TaxTMI 
TaxTMI 
2016 (7) TMI 698
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....e Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:- "(1) Whether, on the facts and circumstances of the case and in law the Hon'ble DRP is correct in holding that the assessee did not have PE in India in the A.Y's. 2004-05, 2005-06 and 2008-09 in term of Article 5(1), 5(2), 5(4) & 5(5) of the Indo-USA Treaty and the addition made by the AO being the profit margin of 5% of the sale made by the assessee is not sustainable. (2) Whether on the facts and under the circumstances of the case, the Hon'ble DRP was correct in holding that interest u/s. 234B is not leviable in the case of non-resident despite a specific finding by the Hon'ble Delhi High Court in the case of DIT Vs. Alcatel Lucent USA Inc. dated 14/11/2013 in ITA Nos. 328 and 329/2012 wherein it has been specifically stated that a non-resident assessee which does not admit income chargeable to tax must be inferred to have induced the Indian payer not to deduct TDS, thus, rendering itself liable for advance tax interest." 3. The brief facts of the case are that in the instant case draft assessment order dated 21.03.2013 was passed by the AO u/s 144C(1) r.w.s. 143(3) of the....
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....ty to conclude contract on behalf of the assessee. It was also submitted that LIL does not secure orders on behalf of the assessee and in absence of any PE, no profits could be taxed in India under Article 7 of Indo-US treaty. The assessee relied upon the decision of the Tribunal in assessee's own case in ITA No. 7420/Mum/2010 for the assessment year 2006-07 dated 3rd June, 2011 , and orders of the Tribunal in ITA No. 6443, 6444 and 6445/Mum/2012 for the assessment years 2004-05, 2005-06 & 2008-09 wherein the Tribunal has held that the assessee does not have PE in India and is not taxable for sales which have been made from outside India. However, the Revenue filed appeal before the Hon'ble Bombay High Court against the afore-stated decisions of the Tribunal which was pending for adjudication by the Hon'ble Bombay High Court , and hence the submission of the assessee was not considered by the AO in its draft assessment order dated 21.03.2013 passed u/s 144C(1) r.w.s. 143(3) of the Act. The A.O. observed that the assessee has entered into Exclusive Sales Representation Agreement dated 1st April, 2000 with LIL and as per the agreement, LIL is the Exclusive Marketing Co-ordinato....
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....e products of the assessee but also involved in procurement of orders and its responsibility and involvement continues up to the stage of sale as it is to be kept informed about all development related to the sale. LIL has also maintained stocks of various products made by the assessee and the A.O. held that LIL is PE of the assessee under the Article 5(1), 5(2) and 5(4) of Indo-US DTAA. The assessee submitted in response to the observations of the AO that LIL has been remunerated by way of commission for the services provided by it and nothing more can be brought to tax in India. The A.O. rejected the contentions of the assessee holding that LIL has been remunerated by way of commission only for the functions performed but for determination of profits, three things namely functions performed, assets deployed and risk undertaken have to be seen. For the sales made in India, the assessee has assumed all the risks. While the production is taking place outside India, still the risk undertaken by the assessee in sales and marketing of the products in India exists, hence, assessee's profits for the same is taxable in India. Further , as per Article 7(1) of Indo-US DTAA, profit arisin....
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....essee directly on Indian customers. The LIPL assists the assessee in the direct sale of products to Indian customers and communicates information in relation to tenders and competitive bids from the customers. The LIPL does not have authority to negotiate the terms of the sale or conclude the contract on behalf of the assessee. The final decision regarding price, terms and conditions is taken by the assessee. The assessee has no operation in respect of manufacture or sale of product carried out in India. Sales are made by the assessee to LIPL on principal to principal basis. The assessee also does not have a right to use LIPL premises. Having regard to all these facts of the case, we are of the view that the learned counsel has demonstrated by (sic) the assessee does not have a PE in India. For this conclusion, we derive support from the decision of ITAT, Mumbai in the case of DDIT v. Daimler Chrysler AG, Germany, 39 SOT 418 wherein it was held that "there should be some definite activity of the PE to which profits can be attributed and merely acting for a non resident principal would not by itself render an agent to be considered as PE for the purpose of allocating profits taxable....
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....he matter is squarely covered by the afore-stated Tribunal order's in assessee's own case in the instant assessment year under appeal . 9. The ld. Counsel for the assessee, at the outset, submitted that the matter is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case in ITA No. 6443 to 6445/Mum/2012 for assessment years 2004-05, 2005-06 & 2008-09 vide orders dated 18th January, 2013 and also in assessee's own case in ITA No. 7420/Mum/2010 for assessment year 2006-07 vide orders dated 3rd June, 2011 wherein it was held by the Tribunal that the assessee did not have PE in India in terms of Article 5(1), 5(2), 5(4) and 5(5) of the Indo-US Treaty and the additions to the income made by the A.O. being a profit margin of 5% on the sales made by the assessee in India was held to be not sustainable in the absence of assessee's PE in India and the Tribunal deleted the same. The Tribunal order in ITA No. 7420/Mum/2000 for assessment year 2006-07 vide orders dated 03-06-2011 is reproduced below:- "This appeal filed by the Assessee is directed against the order of (IT)-Range-4, Mumbai, passed on 01/10/2010 for the assessment year 2005-....
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.... in the circumstances of the case and in law, the learned ADIT has erred in considering an adhoc 5% profit, amounting to Rs. 2,29,26,152 of the appellant's total sales to India, as its income taxable in India without considering the profit attribution principles under IT act and the Tax Treaty. 8. On the facts and in the circumstances of the case and in law, the learned ADIT has erred in levying interest of Rs. 52,73,244 u/s 234B of the Act despite the fact that the appellant was not liable to discharge any advance tax, since it is a non-resident whose entire income is tax deductible at source. 9. On the facts and in the circumstances of the case and in law, the learned ADIT has erred in initiating penalty proceedings u/s 271 (l)(c) of the Act." 2. Briefly stated the facts of the case are that the assessee is a foreign company incorporated under the laws of the United States of America (USA). It is engaged in the business of manufacture and sale of high performance chemicals which are used in transportation and industrial lubricants. The assessee is a tax resident of USA, which is not disputed by the AO and, therefore, it is entitled to the benefits u....
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.... both owning 50% and therefore, the assessee has no controlling ownership in LIPL. It is further submitted that during the year under consideration, the assesee did not carry out any business activities in India and it did not render any services in India or made any sales in India as all such sales were executed and completed outside India, the risk and title in such goods also passed to the customers outside India, and so there are no income taxable in India. It is also submitted that the AO has alleged that the sales made by the assessee to LIPL and also those made to third parties have given rise to income taxable in India by alleging that the assessee had a PE in India under Article 5 of the India-US Treaty. It is submitted that on such sales made by the assessee to LIPL and third parties, the AO has computed a profit margin of 5% and made an addition of Rs. 2,29,26,152/- to the income of the assessee. 6. It is submitted that as per Article 7 of the India-US Treaty, the assesee would be taxable in India only if the assessee has a PE in India and the taxability shall be limited to the extent of profits which are attributable to such PE in India. It is submitted that if....
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....ishment' shall be deemed not to include anyone or more of the following: a) the use of facilities solely for the purpose of storage, display or occasional delivery of goods or merchandise belonging to the enterprise; b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or occasional delivery; c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise. d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise; e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise 4. Notwithstanding the provisions of paragraphs. 1 & 2, where a person - other than an agent of an independent status to whom paragraph 5 applies - is acting in a contracting state on behalf of an enterprise of the other contracting state, th....
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.... areas in the territory except in India, the service to be rendered by LIPL under this agreement shall include the following (collectively the 'services') i) to keep informed of business opportunities, particularly of tenders and competitive bids from customers; ii) such other services as are mutually agreed upon from time to time by the parties; . iii) LIPL agrees to use its reasonable efforts to promote the sale and distribution of and to create a demand for products in the territory, except India. iv) LIPL shall have no power, right or authority to bind or obligate Lubrizol, except as set forth in this agreement. Rates and prices The prices of the products .will be determined by Lubrizol. Prices and terms of sale are subject to change by Lubrizol at any time upon notice to LIPL. LIPL shall have no authority to change or fix the prices or rates in any manner other than as notified by Lubrizol in accordance with the terms of this agreement. 7. Procedure for placing orders Customers will place orders for the purchase of the products directly with Lubrizol. It is anticipated customers will open confirmed....
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....ion of the products and shall not be responsible for the same 12-A-2 LIPL shall not be responsible for the creditworthiness of any of the customers and Lubrizol will not be entitled to hold LIPL responsible for the same ... 8. The learned counsel for the assessee has relied upon the following precedents in support of the case of the assessee: 1. Ericsson Radio Systems AB Vs. DCIT, 96 TTJ l(Del)(SB) 2. Western Union Financial Services Inc Vs. ADIT, 101 TTJ 56(Del). 3. Visakhapatnam Port Trust, 144 ITR 146 (A.P.) 9. By referring the above case laws, the learned counsel for the assessee has submitted that i) the assessee had no presence or fixed place whatsoever in India, ii) no portion of LIPL's premises was under the assessee's control, iii] the activities in India were carried out by LIPL's own employees, and such employees were under control/ supervision of LIPL. It is also submitted that though the AO has alleged the existence of PE under Article 5(1) of the treaty, he has not brought any material on record to establish that the assessee has PE in India. It is, therefore, submitted that since the assessee does not ....
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....). The manufacturing business of LIPL was an independent activity and was carried on its own account Accordingly, in the instant case, not all the sales related activities of LIPL were done only for the assessee. It is engaged in the sales and marketing activities of products manufactured on its own account. It was reiterated that LIPL in its capacity as a customer support representative only forwarded the quotations received from the prospective customers to the assessee for acceptance or rejection and LIPL did not have the authority to accept for or on behalf of the assessee any order placed on the assessee. LIPL did not have any authority to represent, guarantee or commit on behalf of the assessee. The learned counsel for the assessee referred in this connection to Clause 13 of the Exclusive Sales Representation Agreement - Lubrizol and Clause 13 of the Sales and Marketing agreement - Metal working products. In view of the above facts, it is submitted that the conditions mentioned at point nos. 2,3, & 4 referred in the protocol for the purpose of determining 'securing orders' were not satisfied, hence, the LIPL did not 'secure orders' on behalf of the assessee an....
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.... has submitted that as per the agreement Clause 2 the Lubrizol India Pvt. Ltd. is an exclusive agent of the assessee and it has to do exclusive sales and marketing to solicit orders. The Lubrizol India Pvt. Ltd. is to keep assessee informed about the business opportunities particularly of tenders and competitive bids from customers. The Id. D.R. further submitted that as per the agreement Para 13 (13.2) the Lubrizol India' Pvt. Ltd. shall use all samples, technical, business, financial and other information furnished by the assessee to LIPL which is identified, stamped and marked as confidential matter solely and exclusively for the purpose of providing the services pursuant to the agreement. The LIPL shall not disclose such confidential matter to third parties without the prior written consent of assessee whether during or after the terms of this agreement. The Id. D.R submitted that the LIPL thus is a sole agent of the assessee and as per Article 5 (2) (1), it constitutes PE of the assessee in India. The D.R further submitted as per Indo-US treaty Article 5 (5) LIPL is a dependent agent and constitutes PE of the assessee in India from this angle also. The Id. D.R further subm....
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.....18% of the total sales. This shows that the LIPL has its own substantial business apart from revenue in the form of commission from the assessee. The LIPL does not have any authority to negotiate the contract. The transactions between LIPL and the assessee are in arm's length price. The facts of the present case are entirely different from the Rolls Royce Singapore (supra) has no application to the assessee's case. 18. In the rejoinder, the learned counsel for the assessee has submitted that the decisions relied upon by the learned DR are distinguishable on facts and the same, therefore, are not applicable to the facts of the case of the assessee. 19. We have heard learned representatives of the parties, perused the relevant record and gone through the order of the AO as well as decisions cited. The issue to be adjudicated in this appeal is whether the AO is right in holding that the assessee has PE in India and thereby taxing the profits earned by the assessee in India. The assessee is a foreign company incorporated under the laws of United States of America and is engaged in the business of manufacture and sale of high performance chemicals, which are u....
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.... be seen. For the sales made in India, asseessee has assumed all the risks. While the production is taking place outside India, still the risk undertaken by the assessee in sales and marketing of the products in India exists and assessee's profits for the same is to be taxed in India. 1.15 As per the AO, profits arising on sales done in India, even directly by the assessee of the same or similar products as done by LIPL will also be taxable in India due to operation of force of attraction rule LIPL, which is held to be PE of the assessee in India, is engaged in manufacturing of same or similar products under the same brand name under the technology transfer agreement. Further, it is an undisputed fact that LIPL also promotes products of assessee and solicits order on behalf of assessee and is involved in marketing and sale from finding a customer up to finalization of sale. In view of these facts, profits earned and attributable to function, assets and risk in India undertaken by the assessee through its PE, is taxable in India. 1.16 Thus, after careful consideration of facts of case, we are of the view that no interference in the action of the AO is required and ....
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....ducts manufactured by it in India. The total sales of LIPL are Rs. 408.84 crores and commission received from the assessee is 0.756 crores which constitutes only 0.18% of the sales. The assessee also sold products to Indian customers for which LIPL rendered certain services. The assessee sold the products directly to the Indian customers. Contract of sale is concluded once the purchase order is accepted by the assessee in USA. On confirmation of the order and receipt of direct payment from Indian customer, the assessee sends the products in the name of Indian customer with the invoices raised by the assessee directly on Indian customers. The LIPL assists the assessee in the direct sale of products to Indian customers and communicates information in relation to tenders and competitive bids from the customers. The LIPL does not have authority to negotiate the terms of the sale or conclude the contract on behalf of the assessee. The final decision regarding price, terms and conditions is taken by the assessee. The assessee has no operation in respect of manufacture or sale of product carried out in India. Sales are made by the assessee to LIPL on principal to principal basis. The asse....
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....he assessee in India is not sustainable and we affirm the directions dated 23.12.2013 passed by the DRP-II,Mumbai u/s 144C(5) of the Act which culminated into an assessment order dated 10.01.2014 passed by the AO u/s 144C(13) read with Section 143(3) of the Act. We order accordingly 10. The Revenue is also aggrieved by the decision of the DRP in holding that interest u/s 234B of the Act is not leviable in the case of non-resident despite a specific finding by the Hon'ble Delhi High Court in the case of DIT v. Alcatel Lucent USA Inc. dated 14th November, 2013 in ITA No. 328 & 329/2012 wherein it has been specifically stated that a non-resident assessee which does not admit income chargeable to tax must be inferred to have induced the Indian payer not to deduct TDS, thus making itself liable to advance tax interest. We have observed that this issue is also decided by the Tribunal in ITA No. 6443 to 6445/Mum/2012 for assessment years 2004-05, 2005-06 & 2008-09 vide orders dated 18th January, 2013 whereby it was held that interest is not leviable u/s 234B of the Act based on the facts and circumstances of the assessee's case. The relevant findings of the Tribunal are as under:- ....