TaxTMI 
TaxTMI 
2010 (3) TMI 1157
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....nt years, the learned CIT(A) disposed of the appeals by way of the impugned consolidated order dt. 19th Nov., 2008 (sic), for the sake of convenience. Accordingly, we take up all these appeals together, which are being disposed of by our this common order, for the sake of convenience. 4. In all these years, the common and identical issues involved are as under : (i) Whether the learned CIT(A) was justified in holding that the income of the assessee in India is taxable on accrual basis and not on cash basis ? (ii) Whether the learned CIT(A) was justified in holding that the assessee has a business connection in India or has a PE in India, and, therefore, the income earned by the assessee from supplies made to Indian customers is taxable in India ? (iii) Whether the learned CIT(A) was justified in attributing certain percentage of profit from sale of spares made to Indian customers, to the PE in India ? 5. The relevant facts giving rise to the aforesaid issues are being set out as under : 6. Rolls Royce Singapore (P) Ltd. (earlier known as Rolls Royce (P) Ltd. and hereinafter referred to as the company or the assessee) is a company incorporated und....
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....eady granted appropriate relief in this regard. 10. For asst. yr. 2000-01, notice under s. 148 was issued on 28th March, 2005. Return under s. 148 was filed on 21st July, 2005 declaring an income of Rs. 28,00,120. Notice under s. 143(2) was issued on 26th July, 2005. Order under s. 147/143(3) was passed on 28th March, 2006 making an addition of Rs. 51,35,140 towards business income and accepting the FTS income of Rs. 28,00,120 declared by the assessee. Appellant acquired the energy business from M/s Cameroon Energies (P) Ltd. only in financial year 1999-2000 and hence, this is the first year of operations. 11. For asst. yr. 2001-02 original return under s. 139(1) was filed by the assessee on 31st Dec., 2003 declaring an FTS income of Rs. 26,07,430. Notice under s. 148 was issued on 28th March, 2005. Return under s. 148 was filed on 17th July, 2005 declaring an FTS income of Rs. 26,07,430. Notice under s. 143(2) was issued on 1st Aug., 2005. Order under s. 147/143(3) was passed on 28th March, 2006 making an addition of Rs. 2,36,15,935 towards business income and holding the FTS income at Rs. 96,85,586. 12. For asst. yr. 2002-03 original return under s. 139(1) was filed by t....
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....s taxation of fee for technical services on mercantile basis and not on cash basis as claimed by the assessee. Notices under s. 148 of the Act were issued on the basis of information gathered in assessment of 2002-03 on the reasoning that incomes have escaped assessment as assessee has been following cash basis of accounting while fee for technical services is taxable on mercantile basis. 18. In the tax returns filed by the appellant, either voluntarily or in response to notice under s. 148, the appellant has been consistently offering its service fee income on cash basis as "fees for technical services" under s. 9(1)(vii) r/w s. 115A, s. 43(2) and s. 145 of the Act. However, income from supplies has been claimed as not taxable in India on the ground that the appellant does not have any permanent establishment (PE) in India. 19. The learned AO had made the following allegations : (a) The appellant has a business connection/PE in India. (b) The supplies and services are intricately and inextricably linked with each other. (c) The learned AO taxed business profits from supplies by attributing 100 per cent of the profit (and 75 per cent of the profits ....
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....yment against the said purchase orders. The assessee company as was noticed in the earlier assessment orders passed is declaring its income from India on receipt or cash basis. It was held in the detailed assessment orders passed in subsequent years, that the method of accounting of the assessee cannot be on cash basis and should have been on mercantile basis as per the IT law. The income of the assessee was accordingly recast in the subsequent assessment year. Therefore, for the current year also, the income of the assessee is to be taxed on accrual basis, irrespective of the fact that the same might have been received in subsequent year." 23. In asst. yrs. 2002-03 and 2004-05, the AO has given the following reasons : "1. Basis of recognizing 'FTS''Whether mercantile or cash The assessee has in its return of income declared the receipts received from Indian companies as fee for technical services and subjected it to tax under s. 115A(1)(b)(B) of the IT Act under the Indian IT Act. The chargeability of 'fee for technical services' is defined under s. 9(1)(vii) of the IT Act. The opening line of the definition specifically states tha....
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....g. In this regard, it may be pointed out that the s. 9(1)(vii) is a special provision for taxation of FTS whereas s. 145 is a general provision prescribing the method of accounting. It is a trite law that special provision overrides the general provision. Moreover, as has been discussed above, the assessee does not adopt cash basis for preparation and maintenance of this global account. It cannot account for one stream of income on cash basis and others on mercantile basis as per the existing provisions of law. Therefore, the contention of the assessee carries little force. The assessee has tried to point out its hardship in claiming the TDS certificates issued by Indian clients. The assessee claims to have received the TDS certificates only after close of the accounting year and even after that. So, it has stated that it does not have any option left in claiming the credit of TDS if it follows mercantile system of accounting. The argument of the assessee is flawed. It can claim credit for TDS certificate by following mercantile system of accounting. Even if TDS certificates are received late, it can claim the same in the return of income by filing the TDS subsequently pro....
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....count if any maintained by the appellant. To claim that even the undisclosed income has to be assessed on cash basis only is not supported by any case law. The presumption in all these cases is that when a reference is made to a system of accounting whether cash or mercantile it refers to a situation where all the business receipts are being maintained and entered in the books of account and reflected in the final accounts. However, in case where the income has to be reflected in the computation on accrual basis (under s. 5) or deemed accrual basis (under s. 9), the appellant cannot claim that since he is maintaining accounts on cash basis, the income shall be offered only on receipt basis. Such a claim cannot be held to be in accordance with any of the case law mentioned by the appellant in its submissions. Even if rule of harmonious interpretation is adopted, it will not support the case of appellant because ss. 4 and 5 have to be read harmoniously with s. 9 of the Act. Even though the appellant claimed to follow harmonious interpretation it is not being adhered to by the appellant. Sec. 5 of the Act which refers to scope of incomes which form part of the income for any ....
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....ct has been elaborated by the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1(SC). The Supreme Court observed that income even in commercial sense would require computation by taking into consideration of expenditure actually incurred or liability in respect thereof as accrued even though it may have to be discharged at some further date. Where the expenditure or liability does not relate to the year for which income is computed the accounts should treat such amount as prepaid and shown as an asset. It may also at the same time be seen that accrual of income is a legal concept and mercantile system of accounting income accrues only when there is a right to receive such income whether it is actually received or not. What matters is a legal right to claim the same. It is also well accepted principle that where income has been offered and assessed on the same basis as in the past, in order to be able to change the system, there has to be a valid reason, commercial, legal or otherwise for computation of income. While adjudicating which system of accounting will be suitable in the case of non-resident it is important to keep in mind the provis....
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....ecides to follow, it should be followed consistently. In this connection, the learned counsel for the assessee has invited our attention to a decision of Special Bench of Tribunal, Delhi, in the case of IAC vs. Reinz Dichtungs GmbH (1989) 31 ITD 67(Del)(SB) where the Special Bench has upheld the practice of a non-resident company following the cash system of accounting for accounting the royalty income from an Indian company. He further submitted that the Hon'ble Bombay High Court in the case of Pfizer Corporation vs. CIT (2003) 180 CTR (Bom) 319: (2003) 259 ITR 391(Bom) has also held that there is no provision in the IT Act which debars non-resident assessee from following cash system of accounting and the non-resident assessee was entitled to follow either the cash system or mercantile system of accounting. He further submitted that the term "method of accounting" has not been defined in the Act and there is no stipulation as to how these details of receipts and expenditure on cash basis are to be kept. He further submitted that these details may be kept in excel sheets of computers, log book, etc. and thus, in the assessee's case, the assessee used to maintain details of....
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....lakt (India) Ltd., In re (2004) 189 CTR (AAR) 359: (2004) 267 ITR 727(AAR). 28. With regard to the assessee's contention that assessee has option to adopt either cash or mercantile system of accounting and, accordingly, the assessee has adopted cash system of accounting insofar as its income in India is concerned, the learned Departmental Representative has submitted that the assessee has not produced any books of accounts claimed to be maintained on cash basis in India to show that the assessee was maintaining cash system of accounting for its Indian operations. It was further contended by the learned Departmental Representative that the assessee has not been able to appreciate the distinction between the disclosing of income on cash basis in IT return and maintaining of books on accounting principles on cash basis. In other words, the learned Departmental Representative submitted that merely because the assessee disclosed income on cash basis in the return of income, in the absence of any books of account regularly maintained on accounting principles on cash basis, it cannot be said that the assessee has been adopting cash system on accounting for its Indian operations. He....
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....he Act provides that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" is, subject to the provisions of sub-s. (2), to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Therefore, what is relevant for the purpose of s. 145(1) is the system of accounting regularly employed by the assessee. In the present case, the assessee is a foreign company and not its PE in India. 31. We, therefore, have to see as to which system of accounting has been regularly employed by this foreign company, who is an assessee under the IT Act. It is not in dispute that annual income of the foreign company, which is received or is deemed to be received in India or accrues or arises or is deemed to accrue or arise to him in India is chargeable to tax under the Act as would be clear from s. 5(2)(a) and 5(2)(b) of the Act. In order to determine whether any income from whatever source it is derived, has been received or is deemed to be received in India or accrues or arises or is deemed to accrue or arise to non-resident in India during any relevant year, one has to ascertain the system ....
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.... taxable in India. We, therefore, hold that once assessee has been maintaining its books of account on mercantile basis, the assessee has to determine its income taxable in India only on mercantile system of accounting, which has been consistently followed by the assessee in respect of all its transactions whether carried out in India or outside. In this view of the matter, we, therefore, uphold the order of learned CIT(A) in holding that the income of the assessee in India is to be computed on the basis of mercantile system of accounting. The alternative ground raised by the assessee has already been taken care of by the learned CIT(A), who has directed the AO to ensure that an income which has been assessed on accrual basis in one year should not be again assessed on receipt basis in the same or in other year. Therefore, the assessee should not have any grievances insofar as assessee's alternative contention is concerned. The ground raised by the assessee in this respect is rejected and the learned CIT(A)'s order is upheld. 32. In asst. yrs. 1998-99 to 2001-02, the assessee has taken one preliminary ground that the learned CIT(A) has erred in law and on facts in uphold....
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....ll also be deemed to be case where income chargeable to tax has escaped assessment, namely : (a) Where no return of income has been furnished by the assessee although his total income or total income of any other person in respect of which he is assessable under this Act during the previous year exceeding the maximum amount which is not chargeable to income-tax : The assessee has been undertaking business activities in India for a very long period of time. The income of the assessee from India shall be more than Rs. 1 lakh, the limit specified in s. 149 of the IT Act. In view of the foregoing, I have reason to believe that income chargeable to tax exceeding Rs. 1,00,000 has escaped assessment within the meaning of s. 147 of the IT Act, 1961." 33. In asst. yr. 2001-02, it was noticed by the AO that the assessee had filed its return of income but the same was filed on cash basis. The AO applied Expln. 2(a) to s. 147 to initiate proceedings under s. 147 of the Act. The return so filed by the assessee was merely processed under s. 143(1) of the Act, and no regular assessment under s. 143(3) of the Act was made before issuing notice under s. 148 of the Act.....
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....ch income which has escaped assessment and thus is not complying with the provisions of s. 139 of the Act. Therefore, the case of the appellant falls within the ambit of deemed escapement as provided in sub-cl. (a) of the Expln. 2 to s. 147 and that is why the AO issued notices under s. 148 of the Act for invoking the provisions of s. 147 of the Act. Further, there are judicial precedents to the effect that at the time of initiating the proceedings the AO is not expected to reach a final conclusion regarding the taxability of such income under the Act, only a prima facie belief regarding escapement of income would be sufficient for invoking the provision of s. 147 of the Act. A reference can be made to the following two decisions of the Supreme Court which make it clear that merely a prima facie belief with respect to escapement of income has to be found : (i) It has been laid down by the Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO & Ors. (1999) 152 CTR (SC) 418: (1999) 236 ITR 34(SC) that where there is a prima facie material, the sufficiency and correctness of the belief cannot be questioned at this stage. At this stage, the final outcome of proceedin....
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....ts the AO to assess or reassess income chargeable to tax if he has reason to believe that income for assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the AO has cause or justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161: (1991) 191 ITR 662(SC), for initiation of action under s. 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceedings is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not the established fact of escapement of income. At the stage of....
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....that return of income was filed by the assessee for the asst. yr. 2001-02, but the aforesaid two criteria that income from sale of spares was not shown in the return of income and receipt from technical services was shown on cash basis as against accrual basis are sufficient to entertain a belief that income chargeable to tax in India has escaped assessment. The learned CIT(A) has rightly analyzed the facts of the case and has taken a view that AO has invoked the provisions of s. 147 of the Act validly. The order of learned CIT(A) on this issue is, thus, upheld. In other words, the grounds challenging the validity of AO's action in initiating proceedings under s. 147 of the Act raised by the assessee are rejected for the asst. yrs. 1998-99 to 2001-02. 38. Next dispute is with regard to the question whether the assessee company has any business connection or PE in India insofar as its business activity of supplying goods or spare parts to Indian customers is concerned. 39. The assessee is a company incorporated under the laws of Singapore and is one of the group companies of Rolls Royce Group. The principal activity of the assessee company is those relating to sale of spar....
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....ny activities other than what were directed by the assessee. The AO, therefore, had taken a view that the assessee has a business connection or PE in India in the form of ANR. 41. The AO further stated that the income of the assessee from maintenance services accrues or arises in India by deploying engineers and personnel for undertaking maintenance of the equipment at the sites of the Indian clients located in India, and the maintenance activities cannot be isolated from the supply of spares. He further observed that supply of spares and services or maintenance of the equipments are inextricably linked to each other as the service engineers would certainly require spare parts to be replaced or overhauled. 42. The AO further stated that the assessee company has placed one Mr. Venketaramana as executive regional sales manager in India and, thus, income of the assessee from supply of spares accrues or arises in India from the activities of its sales manager as well. 43. The learned CIT(A) has agreed with the AO's view. In the light of the various points raised by the AO, the learned CIT(A) held that the assessee company has a PE in India on following counts : (i....
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....upply of spares is not taxable in India at all. However, even if there is a business connection, still income of the appellant from supply of spares is not taxable in India because appellant has no PE in India under the provisions of India Singapore tax treaty read with s. 90 of the Act. (viii) An agent (i.e., a person acting on behalf of some other person) can be treated as a PE under the India Singapore tax treaty only if' (a) he has and habitually exercises in that State an authority to conclude on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise. (ix) In case an agent has no authority to conclude contracts or does not maint....
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....half of appellant to clients of appellant. (xiii) The allegations have been made by the AO on the basis of surmises and conjectures rather than on the basis of facts and circumstances. Hon'ble Supreme Court in the case of Director of IT vs. Sofema SA in Civil Appeal No. 5260 of 2008 (Supreme Court) has held that onus lies on the Tax Department to prove that there is a PE. The Tax Department must bring reliable evidence on record in this regard. The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775(SC) has held that an assessment without reference to any material or evidence or on pure guesswork, is bad in law. (xiv) The AO had presumed that as ANR was paid a commission higher than the amount provided in the contract it must have rendered more services. However, the AO has failed to bring any document that establishes that ANR is paid a commission higher than the amount specified in the contract. It is also important to note that the AO has also failed to bring on record any evidence, documentary or otherwise, that establishes that ANR had rendered more services than specified in the contract. It is important to not....
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....dia. The appellant has no control or rights over office, employees or management of ANR. The appellant does not have any right in or upon the office, employees and assets of ANR. (xviii) ANR is a separate independent entity and its office cannot be termed as office of the appellant unless it could be established on the basis of documents that such offices were in fact used by the appellant in India (there is no material on this aspect on record). (xix) The learned Departmental Representative during the course of his arguments had repeatedly referred to the provisions of the cl. 8 of the agreement between ANR and the appellant. The said provision merely restricts ANR to market competitive products. The rationale behind is that of conflict of interest in case ANR also markets the competitive products. The said provision nowhere restricts right of ANR to deal in, do business in or to market other non-competitive products. It has also been alleged that ANR has no other clients. This conclusion of the learned AO and learned CIT(A) is against the reasonable interpretation of the agreement. This shows the completely biased attitude of the concerned authorities. ....
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....ed CIT(A) while actually there is no link between them. It is pertinent to note that in these circumstances, there is no territorial nexus of supplies with India and hence income from supplies cannot be taxed in India. (xxiii) The Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. vs. Director of IT (2007) 207 CTR (SC) 361: (2007) 288 ITR 408(SC) has held that income from offshore supplies is not taxable in India. This judgment has been followed by Delhi Tribunal in the case of LG Cable Ltd. vs. Dy. CIT MANU/ID/0079/2008-Tribunal-Delhi. In the present case, contracts for supply and services are different. The supplies have been made on FOB (Singapore) basis. (xxiv) The learned AO and the learned CIT(A) have not brought any material on record to hold that the assessee has a PE in India on account of ANR. 46. The learned Departmental Representative, on the other hand, reiterated the various reasons and observations made by the Revenue authorities below in support of the view that the assessee has a business connection or PE in India on various counts as so elaborately discussed by the learned CIT(A) in his order. The learned Departm....
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.... Government to issue a notification under s. 90 towards implementation of the terms of DTAAs which would automatically override the provisions of the IT Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC." 50. The above position has been again reiterated in the case of CIT vs. P.V.A.L. Kulandagan Chettiar (Dead) Through LRs (2004) 189 CTR (SC) 193: (2004) 267 ITR 654(SC) where the Hon'ble Supreme Court observed and held as under (pp. 659-660) : "Where liability to tax arises under the local enactment the provisions of ss. 4 and 5 of the Act provide for taxation of global income of an assessee chargeable to tax thereunder. It is subject to the provisions of an agreement entered into between the Central Government and the Government of a foreign country for avoidance of double taxation as envisaged under s. 90 to the contrary, if any, and such an agreement will act as an exception or modification of ss. 4 and 5 of the IT Act. The provisions of such agreement cannot fasten a tax liability where the liability is not imposed by a local Act. Where tax liability is i....
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....e enterprise may be taxed in the other State, but only so much of that, as is attributable to the PE. Therefore, the liability on account of tax of an enterprise of either of the Contracting States in India would arise if the enterprise in issue has a PE in India. Therefore, the provisions of ss. 5(2)(b) and s. 9(1)(i) of the IT Act would have no applicability if an enterprise of the other Contracting State has no PE in India. Therefore, in the present case, we have to see as to whether the assessee non-resident company has a PE in India within the meaning of definition of PE as contained in art. 5 of DTAA so as to charge tax on so much of the profits of an enterprise as is attributable to the PE in India. 52. Article 5 of DTAA between India and Singapore defines the expression "PE" as under : "1. For the purposes of this agreement, the term 'PE' means a fixed place of business from which the business of the enterprise is wholly or partly carried on. 2. The term 'PE' includes especially : (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extractio....
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....onging 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 similar activities which have a preparatory or auxiliary character, for the enterprise. However, the provisions of sub-paras (a) to (e) shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State through which the business of the enterprise is wholly or partly carried on. 8. Notwithstanding the provisions of paras 1 and 2, where a person other than an agent of an independent status to whom para applies is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a PE in the first-ment....
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....r partly carried on. In other words, the authorities below have taken a view that assessee company has a PE in India within the meaning of art. 5(1) of DTAA between India and Singapore. In this connection, the AO has stated that the equipment supplied by the other group companies belonging to Rolls Royce Group is installed and fixed in India, which is only the source of income of the assessee in India. The AO further stated that the responsibility of the assessee to provide maintenance services in respect of the equipment supplied by other companies of the same group to the Indian customers and supply of spare parts is inherent in the arrangement of supply of the equipment made by the other companies of Rolls Royce Group. The AO had taken the view that the supplier of the equipment had the responsibility to supply the spares of the equipment, and no person other than the one authorized by the manufacturer/supplier of the equipment would be able to supply the spares and provide services in respect of such complicated equipment supplied by the supplier. Therefore, the source of income of the assessee in India is only the equipment that was supplied by its group companies as the asses....
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.... 6. The assessee raises its invoice on the Indian customer from Singapore. 7. Indian customer remits payment to the appellant's bank account in Singapore. 57. The learned Departmental Representative, on the other hand, just supported the AO's order insofar as this aspect of the matter is concerned. 58. After considering the submissions of both the parties, we are of the considered view that merely because the main equipments were supplied by some other company belonging to the Rolls Royce Group without there being anything more showing directly or indirectly any connection or relation between two distinct contracts, it cannot be regarded as a basis to hold that the assessee company has a source of income in India for the reason that the companies supplying equipment were belonging to Rolls Royce Group, and equipment so supplied was installed or fixed by Indian customers in India. The Department has not been able to point out any iota of evidence or material to show and establish that in the original contract of supplying equipment by some other company belonging to Rolls Royce Group, there exists any condition putting obligation upon the Indian buyer or upon ....
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....7: (1981) 129 ITR 295(SC) and ruling of the Authority for Advance Rulings in P. No. 8 of 1995 reported in ABC, In re (1996) 136 CTR (AAR) 451: (1997) 223 ITR 416(AAR). 60. On this issue, the learned counsel for the assessee has submitted that the contract for supply of spares and rendering of maintenance services by the assessee company are distinct, separate and independent to each other. The assessee was engaged in two different activities, i.e., (i) supplies made to Indian companies and (ii) services rendered to Indian customers. As far as services are concerned, they were rendered by the engineers, who travelled to India to the client's site to render these services after the orders are placed by the Indian client to the assessee company. After rendering the specific services required from the engineers, they go back to their base destination and they have nothing to do with the supplies which the assessee company may have made during the relevant period. It was also pointed out by the learned counsel for the assessee that these engineers coming to India to render the specific technical services did not have any authority to negotiate or conclude contracts on behalf of t....
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....AO has assessed the same accordingly. Therefore, on this count also, the assessee company cannot be said to have any business connection or PE in India so as to levy tax on income earned from supply of spares. It is not in dispute that the assessee has been rendering services or facilities to its Indian clients in India by deputing engineers and other personnel. The income from aforesaid activity of providing services has been offered to tax as fees for technical services under art. 12 of DTAA. The AO has also assessed the same under the head "Fees for technical services", as shown by the assessee. The question that arises before us is as to whether the assessee has a PE with regard to its activity of supplying goods or spares to its clients in India ? In order to decide this issue, it is to be ascertained as to whether the activity of providing services and activity of supplying spares are inextricably linked to each other. The AO has held that the activity of providing services and activity of supplying spares are inextricably linked as, in his view, the maintenance activity cannot be isolated from supply of spares, and the service engineers certainly required the spares and part....
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....res includes any element for services rendered by assessee company to Indian customers or the invoice raised by the assessee company on account of services rendered included any price of spare parts supplied by the assessee company. Sample copies of certain invoices relating to the services provided and spares supplied have been placed in the paper book filed by the assessee, and on perusal of the same, we find that both the activities are independent and distinct and in the invoice relating to one activity, the element or cost of other activity has not been included, even indirectly. Therefore, though spare parts were necessary to be replaced in any equipment at the time of servicing or maintenance of the equipment, the supply of spares made by the assessee company to Indian clients is not an integral part of the contract of providing maintenance services. It is also not the case of the Department that the supplies of spares were not made at arm's length price, but its cost has been indirectly included in the service charges, or, on the other hand, it is not established by the Department that the cost for services charged by the assessee company was not at arm's length pri....
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....ities belonging to Rolls Royce Group, who are independent parties supplying goods or equipment vide independent and distinct contracts of supply. He further pointed out that the authorities below have also misdirected themselves in applying the provisions of art. 5(2)(f) of the DTAA in as much as the assessee company does not have any mine, oil or gas-well, a quarry or any place of extraction of natural resources in India. The AO's allegation that the assessee has a mine, oil or gas-well, a quarry and other place of extraction of natural resources in as much as the assessee company provides services to ONGC and GAIL and also supplying the spares to these entities is totally misconceived in as much as merely because the assessee is providing services or supplying spares to ONGC and GAIL, the assessee cannot be said to have a mine, oil or gas-well, a quarry or any place of extraction of natural resources as understood within the meaning of art. 5(2)(f) of the Act. It was further submitted by the learned counsel for the assessee that it is also not correct to allege that the assessee company provides services and facilities to the Indian clients or supplying spares to them for and....
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....ndia for a period of more than 183 days in any fiscal year to ONGC and GAIL in connection with their activity of exploration, exploitation or extraction of mineral oil in India. It has also been alleged that the assessee company has a PE in India in as much as it also furnishes services, other than the services in connection with exploration, exploitation or extraction of mineral oil in India, through their employees or personnel which has been continued for a period aggregating more than 90 days in any fiscal year, and which activity has also been performed for their group companies belonging to Rolls Royce Group for a period aggregating to more than 30 days in any fiscal year. 66. The Revenue authorities have also alleged that the assessee has a PE in India within the meaning of art. 5(6) of DTAA between India and Singapore as the assessee has furnished services in India through its employees or other personnel for a period of more than 90 days in any fiscal year and activities of providing services are performed for a related enterprise for a period aggregating to more than 30 days in any fiscal year. 67. However, in the present case, no such material has been brought on r....
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....ssee company and M/s Rolls Royce Energy Systems India (P) Ltd. are exercising control over each other's business activities. 69. Now we shall come to the question as to whether assessee has a PE in India because of its relations with ANR within the meaning of art. 5(1)/5(2) of DTAA between India and Singapore, or whether the assessee has a dependent agent in the form of ANR within the meaning of art. 5(8) r/w art. 5(9) of DTAA. 70. In this connection, the AO has observed that the assessee has a PE in India in the form of offices of ANR, which are used for receiving and soliciting orders, and also in the form of ANR dependent agent. 71. In this regard, the AO has taken a view that the activities of ANR are much more than those provided for in the contract. The AO has alleged that the assessee company has paid the commission of 5 per cent of the contract value to ANR over and above the fees of US $ 40,000 payable under the written contract made with ANR. The AO has also observed that from the documents received from ONGC, it was seen that ANR acted as its agent even prior to the date of the agreement executed on 1st Jan., 2002 and on this basis, the AO has concluded that....
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....s on which amount of commission or remuneration was determined, the learned CIT(A) has taken a view that there existed certain other covenants between the assessee and ANR, which have not been mentioned in the agreement dt. 1st Jan., 2002. The learned CIT(A) has taken a view that the assessee has not produced all the details of actual transactions carried out by the ANR for and on behalf of the assessee. The learned CIT(A) further observed that since there was an understanding between the assessee and ANR even prior to entering into written agreement on 1st Jan., 2002, it would indicate that ANR was providing much more services to assessee company than mentioned in the written agreement. On this aspect of the matter whether activities of ANR are much more than what is provided for in the contract, the learned CIT(A) has observed and held as under : "The submissions of the appellant and finding of the facts of the AO have been considered. In normal course appellant while refuting the changes of the AO is duty-bound to furnish the correct statement of facts and nature of activities being carried out by the appellant. The fact that for asst. yr. 2003-04 a sum of US $ 40,000 h....
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.... Beregohin. Moreover, as mentioned by the AO on p. 15 of the order, it has not been denied by the appellant that he is rendering the services to ONGC and GAIL. Given that situation the AO has rightly come to conclusion that services and supply of spares are intrinsically and inextricably related. However, depending upon the actual supplier of services or spares they are bifurcated between various group companies. During the course of proceedings for asst. yr. 2002-03 the appellant has vide letter dt. 14th March, 2005 furnished details of contract executed, payments received and details of stay of the expatriates during the financial year. However, with respect to management services in relation to power generation project it has been mentioned by the appellant that these services rendered to related companies were performed in Singapore and, therefore, these incomes are not liable to tax in India without even indicating the actual details of services. The fact that there has been a retrospective amendment in the s. 9 by Finance Act, 2007 which makes it clear that such payments for such services have to be included in the total income for Indian IT Act in case of even the n....
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...., 2002 was being made as per verbal understanding between the assessee company and ANR. It is, thus, not in dispute that some understanding and agreements were existing about the payment of commission by assessee company to ANR towards certain services rendered by the ANR to assessee company even prior to 1st Jan., 2002. What was the nature and terms of the services rendered by ANR to assessee company for which the commission @ 5 per cent sale value was being paid to the assessee company was not in writing and even no other supporting paper or writing has been placed on record by the assessee. Thus, the nature of services could only be inferred from surrounding circumstances and materials on record. But, the materials brought on record by the parties are not sufficient to draw an inference that ANR was providing much more services than what is mentioned in the written agreement dt. 1st Jan., 2002. 76. In the light of the discussions made above, we, therefore, hold that the observations or findings of the authorities below that activities of ANR were much more than what was specifically provided in the agreement dt. 1st Jan., 2002 are purely based on assumptions and presumptions ....
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....sed letter also states that the appellant was not the only client of ANR but it was one of their many clients to whom they had rendered services. (b) The AO has not brought on record any material to support his above findings. (c) The transactions between the appellant and ANR took place on principal to principal basis. The appellant has compensated ANR Associates on an arm's length basis. Thereby, the appellant submits that ANR Associates cannot be construed as the business connection of the appellant in India and thus no part of the business income of the appellant can be attributed to its operations in India. The arguments raised by the appellant have been considered. Prima facie it is not denied that ANR Associates did facilitate the business of the appellant which was carried out through them. The background of the relationship of the appellant and ANR Associates is an agreement between ANR Associates and the appellant dt. 1st Jan., 2002 for the duration of two years. There is no mention of any renewal of the same by the parties; at the same time there is no mention of the termination of contract either. At the same time para 19 of the agreement ....
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....as the Explanation gives only an inclusive definition of the term 'business connection'. The concept of business connection goes beyond business. The cardinal principles of examination of existence of business connection have been elaborated in the case of G.V.K. Industires Ltd. & Anr. vs. CIT (1997) 228 ITR 564(AP). (i) The fact whether there is a business connection or not is a mixed question of fact and law, which has to be determined on the facts of the case. (ii) Expression 'business connection' is very wide and cannot be restricted to actual conduct of business. (iii) To constitute business connection there must be continuity of activity or operation of the non-resident with the Indian party and any stray or isolated production is not enough to constitute business connection. Further, the Hon'ble Supreme Court in CIT vs. R.D. Aggarwal & Co. & Anr. (1965) 56 ITR 20(SC) has observed that business connection means something more than mere business. It envisaged that a relation to be termed as a 'business connection', it must be real and intimate and through or from which income must accrue or arise whether directly ....
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....rovided in the contract. From the above discussions of the various contracts and facts of the case indicate that ANR Associates did in fact constitute a business connection in India. It is accordingly held that ANR Associates did in fact constitute business connection of the appellant in India. The next point which has been emphasized by the AO in the assessment order that ANR Associates is a dependent agent PE of the appellant in India in terms of Indo-Singapore DTAA and, thus, its income is taxable in India, the appellant has strongly rebutted the observation of the AO. The appellant has submitted vide letter dt. 8th Sept., 2006 that during the asst. yrs. 1998-99 and 1999-2000 there were no activities and income of the appellant and accordingly there was no agent of the appellant in India. From the asst. yrs. 2000-01 and 2001-02, under an ad hoc arrangement, it had paid commission to ANR Associates @ 5 per cent of the sales and had not paid the fixed commission of US $ 40,000 as provided in the contract since the same was entered on 1st Jan., 2002. As stated during the aforesaid period prior to 1st Jan., 2002, the appellant has only ad hoc arrangement with ANR Associates and did ....
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.... of the appellant; (iii) developing interest in the products of the appellant. It may be useful to consider the mode of contract of business of the appellant or procedure of procurement of order by the appellant from the Indian customers so as to reckon the role of ANR Associates. The procedure as indicated by the appellant is as under : (a) a client provides its requirement for supply of goods or services to the appellant in the form of request for quotation prices of the required services or equipment sought by it in response to global tenders, (b) the appellant on the basis of requirements presented by the client provides the quotation for the same, (c) pursuant to the acceptance of the quotation provided by the appellant, the client issues a purchase order to the appellant for the supply of goods or rendition of services, as the case may be, (d) subsequently, the appellant supplies the goods on FOB basis or renders the services as per the purchase order made by the client, (e) since the appellant has no establishment or employee or agent to represent itself in India, all communications between the client and the app....
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....ces to Indian customers and supplying of spares to them is distinct and independent and the agreements entered into in that connection are separate and independent. He further clarified that as far as services are concerned they were rendered by the engineers of the assessee company, who travelled to India to the client's site to render those services and they had nothing to do with the activity of supply that the company might have made during the relevant period. The engineers rendering the services to the Indian clients had no authority to negotiate or conclude contract on behalf of the assessee company either with regard to the service activity or to the activity of supplying spares. He, therefore, contended that the assessee does not carry his business activities of supplying spares in India through any person and no person in India is authorized to act or function on behalf of the company or to conclude any contracts in India. 82. To decide this issue as to whether the assessee has a PE in India in the form of an agent ANR, it is necessary to examine and appreciate the terms of agreement of agency entered into between assessee and ANR vide agreement dt. 1st Jan., 2002.....
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.... "Limitations and restrictions 8.1 ANR is not an agent or employee of R-R and shall act in all respects as a principal and independent contractor. In particular, ANR is not authorized to negotiate, accept any order or make or vary any contract or to make any warranty or representation or incur any commitment or liability of whatever nature on behalf of R-R and ANR shall not hold itself out as having any such authority. 8.2 ANR shall act exclusively for R-R in relation to the promotion of its products and shall not directly or indirectly assist any other person, firm or company competing with R-R or advice or represent or be concerned with or interested in the business of any such person, firm or company in India." 83.2 Certain representations and warranties have also been made by ANR as so mentioned in cl. 9 of the agreement : "Representations and warranties of ANR 9. ANR represents and warrants that : 9.1 This agreement, the relationship created hereby and ANR's activities hereunder do not and will not violate any laws of, or applicable to, India, including but not limited to the OECD Convention on combating bribery of for....
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....roducts. Relevant documents, electronic media and other things containing of embodying confidential information must be kept under secure conditions and ANR shall return all of these to R-R with all copies thereof on expiry or termination of this agreement. 10.3 ANR shall not disclose any confidential information to any third party without the express prior written consent of R-R and shall not make any commercial or other use of any of the confidential information other than to perform faithfully its obligations hereunder for the benefit of R-R. 10.4 The obligations of confidentiality arising under this cl. 10 shall continue in force after the expiry or termination of this agreement." 83.4 In the agreement, it has also been provided that the present agreement dt. 1st Jan., 2002 shall supercede all representations, agreements, statements and understandings made prior to the execution of this agreement and concerning services to be provided to the assessee company by ANR. 83.5 This agreement was made effective from 1st Jan., 2002 expiring on 31st Dec., 2003 unless both parties agreed to a renewal or extension on terms to be agreed upon and subject to the early....
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.... of the products identified in s. 1.1 through s. 1.5." 84. After going through the orders of the authorities below, it is revealed to us that both the authorities have taken a view that the assessee has a PE in India having regard to the functions and services carried out by ANR in India during the period prior to or after the written agreement dt. 1st Jan., 2002. The learned CIT(A) has observed that the question as to whether the assessee has a business connection or PE in India is to be decided mainly in the light of relationship of the assessee with ANR. The learned CIT(A) has observed that primarily the issue of business connection and that of the PE of the assessee in India stems from its relationship with ANR, and, therefore, the role of ANR needs proper appreciation. Both the authorities have taken a view that the assessee has an exclusive agent in the form of ANR, whose only source of income in India is from the assessee and who is solely responsible to the assessee and is not doing any activities other than what are directed by the assessee. The authorities below have also taken a view that, in the instant case, ANR, though an independent entity, rendered services to th....
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....the enterprise has a certain amount of space in the other State at its disposal i.e., available for its use. It is not necessary that the place of business should be owned or rented by the enterprise. It is also not necessary that it is exclusively used by the enterprise. The place of business of an enterprise may be situated in the business facilities of another enterprise. It may exist even if no premises are available or required for business purposes and it simply has a certain amount of space at its disposal. However, mere presence of an enterprise at a particular place does not necessarily mean that it is at its disposal. The place of business must be fixed in terms of both time and allocation. The activities must not be of a temporary or occasional nature, and should normally be carried out on a regular basis by the foreign enterprise for a relatively long duration, temporary interruptions are, however, disregarded. The expression "carrying on of the business of the enterprise through a fixed place of business" shall usually mean that persons dependent on the enterprise conduct the business of the enterprise in the State in which the fixed place is situated. The business of ....
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.... through them. 88. In the light of the abovenoted broad propositions, we, therefore, have to decide as to whether the place of business of ANR in India can be regarded as a PE of the present assessee. In other words, the question arises for our determination is whether the premises of ANR in India are the fixed place of business through which the business of the assessee is wholly or partly carried on. In order to decide the above question, a basic question would arise as to whether ANR is a dependent agent of the assessee, who receives instruction from the assessee. Para (9) of art. 5 provides that an enterprise of Contracting State shall not be deemed to have a PE in the other Contracting State merely because it carries on business in that other State through broker, general commission agent or other agent of an independent status provided that such persons are acting in the ordinary course of their business. However, when the activities of such agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprise controlling, controlled by, or subject to the same common control, as that enterprise, he will not be co....
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....nce till 1st Jan., 2002. The AO, in his remand report submitted before the learned CIT(A) has observed that prior to the written agreement dt. 1st Jan., 2002, there was some understanding and as the agreement between the assessee and ANR, and activity of ANR for period prior to 1st Jan., 2002 were more or less similar to what has been agreed to in terms of the new written agreement dt. 1st Jan., 2002, as so stated to by the learned CIT(A) in his order at the top of p. 85, we, therefore, proceed to decide this issue with an understanding that the activities of ANR Associates during the period prior to 1st Jan., 2002 and period after 1st Jan., 2002 were more or less similar to what has been stated in the written agreement dt. 1st Jan., 2002 except the amount and basis of payment of commission/ remuneration to ANR. The purpose of making agreement or understanding between the assessee and ANR Associates was the requirement of the assessee to have certain in-country support services in relation to promote and supporting the sale of its products in India. Since it was understood between assessee company and ANR that ANR has the infrastructure in India to provide such services in relation....
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....uggest that ANR associates was not acting in the independent status and in the ordinary course of their business while rendering to the assessee in-country support services of the nature described in condition Nos. 3 and 4 of the agreement in relation to promote and supporting the sale of products in India, details of products being described in Sch. A of the agreement. Therefore, on this count, ANR cannot be regarded as an agent of an independent status within the meaning of para (9) of art. 5 of DTAA between India and Singapore. Further, para (9) of art. 5 provides that when the activities of an agent of an independent status acting in the ordinary course of his business are devoted wholly or almost wholly on behalf of the enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject same control, as that enterprise, he will not be considered as an agent of an independent status within the meaning of para (9) of art. 5 of DTAA. 90. It is pertinent to note that cl. 5 of the agreement dt. 1st Jan., 2002 between the assessee and ANR provides that ANR shall report to, take instructions and advice from, and make the services availabl....
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.... by ANR is placed at p. 461 of the paper book filed by the assessee, and it reads as under : "18th Jan., 2007 Rolls-Royce Pte. Ltd. Unit 03-09, 16, International Business Park Singapore-609929. Dear Sirs, We confirm that we had rendered services and had earned commission from companies other than you during the financial year 2003-04 and that you were not our only source of income during that year. We trust you will find the above in order. Thanking you, Yours truly, ANR Associates (P) Ltd. Sd/ Director". 92. In the aforesaid letter of confirmation given by ANR, ANR has only stated that they had rendered services and had earned commission from companies other than the assessee company during the financial year 2003-04 and that assessee company was not only source of income during that year. Nothing has been stated as to the extent of services rendered by ANR to other companies as well as the amount of commission earned by ANR from them. Second limb of para (9) of art. 5 requires that the activities of an independent agent shall not be devoted wholly or almost whol....
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....ailed to furnish all such details on requisition by the AO, we cannot but have to draw adverse inferences against the assessee by holding that had those details been furnished, the same would have gone against the interest of the assessee. Moreover, in the light of the totality of the terms and conditions of agreement dt. 1st Jan., 2002, it is clear to us that ANR has been rendering its services almost wholly for the assessee company. 93. In order to consider any person to be an agent of independent status, it is also necessary to show that the transaction between the foreign enterprise and the agent is made at arm's length. In the present case, ANR has been rendering various services to the assessee company as specified in the agreement dt. 1st Jan., 2002. and in consideration thereof a lump sum amount of US $ 40,000 per annum has been paid by the assessee company. Activities of the assessee company are to provide certain products and their spare parts to Indian clients. The amount of remuneration payable to the agent has not been determined with reference to the value of various products and spare parts sold in any relevant year. Prior to 1st Jan., 2002, a commission was b....
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....echnical and commercial environment about its products required in oil and gas industry in India. (viii) Providing logistic services to the assessee. All these activities have been provided by ANR to the assessee in India from its fixed place of business maintained in India. This makes it clear that ANR or its office is used by the assessee company for soliciting orders by performing the activities or services mentioned in paras 3 and 4 of the agreement. It also makes it clear that ANR is acting almost exclusively for assessee in relation to promotion of assessee's products in India. 95. Therefore, in the light of the aforesaid factors discussed and pointed out by us, that is, (i) that ANR was not acting in its ordinary course of business while acting for the assessee to provide services as per agreement dt. 1st Jan., 2002, (ii) an extensive control was being exercised by the assessee upon ANR who was bound to take instructions and advice from the assessee or its representative (iii) that assessee (sic-ANR) has been rendering services almost wholly for the assessee, and (iv) the transaction between them is not at arm's length, we hold that ANR is not an indep....
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....India. Further, ANR was required to report or to take instructions and advice from, and make the services available to the assessee company through the assessee's representatives and employees, which makes it clear that the assessee (sic'ANR) was receiving instructions from the assessee company while acting for the assessee company. In this view of the matter, the premises of ANR in India can be deemed to be place of business through which the business of the assessee company is partly carried on through ANR. Thus, the assessee has a PE in India within the meaning of para (1) of art. 5 through its dependent agent ANR. 97. Now, let us see whether the assessee has a PE within the para (8) of art. 5, which commences with non obstante clause and says that notwithstanding the definition of expression "PE" outlined in paras 1 and 2, a person, other than an agent of an independent status to whom para (9) applies, is acting in a Contracting State on behalf of the other than Contracting State shall be deemed to have a PE in the first-mentioned State, if any of the three cls. (a), (b) and (c) thereof applies. Clause (a) deals with a person who has and habitually exercises an autho....
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....fixed fee of US $ 40,000 from 1st Jan., 2002 also suggests that the ANR was dependent agent as he agreed to a remuneration at a fixed amount of US $ 40,000 as against earlier arrangement of payment of specific percentage of sale value of items or products sold by assessee company to Indian clients, The nature of overall services rendered by ANR to assessee company as described in cls. 3, 4 and 5 r/w cls. 8, 9 and 10 relating to limitations and restrictions, representations and warranties of ANR and confidentiality would show that ANR was instrumental in securing orders in India for the assessee company and was acting at the instructions of assessee company. Therefore, ANR shall be deemed to be agency PE in India within the meaning of paras (8) and (9) of art. 5 of the treaty. 99. In the light of the discussion made above and considering the totality of the facts and circumstances of the case and the nature of services and functions carried out by ANR as per the terms and conditions of the service agreement, the contention of the assessee, though seems to be attractive and plausible, that the assessee has no PE in India deserves to be rejected. We, therefore, hold that assessee h....
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....olated or stray transaction between the business of the assessee outside India and the activities carried out by ANR in India. Therefore, as per the provisions contained in s. 9(1) of IT Act, it can undoubtedly be said that the assessee company has a business connection in India. 102. In the light of the above discussion, it is clear that both the conditions of business connection as per local IT Act and the condition of existence of PE in India as per DTAA are satisfied in the present case. 103. Having held so, we now proceed to determine the amount of income chargeable to tax in the hands of the assessee company in India from the business activity of sale of spares in view of art. 7 of DTAA. Article 7 provides that so much of the profit as is attributable to PE in India can be taxed in India. We, therefore have to determine the amount of profit from sale of spares as is attributable to activities carried out by PE in India, for the purpose of charging the tax thereupon under the IT Act. 104. The attribution of profit to PE in India has been worked out by the AO in different assessment years as under : (i) In asst. yr. 1998-99, the AO worked out the sum of Rs. 51....
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....out at Rs. 2,99,59,655, out of which 5 per cent was allowed as deduction on account of general and administrative expenses, determining taxable income from supply of spares at Rs. 2,84,61,672, service receipt was worked out at Rs. 3,83,68,226 which was assessed under s. 115A of the Act. (vi) In the asst. yr. 2004-05, the total receipts were determined at US $ 2,76,77,289 from supply of spares, to which profit rate of 9.95 per cent was applied, and the profit was determined at US $ 27,53,890, out of which 5 per cent was allowed as deduction on account of general and administrative expenses, determining taxable income at US $ 26,16,196, which was converted to Indian rupees @ 43.86 coming to Rs. 11,47,46,345. The income attributed to PE in India was taken at 75 per cent thereof, and profit taxable in India was determined at Rs. 8,60,59,759. Receipt from services was taken at Rs. 2,53,46,740, which was assessed on gross basis on 20 per cent under s. 115A of the Act. 105. On an appeal, the CIT(A) decided this issue regarding determination of profit attributable to PE in India and taxable in India by observing and holding as under : (i) With regard to the AO's ac....
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....s very limited. ANR is only performing the functions of soliciting contracts for sale of assessee's products and promoting the sales. All other main or core activities regarding the arrangements or acquisition of products supplied by the assessee company to Indian customers are performed in Singapore. Therefore, the profit attributable to PE in India shall be confined to the marketing activity carried out by ANR within India to solicit orders and promoting the sale of assessee's products. The activity of ANR carried out in India to promote the sale of the assessee's products and then to soliciting order would lead to attributable profits to PE in India at best to the extent of 10 per cent of the profit earned from activities of sale of spares by assessee company to Indian customers. In the case of Ingersoll Rand Co. vs. ITO (1983) 4 ITD 654(Mumbai), the Tribunal has taken a view that 10 per cent of the total profit can be attributed to the operation of soliciting order and negotiation thereof and promoting sales and doing marketing operations against which a commission has already been paid to agent. Similarly, in the case of Annamalais Timber Trust & Co. vs. CIT (1961)....
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....hat the services were only for minuscule of the total supply of the contract and accordingly income, as already decided earlier, is to be assessed from these sales and linked services after applying r. 10 and attributing 25 per cent of the income to the PE in asst. yr. 2002-03 also. This has been accepted by the CIT(A) and he directed the AO to assess the receipt from rendering of technical services under art. 12 of the DTAA on gross basis in similar fashion as accepted by the AO in the asst. yrs. 2001-02, 2003-04 and 2004-05, and he directed the AO to attribute 25 per cent of the profit from sale of spares to the PE. We are in agreement with the CIT(A) that the total receipts are to be allocated between two activities i.e., supply of spares and rendering of technical services. We do also agree with the CIT(A) that receipts from rendering of technical services shall be taxed under art. 12 of the DTAA. However, with regard to the extent of profit from supply of spares to the PE in India, we hold that only 10 per cent as against 25 per cent directed by the CIT(A) of the profit from sale of spares is to be attributed to the activities carried out by the PE in India and then to be taxe....