TaxTMI 
TaxTMI 
2013 (8) TMI 363
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.... 3. The assessee is engaged in the business of providing services of internet advertising and marketing services including e-commerce transactions and provision of related technologies, systems, consultancy, devices, strategies, solutions media, channels and products in the national and global domains. The assessee has shown purchases of online advertisement space of Rs. 2,68,28,859/- and reimbursement of expenses for use of software license of Rs. 24,94,631/- to M/s Komli Inc US which is the holding company of the assessee and therefore an associated enterprises. The assessee stated before the AO that the parent company namely, M/s Komli Inc US does not have a Permanent Establishment (PE) in India. The remittance was towards the invoices raised by the parent company which was doing independent business. The remittance was towards the business income of parent company and as per Article 7 of Indo-US DTAA business income of non-resident company is taxable in India only if it has a PE in India. Thus, it was contended by the assessee that in the absence of PE in India the business income of parent company is not taxable in India and therefore, there was no question of withholding of ....
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....ion paid for the service rendered. Accordingly, the CIT(A) held that there was no requirement as per law to deduct tax u/s 195 of Income Tax Act. 4. Before us the Ld. DR has submitted that the AO has made out various aspects in support of its finding that the assessee constitutes PE to M/s Komli Inc US. Therefore as far as the ground No. 1 of the revenues appeal in respect of disallowance of expenditure towards purchase of online advertisement space is concerned, the assessee has not furnished a copy of the agreement with its AE despite it was specifically asked by the AO. He has pointed out that the AO in para 3.9(xi) as pointed out that the assessee's denial of having any written agreement was not found correct because in the Transfer Pricing Memorandum it has been specifically mentioned and referred in para 3 of page no. 16 that the assessee is having an arrangement with its AE. The Ld. DR has submitted that in the absence of the complete facts regarding the arrangement between the assessee and the AE, the assessee may be directed to file the written agreement for examination and verification. He has referred Article 5 of Indo-US, DTAA and submitted that as per paras 4 & 5 of....
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....priate advertisement space on the said website but if the clients desire to place their advertisement over a foreign website, in such case the assessee would get in touch with its parent company in US which in turn would get in touch with the foreign website owner or relevant foreign intermediary to book advertisement space. Thereafter the parent company would sell the space on the foreign website to the assessee which in turn is provided to the client. The reverse procedure is followed, when the parent company intends to book an advertisement space on Indian websites for its overseas clients. He has pointed out that when the assessee place order to its parent company the parent company books space on relevant foreign website and then sales space to the assessee at cost plus 33.33%. The assessee in turn sells the said space to its Indian client at cost plus profit, thus all transaction on principle to principle basis. The Ld. AR has submitted that the parent company has no customers based in India and all customers in India are owned by the assessee. The business of the assessee is distinct and separate from the business carried out by the parent company. The assessee caters to Ind....
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....not given a finding that the remittance is not towards reimbursement of expenses therefore at this stage the revenue cannot bring a new issue which has not been decided by the AO. He has further submitted that even otherwise the payment towards reimbursement of expenses is not taxable in India in the hand of the third party in absence of PE. 9. In rebuttal/rejoinder the Ld. DR has submitted that the AO has not accepted the claim of the assessee because the expenditure has been disallowed therefore it is not a new issue but one of the aspects of the same subject matter/issue. In support of his contention, he has relied upon the decision of this Tribunal in case of Link Letter Pvt. (LLP) v. ITO (international taxation) 40 SOT 51/ 9 ITR 217 as well as decision in case of Airlines Rotables Ltd., UK v. JDIT (international taxation). He has further submitted that the payment has been made for use of licence therefore this is in the nature of royalty and Article 5 of the DTAA has not applicable. 10. We have considered the rival submissions as well as relevant material on record. As regards ground no. 1 regarding the transaction of purchase of space on foreign website through its par....
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....ute as a agency PE of the parent company. Doing business with each other also a business activity between two entities and therefore the transaction of business between the two associated enterprises does not fall under the category that one is acting on behalf of the other. The Assessing Officer has also accepted this fact that the assessee's all clients are based in India which supports the case of the assessee. The clients of the assessee do not deal with the parent company and the business between the assessee and the parent company are independent transactions. Though the AO has given the reason that the income accrued to the parent company is u/s 5 of Income Tax Act, however, there is nothing on record that the said income has been assessed in the hand of the parent company. Apart from this we find from the facts and circumstances of the present case that there is no written agreement between the assessee and the parent company. The AO has referred the Transfer Pricing Study wherein an arrangement between the assessee and AE has been mentioned but that does not mean that the assessee having a written agreement. Further the arrangement is only regarding the transaction of busi....
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....ound No. 2 there is no dispute that the payment was made towards sharing of cost for a third party server platform and use of licence. The CIT(A) has decided this issue by treating the payment as pure reimbursement of cost to its parent company without having any element of profit. However, we find that the payment is towards cost of server and use of licence belongs to third party. The issue of the assessee constitutes PE of its parent company becomes irrelevant for adjudication of this ground because the payment has made to third party through AE. The alternative finding of the CIT(A) in para 5.3.1 is as under: "5.3.1 Without prejudice to the above, the appellant had merely re3imbursed to Komil Inc, the cost for a third party server platform without any mark up, which is essential to run the ad-network business. It is in the nature of cost sharing arrangement. In the recent decision of Hon'ble Mumbai Income Tax Appellate Tribunal in the case of Emerson Process Management India Pvt. Ltd. v. ACIT wherein it has been held that payment was made for services rendered to the assessee, the TDS provisions would be applicable only when the payment was made to a....