THE DDIT (IT)- 1(1), MUMBAI v. M/S. AVAYA GLOBAL CONNECT LTD, MUMBAI

ITA 3461/MUM/2008 | misc
Pronouncement Date: 27-12-2010 | Result: Dismissed

Appeal Details

RSA Number 346119914 RSA 2008
Assessee PAN AAACT3992M
Bench Mumbai
Appeal Number ITA 3461/MUM/2008
Duration Of Justice 2 year(s) 7 month(s) 11 day(s)
Appellant THE DDIT (IT)- 1(1), MUMBAI
Respondent M/S. AVAYA GLOBAL CONNECT LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 27-12-2010
Date Of Final Hearing 08-06-2010
Next Hearing Date 08-06-2010
Assessment Year misc
Appeal Filed On 16-05-2008
Judgment Text
1 ITA 3461 & 3462/MUM/08 M/S AVAYA GLOBAL CONNECT LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L BEFORE SHRI P.M. JAGTAP A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 3461 & 3462/MUM/08 ASSESSMENT YEAR DDIT (IT)-1(1) ROOM NO. 117 SCINDIA HOUSE IST FLOOR BALLARD ESTATE MUMBAI 400038. VS. M/S AVAYA GLOBAL CONNECT LIMITED 72 KALPATARU SYNERGY OPP. GRAND HYATT VAKOLA SANTACRUZ (E) MUMBAI. PAN NO. AAACT 3992M APPELLANT RESPONDENT APPELLANT BY SHRI R.S. SRIVASTAV A RESPONDENT BY SHRI NITESH JOSHI ORDER PER P.M. JAGTAP A.M. THESE TWO APPEALS PREFERRED BY THE REVENUE AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) - XXXI MUMBAI DATED 28.2.08 & 29 .2.08 INVOLVE A COMMON ISSUE AND THE SAME THEREFORE HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMPOSITE ORDER. 2. THE SOLITARY COMMON ISSUE WHICH IS INVOL VED IN THESE APPEALS IS WHETHER THE PAYMENT MADE BY THE ASSESSEE TO M/S AVAYA INTERNATI ONAL SALES LTD IRELAND IN RESPECT OF ACTIVATION CHARGES IS IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES AND THE SAME IS RAISED IN THE FORM OF FOLLOWING GROUNDS RAI SED BY THE REVENUE WHICH ARE IDENTICAL IN BOTH THESE APPEALS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE PAYMENT MADE TO AVAYA INT ERNATIONAL SALES 2 ITA 3461 & 3462/MUM/08 M/S AVAYA GLOBAL CONNECT LTD. LTD. IRELAND (AISL) IN RESPECT OF ACTIVATION CH ARGES IS A PAYMENT FOR BUYING A STANDARD PRODUCT/SOFTWARE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE PAYMENT MADE TO AISL CAN NEITHER BE SAID TO BE AS ROYALTY NOR IS COVERED UNDER THE PROVISIONS OF F EES FOR TECHNICAL SERVICES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THE ASSESSEE IS NOT LIABLE TO DEDU CT TAX AT SOURCE ON THE PAYMENT MADE TO AISL AS THE INCOME OF AISL IS NOT LIABLE TO TAX IN INDIA FOR THE ABOVE PAYMENT. 3. THE ASSESSEE IN THE PRESENT CASE IS A CO MPANY WHICH IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF CONVERGED COMMUNICATION SOLUTI ON. IT HAD ENTERED IN TO AN AGREEMENT WITH M/S AVAYA INTERNATIONAL SALES LTD. IRELAND. AS PER THE SAID AGREEMENT THE ASSESSEE COMPANY AGREED TO PURCHASE CONVERGED C OMMUNICATION SOLUTION FROM M/S AVAYA INTERNATIONAL SALES LTD. IRELAND IN ORDER TO SALE THE SAME TO ITS VARIOUS CUSTOMERS IN INDIA. THE CONVERGED COMMUNICATION SYSTEM COMPR ISED OF HARDWARE WHICH WAS AN EPABX AND STANDARD SOFTWARE LOADED/EMBEDDED ON THE HARDWARE. THE SOFTWARE WAS CONSISTING OF VARIOUS FEATURES AND THE CUSTOMERS HA D AN OPTION TO ACTIVATE THE SAME AS PER THEIR SPECIFIC REQUIREMENTS. ACCORDING TO THE ASSE SSEE ALL THESE FEATURES PROVIDED IN THE SOFTWARE WERE AN INTEGRAL PART OF THE HARDWARE BEIN G EMBEDDED THEREIN AND INEXTRICABLY LINKED THERETO. THIS STAND OF THE ASSESSEE WAS SUP PORTED BY A SINGLE PURCHASE ORDER PLACED BY THE CUSTOMERS FOR THE HARDWARE AS WELL AS DESIRED FEATURES REQUIRED BY THEM. SUBSEQUENT ACTIVATION CHARGES FOR ADDITIONAL FEATUR ES REQUIRED BY THE CUSTOMERS HOWEVER WERE BEING CHARGED BY THE ASSESSEE SEPARATELY. ACCO RDING TO THE ASSESSEE THE PAYMENT MADE BY IT TO M/S AVAYA INTERNATIONAL SALES LTD. I RELAND AGAINST PURCHASES OF CONVERGED COMMUNICATION SOLUTION DID NOT ATTRACT DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY APPLICATIONS U/S 195(2) WERE FILED BY THE ASSESSEE BEFORE THE A.O. I.E. ASST. DIRECTOR FOR AUTHORIZING IT TO MAKE PAYMENT OF ACTIVATION CHARGE S TO M/S AVAYA INTERNATIONAL SALES LTD. WITHOUT DEDUCTION OF TAX AT SOURCE. WHILE DIS POSING OF THE SAID APPLICATION BY TWO SEPARATE ORDERS DATED 28.3.06 & 22.8.06 PASSED U/S 195(2) THE A.O. HELD THAT ACTIVATION CHARGES PAID BY THE ASSESSEE TO M/S AVAYA INTERNATI ONAL SALES LTD. IRELAND WERE CHARGEABLE TO TAX BEING IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND ACCORDINGLY HE 3 ITA 3461 & 3462/MUM/08 M/S AVAYA GLOBAL CONNECT LTD. HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX A T SOURCE @ 10% FROM PAYMENTS THEREOF AS PER THE INDIA-IRELAND TAX TREATY. 4. AGAINST THE ORDERS PASSED BY THE A.O. U/ S 195(2) THE ASSESSEE PREFERRED APPEALS BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE DET AIL SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM IN THE LIGHT OF PROVISIONS OF SECTION 9( 1)(VII) OF THE INCOME TAX ACT 1961 AS WELL AS ARTICLE 12 OF THE INDIA-IRELAND TREATY DEFI NING THE TERM FEES FOR TECHNICAL SERVICES IT WAS HELD BY THE LD. CIT(A) THAT THE A CTIVATION CHARGES PAID BY THE ASSESSEE TO M/S AVAYA INTERNATIONAL SALES LTD. IRELAND HAVE TO BE CONSIDERED AS PART AND PARCEL OF THE EQUIPMENT SUPPLIED BY THEM TO THE ASSESSEE AND THE SAID CHARGES BEING IN THE NATURE OF PAYMENT MADE FOR BUYING A STANDARD PRODUCT THE SAME COULD NOT BE TREATED AS FEES FOR TECHNICAL SERVICES. HE THEREFORE HELD THAT T HE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO M/S AVAYA INTER NATIONAL SALES LTD ON ACCOUNT OF ACTIVATION CHARGES. AGGRIEVED BY THIS RELIEF GIVEN BY THE LD. CIT(A) TO THE ASSESSEE THE REVENUE HAS PREFERRED THESE APPEALS BEFORE THE TRIB UNAL. 5. AT THE TIME OF HEARING BEFORE US THE LEA RNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT A SIMILAR ISSUE INVOLVED IN ASSESSEES OWN CASE HAS ALREADY BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER DATED 20 TH AUGUST 2010 PASSED IN ITA NO. 1462 & 1463/MUM/09. A COPY OF THE SAID ORDER IS ALSO PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAM E SHOWS THAT A SIMILAR ISSUE HAS ALREADY BEEN CONSIDERED AND EXAMINED BY THE TRIBUNA L IN ASSESSEES OWN CASE AND AFTER DISCUSSING THE FACTS OF ASSESSEES CASE IN THE LIGH T OF DEFINITION OF THE TERM FEES FOR TECHNICAL SERVICES GIVEN IN SECTION 9(1)(VII) OF T HE ACT AS WELL AS IN ARTICLE 12 OF DTAA BETWEEN INDIA AND IRELAND THE TRIBUNAL HAS DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA 17 OF ITS ORDER:- I N THE LIGHT OF ABOVE DISCUSSION AND CONSIDERATION O F FACTS OF THE CASE WE FIND THAT THE CIT(A) HAS RIGHTLY HELD THAT ACTIVATION CHARGES PAID TO AISL ARE PART AND PARCEL OF THE EQUIPMENT SUPPLIED BY THEM TO THE ASSESSEE. THIS FACT IS FULLY SUPPORTED BY THE 4 ITA 3461 & 3462/MUM/08 M/S AVAYA GLOBAL CONNECT LTD. FACTS AND CONTENTS OF THE RESPECTIVE BILLS OF WHICH RELEVANT ABSTRACT HAS BEEN REPRODUCED IN PARA 9 & 10 OF THIS ORDER. THE DETAI LED CONTENTS IN ORIGINAL SALE BILL ARE NAME OF ITEM BASE PRICE OF THE ITEM BASIC EXC ISE EDUCATION CESS LOCAL SALES TAX AND NET VALUE OF THE ITEM. SIMILAR DESCRIPTION IS FOUND ON ACTIVATION CHARGES. IT IS PERTINENT TO MENTION THAT NORMALLY EXCISE VAT AND SALES TAX ARE LEVIED ONLY ON SALE OF GOODS AND NOT ON TECHNICAL SERVICE RENDERED. IT IS ALSO NOT A CASE OF THE REVENUE THAT ORIGINAL SALE WAS ALSO ON ACCOUNT OF TECHNICAL SERVICES. THERE IS NO BASE AT ALL TO DISTINGUISH SUBSEQUENT TRANSACTION ACTIVATION CHARGES FROM THE ORIGINAL SALE TRANSACTION AND TO BE HELD AS FEES FOR TECHNICAL SE RVICES. WHEN THE NATURE OF TRANSACTION IS SIMILAR TO ORIGINAL NATURE OF TRANSA CTION THEIR ADDITIONAL ACTIVATION CHARGES WERE OF THE SAME COLOUR OF THE ORIGINAL TRA NSACTION THEREFORE THE CORRECT NATURE OF THE TRANSACTION IS SALE OF THE PRODUCT AN D NOT THE FEES FOR TECHNICAL SERVICES. 6. AS THE ISSUE INVOLVED IN THE PRESENT APP EALS BEFORE US AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE ADMITTEDLY SIMILAR WE R ESPECTFULLY FOLLOW THE DECISION RENDERED BY THE TRIBUNAL VIDE ITS ORDER DATED 20 TH AUGUST 2010 (SUPRA) AND UPHOLD THE IMPUGNED ORDERS PASSED BY THE LD. CIT(A) HOLDING THAT THE PA YMENTS MADE BY THE ASSESSEE TO M/S AVAYA INTERNATIONAL SALES LTD IRELAND ON ACCOUNT O F ACTIVATION CHARGES WERE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND THE ASS ESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE THERE FROM. 7. IN THE RESULT APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON 27 TH DECEMBER 2010. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNT ANT MEMBER MUMBAI DATED 27 TH DECEMBER 2010. RK 5 ITA 3461 & 3462/MUM/08 M/S AVAYA GLOBAL CONNECT LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXI - MUMBAI 4. THE DIT (INTERNATIONAL TAXATION) MUMBAI 5. THE DR BENCH L 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 6 ITA 3461 & 3462/MUM/08 M/S AVAYA GLOBAL CONNECT LTD. DATE INITIALS 1. DRAFT DICTATED 16.12.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 20.12.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.