TaxTMI 
TaxTMI 
2015 (9) TMI 844
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....dice, if the assessee does constitute a PE in India then no further profits can be said/sought to be attributable to the PE as the transaction with the assessee have been found to be at arm's length by the Transfer Pricing Officer (TPO), in subsequent years". 2. The brief facts and background of the case are that, the assessee company, M/s Reuters Limited is incorporated under the laws of the United Kingdom (UK) and is a tax resident of UK. It is mainly engaged in the business of providing worldwide news and financial information products (which are termed as "Reuters Products"). The news and financial information products are produced, compiled and distributed by the assessee company through 'Reuters Global Network' with a vast global communication network consisting of data storage facilities situated in three locations i.e. London, New York and Singapore, which are linked by satellite links and terrestrial lines. The assessee uses the network to receive and transmit information and provide access of the compiled news and edited financial information to distributors in the various countries. In India, the assessee provides 'Reuters products' to its Indian subsidiary named as 'Re....
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....er the 'distribution fees' is not FTS and therefore, cannot be taxed under Article 13. It was further held that RIPL is not an agent of the assessee and, therefore, do not constitute Agency PE for taxing the distribution fee in India. Uptil this stage, there was no issue regarding service PE under Article 5(2)(k). Against this order, second appeal was preferred by the Revenue before the Tribunal. The Tribunal vide order dated 29th July, 2009, remanded the matter to the Assessing Officer for fresh consideration with regard to the existence of PE in India, not only under Article 5(5) but also within the meaning of Article 5(2)(k) of the Indo-UK-DTAA. 4. Now, in pursuance of ITAT order, the Assessing Officer required the assessee to show cause as to why RIPL should not be treated as PE of assessee in India under article 5(5) and also about service PE under Article 5(2)(k). In response, the assessee filed very detail submissions which have been incorporated by the Assessing Officer from pages 3 to 8 of the assessment order. In the draft assessment order, the Assessing Officer held that assessee has an agency PE in India as RIPL has done exclusive business for the assessee in India and....
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....AA for AY 1997-98. 8. Under Article 5(2)(k), a UK resident will be deemed to have a PE in India if it renders services through employees deputed to India. The Assessee has deputed employees to RIPL and this is indicated by the appointment of Mr. Simon Cameron Moore to RIPL as Bureau Chief of Bombay from 19.08.1996 as per the letter dated 12.06.1996 which was brought out by the DR during the hearing for AY 1997-98 before the ITAT. The Assessee has not brought any document or third party evidence like passport copies on record to prove that Mr. Simon Moore was in fact not in India during the period 1996- 97. The Assessee has therefore was in fact not in India during the period 1996-97. The Assessee has therefore deputed its employee to RIPL in senior capacity. Thus, as Mr. Simon Moore was in India since 12.06.1996, the Assessee has PE in India under Article 5(2)(k) of the DTAA for AY 1997-98". Thereafter, the Assessing Officer, taxed the entire "distribution fee" on gross basis @ 20% u/s 44D r.w. section 115A. 6. Before us, Ld. Senior Counsel, Shri P J Pardiwala, after explaining the entire facts, submitted that the main issue which needs to be examined is, whether the PE of the....
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....abitually secures the order wholly for the enterprise. None of these conditions for being dependent agency PE is established qua the distribution agreement in the case of the assessee, because the RIPL is not exercising any authority to negotiate and enter into a contract for and on behalf of the assessee so as to bind the assessee. It is neither maintaining any stock of the goods or merchandise nor habitually secures any orders wholly or almost wholly for the enterprise. Further it is not covered under Article 5(5) also, because RIPL is neither a broker, nor commission agent, or any other agent of an independent status, because RIL is acting in the ordinary course of business. The activities of RIPL is not restricted or devoted wholly or almost or almost wholly for the assessee which is evident from the fact that it has substantial receipts/income from transaction with third parties. He submitted that for being a dependent agent, all these conditions as enumerated in Article 5(4) have to be fulfilled and in support of his contention he strongly relied upon the decision of the Co-ordinate Bench in the case of Varian India Pvt Ltd vs ADIT [2013], reported in 142 ITD 692 (Mum). He al....
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....f RIPL is from the Indian customers which is evident from the copy of profit and loss account and only part of the revenue i.e. Rs. 4.80 crores have been received as service fee, therefore, it cannot be said that RIPL is doing exclusive work only for the assessee. As regards decisions relied upon by the DR, he submitted that all the decisions are squarely distinguishable on facts and none of them are remotely applicable to the facts of the assessee's case. Regarding Delhi High Court decision in Rolls Royce Singapore Pvt Ltd (supra), Mr. Pardiwala submitted that subsequently the said decision has been recalled by the Hon'ble Delhi High Court itself in a review petition vide order dated 27th July, 2007 and fresh hearing will take place, therefore, reliance on the said decision will not be appropriate. 10. We have heard the rival contentions, perused the relevant finding given in the impugned orders and material placed on record. In the second round of proceedings, we are mainly required to examine, whether the assessee has a PE in India, especially with regard to payment under the distribution agreement, that is, distribution fee. For other payments, there is no dispute at all. The ....
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....this paragraph". It can be seen that an agent is deemed to be P.E., if he is not independent and habitually exercises an authority to conclude contracts on behalf of the enterprise or if he has no such authority, but habitually maintains stock of goods or merchandise from which he regularly deliver goods or merchandise on behalf of the enterprise or he habitually secure orders solely or almost wholly for the enterprise. If any of these conditions mentioned in Para-4 above, are not fulfilled, the agent cannot constitute a P.E. for the foreign enterprise 11. We shall now examine whether such conditions stands satisfied from the distribution agreement. Under the terms of distribution agreement, the 'Reuters' (i.e. assessee) agreed to provide Reuters Services to the RIPL (distributor) and for further re-distribution by the distributor to the subscribers in the territory of India. Distributor will put best of its efforts to promote and sell the Reuter services/products throughout India. The preamble sets out following arrangements :- (A) Reuters carries on the business of producing and distributing news and information services compiled by Reuters from material collected by Reuters ....
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....t to Reuters for prior approval. Approval shall be deemed to be given 'if no action is taken by Reuters within twenty one (21) days from receipt of the said material. (b) in order to maintain the standard of Reuter group contracts and continuity with Reuters multicentre contracts utilize for contracts to be entered into between the Distributor and Subscribers forms of contract consistent with the standard forms from time to time in use by Reuters; and (c) notify Reuters of the names and addresses of any new Subscribers to the Reuter Services not later than four (4) week after such Subscribers first receive the Reuter Services. 4.2 xxx 4.3 Contributors The Distributor expressly recognizes that by accepting the Reuter Services for distribution, it has become a link in the Reuters international interactive network. As a part of this network the Distributor assumes the responsibility of : (a) providing such facilities to Subscribers in the Territory as will allow them not only to retrieve information from but also (were appropriate) to contribute information to the Reuter Services. (b) Withdrawing the contributor facility under the Reuter Services from any Subscriber who, in the....
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....he day within the Territory of a standard suitable for use by Reuters in the Reuter Services such file to be supplied to Reuters by satellite or cassette shipment in London or by such other means as may be agreed or in such other location as Reuters may indicate from time to time, and to provide related facilities and personnel". Clause 5 provides for sub-distributors, which the RIPL may delegate any one or more of its duties provided under clause 4 to any third parties. Clause 6 provides for multi centre agreement wherein it has been provided that RIPL acknowledges to 'Reuters' that it may from time to time conclude agreements with subscribers. Clause 9 provides for payment to Reuters by the distributor in consideration for supply of Reuters services and if the distributors supply news material to the Reuters then Reuters shall pay to the distributors for supply of news material as a news fees. 12. From the plain reading of the relevant terms of the agreement, it is quite apparent that nowhere it has been specified or there is any mandate that RIPL is habitually exercising its authority to negotiate and to conclude the contracts on behalf of the assessee in the territory of Indi....
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....which is borne out from the distribution agreement that RIPL is only acting on behalf of 'Reuters' or is in kind of dependent agent. It is completely an independent entity and the relationship between the assessee and RIPL is on principal-to-principal basis. 13. Even under Para 5, the foremost condition is that the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise. As stated above, activities of RIPL cannot be said to be devoted wholly or almost wholly on behalf of the assessee as it has entering into contracts with the subscribers in India on independent basis and on principal-to-principal for earning and generating its revenues. In fact revenue from third party subscribes are far excess than transaction with the assessee. It is not the case here that it has completely or wholly doing activity for 'Reuters' and earning income wholly from 'Reuters' only. Thus, the conditions laid down in Article 5(5) also does not fulfill. 14. Now coming to the second limb of the controversy as to whether there is a service PE within the scope and ambit of Article 5(2)(k), which reads as under :- "(k) the furnishing of services including managerial servi....
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....le for collecting and analyzing the news and holds a management position in the news centre or news room. He is mainly responsible for co-coordinating the efforts of the reporting staff to investigate and cover stories for dissemination of news to printing and media outlets. Mr. Simon Moore has been assigned to India by the assessee as a 'Text Correspondent' to perform functions of a Bureau Chief. Here his functions and duties has nothing to do with so far as distribution agreement is concerned, which is evident from Article 3 of the said agreement itself as incorporated above. There is no furnishing of services by the Bureau Chief to the RIPL which has lead to earning of a distribution fee to the assessee. Here, what we have to see is, whether the assessee is furnishing services as postulated under Article 5(2)(k) through Bureau Chief to RIPL who has been deputed by the assessee to work as an employee of the Indian company. As per terms of clause 3 of the agreement, the assessee is merely delivering Reuters services to the distributors. The Bureau Chief has nothing to do for providing of Reuters services to the distributor i.e. RIPL. The Bureau Chief is only acting as a Chief repo....