TaxTMI 
TaxTMI 
2016 (8) TMI 809
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....law. 2 That on the facts and in the circumstances of the case and in law, the Ld. Dispute Resolution Panel (Ld. DRP) erred in confirming the draft order of the Ld. AO and conclusions contained therein. 3. That on the facts and in the circumstances of the case, the Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred in holding that the royalty income received by the Head Office ('HO') of the appellant is effectively connected with the Branch Office and therefore taxable at the rate of 41.82% (including surcharge and education cess) in India. 4(a) In coming to its findings, on the facts and in the circumstances of the case, the Ld. AO: erred in ignoring that the predominant objective of the Technical Collaboration and License Agreement, between the HO and New Holland Tractors India Private Limited, under which the royalty has been earned by the HO, is permitting the use of the Intellectual Property Rights owned by the HO and not of rendering any services. erred in presuming that any engineering services were rendered by the employees of the Branch Office and/or employees of the Head Office who were presumably based in India for a....
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....ch is engaged in following activities in India:- i. Undertaking business development and liasoning activities for Iveco. ii. Assisting Iveco in Homologation of its products i.e. assistance in obtaining necessary approvals from various regulator. iii. Providing assistance to Iveco in its global purchasing activities. iv. Sourcing engines locally for exporting the same to Iveco‟s dealer and customers outside India v. Providing after sale support service including warranty services and spare parts to customers in India in relation to products sold by Iveco and its licenses to customer in India vi. Providing technical support services to customers of Iveco in India. Further Branch Office shall not undertake local buying & selling in India and retail trading in India. The above activities were permitted to the Iveco SpA Italy by the Reserve Bank of India vide their application dated 14.09.2004 for setting up branch office in India. 6. Assessee has entered in to an agreement dated 17/12/2004 with New Holland Tractors India Private Limited for technical collaboration and license agreement for providing right to assemble diesel engines and its parts in Indi....
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....see filed objection u/s 144C(2)(b) of the Income Tax Act before the ld Dispute Resolution Panel [ DRP] who held as per direction dated 28.09.2010 as under:- "3. We have considered the objections and argument of the ld AR. We have also gone through the assessment order carefully and perused the relevant documents placed in the paper book including the TCLA for providing technical collaboration to M/s. New Holland Tractors. It is seen that as per the Article-5 of the TCLA concerning technical Support and training, the HO was to entrust its technical personnel with the purpose of rendering technical assistance support and consultation in connection with the New Holand Tractor activities under the agreement and the detailed programe for any specific visit and technical support and training was to be drawn in advance. The HO was also to arrange the training/ assistance for specialized personnel of the license with the aim of providing required training on the license products assembly/ manufacturing process, testing and inspection procedures production services etc. as applied by the licenses in its own plants, on terms and conditions to be agreed upon by the parties. We have peru....
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....ontended that the name of the chief representative is included the name of the 9 employees of the BO. Their LinkedIn profile of these 2 employees was also submitted. 14. The ld counsel vehemently objected to the application of the admission of additional evidences. 15. On the issue of admission of additional evidence, our view is that above documents submitted by the ld DR are relevant only in case there is rendering of services by these persons with respect to the above contract. In case if we find that there is any relationship of rendering of services by the BO of the assessee in relation to this contract at that point of time we will decide this issue. Hence at present this application is kept for decision till we decide prima facie facts of the ground no 3 & 4 of the appeal of the assessee. 16. On the merits the brief arguments advanced by the ld AR are as under:- a. That the assessee in Italy after developing experience and expertise technology to manufacture diesel engine has granted the license to M/s. New Holland Tractors India Pvt. Ltd. vide agreement dated 17.12.2004. The Branch office of the assessee are opened in India vide application dated 14.09.2004 afte....
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....in substance. He further stated that the decision of the Delhi High Court squarely applies to the present case. f. He further relied upon the decision of Hon‟ble Uttrakhand High Court reported in 42 Taxmann.com 140 in Samsung heavy Industries Co. Ltd. Vs. DIT wherein it is held that in absence of any material on record to show that the amount received for performing activities outside India was attributable to the business carried out by the assessee‟s PE in India could not be brought to tax in India. He further stated that in the present case, no evidence has been brought on record by revenue except inferences and hence, in the present case the ratio laid down squarely applies to the case of the assessee. g. He further submitted that his submission dated 23.07.2014 running into 18 pages, its rejoinder dated 14.08.2014 to the submission of the revenue, and addendum to the rejoinder submission dated 05.09.2014 and 08.09.2014 may also be considered. Over and above this, he further relied on 13 decisions of various courts as under:- Sr. No. Particulars 1. CIT Vs. Genesis Commet (P) Ltd. reported in 163 Taxmann 482 (Del) 2. i) 26 ITR 775 (SC) at 782 ....
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.... in the agreement. b. That the branch was formed for providing sales support services to the head office and also filed two forms being Form No. 3CEB for the international transactions and therefore, this facts indicates that the services have been provided to India to the licensee i.e. New Holand Tractor and part of payment received is certainly effectively connected to the PE of the assessee in India. He further submitted that RBI permission to the Branch allows it to provide after sales services including warranty and spare parts to its customers in India in relation to product sold by assessee and its licensees to customers in India. The BO of the assessee was also authorized to provide technical support services to customers of assessee in India. c. He further relied on the decision of Delhi Tribunal in the case of JC Bamford Excavators Ltd. 43 Taxmnann. Com 343 (Del) to explain the meaning and scope of the expression "effectively connected" with regard to the royalty. d. He further submitted that the reliance on the decision of Sumitomo Corporation is distinguishable in facts. e. In the written submission dated 01.10.2014 which was resubmitted on 12.05.2016 it was....
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....the related and required technical assistance and support Under the terms of the Agreement, and to avail itself of the services of the Licensee for having the Licensed Product manufactured and sold to IVECO Indian Customers in order to honour its commitment with these customer up to the establishment in India of its own premises to manufacture and sell IVECO diesel engines and related components and parts to its own customers, included but not limited to IVECO Indian Customers, directly or in partnership with a local manufacturer d. In accordance with the terms and conditions of the Agreement, the Licensor granted to the Licensee the temporary and , non-exclusive right in the Territory for specific activities listed in article 2 of that agreement. e. According to Article 5 of that agreement the assessee is required to provide following technical support and training to the licensee as under :- ARTICLE 5 - TECHNICAL SUPPORT AND TRAINING "5.1 Upon the request of the Licensee, the Licensor is prepared to entrust its technical personnel for defined periods of time with the purpose of rendering technical assistance, support and consultation in connection with all....
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....ed for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 4. The term "fees for technical services" as used in this Article means payments of any amount to any person other than payments to an employee of the person making payments, in consideration for the ser- vices of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such perm....
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....ith the contract generating royalty and hence assessee is not entitled to concessional treatment as per clause 1 & 2 of the Article 13 of DTAA. 22. It was submitted by assessee before ld DRP and Ld AO that in the FY 2006-07, three of the employees of assessee company visited India from Italy and provided the needful support and training to the licensee. All these three employees of the assessee were in India for execution of agreement for technical services and none of them stayed in India for more than 90 days. It is also contended that as the services of training and technical support was to be provided on need basis, after that neither there was any need nor any such assistance was provided by employees of the assessee. In any case, no services have been provided by the employees of the BO of assessee in India. Letter dated 23rd December 2009 explains the whole issue before Ld AO and DRP. Contents of this letter remain uncontroverted. Therefore, it is incorrect to state that assessee has not provided the details of the persons who provided services in connection with that agreement. Further, it is also not brought on record by revenue that whether during the year any services....
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....with PE one has to evaluate „ activity test‟ or „function test‟. In the present case the sum is offered and accepted for taxation as Royalty , then for evaluation of its effective connection with the PE only „ „assets test‟ should be applied which fails miserably in this case. Assuming that sum is Fees for technical services even then the „ Activity test‟ or function test‟ is also not satisfied. To „effectively connect‟ this royalty income with the PE revenue should establish that (1) PE should be engaged in the performance of of technical services or should be involved in actual rendering of such services, or (2) it should arise as a result of the activities of the PE , or (3) The PE should, at least, facilitate, assist or aid in performance of such services irrespective of the other activities PE performs. Revenue could not bring any material on record, which proves above facts in substance. Honourable Delhi high court in CIT V Sumitomo Corporation [382 ITR 75] held as under : "27. Article 12(5) of the Double Taxation Avoidance Agreement is on the lines of the OECD Model Convention. It is noticed that the ....
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.... Rs. 52,16,224/- earned by the assessee on account of technical agreement with the New Holland Tractors Private limited is not effectively connected with the BO of the assessee in absence of any positive and substantive material that services have been rendered by the employees of the BO of the assessee and therefore same is chargeable to tax as „ Royalty‟ income as per article 13 (1 ) and (2) of the India Italy DTAA. In the result ground nos 3 & 4 of the appeal are allowed. 24. Ground no 5 of the appeal is against not granting credit for taxes of Rs. 11,70,935/- . The parties agreed that this matter should go back to AO and the credit for the taxes should be granted to the assessee if proper TDS certificates are submitted by the assessee. Ld AO may also make any inquiry with respect to such TDS credit , in case if found necessary, and afford opportunity of hearing to the assessee. Therefore ground no 5 of the appeal is set aside to the file of ld AO accordingly. 25. In the result, appeal of the assessee for AY 2007-08 is party allowed. 26. Now we come to the appeal of the assessee for AY 2009-10. The ground no 1 and 2 are general in nature and therefore same a....