY ASSESSEE COMPANY IS COVERED IN DEFINITION OF ROYALT Y AS PER DTAA WHICH DEFINES ROYALTY AS CONSIDERATIO N FOR THE USE OF OR THE RIGHT TO USE DESIGN OR MODEL PLAN SECRET FORMULA OR PROCESS INFORMATION CONCERNING INDUSTRIAL COMMERCIAL OR SCIENTIFIC EXPERIENCE. 6.10. THE PAYMENT MADE BY ASSESSEE COMPANY IS ALSO COVERED IN DEFINITION OF ROYALTY AS PER IT ACT 19 61 EXPLANATION 2 SECTION 9(1)(VI); EXPLANATION 2.- FOR THE PURPOSE OF THIS CLAUSE ROYALTY MEANS ..(II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKIN G OF..DESIGN SECRET FORMULA OR PROCESS 6.11. THE FACTS ALONG WITH THE CASE LAWS HAVE BEEN EXAMINED IN PARA 4 AND 5. AFTER THE DETAILED EXAMINATION OF FACTS AND CIRCUMSTANCES OF THE CASE IT IS HELD THAT VA TECH HYDRO INDIA PVT. LTD. HAS FAILED TO DEDUCT TAX ON SUMS PAID TO THE PARENT AUSTRIAN COMPANY WHICH WAS CHARGEABLE TO TAX WITHIN INDIA BY VIRTUE OF THE IT ACT 1961 AND AS PER THE PROVISION S OF DTAA BETWEEN INDIA AND AUSTRIA. 6 6.12. ASSESSEE COMPANY IS MANUFACTURING GENERATOR A ND ITS ACCESSORIES I.E. ONLY THE ELECTRICAL PART OF THE CO MPLETE TURN KEY PROJECT FOR GENERATION OF ELECTRICITY. TU RBINE IS MANUFACTURED BY THE VATECH ESCHER VYAS FLOVAL LTD. FARIDABAD WHICH IS AGAIN AUSTRIA 100% SUBSIDIARY COMPANY OF AUSTRIA IN INDIA. INTERNATION AL ORDERS FOR SUPPLY OF GENERATORS ARE RECEIVED THROUG H ITS PARENT COMPANY IN AUSTRIA FOR WHICH THE ASSESSEE COMPANY SUPPLIES GENERATOR AND ITS ACCESSORIES TO I TS PARENT AUSTRIAN COMPANY. TURBINE AND ERECTION INFRASTRUCTURE IS SUPPLIED BY THE AUSTRIAN COMPANY IN SUCH PROJECTS. PROJECTS IN INDIA ARE COMPLETED BY THE ASSESSEE COMPANY WITH THE TURBINE SUPPLIED BY THE ANOTHER 100% SUBSIDIARY COMPANY I.E. VATECH ESCHER VYAS FLOVAL LTD. FARIDABAD. IN ALL THE CASES DESIGN OF GENERATOR IS SUPPLIED BY THE PARENT AUSTRIA COMPANY ONLY. 6.13. THE V AUSTRIA TECH INDIA HAS STATED THAT IT S PARENT AUSTRIAN COMPANY DOES NOT HAVE AUSTRIA PERMANENT ESTABLISHMENT. IN FACT THERE IS NO NEED FOR THE AUSTRIAN COMPANY TO HAVE ANOTHER PERMANENT ESTABLISHMENT IN INDIA AS THEY HAVE THEIR 100% SUBSIDIARY COMPANY IN INDIA (VA TECH INDIA) WHICH IS ACTING ON THEIR BEHALF FOR PROCURING ORDERS ETC. FURTHER THE VA TECH INDIA IS MANUFACTURING EVERY GENERATOR ON THE BASIS OF DESIGN PROVIDED BY THE AUSTRIAN COMPANY. THUS THE ASSESSEE COMPANY VA TECH INDIA IS MEANS FOR ACCRUAL OF INCOME TO TH E AUSTRIAN COMPANY ON ACCOUNT OF ITS BUSINESS ACTIVITIES IN INDIA. MOREOVER FOR TAXABILITY OF ROYALTY PERMANENT ESTABLISHMENT IS NOT AN ESSENTIAL CRITE RION. (ALSO HELD IN LEONHARDT ANDRA UND PARTNER GMBH V. COMMISSIONER OF INCOME TAX; 249 ITR 418 (CAL) . IN VIEW OF THE ABOVE IT IS HELD IN THE CASE OF VA TECH INDIA THAT THE PAYMENT MADE BY THE ASSESSEE IS I N THE NATURE OF ROYALTY. HOWEVER EVEN IF THE CLAIM OF THE ASSESSEE IS TAKEN UP FOR ARGUMENTS SAKE AS PAYMENT FOR TECHNICAL SERVICES STILL THE PAYMENT SHALL BE TAXABLE @ 10% IN INDIA IN VIEW OF THE EARLIER DISCUSSION IN THIS ORDER. 7 6.14. GENERATOR IS DESIGNED AS PER THE REQUIREMENT OF THE CUSTOMER THEREFORE ITS DESIGN IS AN INTEGRAL PART O F IT ON THE BASIS OF WHICH IT IS MANUFACTURED AND FOR THAT GENERATOR THE CUSTOMER MAKING PAYMENTS. THEREFORE PROVIDING OF THE DESIGN TO THE CUSTOMER CANNOT BE TERMED AS AUSTRIA SEPARATE SALE AS CLAIMED BY THE ASSESSEE. WITHOUT DESIGN GENERATOR CANNOT BE MANUFACTURED. HENCE THE PRICE OF GENERATOR OR ANY PLANT WILL ALWAYS BE INCLUSIVE OF DESIGN WITHOUT WH ICH IT IS OF NO USE. THE DESIGN OF PARTICULAR GENERATOR IS SPECIFIC TO THAT ONLY AND IS OF NO USE IN CASE OF A NY OTHER GENERATOR. HENCE THE ARGUMENTS OF THE ASSESSE E THAT THEY ARE SELLING THE DESIGN ALONG WITH GENERAT OR IS SIMPLY MISLEADING AND NOT RELEVANT TO THE ISSUE OF TAXABILITY. 6.15. AS DISCUSSED EARLIER IN PARA 1.9 THE DRAWINGS AND DESIGNS ARE MADE WITH THE HELP OF SOPHISTICATED COMPUTER PROGRAMS AND ALGORITHMS. (PLEASE SEE ANNEXURE AUSTRIA). THE COMPUTER PROGRAM ALONG WITH THE BRAIN OF THE DESIGN ENGINEER IS THE INPUT IN T HE PROCESS AND OUTPUT IS CERTAIN DESIGN AND OTHER PARAMETERS. THESE PARAMETERS ARE FOR THE HELP OF DETAILED DESIGN WHICH IS PREPARED IN INDIA BY THE ASSESSEE VA TECH INDIA. THE PARENT AUSTRIAN COMPANY HAS NEITHER GIVEN THE SOPHISTICATED COMPUTE R PROGRAMS NOR THE ALGORITHMS TO VA TECH INDIA. ONLY THE OUTPUT OF THE SOPHISTICATED COMPUTER PROGRAMS A ND ALGORITHMS IS PROVIDED TO THE ASSESSEE VA TECH INDIA WHICH IT CALLS AS DESIGN. RIGHTS OVER T HESE DESIGNS IS WITH PARENT AUSTRIAN COMPANY. THE ASSESSEE COMPANY FURTHER PREPARES DETAILED DESIG NS ON THE BASIS OF THE PARAMETERS AND DESIGNS PROVI DED BY ITS PARENT COMPANY. THE RIGHTS OVER THESE DE TAILED DESIGNS PREPARED BY THE ASSESSEE VA TECH INDIA WITH VA TECH INDIA ITSELF. THUS IT IS CLEAR THA T THERE ARE TWO SETS OF DESIGNS ONE PREPARED BY THE PARENT AUSTRIAN COMPANY FOR WHICH ASSESSEE MAKES PAYMEN T AND ANOTHER IN HOUSE DETAILED DESIGN PREPARED BY VA TECH INDIA BASED ON THE ORIGINAL DESIGN. 8 6.16. FROM THE DISCUSSION IT IS CLEAR THAT WITH TH E DESIGN AND OTHER PARAMETERS SUPPLIED BY THE PARENT AUSTRIAN COMPANY THE ASSESSEE CANNOT CREATE ANOTHER OUTPUT IN AUSTRIA DIFFERENT CASE OR EVEN AUSTRIA SIMILAR C ASE. FROM ALL THE DISCUSSION AND CASE LAWS CITED ABOVE IT IS BEYOND DOUBT THAT THE PAYMENTS MADE BY THE ASSESSEE VA TECH INDIA ARE IN THE NATURE OF ROYAL TY AND ARE SQUARELY COVERED BY THE DECISION OF ROYALTY BOTH IN THE DTAA AND IT ACT 1961. I HOLD THAT THE PAYMENTS MADE BY THE ASSESSEE VA TECH INDIA ARE I N THE NATURE OF ROYALTY AND THAT THE ASSESSEE VA TEC H INDIA HAVING FAILED TO DEDUCT TAX HAS COMMITTED DE FAULT WITHIN THE MEANING OF SEC.195(1) READ WITH DTAA BETWEEN AUSTRIA AND INDIA AND READ WITH SEC.9(1)(VI ) OF THE INCOME TAX ACT 1961. THE ASSESSING OFFICER FOR THE REASONS MENTIONED AB OVE FINALISED THE PROCEEDINGS INITIATED EARLIER CULMINATING IN TH E ORDER UNDER SECTION 195(1) READ WITH SECTION 9(1)(VI) AND 201(1 )/ 201(1A) BY HOLDING THAT THE PAYMENTS MADE BY THE ASSESSEE COMP ANY TO ITS PARENT AUSTRIAN COMPANY VA TECH HYDRO GMBH AUSTRIA FOR THE PURCHASE OF DESIGN DURING THE F.Y.2002-03 2001-02 2000-01 AND 1999-2000 ARE TREATED AS ROYALTY WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VI) AND ARTICLE 12 OF THE DTA AGREEMENT ON WHICH THE ASSESSEE HAS FAILED TO DEDU CT TAX AT THE RATE OF 10% UNDER SECTION 195 OF THE INCOME TAX ACT 1961. THE CALCULATION MADE BY THE ASSESSING OFFICER IN THIS B EHALF IS AS UNDER :- DEFAULT UNDER SECTION 201(1) RS. 1 16 28 072 INTEREST UNDER SECTION 201(1A) RS. 71 28 172 TOTAL DEMAND PAYABLE RS.1 87 56 244 . 9 4. FELT AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) WHEREIN DETAILED SUBMISSIONS WERE MADE. THE LEARNED CIT(AUSTRIA) AF TER CONSIDERING THE SUBMISSIONS AND THE LEGAL POSITION EXPLAINED BY THE ASSESSEE MADE THE FOLLOWING OBSERVATIONS :- THE ENTIRE TRANSACTION BETWEEN THE APPELLANT AND T HE NON- RESIDENT COMPANY IS OF SALE AND PURCHASE OF GOODS O N PRINCIPAL TO PRINCIPAL BASIS. THE MEANING OF ROYA LTY HAS BEEN DEFINED IN THE DTAA. THE APEX COURT IN THE C ASE OF UNION OF INDIA VS AZADI BACHO ANDOLAN AND ANOTHER REPORTED IN 263 ITR 706 (SC) HELD THAT IN CASE OF D IFFERENCE BETWEEN THE PROVISIONS OF THE ACT AND THE AGREEMENT THE PROVISIONS OF THE AGREEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE ACT THEREFORE THE DEFINITION OF ROYALTY IS UNDER THE DOMESTIC LAW IS NOT APPLICABLE FOR THE PU RPOSE OF UNDERSTANDING THE CONCEPT OF ROYALTY UNDER THE DOUB LE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND AUST RIA AND THEREFORE THE A.O. IS NOT JUSTIFIED IN APPLYI NG THE PROVISIONS OF SECTION 9(1)(VI) OF THE IT ACT. AS R EGARDS THE OWNERSHIP IS CONCERNED AS RIGHTLY EXPLAINED BY THE LEARNED COUNSELS THAT THE TRANSFER OF OWNERSHIP IN THE CASE OF MOVABLE GOODS IS GOVERNED BY THE SALES OF GOODS ACT . THE SALE BILL ISSUED BY THE SELLING PARTY CONTAINS THE TERMS AND CONDITION ON THE BASIS OF WHICH THE GOODS ARE BEING SOLD AGAINST THE PRICE. IN THE SALE BILLS ISSUED BY THE NON-RESIDENT AUSTRIAN COMPANY THERE IS NO MENTION THAT DESPITE THE SALE OF DRAWINGS AND DESIGNS AGAINST THE PRICE THEY HAV E RETAINED THE OWNERSHIP IN THE DRAWINGS AND DESIGNS. THE A.O. HAS FAILED TO ESTABLISH AS TO HOW THE INCOME A RISING TO THE NON-RESIDENT COMPANY FROM THE SALE OF THE DRAWI NGS AND DESIGNS FROM OUTSIDE COUNTRY TO THE APPELLANT COMPA NY IS CHARGEABLE TO TAX IN INDIA WHEN THE NON RESIDENT C OMPANY IS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA IS TAXABLE IN INDIA AND THEREFORE IN THE ABSENCE OF ANY CONC RETE FINDING THAT SUCH PAYMENTS ARE CHARGEABLE TO TAX IN INDIA SECTION 195 HAS NO APPLICATION. HAVING REGARD TO T HE DETAILED AND EXHAUSTIVE SUBMISSION AND THE CASE LAW S RELIED UPON BY THE APPELLANT I HOLD THAT THE PAYME NTS MADE 10 FOR THE PURCHASE OF DRAWINGS AND DESIGNS DO NOT GIV E RISE TO ANY INCOME IN INDIA AND NO TAX NEEDS TO BE DEDUCTED U/S 295 OF THE IT ACT. THE SAID PAYMENTS ARE ALSO NOT I N THE NATURE OF ROYALTY AS DEFINED IN THE DTAA ENTERED IN TO BETWEEN INDIA AND AUSTRIA. IN ANY CASE IT IS NOT A CASE OF THE A.O. THAT THERE IS A TRANSFER OF COPYRIGHT BY T HE AUSTRIAN COMPANY IN FAVOUR OF THE APPELLANT COMPANY BUT ITS IS A CASE OF SALE OF COPYRIGHTED ARTICLES AND THEREFORE ALSO THE PAYMENTS MADE BY THE INDIAN COMPANY TO NON RESIDENT COMPANY ARE NOT IN THE NATURE OF ROYALTY. HENCE THE DEMANDS RAISED U/S 201(1A) FOR INTEREST PAYABLE FRO M THE DATE OF DEFAULT IN NOT DEDUCTING THE TAX AT SOURCE TILL PASSING OF THE ORDER BY THE A.O. IN FINANCIAL YEARS 1999-20 00 2000- 01 2001-02 & 2002-03 ARE CANCELLED. 5. NOW THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED CIT DR SUBMITTED THAT ON THE HARD CO PY OF DRAWINGS AND DESIGNS SUPPLIED BY THE FOREIGN COMPAN Y IT WAS SPECIFICALLY MENTIONED THAT SUCH DRAWING WAS THE PR OPERTY OF THAT COMPANY AND IT COULD NEITHER BE KEPT NOR COULD BE USED IN ANY OTHER MANNER WITHOUT THE WRITTEN CONSENT OF THE FO REIGN CONCERN. THE LEARNED CIT DR FURTHER SUBMITTED THAT IT COULD NEITHER BE HANDED OVER NOR IN ANY OTHER WAY COULD BE COMMUNIC ATED TO A THIRD PARTY HENCE THE ASSESSING OFFICER LOGICALLY INFERRED THAT THE ASSESSEE COMPANY COULD NOT BE CONSIDERED AS OWNER O F SUCH DESIGNS. THE ASSESSING OFFICER ACCORDING TO THE L EARNED CIT DR IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE ASSESSEE COMPANY RIGHTLY HELD THAT THE PARENT NON-RESIDENT COMPANY HAD PROPRIETARY RIGHTS IN SUCH DRAWINGS. THE LEARNED C IT DR THEREAFTER REFERRED TO THE PROVISIONS OF SECTION 9(1)(VI) AND EXPLANATION 2 11 THERETO AND ALSO TO THE PROVISIONS OF ARTICLE 12 OF DTAA WITH AUSTRIA WHICH ARE REPRODUCED AS UNDER FOR THE SAKE OF CONVENIENCE :- PROVIDED THAT NOTHING CONTAINING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROY ALTY AS CONSISTS OF LUMP SUM CONSIDERATION FOR THE TRANSFER OUTSIDE IN DIA OF OR THE IMPARTING OF INFORMATION OUTSIDE INDIA IN RESPECT OF ANY DATA DOCUMENTATION DRAWING OR SPECIFICATION RELATING T O ANY PATENT INVENTION MODEL DESIGN SECRET FORMULA OR PROCES S OR TRADE MARK OR SIMILAR PROPERLTY IF SUCH INCOME IS PAYABLE IN PU RSUANCE OF AN AGREEMENT MADE BEFORE THE IST DAY OF APRIL 1976 AND THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT. PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CL AUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALT Y AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON WHO IS A RESIDENT F OR THE TRANSFER OPF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LIC ENCE) IN RESPECT OF COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUF ACTURER ALONG WITH A COMPUTER OR COMPUTE-BASED EQUIPMENT UNDER ANY SC HEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWARE EXPORT SOFT WARE DEVELOPMENT AND TRADING 1986 OF THE GOVERNMENT OF INDIA. EXPLANATION 2.- FOR THE PURPOSE OF THIS CLAUSE. R OYALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATIO N BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE REC IPIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS) FOR 12 (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENSE) IN RESPECT OF A PATEN INVENTION MODEL DESIGN SECR ET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY . (II) THE IMPARTING OF ANY INFORMATION CONCERNING T HE WORKING OF OR THE USE OF A PATENT INVENTION MODEL DESIGN SEC RET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY . (III) THE USE OF ANY PATENT INVENTION MODEL DES IGN SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL INDUSTRIAL COMMERCIAL OR SCIENTIFIC KNOWLEDGE EXPERIENCE OR SKILL; (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL COMM ERCIAL OR SCIENTIFIC EQUIPMENTS BUT NOT INCLUDING THE AMOUNT REFERRED T O IN SECTION 44AB (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT LITERARY ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TE LEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING BUT NOT INCLUDING CONSIDERATION FOR THE SALE DISTRIBUTION OR EXHIBI TION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV) (IVA) AND (V) THE TERM ROYALTIES AND FEES FOR TECHNICAL SERVICES HAS BEEN DEFINED IN ARTICLE 12 OF DTAA WITH AUSTRIA WHICH READS AS UNDER :- ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SER VICES (1) ROYALTIES AND FEES FOR TECHNICAL SERVICES ARI SING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE O THER CONTRACTING 13 STATE MAY BE TAXED IN THAT OTHER STATE. (2) HOWEVER SUCH ROYALTIES AND FEES FOR TECHNICA L SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHI CH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE BUT IF T HE BENEFICIAL OWNER OF THE ROYALTIES AND FEES FOR TECHNICAL SER VICES IS A RESIDENT OF THE OTHER CONTRACTING STATE THE TAX SO CHARGED SHALL NOT EXCEED 10% OF THE GROSS AMOUNT OF THE ROYALTI ES AND FEES FOR TECHNICAL SERVICES. (3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY A RTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPHY FILMS OR FILMS OR T APES USED FOR RADIO OR TELEVISION BROADCASTING ANY PATENT TRA DE MARK DESIGN OR MODEL PLAN SECRET FORMULA OR PROCESS OR FOR THE USE OF OR THE RIGHT TO USE INDUSTRIAL COMMERCIAL OR SCIEN TIFIC EQUIPMENT OR FOR INFORMATION CONCERNING INDUSTRIAL COMMERC IAL OR SCIENTIFIC EXPERIENCE. THE LEARNED CIT DR CONTENDED THAT AS PER THE MEANIN G OF THE TERM ROYALTY AS PER BOTH THESE PROVISIONS THE T RANSACTION BETWEEN THE ASSESSEE COMPANY AND ITS PARENT NON-RES IDENT COMPANY FELL WITHIN THE REALM THEREOF HENCE THE ASSESSEE SHOULD HAVE DEDUCTED THE TAX AT SOURCE. THE LEARNED CIT D R THEREAFTER ALSO DREW OUR ATTENTION TO THE OBSERVATIONS OF THE ASSESSING OFFICER AS REGARD TO PROCUREMENT OF THE SAME DESIGN S FOR THE SAME CONTRACT WHICH ALSO INDICATED THAT IT WAS A CASE O F ROYALTY AND NOT 14 A CASE OF OUT-RIGHT PURCHASE THEREOF. THE LEARNED CIT DR PLACED HEAVY RELIANCE ON THE CONCLUSIONS DRAWN BY THE ASSE SSING OFFICER WHICH HAVE ALREADY BEEN REPRODUCED HEREINBEFORE. TH E LEARNED CIT DR THEREAFTER CONTENDED THAT THE PARENT COMPA NY WAS NOT SELLING THE DESIGNS IN THE OPEN MARKET I.E. TO ANY OTHER PARTY OTHER THAN ITS SUBSIDIARIES. HENCE IT WAS NOT A CASE OF SALE OF COPY RIGHTED ARTICLES. THE LEARNED CIT DR FURTHER EMPHA SIZED ON THE FACT THAT IT WAS USED BY THE ASSESSEE IN MANUFACTUR ING OF THE TURBINE/GENERATOR AND WAS NOT SOLD AS SUCH IN THE O PEN MARKET LIKE PURCHASE AND SALE OF A COPY RIGHTED BOOK OR SOFTWAR E ETC. THE LEARNED CIR DR FURTHER EMPHASIZED ON THE FACT THAT IF THE VIEW OF THE ASSESSEE WAS ACCEPTED THEN EVERY TRANSACTION WO ULD BECOME A CASE OF SALE AND IN THAT CASE PROVISIONS RELATIN G TO ROYALTY WOULD BECOME REDUNDANT. AT THIS STAGE A QUESTION WAS PO SED TO HIM THAT IF THE VIEW OF THE REVENUE IS ACCEPTED THEN E VERY TRANSACTION WOULD BECOME A CASE OF ROYALTY TO WHICH THE LEARNE D CIT DR COULD NOT GIVE ANY EFFECTIVE REPLY. THE LEARNED CI R DR THEREAFTER PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFIC ER. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A DDITIONAL EVIDENCE AS REGARDS THE TREATMENT OF SUCH TRANSACTI ONS IN THE BOOKS OF NON-RESIDENT PARENT COMPANY WHICH WAS ADMI TTED AS THE LEARNED CIT DR DID NOT OBJECT FOR ADMISSION OF THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THIS 15 INFORMATION IT WAS ABUNDANTLY CLEAR THAT SUCH TRAN SACTIONS WERE TREATED AS TRANSACTIONS OF SALE AND PURCHASE IN THE BOOKS OF PARENT COMPANY AND HAD BEEN TAXED AS BUSINESS PROFI TS AND NOT AS A ROYALTY. IT WAS FURTHER POINTED OUT THAT THE TAX RATE ON BUSINESS PROFIT WAS HIGHER THAN THE TAX RATE APPLIC ABLE TO ROYALTIES. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER CON TENDED THAT THE OWNERSHIP IN SUCH DRAWINGS WAS TRANSFERRED TO T HE ASSESSEE COMPANY ON DELIVERY OF DRAWINGS BY SUCH COMPANY TO THE ASSESSEE. HOWEVER AS PER THE CONDITION OF SUCH SA LE TRANSACTION THE ASSESSEE COULD NOT REPRODUCE IT ON ITS OWN OR C OULD USE IT IN A MANNER NOT BEING PERMITTED BY THE SELLER. THUS TH E SALE TRANSACTION WAS SUBJECT TO CERTAIN CONDITION AND WH ICH WAS A NORMAL CONDITION IN THE CASE OF PURCHASE OF ALL COP Y-RIGHTED ARTICLES/GOODS. HENCE SUCH TRANSACTION WAS A CASE OF OUT-RIGHT PURCHASE FOR A SPECIFIED PURPOSE. THE LEARNED COUNS EL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE DELIVE RED THESE DRAWINGS TO THE BUYERS OF PLANT AND MACHINERY AND S UCH CONDITION ALSO RESTRICTED SUCH BUYERS FROM USING SUCH DRAWING S FOR COMMERCIAL MANNER BENEFITS. THE LEARNED COUNSEL FOR THE ASSESSED THEREAFTER CONTENDED THAT THESE WERE SUB JECT TO THE CUSTOM DUTY AND REFUND OF CUSTOM DUTY HAD ALSO NOT BEEN CLAIMED WHICH WAS GENERALLY A CASE IN RESPECT OF AN ITEM RE CEIVED FOR A LIMITED USE OR FOR A LIMITED PERIOD. IT WAS ALSO S PECIFICALLY POINTED 16 OUT THAT SUCH DESIGNS WERE PROCURED FOR SPECIFIC PR OJECTS ON A SINGLE USER BASIS AS THE SAME HAD TO BE GIVEN TO TH E BUYER OF PLANT AND MACHINERY MANUFACTURED BY THE ASSESSEE COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER CONTROV ERTED THE FACTUAL FINDINGS OF THE ASSESSING OFFICER PARTICUL ARLY IN REGARD TO THE ASSESSING OFFICERS CONTENTION THAT THE ASSESSE E HAD PAID MONEY FOR THE SAME DRAWING THREE TIMES AND REFERRED TO THE VARIOUS PAGES OF THE PAPER BOOK IN THIS REGARD. TH E LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE AC TION OF THE ASSESSING OFFICER WAS A CASE OF CHANGE OF OPINION I N RESPECT OF THE SAME TRANSACTION WHICH HAD BEEN FOUND TO BE OF THE NATURE OF PURCHASES BOTH IN THE COURSE OF PROCEEDINGS UNDER SECTION 144A AS WELL AS UNDER SECTION 92CA OF THE ACT. HENCE F OR THIS REASON ALSO THE ACTION OF THE ASSESSING OFFICER WAS NOT J USTIFIED. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER CONTEND ED THAT IT WAS A SETTLED LAW THAT THE SALE TRANSACTION DID NOT RES ULT IN ROYALTY AND IN THIS REGARD AGAIN SUBMITTED THAT THE TRANSFER OF SUCH DESIGNS BY THE ASSESSEE TO THE BUYERS OF GENERATORS IN AN UNBR IDLED MANNER ESTABLISHED THIS FACT. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) PARTICULARLY IN RESPECT OF DRAWINGS BEING GOODS AND THE ACQUISITION OF DRAWINGS ON OUT-RIGHT PURCHASE BASIS COULD NOT BE CONSIDERED AS A TRANSACTION OF THE NAT URE OF ROYALTY. 17 THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE PROVISIONS OF DTAA WERE TO SUPERCEDE THE PROVISIONS OF THE INCOME TAX ACT AND FOR THIS PROPOSITION THE LEARNED CIT DR ALSO DID NOT DISAGREE. THE LEARNED COUNSEL FOR THE ASSES SEE THEREAFTER PLACED RELIANCE ON THE DECISION OF THE HONBLE CALC UTTA HIGH COURT IN THE CASE OF DAVY ASHMORE INDIA LIMITED V. CIT; 1 90 ITR 626 WHEREIN THE HONBLE HIGH COURT HAD POINTED OUT THAT THE TRANSFEROR RETAINED THE PROPRIETARY RIGHT IN THE DESIGNS AND A LLOWED THE USE OF SUCH RIGHTS THE CONSIDERATION RECEIVED FOR SUCH US ER WAS IN THE NATURE OF ROYALTY. HOWEVER IN THE PRESENT CASE TH E ASSESSEE COMPANY WAS NOT ALLOWED TO USE SUCH RIGHT I.E. TO M AKE SIMILAR DESIGNS AT ITS LEVEL AND TO SELL THE SAME TO THIRD PARTIES AND TO PAY CONSIDERATION OUT OF SUCH SALES TO THE PARENT COMPA NY AS IT WAS AN UNDISPUTED FACT THAT SUCH DESIGN WAS USED FOR A SPE CIFIED PROJECT AND HAD BEEN HANDED OVER TO THE BUYER OF THE PLANT AND MACHINERY FOR THEIR REFERENCE IF THE SITUATION SO REQUIRED. HE FURTHER CONTENDED THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF LEONHARDT ANDHRA UND PARTNER G MBH V. CIT; 249 ITR 418 WAS NOT APPLICABLE AS IN THAT CASE THE ROYALTY WAS NOT DEFINED IN DTAA BETWEEN INDIA AND GERMANY AND IN TH E ABSENCE OF SUCH DEFINITION THE STATUTORY DEFINITION AS CON TAINED IN SECTION 9(1)(VI) WAS APPLIED WHEREAS IN THE PRESENT CASE ARTICLE 12(3) EXISTED BETWEEN TWO COUNTRIES AND AS PER THAT DEFIN ITION 18 CONSIDERATION PAID WAS NOT TOWARDS RIGHT TO USE BUT IT WAS FOR THE USE OF DESIGNS AS SUCH AND THEREFORE THE AFORESAI D DECISION OF THE HONBLE HIGH COURT WAS NOT APPLICABLE. THE LEA RNED COUNSEL FOR THE ASSESSEE THEREAFTER REFERRED TO THE RULING OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) FOR ADVANCE RUL ING IN THE CASE OF PRE-QUIP CORPORATION V. CIT AS REPORTED IN 255 ITR 354 (PAGES 140 TO 150 OF THE PAPER BOOK) WHEREIN IT HAS BEEN OPINED THAT TRANSACTION OF SALE OF ENGINEERING DRAWINGS AN D DESIGNS BY US COMPANY TO INDIAN COMPANY DID NOT AMOUNT TO A TR ANSACTION RESULTING INTO PAYMENT OF ROYALTY. THE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS OF THIS CASE ARE IDENTICAL WITH THE FACTS OF THE PRESENT CASE BEFORE THE TRIBUNAL AND T HE ROYALTY AS PER ARTICLE 12(3) OF INDO US DTAA WAS ALSO SIMILAR. HEN CE THE RATIO LAID DOWN IN THIS CASE IS SQUARELY APPLICABLE TO TH E PRESENT CASE. THE LEARNED COUNSEL FOR THE ASSESSED THEREAFTER R EFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF LUCENT TECH NOLOGIES HINDUSTAN LIMITED V. ITO AS REPORTED IN 270 ITR 62 (AT) WHEREIN THE ASSESSEE HAD ACQUIRED HARDWARE AND SOFTWARE AND THE DEPARTMENT BIFURCATED THE TRANSACTION AS ONE OF SUP PLY OF HARDWARE AND THE OTHER OF THE SOFTWARE TREATING TH E SOFTWARE PART AS ROYALTY THE TRIBUNAL HELD THAT THE ASSESSEES T RANSACTION WITH THE NON-RESIDENT COMPANY WAS FOR THE PURCHASE OF IN TEGRATED EQUIPMENT WHICH CONSISTED HARDWARE AS WELL AS SOFTW ARE AND IT 19 WAS INSEPARABLE AND HAVING REGARD TO THE NATURE OF AGREEMENT WHAT THE ASSESSEE HAD PURCHASED WAS A COPY RIGHTED ARTICLE AND NOT COPY RIGHT OF THE RIGHTS AND SIMILAR WAS THE PO SITION HERE HENCE THIS DECISION OF THE TRIBUNAL ALSO SUPPORTED THE CLAIM OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE THE REAFTER REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CAS E OF INDIAN HOTELS CO. LTD. V. ITO IN ITA NO.553/MUM/00 (REFER PAGES 1 63 TO 167 OF THE PAPER BOOK) WHEREIN INDIAN OIL HAD OBTAINED THE SERVICES OF A FOREIGN COMPANY TO PREPARE THE INTERIOR DESIGN WHIC H HAD TO BE USED BY THE INDIAN COMPANY FOR THE PURPOSE OF RE-DE SIGNING OR RENOVATING THE INTERIORS OF TAJ MAHAL HOTEL AT MUMB AI AND THE DESIGN SUPPLIED BY THE FOREIGN COMPANY BECAME THE P ROPERTY OF INDIAN HOTEL COMPANY LIMITED (ASSESSEE) AND IN THAT BACKGROUND THE TRIBUNAL HELD THAT THE ASSESSEE COMPANY HAD PUR CHASED AND ACQUIRED INTERIOR DESIGN ON A PRINCIPAL TO PRINCIPA L BASIS I.E. AS A BUYER AND IN THAT VIEW OF THE MATTER THE PAYMENT B Y THAT COMPANY DID NOT AMOUNT TO ROYALTY. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CAS E OF WIPRO LIMITED V. ITO AS REPORTED IN 94 ITD 9 FOR THE PROP OSITION THAT WHERE THE PAYMENT WAS FOR OBTAINING THE DATA AND US E IT THE WAY THE ASSESSEE WANTED TO USE IT IT WAS THE USE OF A COPY-RIGHTED ARTICLE AND NOT A CASE OF TRANSFER OF RIGHT IN THE COPY-RIGHT OF THAT 20 ARTICLE AND SIMILAR WAS THE CASE HERE WHEREIN THE A SSESSEE COMPANY GOT THE RIGHT TO USE OF A COPY-RIGHTED ARTI CLE AND NO RIGHT IN THE COPY-RIGHT OF THE DRAWINGS/DESIGNS AND THE N OTE ON THE HARD COPY OF SUCH DESIGNS CONFIRMED THIS POSITION I.E. T HE ASSESSEE HAD NO RIGHT IN THE COPY RIGHT OF THESE DRAWINGS/DESIGN S I.E. THE ASSESSEE HAD NO RIGHT IN THE COPY RIGHT OF THESE DR AWINGS/DESIGNS AND IT COULD USE ONLY AS PER THE TERMS AND CONDITIO NS OF THE AGREEMENT WITH ITS PARENT COMPANY FOR ITS OWN PURPO SES IN THE CAPACITY OF THE OWNER THEREOF. THEREAFTER THE LEAR NED COUNSEL FOR THE ASSESSEE REFERRED TO THE DECISION OF THE TRIBUN AL IN THE CASE OF DCIT V. FINOLEX PIPES LIMITED AS REPORTED IN 106 TT J (PUNE) 741 WHEREIN THE TRIBUNAL HAD HELD THAT FEE PAYMENT FOR DESIGN DOCUMENTATION TO GERMAN COMPANY BY THE ASSESSEE IND IAN COMPANY FOR OUT-RIGHT SALE OF SUCH DOCUMENTATION WA S NOT ROYALTY AS PER DTAA. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COU RT IN THE CASE OF JINDAL THERMAL POWER COMPANY LIMITED V. DCIT ( 2009) 225 CTR (KAR) 220. 8. THE LEARNED CIT DR IN THE REJOINDER CONT ENDED THAT IN THE CASE OF PRO-QUIP CORPORATION V. CIT (SUPRA) TH E LANGUAGE OF ARTICLE 12(3) OF DTAA WAS MATERIALLY DIFFERENT AND THE SAID DECISION WAS BASED ON SUCH LANGUAGE HENCE NOT APPLICABLE T O THE FACTS OF 21 THE CASE. THE LEARNED CIT DR FURTHER SUBMITTED THA T THE OTHER DECISIONS RELIED UPON BY THE ASSESSEE WERE FACTUALL Y DIFFERENT AS IN THOSE CASES THE ASSESSEE WAS THE ULTIMATE USER OF THOSE DESIGNS/DRAWINGS ALONG WITH THE PLANT AND MACHINERY WHEREAS IN THE PRESENT CASE THE ASSESSEE MANUFACTURED TURBINE /GENERATOR AND SOLD SUCH TURBINE/GENERATORS. THE CIT DR FURTHE R SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF LU CENT TECHNOLIGIES HINDUSTAN LIMITED (SUPRA) RATHER SUPPORTED THE CASE OF THE REVENUE. THE CIT DEPARTMENTAL REPRESENTATIVE FURT HER SUBMITTED THAT THE BASIC DESIGN OBTAINED BY THE ASSESSEE COMP ANY WAS FURTHER MODIFIED AND SUCH MODIFIED DESIGN WAS GIVEN TO THE BUYER OF THE TURBINE/GENERATOR AND NOT BASIC DESIGN AS C ONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSED. 9. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES MATERIAL ON RECORD AND THE ORDERS OF THE AUT HORITIES BELOW. IT IS NOTED THAT THE ASSESSEE IS ENGAGED IN MANUFAC TURING OF TURBINE/GENERATOR AS PER THE SPECIFICATIONS/REQUIRE MENTS OF ITS CUSTOMERS. FOR THIS PURPOSE THE ASSESSEE PROCURES BASIC DESIGN FROM ITS PARENT COMPANY AND ACCORDINGLY MANUFACTURE S SUCH PLANT AND MACHINERY. IT IS ALSO NOTED THAT SUCH BASIC DE SIGN IS ALSO GIVEN TO THE BUYER OF PLANT AND MACHINERY BY THE AS SESSEE COMPANY. THE DISPUTE BEFORE US IS REGARDING THE NA TURE OF 22 PAYMENT MADE BY THE ASSESSEE COMPANY TO ITS PARENT NON- RESIDENT COMPANY FOR OBTAINING SUCH DESIGNS. THE C ONCLUSIONS OF THE ASSESSING OFFICER AS WELL AS THE FINDINGS OF TH E LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAVE ALREADY BE EN REPRODUCED WHICH CONTAIN DETAILS OF JUDICIAL DECISI ONS RELIED UPON BY BOTH THE SIDES. IN OUR OPINION IF THE VIEW OF THE ASSESSING OFFICER IS ACCEPTED THEN THERE WILL NOT BE ANY TRA NSACTION OF SALE AND PURCHASE IN SUCH SITUATIONS AND EVERY TRANSACTI ON WOULD COME WITHIN THE MEANING OF TERM ROYALTY. FURTHER IN OUR OPINION THE BASIC DISTINCTION BETWEEN A TRANSACTION OF ROYALTY AND OF OUT-RIGHT SALE AND PURCHASE IS TRANSFER OF OWNERSHIP TO THE B UYER AND THIS DISTINCTION HAS BEEN MAINTAINED EVEN IN THE PROVISI ONS OF SECTION 9(1)(VI) AS WELL AS OF DTAA. WE HAVE ALSO PERUSED THE NOTE ON THE HARD COPY OF SUCH DESIGNS. IN OUR OPINION SUB STANCE OF SUCH NOTE IS NOTHING BUT AN INDICATION THAT SUCH PRODUCT IS SOLD ONLY FOR SPECIFIC USE AND NO RIGHT IN COPY-RIGHT THEREOF HAS BEEN GIVEN TO THE BUYER BY THE TRANSFEROR/SELLER MEANING THEREBY THAT SUCH ARTICLE/GOODS IN THE FORM OF DESIGNS COULD BE USED FOR SPECIFIC PURPOSES AND CANNOT BE USED FOR OTHER COMMERCIAL GA INS BY THE BUYER. THIS CAN BE PUT IN DIFFERENT WORDS I.E. IT IS A CASE OF PURCHASE OF COPY RIGHTED ARTICLE AND NOT OF COPY RIGHTS THEREIN. THUS ON THIS VERY FACT WE DO NOT CONSIDER ANY NEC ESSITY TO GO INTO 23 THE ISSUE FURTHER AND DEAL WITH THE JUDICIAL DECISI ONS CITED BY BOTH THE SIDES. HOWEVER BEFORE PARTING WE CONSIDER IT APPROPRIATE TO OBSERVE THAT IF THE VIEW OF THE REVENUE THAT COPY R IGHTED ARTICLE COULD ONLY BE A TRADING ITEM OR OF THE NATURE OF FI NISHED GOODS ONLY THEN A TRANSACTION OF SALE AND PURCHASE OF SUCH DRA WINGS/DESIGNS WOULD NECESSARILY BE CONSIDERED AS A TRANSACTION OF PAYMENT OF ROYALTY WHICH CANNOT BE CORRECT AS EVEN THE SOFT WARE HAS BEEN JUDICIALLY CLASSIFIED AS GOODS. WE ALSO DO NOT AGRE E WITH THE CONTENTION OF THE REVENUE THAT WHEN THE GOODS ARE A CQUIRED FOR SELF-CONSUMPTION THAT WOULD AMOUNT ONLY TO USE OF SUCH ITEMS RESULTING INTO ROYALTY BECAUSE ITEMS FOR SELF-CON SUMPTION FOR USE IN INTERMEDIATE PROCESS ARE ALSO ACQUIRED ON PRINCI PAL TO PRINCIPAL BASIS BY WAY OF PURCHASE. IT IS ALSO TO BE NOTED T HAT IN THE HANDS OF NON-PARENT COMPANY SUCH TRANSACTIONS HAVE BEEN ACCEPTED BY THE REVENUE AUTHORITIES OF THAT COUNTRY AS OF THE N ATURE OF BUSINESS PROFITS RESULTING FROM THE SALE OF SUCH DRAWINGS. HENCE WHEN THE SAME PROVISIONS OF DTAA ARE APPLICABLE THEN THIS AC TION OF SUCH REVENUE AUTHORITIES ALSO SUPPORTS THE CLAIMS OF THE ASSESSEE. TO SUM UP EVEN AT THE COST OF REPETITION WE STATE TH AT IT IS A CASE OF PURCHASE OF A COPY-RIGHTED ARTICLE ON PRINCIPAL TO PRINCIPAL BASIS AND NOT A CASE OF PAYMENT FOR TRANSFER OF RIGHT IN THE COPY RIGHT OF SUCH DESIGNS. IN THIS VIEW OF THE MATTER WE CONFI RM THE FINDINGS OF 24 THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS). 10. IN THE RESULT ALL THE APPEALS OF THE REVENUE F AIL AND ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH APRIL 2010 SD/- SD/- (JOGINDER SINGH) (V.K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER APRIL 30 2010 COPY TO APPELLANT RESPONDENT CIT CIT(A) DR GUA RD FILE D/-