AI Drafter 
TaxTMI 
TaxTMI 
2010 (7) TMI 1077
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.... holding that DaimlerChrysler India Pvt. Ltd. (DCIL) is a dependent agent of the appellant in respect of sale of Completely Built Up (CBU) cars in India and constitutes a permanent establishment in respect of such sales under Article 5(5) of the India-Germany tax treaty and consequently holding that income from such sales which is attributable to the aforesaid permanent establishment would be taxable in India." Ground No. 3 of revenue On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that in view of independent principal to principal basis regarding business between the assessee and the DCIL, regarding the sale of raw material and spare parts, the DCIL cannot be treated as agent of ass....
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....e to the activities of such permanent establishment in the transactions under consideration will have to be determined which will be taxable in India. While arriving at the profits of the PE, the expenses incurred in earning the profits would also be deducted there from in arriving at the taxable profits of PE. 30. Now the activity of DCIL is twofold. (1) manufacture of cars using CKD packs and other components. (2) Act as communication exchange in respect of direct sale of CBUs by the Assessee directly to the clients in India. Even though the commission received by DCIL for helping the sale of CBUs, it is obvious that their main activity is that of manufacture of cars. Acting as communication conduit is not their main business. Fu....
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....ee to the client and vice versa, are merely rendering a very insignificant auxiliary/ preparatory service in the sale of CBUs by the Assessee to Indian clients. Therefore DCIL does not constitute a dependent agent of the Assessee. The prices offered to the Indian clients are as per list price notified and so whether DCIL is involved or not the price charged to the customer would be the same. No profits can be attributed to the services of DCIL in India. In fact by engaging the services of DCIL, the profit of the Assessee is reduced to the extent of the commission paid to DCIL. 32. From the above it can be seen that merely acting for a non resident principal would not by itself render an agent to be considered as PE for the purpose ....
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...., the learned CIT(A) has erred in holding that DCIL constitutes a business connection of the appellant under section 9 of the Income-tax Act, 1961 in India in respect of sales of CBU cars and consequently holding that a part of the income of the appellant from the aforesaid sales is taxable in India." Ground No. 1 of revenue On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee does not have any business connection in India regarding the business of sale of spare parts and raw materials to Indian Customers." 8. The learned representatives of the parties agreed that this issue is also covered by the decision of ITAT in AYs. 2001-02 and 2002-03 cited supra wherein the ITAT hel....
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....ome accrues to the Assessee on the basis of any activities carried out on behalf of the Assessee in India. Therefore in our opinion DCIL does not constitute the Assessee's business connection in India and thus, the Assessee's income from sale of raw material/ CKD units to DCIL would not be liable to tax in India under the provisions of the Act. We therefore concur with the decision of the CIT(A) on this issue and dismiss the ground No. 1.(i) of the Revenue's appeal. 9. Since the issue under consideration is identical to that of AY 2001-02 & 2002-03 cited supra, we respectfully follow the same and in the light of that we allow this ground of the assessee and dismiss the ground raised by the revenue. 10. Ground No. 3 of the assessee rea....
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....es submitted that this issue is covered by the decision of ITAT in assessee's own case for AY 2001-02 and 2002-03 cited supra. We find that the ITAT in AY 2001-02 & 2002-03 held as under:- "16. In our opinion mere existence of subsidiary does not by itself constitute the subsidiary company a PE of the parent. The main condition for constitution of PE is carrying on of business in India, and as regards sale of parts/CKD no operations in respect of the manufacture and sale of parts is carried out by the assessee in India. Further the assessee does not have a right to use of DCILs premises. Further DCIL does not constitute a place of management of the assessee in India as the management of the assessee's business is by the Board of Di....