2020 (9) TMI 922 - AT - Income Tax

Tribunal rules Mitsui India not a Permanent Establishment, no further profits attributable. 'sLength

The Tribunal ruled in favor of the assessee, holding that Mitsui India Pvt. Ltd. did not constitute a Dependent Agency Permanent Establishment (DAPE) of ... Dependent Agency Permanent Establishment of the assessee company in India - Income accrued in India - HELD THAT:- We find the issue stands squarely covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for asstt. Year 2005-06 wherein it was held that MIPL is not a Dependent Agency PE of the assessee. Attribution of profits to DAPE - HELD THAT:- Respectfully following the consistent decisions of the Tribunal in assessee’s own case for the preceding assessment years [2020 (2) TMI 1053 - ITAT DELHI] and in absence of any contrary material brought to our notice we hold that no further profit could be attributed since assessee is not a Dependent Agency Permanent Establishment. Issues Involved:1. Constitution of Dependent Agency Permanent Establishment (DAPE)2. Attribution of Profits to DAPEIssue-wise Detailed Analysis:1. Constitution of Dependent Agency Permanent Establishment (DAPE):The primary issue was whether Mitsui India Pvt. Ltd. (MIPL) constituted a Dependent Agency Permanent Establishment (DAPE) of the assessee company in India. The Assessing Officer (AO) argued that MIPL habitually secured orders for the assessee and was economically dependent on it, thus fulfilling the conditions of Article 5(7) of the Indo-Japan DTAA. The AO relied on several factors, including the commission agreement between Mitsui & Co. and MIPL, and the service agreement for the Instant Noodle Project, to substantiate that MIPL was securing orders for the assessee. The AO also cited the Hon’ble Mumbai Tribunal's decision in the case of DHL Operations B.V. Netherlands and the Supreme Court's decision in the case of Morgan Stanley to support his stance.However, the Tribunal found that this issue was covered in favor of the assessee by its own decision for the assessment year 2005-06, where it was held that MIPL did not constitute a DAPE. The Tribunal noted that the AO had not provided sufficient evidence to demonstrate that MIPL habitually secured orders for the assessee. The Tribunal emphasized that merely providing support services or being economically dependent on the assessee does not automatically constitute a DAPE. The Tribunal also referred to the Delhi High Court's decision in the case of Director of Income Tax And Others Versus M/s. E Funds IT Solution and Others, which clarified the conditions under which an agent could be considered a DAPE. Consequently, the Tribunal held that MIPL was not a DAPE of the assessee, thereby allowing Ground No. 2 of the assessee's appeal.2. Attribution of Profits to DAPE:The second issue concerned the attribution of profits to the alleged DAPE. The AO had attributed 50% of the profits from Indian operations to the DAPE, while the CIT(A) reduced this attribution to 20%. The assessee argued that since the transactions between the assessee and MIPL were at arm's length, no further profits should be attributable, referencing the Supreme Court's decision in DIT vs. Morgan Stanley & Co. Inc. and DCIT vs. SET Satellite.The Tribunal found that this issue was also covered in favor of the assessee by its own decision for the assessment year 2005-06, where it was held that no further profit attribution was necessary once a Transfer Pricing analysis had been conducted. The Tribunal noted that the Transfer Pricing Officer (TPO) had examined the functional and economic analysis of MIPL's activities and found them to be at arm's length. The Tribunal reiterated that as per the Supreme Court's ruling in Morgan Stanley, no further profit attribution is required if the Transfer Pricing analysis is undertaken.Following its consistent decisions in the assessee's own cases for the preceding assessment years, the Tribunal held that no further profit could be attributed since MIPL was not a DAPE. Consequently, Grounds No. 3 and 4 of the assessee's appeal were allowed.Conclusion:In conclusion, the Tribunal ruled in favor of the assessee on both issues. It held that MIPL did not constitute a DAPE of the assessee in India and that no further profits could be attributed to the alleged DAPE since the transactions were at arm's length. The appeal filed by the assessee was partly allowed, and the order was pronounced on 22nd September 2020.