2015 (10) TMI 2830 - AT - Income Tax

Tax Tribunal: PE ruling upheld, interest levy confirmed, no dependent agent PE found. Link charges not taxable.

Convergys Customer Management Group Inc. Versus ADIT, Circle 1 (1), International Taxation, New Delhi and Vica-Versa

Convergys Customer Management Group Inc. Versus ADIT, Circle 1 (1), International Taxation, New Delhi and Vica-Versa - TMI Issues Involved:1. Whether the CIT(A) was justified in holding that the assessee has a PE in India.2. Whether the procurement of IT enabled services from assessee's Indian Subsidiary for the purpose of export would accrue income in the hands of the assessee in India or whether the profits are attributable to alleged PE in India.3. Whether levy of Interest u/s. 234B of the Act is justified.4. Whether the ld. CIT(A) was correct in holding that the assessee is not having dependent agent PE through CIS in India.Detailed Analysis:Issue 1: Permanent Establishment (PE) in IndiaThe Tribunal upheld the CIT(A)'s decision that the assessee has a fixed place PE in India. The assessee's employees frequently visited CIS premises to provide supervision, direction, and control over CIS operations, and such employees had a fixed place of business at their disposal. CIS was practically the projection of the assessee's business in India and carried out its business under the control and guidance of the assessee without assuming significant risk. The Tribunal confirmed that the assessee has a fixed place PE in India under Article 5(1) of the DTAA.Issue 2: Attribution of Profits to PEThe Tribunal followed the methodology from the previous order for A.Y. 2006-07 to determine the profits attributable to the PE. The Tribunal concluded that the revenue of the assessee company cannot be considered as the revenue of the PE. The correct approach involves computing the global operating income percentage, applying it to the end-customer revenue from Indian operations, reducing it by the profit before tax of CIS, and attributing the remaining profits between the US and India. For A.Y. 2002-03, since the margin kept by the assessee after payments to CIS was a loss, no profit attribution was available to the PE in India.Issue 3: Levy of Interest u/s. 234BThe Tribunal held that the assessee is liable to interest under section 234B as the income being assessed now cannot be held to be income liable to TDS under Indian provisions. The charging of interest is automatic if the assessee has defaulted in payment of advance tax. The Tribunal dismissed the ground of appeal regarding the levy of interest u/s. 234B.Issue 4: Dependent Agent PEThe Tribunal decided in favor of the assessee, holding that CIS did not constitute a dependent agent PE of the assessee in India as the conditions provided in paragraph 4 of Article 5 of the DTAA were not satisfied. The Tribunal upheld the CIT(A)'s decision that the assessee does not have a dependent agent PE in India.Additional Issues:Taxability of IPLC/Link ChargesThe Tribunal held that the payment for link charges does not qualify as 'Equipment Royalty' under Article 12 of the DTAA and hence is not taxable in India. The assessee merely procured services and provided the same to CIS, with no part of the equipment being leased out to CIS. The Tribunal followed the decision of the Hon'ble Delhi High Court in Expeditors International India (P) Ltd. and other relevant judgments.Conclusion:All the four cross appeals filed by the assessee and the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions on all counts, confirming that the assessee has a fixed place PE in India but not a dependent agent PE, and that the link charges are not taxable as equipment royalty. The levy of interest u/s. 234B was also upheld. The order was pronounced in the open court on 26.10.2015.