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2016 (2) TMI 705
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....sessee has two subsidiaries in India by the name of Wipro Kawasaki Precision Machinery Pvt.Ltd. and India Kawasaki Motors Pvt.Ltd. 3. The grounds on which the appeal is filed before us are as follows. "1. That on the facts and in the circumstances of the case and in law, the final assessment order passed by the Ld. Assessing Officer ("Ld. AO") in pursuance to the directions as issued by the Learned Dispute Resolution Panel ("Ld. DRP") is a vitiated order as the Ld. DRP has erred both on facts and in law in confirming the addition made by the Ld. AO to the appellant's income. Appellant does not have a Fixed Place Permanent Establishment ("PE") in India : 2(a). On the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in holding that the Liaison Office ("LO") of the appellant in India results in creation of a Fixed Place PE of the appellant in India by wrongly alleging that the core business activities of the appellant are carried out through the LO and assessing the income at INR 76,03,04,690. (b) On the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in holding that the Liaison office ("LO") of the appel....
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.... the appellant in India in the first place and attributing income of Rs. 10,58,87,057 in this regard. (b) On the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in holding that except manufacturing all other functions like market survey, market research, customer education, marketing, training, price negotiation, contract conclusion, procuring orders, delivery, installation of equipments etc. relating to the business enterprise of the appellant are carried out in India. (c ) On the facts and in the circumstances of the case and in law, Ld. AOIDRP erred in holding that the judgment of Hon'ble Supreme Court in the case of the Ishikawajima Harima Heavy Industries vs DCIT 288 ITR 408 is not applicable in the case of the appellant without stating reason for the same. (d) That on the facts and circumstances of the case and in law, Ld. AOIDRP have failed to appreciate that income from off-shore supplies can under no circumstances be subject to tax in India. Taxability of Fees for Technical Services under section 44DA of the Act considering it to be effectively connected to the alleged PE in India 4(a) On the facts an....
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....g 7. The Ld. AO erred in law and on the facts and circumstance of the case by initiating penalty proceedings under section 271(l)(c) of the Act for furnishing inaccurate particulars of income and concealment of income. The Appellant craves leave to add, alter, amend, vary or rescind any of the above grounds either before or at the time of hearing in the interest of natural justice." 4. Mr.Piyush Kaushik, the Ld.Counsel for the assessee submitted that ground no.1 is general in nature. Ground no.2 pertains to the issue whether the liaison office (L.O.) of the assessee constitutes Permanent Establishment (P.E.) of the assessee in India. Ground no.3 is on the issue of attribution of business profits to the P.E. in India in terms of Article 7 of the India Japan Double Taxation Avoidance Agreement (DTAA), and ground no.4 is whether the fee for technical services earned by the assessee can be considered as effectively connected with the fixed place P.E. and attribution of income thereof. Ground no.5 is : contribution of profits should be in line with transfer pricing principles and not on adhoc basis. Ground no.6 is against levy of interest u/s 234B of the Act and ground no.7 ....
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....the terms and conditions laid down by the Reserve Bank of India, while permitting opening of L.O., is perverse. He submitted that the finding as to whether the assessee had violated the conditions stipulated by the RBI and whether false declarations were given to the RBI, is matter to be decided by the RBI and not by the A.O. Reliance was placed on the following case laws. (i) DIT vs. Nokia Networks OY (2013) 358 ITR 259 (Del.) (ii) Mitsui & Co.Ltd. vs. ACIT (International Tax) 114 TTJ (Del) 903 (iii) Motorola Inc. Vs. DCIT 95 ITD 269 (Del)(SB) (iv) Jebon Corporation India 127 TTJ (Bang) 98 (2009) 6.2. On the issue of tax on the off shore supplies made by the assessee, he submitted that, as the assessee has no P.E. in India, the question of attribution or bringing to tax the income from the off shore supplies made from Japan does not arise. 6.3. Without prejudice to the above, it was submitted that, even if it is assumed that there is a P.E., off shore supplies cannot be said to be effectively connected to the P.E. in India. He submitted that the copies of invoices along with shipping documents of supplies demonstrate that they were made on....
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....f Rs. 59,51,08,254/- the entire activities were carried out in Japan and that no part of the activity is undertaken in India and hence no portion of the profits earned from FTS can be attributable to the P.E. He took this Bench through the purchase orders of Afcons Gunanusa Joint Venture (AGJV) and that of Larson & Toubro Ltd. (Engineering and Construction division) to demonstrate that the FTS in question is not attributable to the activity of the L.O. He vehemently contended that no amount can be brought to tax in terms of Article 7. 7. In ground no.5, the assessee did not make any submissions on the ground that the attribution of profits to the alleged P.E. should be in line with the transfer pricing principles and not on an adhoc basis. On the levy of interest the Ld.Counsel argued only against the levy of interest u/s 234B of the Act and has not argued on other levies. He relied on the decision of Jurisdictional High Court in the case of Director of Income Tax ( International Taxation) vs. G.E. Packaged Power Inc. In ITA 352/2014 judgement dt. 12.1.2015. No other issue has been argued before us. 8. The Ld.D.R. Mr. Anuj Arora on the other hand controverted the arguments of....
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....ven. He submitted that some of the contracts were signed by highly qualified persons of the assessee company when they were in India for this purpose. He argued that qualified persons of the assessee company rendered Technical Services in India for more than 240 days and hence to say that FTS is not effectively connected with the P.E. is not the correct proposition of law. 9.1. The Ld.Counsel for the assessee on the other hand rebutted these arguments and submitted that in case of L&T, there is no element of supply and the module design and the work was done outside India. On the issue of place of signing of the contract being India, it was submitted that the Hon'ble Supreme Court had held that this is of no consequence. 10. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, orders of the authorities below we hold as follows. 11. A perusal of the order of the AO as well as the DRP takes us to a conclusion that the sole basis on which they had come to a conclusion that the assessee had a P.E. in India is the clauses in power of attorney executed by the head office in favour of its employee i....
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.... proper for the operation of the Liaison Office. 6. To apply for, obtain and renew all licenses and permits that may be necessary for carrying on activities of the Liaison Office, and to undertake and fulfil all procedural formalities pertaining thereto, including making and filling of all applications, affidavits and giving necessary undertakings where required. 7. To file applications, documents and undertake follow-up thereof, with the Reserve Bank of India, Ministry of finance and any other authority for setting up the Liaison Office and to do all acts or things) essential l thereto. 8. To withdraw and receive papers, documents or such other instruments from any office, Bank, department of the government or any other person or public body and to give proper receipt and discharge therefore. 9. To employ and or disc large employees, to appoint or engage an agent or agents for in the name of the Liaison Office. 10. To appoint Attorney at law to represent KHI before governmental and judicial bodies and to take such legal action as may be necessary or appropriate to protect the interests of the Liaison Office; and 11. To generally represe....
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....iaison Office in due course for our record. Please also note to address the correspondence in future to: The General Manage, Foreign Exchange Dept. New Delhi Regional Office, RBI 6 Sansad Marg, P.B.No.696 New Delhi 110 001 5. Please acknowledge receipt. Yours faithfully, Sd/- (Deepti B Raj) Annexure: M/s Kawasaki Heavy Industries Ltd. i. Except the proposed liaison work, the office in India will not undertake any other activity of a trading, commercial or industrial nature, nor shall it enter into any business contracts in its own name without our prior permission. ii. No commission/fees will be charged or any other remuneration received/income earned by the office in India for the liaison activities/services rendered by it or otherwise in India. iii. The entire expenses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels. iv. The office in India shall not borrow or lend any money from/to any person in India without our prior permission. v. The office in India shall not acquire, hold (otherwise than by ....
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.... to adjudicate and conclude that the assessee has filed false declarations before the RBI. At best, he can bring his findings to the notice of the RBI which may consider the same in accordance with law. The RBI has not found any violation of conditions laid down by it while permitting the assessee to have an L.O. In such circumstances, no adverse inference can be drawn. 11.4. Having come to conclusion that prima facie a reading of the power of attorney does not demonstrate that the employees of the assessee at the L.O. are authorised to do core business activity or to sign and execute contracts etc., we now examine whether the AO has brought out any documentary evidences in support of his contention that the assessee has a P.E. in India. The assessee has furnished before the AO as well as before the DRP numerous documents, in support of his contention that all purchase orders would be raised directly by the Indian Customers on the Head Office of the assessee and that the Head Office had directly send quotations/invoices to its Indian customers and that these were signed and executed directly by the head office, without any involvement whatsoever by the LO in India. The AO has no....