TaxTMI 
TaxTMI 
2015 (1) TMI 1156
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....ssee. Various notices and letters were issued to the assessee, in response to which Mr.Sachin Garg and Mr.Satyam Rastogi, CAs from PricewaterhouseCoopers, appeared as the Authorised Representative (AR) and filed required information as placed on record. The assessee is a call centre company and is having a subsidiary in India by the name of Convergys India Services Pvt.Ltd. ("CIS"). A detailed order has been passed for the A.Y. 2006-07 wherein various issues have been discussed like loans given by assessee, reimbursement of salary, fees for technical services etc. The facts of the case are same as were in the last year. This fact has been accepted by the assessee also. Even in the writ petition filed before the Hon'ble High Court for the AY 2006-07, the assessee has not challenged the facts as brought out in the assessment order. The assessee has filed its submissions on 21.12.2009 regarding the existence of PE. Relying on the assessment Order for the AY 2006-07 and the detailed discussion contained therein, similar is held as far as the existence of PE and transactions not being at arm's length price is concerned. The same can be summarized as below :- *The assessee has PE i....
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....ed in Form No. 3CEB,the assessee has not verified about the main transactions that its transactions were at arm's length, which it was supposed to do as per law. *The assessee has not kept and maintained the required documentation as required by Section 92D of the Act and it is relying on the appropriate documentation maintained by CIS and CIM. This indicates that, CIS and CIM are not independent entities and are working under the control and directions of CMG. If it is not so, how could it rely on the documents maintained by other parties? *For the fixed place PE in the form of assets of the assessee in India, separate attribution has to be there. *The profits attributable to the PE on the basis of arm's length principle cannot be determined and such determination will also present exceptional difficulties, therefore, same is being estimated on reasonable basis." 3. The next issue is attribution of profits. The draft assessment order states as follows. "The assessee has stated that the revenue from the Indian operations is 166 million USD and the assessee has paid USD 137,238,463 to CIS for these services (includi....
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....rvice PE in terms of Article 5(2)(1) of the DTAA. 5. That the Ld. AO, erred on facts & in law, in attributing a sum of Rs. 87,44,43,817/- as profits of the alleged PE of the appellant in India on mere conjectures and surmises. 5.1 That the Ld. AO erred in law in making the impugned attribution / addition to the alleged PE without referring the matter to the Transfer Pricing Officer which is in complete contradiction to the Instruction No. 3 dated May 20,2003 issued by the CBDT. 5.2 That the Ld. AO erred in law in making the impugned attribution / addition to the alleged PE in gross disregard to the Circular No. 5 of 2004 dated September 28, 2004 issued by the CBDT. 5.3 That the Ld. AO failed to appreciate that attribution of profits to the PE is a transfer pricing issue and grossly erred on facts and in law in disregarding established judicial pronouncements in India on the issue that once an arm's length price has been determined for the Indian associated enterprise [Converg....
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....n of profits to the Permanent Establishment, the Tribunal laid down the approach to be followed, to arrive at the profits attributable to the Permanent Establishment. On payment of IPLC/ linking charges, the Tribunal held that the payment is not taxable in the hands of the assessee as royalty. The assessee contends that even otherwise, the payment in question is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. 5.2. On interest under Section 234B of the Act, the assessee submitted that the Tribunal had decided the issue against the assessee. He submitted that the assessee had filed an appeal on all these issues before the Hon'ble High Court. He further contended that on the issue of Permanent Establishment the Hon'ble Jurisdictional High Court of Delhi in its judgement in the case of E-Fund Corporation (in ITA no. 738/2011) has held that, outsourcing of service by the U.S.Company to its Indian Subsidiary, does not constitute a P.E. of the U.S.Company in India. He submitted that if the propositions laid down in this case law apply to the assessee's case, and it should be held that the assessee has no Permanent Establishment in Indi....
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....essee's own case, in the appeal of the assessee for A.Y. 2006-07 as well as for AY 2008-09. He submitted that the Tribunal should follow this decision as on the propositions laid down by the Hon'ble Jurisdictional High Court of Delhi in the case of e-fund Corporation (supra) do not apply to the facts of the case. 7. Heard rival contentions. After carefully perusing the material placed on record, orders of the authorities below, case laws cited, we hold as follows. 8. The Tribunal for the AY 2006-07 as well as for the AY 2008-09 order dt. 10th May,2013 has considered the issue of Permanent Establishment, the issue of profits attribution to the Permanent Establishment and the issue of payment on account of IPCL/link charges and the issue of interest and after detailed discussion adjudicated the matter. We are inclined to follow the same for the sake of consistency. Thus we dispose of the appeal as follows. 8.1. Ground nos. 1to 3 are general in nature. 8.2. Groundno.4 is on the issue of Permanent Establishment. The Tribunal in the above referred order for the AY 2006-07 and 2008-09 at para 9.8 at page 46 and 47 held as follows. &nbs....
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....nsfer pricing principles supported by the CBDT Circular No. 5 of 2004 as ITA nos. 1443/D/12, 5243/D/11 & 1376/D/12 Convergys Customer Management Group Inc. as well as the judgment of the Supreme Court in Morgan Stanley (292 ITR 416). As per the Supreme Court in the case of Morgan Stanley, it has been held. as under: "The impugned ruling is correct in principle insofar as an associated enterprise, that also constitutes a PE, has been remunerated on an arm's length basis taking into account all the risk-taking functions of the enterprise. In such cases nothing further would. be left to be attributed to the PE. The situation would. be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would. be a need to attribute profits to the PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the taxpayer has to be examined as to whether the transfer pricing analysis placed by the taxpayer is exhaustive of attribution of profits and that would. depend on the functional....
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....e. The attribution of India profit shall be worked out as under, mentioned after the table: 11.18. In the computation based on the above approach for the AY 2006-07, the profits attributable to India comes as under: Particulars Amount (in US Dollars) Total revenue of CMG as per the Annual Report (A) 1,663,600,000 Operating Income of CMG as per the Annual Report (B) 175,500,000 Operating income as a percentage of revenue earned (C=B/A) 10.55% End Customer revenue from Indian operations (D) 138,900,000 Operating Income from Indian operations (E=C*D) 14,653,950 Operating income of CIS (profit before tax of CIS)(F) 13,800,000 Profit retained by CMG in the US (G=E-F) Placitum 'X' 853,950 9.1. Based on these directions the assessee computes the attribution of profits to the P.E, as extracted in para 5.3 of this order. 9.2. The Assessing Officer is directed to verify this claim of the assessee and pass consequential orders in line with the directions of the ITAT on this issue for the AY 2006-07. 10. Ground no.7 is against the addition on account of IPCL/link charges. The Tribunal at para 13 page 67 held as follows. &nbs....
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....35 of 2006) * Cable & Wireless Networks India Private Limited (AAR No. 786 of 2008) - (The Special Leave Petition filed against this ruling has been dismissed by the Supreme Court) * Asia Satellite Telecommunications Co. Ltd. (332 ITR 340) (Delhi High Court) * Yahoo India Pvt Ltd. Vs DCIT [ITA No. 506/Mum/2008] * Standard Chartered Bank Vs Dy. Director of Income Tax [ITA No. 3824/MUM/2006] 13.2. CIT (A) in his order has accepted the contention of the assessee that the third party service provider was merely using its own equipment itself while rendering the services to its customers including the assessee and CIS and there is no transfer of the right to use, either to the assessee or CIS. The assessee has merely procured services and provided the same to CIS and no part of the equipment was leased out to CIS. The Ld. CIT (A) held that the payment for link charges do not constitute Royalty under the provisions of Article 12 of the DTAA. &nbs....