Facts of the Case

  • The Revenue filed appeals under Section 260A challenging orders in favour of the assessee, Nortel Networks Singapore Pte Ltd.
  • The dispute involved cross-border transactions and applicability of the India–Singapore DTAA.
  • The Assessing Officer alleged that the assessee had a PE in India due to supervisory activities relating to installation projects.
  • It was also contended that payments received for software were taxable as royalty.

Issues Involved

  1. Whether the assessee had a Permanent Establishment in India under Article 5(4) of the India–Singapore DTAA based on supervisory activities exceeding 183 days.
  2. Whether payments received for software were taxable as royalty under Article 12 of the DTAA.

Petitioner’s (Revenue’s) Arguments

  • The Revenue argued that supervisory activities carried out in India by expatriates constituted a PE under Article 5(4).
  • It relied on contractual arrangements and presence of personnel supervising installation projects.
  • It further contended that software payments fell within the definition of “royalty” under Article 12 of the DTAA.

Respondent’s (Assessee’s) Arguments

  • The assessee contended that conditions of Article 5(4), particularly the requirement of supervisory activities exceeding 183 days, were not satisfied.
  • It argued that the Assessing Officer failed to establish factual findings supporting PE existence.
  • On royalty, the assessee relied on judicial precedents holding that software payments are not taxable as royalty under DTAA provisions.

Court’s Findings / Order

  • The Court held that the Assessing Officer failed to demonstrate how conditions of Article 5(4) were satisfied, particularly the 183-day threshold requirement.
  • Mere reference to supervisory activities without factual substantiation was insufficient to establish a PE.
  • On the royalty issue, the Court followed precedent and held that the issue was already covered against the Revenue.
  • Since both issues were settled by earlier judgments, no substantial question of law arose.
  • Appeals were dismissed without costs.

Important Clarifications by the Court

  • Establishment of PE requires clear factual findings, not mere assertions.
  • The 183-day condition under Article 5(4) is mandatory and must be specifically proven.
  • Software payments cannot automatically be classified as royalty; judicial precedents must be followed.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8337-DB/SKN26112018ITA10852018_104222.pdf

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