TaxTMI 
TaxTMI 
2017 (2) TMI 780
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....ls, wherever the orders have been passed u/s 147 read with section 143(3) of the Income-tax Act, 1961 (hereinafter also called `the Act') ; and the last issue of interest u/s 234B is in relation to some of the appeals for the A.Ys. 2007-08 and 2008-09.Submissions were made by both the sides on all the four issues in this lead case and it was candidly admitted that the other appeals involve mutatis mutandis similar issues. In fact, the same arguments were adopted by both the sides and no separate submissions were made for the remaining 138 appeals. As such, we are espousing the instant appeal for consideration and ex consequenti, the decision taken on all the four issues will apply to the remaining 138 appeals to the relevant extent. A. CHALLENGE TO REASSESSMENT 3. The first assail is to the initiation of re-assessment proceedings. Succinctly, the factual matrix of the case is that the assessee is a company incorporated in the United States of America and is also a tax resident of the USA. The assessee is a part of the GE Group, which makes equipments to the customers in India relating to oil and gas business, energy business, transportation business and aviation business. No ....
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....as well. Now, the assessee is before us challenging the initiation of re-assessment. 5. We have heard the rival submissions and perused the relevant material on record. Before delving into the legality or otherwise of the initiation of the reassessment proceedings, it is sine qua non to note the reasons recorded by the AO before issuing the notice u/s 148, which are as under :- "A survey u/s 133A of the Income Tax Act, 1961 ("Act") was carried out at the office premises of General Electric International Operation Company Inc., India liaison office ("GEIOC"), located at AIFACS, 1 Rafi Marg, New Delhi-l 10001 on 02.03.2007. The liaison office ('LO") of GEIOC, USA was started in India from July 01, 1987. The office was set up to undertake the liaison activities. From the information available it is seen that GEIOC has employed various persons and is sending these employees on assignments to GE entities located worldwide. From this premises, other entities, incorporated in India as well as non-resident entities of the GE group are also operating. 2. During the course of survey statement of Shri Rupak Shah, who is employed with GE Capital Services, India as Tax Manager, but....
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.... Corporate Financial Services - A newly formed NBFC operating from Gurgaon. (vii) GE Strategic India Investment - A NBFC having portfolio equity investment in Indian companies. (viii) SBI Cards & Processed Services Pvt. Ltd. - Deals with SBI credit cards and GE owns 40% equity of the company. (ix) GE Business Process Services Management Pvt. Ltd. - GE owns 60% equity of the company while balance is held by SBI and processes the SBI transactions in India only. B. INDUSTRIAL GROUP (i) Wipro GE Ltd. - GE owns 51% equity whereas balance is owned by Wipro and is engaged in manufacturing and local distribution of medical diagnostic equipments. (ii) GE-BEL Ltd. - The joint venture company of GE (74%) and Bharat Electronics Ltd. (26%) and is engaged in the manufactured and exports of medical equipments. (iii) GE Medical Services Pvt. Ltd. - It manufactures products/ engine design and software for export and is also in healthcare business operates in EOU/STEP. C. POWER SYSTEM (i) GE Power Services India Ltd. - Engaged in the business of repair and maintenance of steam turbines and 80% equity owned by GE. (ii) BHEL-GE Gas Turbine Services Ltd. - GE is holding 51....
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....ious documents, it is appropriate to state that, GE Group is engaged in various sales activities in India, for which the business heads are generally expats, who are appointed to head Indian operations, with the support staff provided by GE India Industrial Pvt. Ltd. and also by various third parties. These expats are on the payroll of GE International Inc(hereinafter: GEII)but working for various businesses of GE Group. After these brief comments, the contents of various documents are discussed hereunder: ANNEXURE 'A' This consists of 125 pages and mostly deals with GE infra division particularly oil & gas. * Page 1 to 16 is a copy of Memorandum of Understanding ("MoU") for technology transfer agreement between Bharat Heavy Electricals Ltd. and Nuovo Pignone S.P.A. for centrifugal compressors. The agreement provides that BHEL and NP had entered into a license agreement, for the transfer of know-how on CCs in 1971 for the licensed territories. The MoU would be effective in 2006 and the same is a draft with various corrections. It is unsigned and various price figures are crossed and new figures are inserted. The presence of this document in the Indian office shows ....
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....purchase order. * Page 71 is a copy of mail from Vivek Venkatachalam of GE Infra Oil & Gas, India to Fabio relating to the Reliance order. * Page 72 to 100 is the documents (technical proposal) with regard to Bina Refinery India to BHEL made on 27.02.2007. The contact name shown as Araniti. Danila. * Page 101 to 122 is a copy of commercial proposal (proposal No. 06.DW, 1056/F/O) with regard to Bina Refinery Ltd. for BHEL. This is given by Nuovo Pignone S.p.A. It provides the scope of supply and price. * Page 123 is a forwarding letter to the BHEL regarding the commercial proposal, which mentions that "please note that the present proposal is valid only under the collaboration agreement between Nuovo Pignone S.p.A. and BHEL under finalization between parties. * Page 124 and 125 also deals with the commercial/ technical proposal only, for which copies are given to Vivek Venkatachalam and Procacci Riccardo of GE Infra Oil & Gas, who are located in India. ANNEXURE 'B' This has 107 pages. * Page 1 & 2 is a copy of e-mail from Sunni Krishnan to Nalin Jain of GE Transport regarding emerging Indian aircraft/ engine maintenance, repair and overhaul (MRO marke....
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.... past similar order either through your new sales Dept. or service Dept. This will have bearing ongoing collaboration discussions of NP & BHEL." * Page 58 to 63 is the comments on draft MoU for compressors sent by GE Infra Oil & Gas vide e-mail dated 22.09.2006 (and counter comments from NP, October 16, 2006). * Page 64 to 72 is a power point presentation relating to EWPL gas pipeline project of Reliance Gas Pipelines Ltd. This also provides the delivery summary. * Page 73 to 83 is the commercial proposal relating to Bina Oman Refinery. * Page 84 and 85 is with regard to GE Infrastructure message from John Rice. * Page 86 is a list of 16 employees of GE Global Sourcing India Pvt. Ltd. This also shows the list of persons who are involved in oil & gas, aviation, rail and power & systems business. The oil & gas business is headed by Riccardo of GEII with two people from GE India International, aviation business is headed Bill Blair and aircraft engines business is looked after by Nalin Jain, an employee of GE India Industrial, Delhi and aircraft business is looked after by Ashish Sonawala. The rail business is looked after Ashfaq Nainar and Ken Pearson, working with GEI....
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....sation worksheet of Riccardo Procacci on 01.02.2007, who is on assignment with GE Infra Oil & Gas. ANNEXURE 'C' This contains 49 pages and has the details of employees working in AIFCAS building regarding their names, designation, employing legal entity, employed since, working for the company, job description, reporting manager, incentive compensation, appraisal report and employment letter. In respect of some employees, the information is as below: * Partha Ranjan Dey is working as Site Leader and reporting to Riccardo Procacci and the job description is sourcing. * Amit Verma is a Junior Buyer and is engaged in sourcing and reporting to Riccardo Procacci. * Jagdish Lal is the Secretary and reporting to Riccardo Procacci. * Pravinna Yagnam Bhat is Executive Assistant and reporting to Prat Kumar. * Udit Gaurav Kachru is reporting to Ashfaq Nainar and his job description is "manager in country sales for all locomotive products including new locomotives, modernization parts and services and his incentive is based on sales targets". * Ashok Singh, working as Project Manager and reports to Ashfaq Nainar and his job description is 'proposals for loco....
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....i.e. 4, Panchsheel Marg, Chanakya Purl, New Delhi for Mr. Scott R. Bayman of General Electric Company Inc., liaison office for the period 01.07.2004 to 30.06.2007 for annual rental value of Rs.l crore. * Page 4 to 9 is a copy of house lease deed dated 01.07.2005 for leasing of house i.e. D-79, Citi Apartments, Vasundhara Enclave, by Mr. Iqbal Singh to General Electric International Co. Inc. at monthly rent of Rs. 6,250/- * Page 10 is a copy of letter dated 22.08.2003 from RBI, New Delhi for extension of time of the permission u/s 6(6) of the Foreign Exchange Management Act, 1999 to M/s General Electric International Operation Co. Inc. * Page 11 & 12 is a letter from PricewaterhouseCoopers Pvt. Ltd. relating to change of nodal office from Mumbai to New Delhi with regard to GEIOC liaison office. * Page 13 is a list of employees of GEIOC, showing names, department, gross salary and constituents thereof. The most of the employees are in the CAS Auditor Department. *Page 14 mentions the names of three companies i.e. GE International Operation Co. Inc., GE International Inc. and GE India Industrial Pvt. Ltd. * Page 15 is a letter from RBI regarding extension of time for....
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....rketing to Mr. Nicola of GE Infra Oil & Gas and copy to other persons of GE Infra Oil & Gas including Jagdish J. requesting a authority letter indicating M/s General Energy Management Systems Pvt. Ltd., New Delhi as the authorized representative of GE Infra Oil & Gas. It mentions that Nuovo Pignone has regularly participating in the various pipeline projects. * Page 8 & 11 is a copy of mail from Riccardo Procacci, in which he is introducing himself as the newly appointed GE Oil & Gas. India Country Leader based in Delhi. *Page 9 & 10 is a copy of mail from Senior Manager of Bharat Pumps and Compressors Ltd., addressed to Rajesh Gupta of GE Infra Oil & Gas with a copy to Vivek Vekatachalam and has details regarding draft of MoU. Rajesh Gupta has forwarded this mail to Riccardo Procacci fix his attention. * Page 12 to 17 are e-mails containing the draft MoU and the various terms and conditions relating to Bharat Pumps and Compressors Ltd. requirements and evidences the involvement of Mr. Procacci, Rajesh Gupta and Vivek Venkataehalam in the business of GE Infra Oil & Gas in India. * Page 18 to 20 is a copy of mails relating to MoU for Pumps Fort IOCL, Mundra - Panipat pip....
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....more queries... Thanks Rahul" * Page 31 to 85 - me photocopy of excel documents, sent by Barbara to Riccardo, relating to India sales for 2004, 2005 and 2006. The same gives the name of customer, customer number, date of invoice, the place of delivery, order number, amount, region, name of manufacturer etc. * Page 86 & 87 is an e-mail from Vivek (Venkatachalam) to Ciao Riccardo, which mentions that "I would want you to make Vittorio understand that we cannot change the payment terms completely.....". * Page 88 to 98 pertains to WHRU proposal of Reliance regarding total base scope price and the value of contract is Euro 5,849,293 and mentions the scope of supply, deliveries, various clarifications and the mails are evidence of involvement of Vivek and Riccardo in the deal. Particularly a mail from R. Balaji of Reliance Industries Ltd. (page 93) is important and this reads as below: " is moving away from various commitments and are talking in different voices. This is not the essence of our agreement. I want GE representatives to come over and discuss the matter and sign-off. Unless that is done GE will do shifting of stances, as they have done now. This has to happ....
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....ressors. This shows that Chaini, Nitin, Gakhar, Ashwin and Jaimin Shah of GE Infra Energy are working for the GE Infra business in India. The purchase orders are issued on GE Oil & Gas LLC, USA, GE Oil & Gas Thermodyn, France and GE Oil & Gas Nuovo Pignone Spa, Italy. The mail states that Jaimin Shah is handling all the recent GE orders. Ravi Kumar of Reliance writes that "we do not have problem in issuing 3 TSAs for three GE entities ". The copy of mail is also given to Rajesh Gupta of GE Infra Oil & Gas. * Page 15 & 16 is a mail from/to Nalin Jain, GE Transportation, aircraft engines, sales Director South Asia Pacific. * Page 17 is a mail from Nalin Jain to William Blair of GE Infra, Aviation, USA regarding Jet-LH partnership. Nalin Jain has address of AIFACS, 1 Rafi Marg, New Delhi, India. * Page 18 & 19 is a mail from S.N. Chinhara, SAWO, for DGCA to John Calvin regarding renewal of approval of GE Aircraft Engine Services Ltd. Mr. Calvin John of GE Infra Aviation writes that the renewal fee will be paid locally by General Electric representative in India Mr. Nalin Jain. Later on, Mr. Calvin John writes that unfortunately the GE rap in India will not be able to pay the ....
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.... 14.02.2007 to Chandan Jain (GE Corporate) on the subject GECAS growth council. Page 22 has estimated financials of GECAS for the years 2006 to 2010. In this sheet the details of revenue, exposure, return on income, return on expenditure and net income are given. The mail also states the requirement of aircrafts by Indian Airlines. * Page 24 is a mail from Nalin Jain of GE Infra Aviation to Chandan Jain regarding news release-Indian Airlines, CFM sign MRO joint venture agreement. CFM International is a joint venture company. wherein 50% is held by General Electric Company. Page 25 is a mail from Amar Navin of GE Corporate to Badal Bagri and Chandan Jain of GE Corporate and relates to authority to sign HR related documents for oil & gas. This shows that Anjali Sinha has the authority to sign the HR related documents and she is supporting the HR of GE Oil & Gas. She is also signing the HR documents for GE Transportation - Rail, Aviation and Signalling, Training Division (including corporate growth services and global business solutions). * Page 26 is blank. * Page 27 is a mail from Harshita Sabharwal of GE Corporate dated 17.02.2007 to Chandan Jain regarding repatriation ....
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....by a team of persons, who are employed by either GE India Industrial Pvt. Ltd. or other group concern. The employees working on the payroll of GEIOC are also supporting the various direct businesses of GE group. The assessee was asked to submit the information regarding the above employees particularly the copy of employment (assignment) letters, job responsibilities, self appraisal etc., part of this information was submitted by the assessee vide letter dated 16.03.2007/09.04.2007. A brief of various businesses not conducted through GE subsidiaries in India either wholly or partly (submitted by the assessee as Annexure-l0 of letter dated 16.03.2007), is given below: INFRASTRUCTURE * Oil & Gas * Energy * Rail * Aircraft Engines * Aviation Financial Services INDUSTRIAL * Equipment Services HEALTHCARE * Diagnostic Imaging * Information Technology * Services * Bio Science The assessee in Annexure-l2 of the letter dated 16.03.2007 has submitted a list of third party agents of the group in India for carrying out the business and this reads as below: 3rd Party Liaison Agents in India Products/Services Covered Brief description of allowed....
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....orty, Shashank Naik, Parag Nag. Srikanth Thorapalli Venugopal, Sanjeev Kumar, Hemlata Singh, Archana Singh, Asim Bose, Geeta Taneja, Suman Nag, Nalin Jain, Sanjeev Kakkar, Mangal Dev, Vivek Venkatachalam, Rajesh Gupta and Amit Verma. From the information available during the surveyor afterwards. it is clear that various employees of GE India Industrial Pvt. Ltd. are working with the expatriates so as to constitute Indian teams looking after the GE overseas entities businesses. The detail of such employees is also available in Annexure-C, discussed earlier. The assessee was asked to submit the copy of self appraisal of the 7 employees of the GE group, who are on the payroll of GE International Inc. The same is replied vide para 3.4 of the letter dated 16.03.2007 and self appraisal of Kenneth Peirson was submitted as Annexure-16 of the letter. 6. On the basis of various facts/information collected during the survey and afterwards, it is clear that various GE group entities are carrying out the business in India. The details of such businesses and the sales made by various entities during the period 01.04.2000 to 31.03.2006 (financial year wise) are submitted by the assessee ....
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....s business, showing by Nuovo Pignone Spa, Italy during F.Ys. 2000-01 to 2005-06 were submitted by Price Waterhouse Coopers Pvt. Ltd. on 27.02.2008. The information submitted reveals that the GE group entities have made sales of equipment/parts in energy business, transportation business and aviation business. Some of the companies have also rendered services to the customers in India. 6.1 General Electric International Operation Co. Inc., India liaison office (GEIOC), has on its payroll more than 50 employees and the designation of such employees is CAS. The assessee has explained that employees are deputed to various GE companies and they work as their employees and such employees remain on the payroll of GEIOC till the same are transferred to other entities. As per the application made to RBI and permission obtained, the liaison office was to act as a communication channel between the head office and the customers in India. However, the company instead of undertaking the permitted activities is employing various persons and providing the services of such persons to the GE group entities worldwide. The company performs all the functions relating to such employees, including ....
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....les team were also carrying out the business through other fixed place of business in the form of other offices of the GE group in India. In view of the above. it is clear that the various GE group entities, being tax residents of different countries had fixed place PE in India as per the provisions of respective tax treaties. The office as well as the premises used as a sales outlet or for receiving or soliciting orders also constitutes the PE as provided in paragraph 2 of Article 5 of respective tax treaties. The activities of the non-resident GE group entities being conducted from the fixed place of business referred above are not of the preparatory or auxiliary character. The employees of GE India Industrial Pvt. Ltd. forms the sales teams of the GE entities, such employees along with the expats have habitually secured orders in India, wholly or almost wholly for the non-resident GE group entities. The correspondence discussed above also indicates that such employees have also participated in the price negotiations. The various documents in the form of agreements/purchase orders/copies of contracts also proves the active involvement of the employees of Indian company and ....
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....e provisions of Section 9(1 )(vii) of the Income Tax Act, 1961. Such amounts will also be taxable as fees for technical services or business income depending upon the facts of the case and the respective tax treaty. Such entities are listed under the business head aviation and from S. No. 3 to 17. These companies have not filed return of income, though their income for various assessment years was chargeable to tax in India. 8. The Authorised Representative, PricewaterhouseCoopers Pvt. Ltd. has confirmed that the non-resident entities, of which details are filed vide letter dated 24.03.2008 and 26.03.2008, have not filed return of income in India except in the case of Nuovo Pignone Spa, Italy, which has filed return of income with Income Tax Officer, Ward 1(3), Ahmedabad. 9. The non-resident GE group company, namely GE Energy Part Inc., USA has made a sale of USD 21,83,146/- during F.Y. 2000-01 in India. As mentioned above, the assessee has business connection as well as the PE in India as per the provisions of Article 5 of the tax treaty between both the countries and the income attributable to the PE/ business connection is taxable in India. Since the assessee has not filed....
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....ons contains the name of the assessee and the relevant year, which reads: "Reasons recorded for issue of notice u/s 148 of the Income-tax Act, 1961 in the case of GE Energy Parts Inc., USA for assessment year 2001-02." It is equally undisputed that in the reasons recorded for other entities and other years, the name of the respective assessee along with the concerned assessment year, prominently appear in their title. Our attention has been drawn towards pages 11 to 13 of the Departmental paper book no.2, which are the three Annexures to the assessee's letter dated 24.3.2008 addressed to the Addl. CIT, giving year-wise and entity-wise figures of sales in India by the GE overseas entities engaged in Energy business, Transportation business and Aviation business. Such a list has been reproduced on page 20 of the assessment order, which is also a part of the reasons recorded by the AO and supplied to the assessee. Name of the assessee appears at Sl. nos.11 and 13 of this list under the broader category of `Energy business'. In fact, name of the assessee appears not less than six times in the reasons (including two times in the Exhibits, which are part of the reasons). 8.3. Be that as ....
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....d manner, is further proved from page 240 of the survey documents paper book, which reveals the personnel hierarchy of `Infrastructure business' of GE. At the top is P. Riccardo (designated as Country leader, India). He is from GEII. Then, there are three persons on the level below him, namely, Vivek Venkatachalam, an employee of GEIIPL (designated as Regional Manager, New unit sales), Ujwal Kumar (designated as ECLP Market developments) and Dewan Shukla again from GEIIPL (designated as Country Manager - Services, Sales). There are other persons in the hierarchy below them. Above discussion belies the assessee's contention that its name or its business transactions do not appear in the reasons. 8.5. It was also argued by the ld. AR that the reasons do not refer to any material relating to the assessment year under consideration leading to the escapement of income. Even if some material exists for a subsequent year, the ld. AR argued that the same cannot be considered for initiating reassessment for an earlier year. For this proposition, he relied on certain judgments including CIT vs. Gupta Abhushan (P) Ltd. (2009) 312 ITR 166 (Del) and SGS India Pvt. Ltd. vs. ACIT & Anr. (2007)....
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....sons that the information regarding the employees of GE in India prior to the present expats was not given by the GE group, but, there were persons working for such sales throughout the period 1.4.2000 to till date. 8.8. The ld. AR vehemently argued that the AO wrongly recorded in para 7 of the reasons that the information regarding the employees of GE in India prior to the present expats was not given by the GE group. It was stated that such information was never demanded and, hence, there was no occasion of giving it as well. This was opposed by the ld. DR who submitted that several rounds of meetings took place post survey operations between the Department and the ARs of the assessee group and some information including the instant one was orally demanded. This was sought to be fortified by the fact that though, vide summons dated 2.3.2007, written requirement was made for giving figure of sales of GE entities in India from 1.4.2003 onwards, but, the actual information supplied by the assessee also covered the period 1.4.2000 to 31.3.2003 in addition to the information as required in writing for the period 1.4.2003 onwards, which was orally demanded during such post survey me....
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.... were recorded on 26.3.2008 and the assessee did not raise any objection about the said aspect of the matter and accepted the separate order passed by the AO rejecting such objections, the assessee did not even challenge this aspect before the AO during the course of assessment proceedings as well. 8.11. At this stage, it is relevant to note that the Hon'ble Supreme Court in GKN Drive Shafts (India) Ltd. vs. ITO and Ors (2003) 259 ITR 19 (SC), has laid down a procedure to be followed upon the issuance of notice u/s 148 of the Act. It has been held that: "The proper course of action for the noticee is to file return, and, if he so desires, to seek reasons for issue of notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order." In a case before the Hon'ble Bombay High Court in Crown Consultants Pvt. Ltd. vs. CIT (2014) 362 ITR 368 (Bom), the assessee, challenging the issuance of notice of reassessment u/s 148, contended that the alleged loan transaction in the reasons was reflected in its financial statements as ....
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....being, a letter from Price Waterhouse Coopers to some person of the GE group at AIFACS Building, 1, Rafi Marg, New Delhi intimating the approval by the RBI of change of nodal office of GEIOC from Mumbai to New Delhi vide its letter dated 8th March, 2000. It is this address which was subjected to survey proceedings in 2007. Page 311 of the survey documents paper book is a copy of the lease agreement for the official premises of the LO which shows that the lease agreement of AIFCAS premises was renewed from 1st December, 2003. The same page indicates that the earlier lease agreement dated 1st March, 1994 came to an end on 28th February, 2003. These two documents corroborate that the premises, subjected to survey proceedings on which business activities of GE overseas entities were found to be carried on, was at their disposal for all the years under consideration. These two documents coupled with the GE group supplying information about the sales made by the GE overseas entities from the year 2000 onwards tilt the balance in favour of the Department. 8.14. Above discussion boils down that the seven expats worked in India for a period of 2-5 years covering some of the years and for....
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....ties in India as per para 5 of the respective DTAA and further such activities were not of the preparatory or auxiliary character. The AO, on the basis of such information gathered during the course of survey and post-survey enquiries, came to conclusion vide para 6 of the reasons that various GE group entities, separately named in the Table, which covers all the GE overseas entities under consideration, were carrying on business and effecting sales in India. Details of business and the sales made by such entities during the period 01.04.2000 to 31.03.2006 form part of the reasons by way of Annexure. It is ergo abundantly clear that the AO has clearly asserted in the reasons that GE India carried out full-fledged business activities and made sales in India for all the GE overseas entities. This contention fails. iii. No assertion in reasons that income escaped assessment because of failure of assessee to disclose fully and truly all material facts 10.1. The ld. AR also challenged the initiation of reassessment by contending that there was no assertion in the reasons that income chargeable to tax escaped assessment because of the failure on the part of the assessee to disclose....
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....hich has not been set out in the assessment order, positively states: `The non-resident GE group company, namely GE Energy Part Inc., USA has made a sale of USD 21,83,146/- during F.Y. 2000-01 in India. As mentioned above, the assessee has business connection as well as the PE in India as per the provisions of Article 5 of the tax treaty between both the countries and the income attributable to the PE/ business connection is taxable in India. Since the assessee has not filed return of income in India to that extent the income chargeable to tax has escaped assessment. On the basis of material collected during or after survey operations and discussed above, I have reason to believe that income chargeable to tax has escaped assessment for A. Y. 2001-02.This belief is formed on the basis of fact that assessee has not furnished return of income although its income earned in India during the previous year was chargeable to income tax'. Thus, the argument that there is no assertion in reasons that income escaped assessment because of the failure of the assessee to disclose fully and truly all material facts, does not hold water. 11. Foregoing discussion reveals that the following broad....
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....during the F.Y. 2000-01 in India. The assessee had business connection as well as PE in India and the income attributable to the PE/ business connection was taxable in India. Since the assessee had not filed return of income in India, income chargeable to tax escaped assessment to that extent. 12. Now the question arises whether the above extracted reasons cited by the AO justify the initiation of reassessment proceedings. Both the sides have relied on certain decisions to drive their respective views. 13. Legal position on this issue is that the AO should have prima facie grounds for forming a belief that there is some escapement of income, which is a condition precedent for initiating reassessment. The Hon'ble Supreme Court in Raymond Woollen Mills vs. ITO (1999) 236 ITR 34 (SC) has held to this extent by laying down that if prima facie some material exists on the basis of which the Department can reopen the case, it is sufficient to initiate reassessment. "The sufficiency or correctness of the material is not a thing to be considered at this stage." The same view has been reiterated again by the Hon'ble Summit court in ACIT vs. Rajesh Jhaveri Stock Broker (P) Ltd. (2007) 2....
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....riginally filed the return of income. In the words of the Hon'ble Delhi High Court in Convergys Customer Management vs. Asstt. DIT (2013) 357 ITR 177 (Delhi) : `at the time of issuance of notices under section 148, the Assessing Officer is not expected to form any definite or conclusive opinion about the taxability of the disputed amounts and that he is only expected to form a tentative or prima facie belief regarding the escapement of income chargeable to tax'. 14. A cursory look at the above judgments fairly brings out that the initiation of reassessment proceedings requires the AO to form a prima facie view about the escapement of income. There is no need to conclusively establish at that stage that such and such income escaped assessment. If it emerges from the reasons recorded, which, in turn, are based on some relevant material, that the AO had prima facie reason to believe about income escaping assessment, the matter ends there insofar as the initiation of reassessment proceedings is concerned. No fault can be found with the jurisdiction of the AO to initiate reassessment. 15. Adverting to the facts of the instant case, we find that the survey and post-survey enquiries....
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....ontended that for the assessment year under consideration, namely, 2001-02, the provisions of Chapter-X of the Act were albeit not applicable, but, in the subsequent years of this assessee and other assessees, the transfer pricing provisions are applicable qua the international transaction of `Marketing support services' rendered by GEIIPL to GE entities pursuant to agreement with GEIOC. It was put forth that GEIIPL intimated the international transaction of rendering Market support services to various AEs, and the AO accepted the same at arm's length price (ALP) without referring it to the Transfer Pricing Officer (TPO) for the determination of its ALP for the AYs 2002-03 and 2003-04. It was further stated that though the AO made a reference to the TPO for determining ALP of the international transaction of rendering of Marketing services by GEIIPL for the A.Ys. 2004-05 and 2005-06, but, the TPO accepted the transaction at ALP. For the A.Y. 2006-07, the TPO made certain TP adjustment, but, the Tribunal restored the matter to the TPO for a fresh determination which was still pending. For the A.Y. 2007-08, no TP adjustment was stated to have been made in the hands of GEIIPL and the ....
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....ok-1. In terms of this Agreement, GEIOC requested GEIIPL 'to provide certain services'. The services to be provided by GEIIPL under this agreement have been set out in clause 1 of the Agreement, which states that GEIIPL (earlier called GE Power India) shall from time to time provide the following support services to GEIOC and its affiliate entities : - "(i) Identify and seek business opportunities and provide information relating to products and services of GEIOC and its affiliate entities to potential customers in India; (ii) Arrange appointments and meetings between existing as well as prospective customers and GEIOC/its affiliate entities and provide necessary support in client meetings and discussions; (iii) Act as a channel of communication between customers and GEIOC/its affiliate entities; (iv) Investigate and provide information on current trends in business, status of competing products, technological developments, pricing of competitors, Government policies and other development, etc., that would be of interest to GEIOC/its affiliate entities; and to (v) Provide an effective link between GEIOC/its affiliate entities and various regulatory authorities from t....
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....laring that the ALP of `Marketing support services' was by and large at ALP. However, it turned out only during the course of survey that the scope of actual services by GEIIPL far exceeded the market support services as provided in the Agreement. 43employees of GEIIPL were found to be involved in the actual conduct of business of GE Overseas, effecting sales and acting under the leadership of expats, who were heading various business lines of GE in India. Actual activities carried out in India, far exceeded what was sanctioned by the RBI and such extra activities are of commercial and trading nature, which are exception to the rule of liaison office. In addition, the place of GEIOC was being used as fixed place of business of GE Overseas. Thus it is lucid that the actual functions performed by GEIIPL were much more than those prescribed in the Agreement. 18.7. The ld. AR vehemently argued that only the activities approved by the RBI for acting as a liaison office were carried out in India and this was established from the fact that the permission so granted by the RBI was not revoked. He relied on an order passed by the Delhi Bench of the Tribunal in Metal One Corporation vs. D....
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.... AIFACS building showed that GE India was not merely acting as a communication channel, permission for which was also only with GEIOC and not the assessee, but, was actually indulging in commercial activities. This argument of the ld. AR, therefore, fails. 18.10. We come back to the assessee's primary argument for striking down the initiation of reassessment because the arm's length analysis was accepted and no transfer pricing addition was made and hence there could be no further attribution of income to the PE. The trump card of the ld. AR is the judgment in the case of Morgan Stanley(supra),which has been followed in the subsequent decisions referred to by the ld. AR hereinabove. In this judgment, the Hon'ble Apex Court has held that once a transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. The Hon'ble Supreme Court countenanced the Ruling of the AAR in principle insofar as an AE, that also constituted a PE, was remunerated at ALP taking into account all the risk taking functions of the enterprise (emphasis supplied by the Hon'ble Supreme Court). The Hon'ble Summit Court found that in such cases nothing further would be left to be att....
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....ormed by GEIIPL beyond the scope of the Service agreement have led to the creation of the PE of the assessee in India. Such services have not been remunerated at all. Since the transfer pricing analysis did not reflect these functions performed by GEIIPL, there is a need to attribute profits to the PE for those functions/risks that have not been considered. Further, it came to light during the course of the survey and the postsurvey proceedings that the premises of the LO of GEIOC was being used as a fixed place PE by the GE overseas entities including the assessee, which fact was never disclosed to the Department. Our attention has not been drawn towards any payment having been made by the GE overseas entities to GEIOC on this account. As this international transaction was not reported at all, there was no question of any transfer pricing analysis of the same. These facts delineate that the instant cases fall under the exception to the rule laid down in Morgan Stanley (supra) as reiterated in LG Electronics(supra). We, therefore, reject this contention raised by the ld. AR. III. SANCTION U/S 151 19.1. On an earlier occasion, the assessee raised an additional ground before th....
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....thout application of mind. The satisfaction was accorded `for the reasons recorded by AO'. At this juncture, it is imperative to note that the Addl. DIT, who gave the sanction u/s 151 of the Act was already seized of the matter, prior to the issuance of notice u/s 148. This is borne out from the fact that the reasons recorded refer to the information provided by GEIOC, at least, vide its two letters dated 27.2.2008 and 24.3.2008 addressed by the GEIOC to the same Addl. DIT. These letters have been placed at pages 7 and 18 of the Departmental paper book. The material found in survey and post-survey enquiries is admittedly common to GEIOC and all the GE overseas entities under consideration. This demonstrates the direct involvement of the Addl. DIT in the issue much prior to the placing of reasons before him for sanction. Not only the text of sanction but also the earlier involvement of the Addl. DIT in the proceedings dealing with such reasons, go a long way to prove that he did not act in a mechanical manner. Thus, it is wholly incorrect to state that the sanction was granted by the Addl. DIT without application of mind. 19.6. The facts in United Electrical Company (supra) are t....
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....at he did not apply his mind at all while granting sanction. Again, we are at loss to appreciate as to how this judgment advances the case of the assessee. The situation before us is not that the Addl. CIT was not provided with actual material and he simply wrote two-three words before giving sanction. Application of mind, as emanating from his noting, gets duly endorsed with his earlier involvement in the matter. The observations of the Hon'ble MP High Court about 24 hours are to be seen in the context in which they were made. This is not a statutorily provided time limit. The essence of such observations is that the Addl. DIT should not hurriedly accord sanction in a mechanical way but properly examine the facts before giving approval. Criteria for examining validity of a sanction is the genuineness of reasons for re-assessment and application of mind by the authority before granting sanction u/s 151 of the Act. We are satisfied that in the given circumstances, the Addl.CIT committed no mistake in granting sanction u/s 151(2) of the Act. This ground, therefore, fails. B. PERMANENT ESTABLISHMENT 20. The A.O. examined the taxability of income of GE Overseas under the Act as w....
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....g a `fixed place PE'; `GE India' comprising of expatriates of GEII and employees of GEIIPL constituting `dependent agent PE'. The ld. AR argued that none of the activities carried out by the assessee in India lead to the creation of PE. We will take up both the types of PE one by one for consideration and decision. I. FIXED PLACE P.E. 22. In order to test the constitution or otherwise of a `Fixed place PE' of the assessee in India, we will consider the Double Taxation Avoidance Agreement with the USA (hereinafter called 'the DTAA'), which applies to 17 entities. In fact, this is the only DTAA which has been relied upon by both the sides in support of their respective arguments. No reference has been made to any other DTAA. It is, therefore, presumed that the language of Article 5 dealing with Permanent Establishment of the other relevant DTAAs is no different from the DTAA. Paras 1 to 3 deal with the fixed place PE. Before examining the rival contentions, we consider it apposite to set out the relevant parts of these paras, as under :- `1. For the purposes of this Convention, the term 'permanent establishment' means a fixed place of business through which the business ....
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.... lead to establishment of a fixed place PE. The enterprise should be in a position to constantly use such place. What is relevant for the purpose is the availability of the place at the disposal of the enterprise irrespective of any ownership, lease or other occupancy rights. So long as a place is available with some degree of permanence to the enterprise for its use, it satisfies the first condition for constituting a fixed place PE. Further, it is not necessary that such place should be exclusively used for that purpose. OECD Commentary on Article 5 of the Model Tax Convention has discussed in paras 4 to 4.3 that the term 'place of business' covers any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose. Such place of business can also be situated in the business facilities of another enterprise. Para 4.3 gives an example of a fixed place PE, being, an employee of a company, who, for a long period of time, is allowed to use an office of another company. Further, the character of 'fixed' should be attached to such a place, which means that it should be used with a certain amount of perm....
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.... employees of GE overseas group companies working in India along with their appraisal reports. The assessee furnished, vide its letter dated 16.3.2007, a list of employees of GE International Inc., US, who were working in India, namely, Dan Nalawade, Riccardo Procacci, William Blair, Ashfaq Nainar, Kenneth Pierson, Samir Aggarwal and Prat Kumar. Pages 94 to 115 of the Departmental PB no.1 are the Assignment letters of these seven expatriates. These Assignment letters are dated for the years 2004, 2006 and 2007. Tenure is fixed, namely, five years, three years or two years, as the case may be. Such Assignment letters indicate position of these employees of GEII working in India. We will firstly discuss these expats in the light of their Assignment letters, Self appraisal and Manager assessment, wherever provided. i. Kenneth Pierson - A copy of the Assignment letter of Kenneth Pierson has been placed at page 104 of the Paper book, which shows his position as `Sales & Marketing Manager' of GE Transportation with the anticipated start date of assignment as 1.5.2004 and the term of assignment as thirty six months. Kenneth M. Pierson also gave Self appraisal report, whose copy is avai....
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....tial solutions. Identify capacity enhancing solutions for bottlenecks in the existing rail infrastructure of the railways." His further job responsibility has been defined on the same page to: `Evaluate the team's performance against the business goals and objectives. Provide active coaching and mention the team and provide feedback to improve overall team performance'. Page 58 shows that he has: "Excellent customer negotiation and dispute resolution skills". In Self appraisal report, whose copy is available on page 61 of the paper book, he mentioned under the head 'Accomplishments' to have: 'Led Asia team to $29M orders & $20.6 M sales' by continuing double digit growth." Under the head 'Expertise', it has been mentioned that he: 'Utilized 13+ years of sales experience and market instincts to enter new growth areas such as commuter and propulsion markets in India.' Then, there is the `Manager Assessment' on page 63, which shows that he made solid progress in '06 with Orders $27 and sales of $19($ 13 + 12%). Details emanating from his Assignment letter, Self appraisal report and Manager assessment speak volumes about his nature of work extending to managing the entire business incl....
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.... top level for business of GE Overseas in India, was being done by him. Despite specific request by the AO, the GE group neither supplied Self appraisal report nor the Manager's assessment report of William Blair. v. Pratyush Kumar - A copy of the Assignment letter of Pratyush Kumar has been placed at page 111 of the Paper book, which shows his position as `Leader, GE Infrastructure, Ops-India' of GE Transportation with 1.6.2006 as the anticipated start date of assignment and the term of assignment as five years. Major activities done by Pratyush Kumar have been given on page 205 onwards of the Paper book, which show that he was `GE Infrastructure Leader in India', reporting directly to the Global CEO of GE Infrastructure with specific role and responsibilities to: "Help GE infrastructure business develop their strategy in India; Align GE solutions with customer need; Put the key success factors in place; Help shape policy to realize opportunities; and Facilitate business development discussions." Page 207 of the paper book shows his major activities, which, inter alia, provide that he: "Facilitated dialoge between GE Infrastructure's Energy, Oil & Gas and Water business to deve....
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....ing for signaling and locomotives.' His reporting manager is Pritam Kumar as discussed immediately hereinabove, who, in turn, is reporting to Pierre Cante. iv. Janak Chaudhary - Page 292 is report of Janak Chaudhary with designation of `Vice President' and job description of 'Sector analysis for growth in India.' His reporting manager is again some foreign employee. 27.5. Above narration of the nature of jobs carried out by these employees of GEIIPL makes it amply clear that they were at the higher positions in the general administration and, more specifically, sales of GE Overseas, reporting directly to the expats, who, in turn, were India country heads or occupying the peak positions in GE Overseas in India. 27.5. Having seen the job responsibilities of the expatriates and employees of GEIIPL assisting the expats in the Indian operations of GE Overseas, now let us have a look at some of the e-mails which are part of the survey documents, which fully justify the respective designations given to them. As noticed earlier, the assessee in its replies to the AO has used two terms, namely, GE Overseas and GE India. Admittedly, GE Overseas has been referred to as all the `GE ov....
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....g of customer-wise sales made. This has been bifurcated into two parts viz.: "Direct orders" and "Inference orders." Only "Direct orders" relate to operations in India. Riccardo mentions on the second page of the PPT about key wins of Reliance EWGP, IOCL Haldia and PII. This page also mentions Market dynamics and revenues. He also refers to fierce price pressure and profitability through local sourcing. This document evidences the fullblown indulgence of GE India in running and securing orders for GE Overseas from India. Page 2 bottom and page 3 of Survey Documents PB-II is an e-mail from Robert Prestwich (GE Overseas) to Vivek Venkatachalam, an employee of GEIIPL (GE India): `the draft TSA (Technical Services Agreement) for Reliance attached. I guess this needs to be reviewed by your aftermarket colleagues in India or does it need to go back to someone in Florence'. This e-mail communication shows that the draft agreement sent by Reliance Industries Ltd. to Mike Hosford (GE Overseas) was, in turn, sent to India, namely, Vivek Venkatachalam (GE India), requiring him to get it reviewed from his aftermarket colleagues in India. Pages 32 and 33 of Survey documents PB-II are cert....
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....IPL to Pump Design Department of IOC with copy to P. Riccardo, conveying to the client that: "As a special case, we have decided to accept the following payment terms for the subject MOU." This shows that the change was permitted in the terms of MOU by GE India, which was conveyed by Vivek to the customer, with a copy to Ricardo Procacci. This is a pointer towards major activities in connection with orders and finalization of terms and conditions of sales being done by GE India. Page 104 of the Survey documents PB-II is an e-mail from Pump Design Department to P. Riccardo (GE India) with a copy to Vivek Venkatachalam (GE India) and Rajesh Gupta (GE India) requesting the Indian team to send the draft of MOU along with complete comments, so that the same could be incorporated in the original MOU. This e-mail shows that the entire correspondence with the customer in India was being done by the Indian team head P. Riccardo. Page 120 of the same PB-II is an e-mail from R. Procacci (GE India) to Domenico (GE Overseas) with a copy to Vivek Venkatachalam (GE India) reading: `As agreed we will try to put together a simple business case in order to take the initiative forward to the ne....
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....ises in India alone and the same to that extent should be charged to tax accordingly. The above discussion leaves no room to doubt that in the instant case though business of GE Overseas was partly carried out in India but the core of sales activity was done from the AIFACS building, being the fixed place of business. The second requisite also, therefore, stands satisfied. 28.1. The third condition for constituting a fixed place PE, to the extent it is relevant for our purpose, is that the activities carried on from such fixed place should not be of preparatory or auxiliary character. If the activities done from such fixed place fall within the purview of 'preparatory or auxiliary', the fixed place sheds its character of a permanent establishment. The term `preparatory activity' is understood in common parlance as some job concerned with the preparation of the main task to be undertaken. It is pursued before the taking up of the actual activity. Black's Law Dictionary 7th Edition at page 130 defines the term 'auxiliary' to mean as 'aiding or supporting, subsidiary.' An activity becomes auxiliary if it is in support or aid of the core income generating activity. The Hon'ble juris....
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..... 28.3. Section 2(e) of Foreign Exchange Management (Establishment in India of Branch of Office or Other place of business) Regulations, 2000 defines `Liaison office' to mean a place of business to act as a channel of communication between the principal place of business or HO and entities in India, but which does not undertake any commercial/ trading/ industrial activity and maintains itself out of inward remittances received from abroad through normal banking channel. From the definition of Liaison office seen in juxtaposition to the above referred judgments, it becomes clear that acting as a communication channel is an activity of auxiliary character and hence does not constitute a PE in India. 28.4. Now, let us examine if the activities carried out in India by the GE overseas entities through GE India are of preparatory or auxiliary character. Main focus of the ld. AR was to establish that the activities done by GE India were of preparatory or auxiliary character. As per the application made to RBI and permission obtained, the LO of GEIOC was to act as a communication channel between the head office and the customers in India. Thus, there remains no doubt that the activit....
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.... market trends, key policy changes in the industry, etc. 28.8.1. For the second stage of `Bid/no bid and Proposal development', the ld. AR contended that the assessee stated during the course of the assessment proceedings that on receipt of communication from GE India regarding an identified viable business opportunity, GE Overseas analyses the same independently for deciding whether the same is worth pursuing. In case GE Overseas requires any inputs/clarifications/ additional information (as part of its decision making process), it may request GE India to provide the same. GE Overseas examines the opportunity in detail and thus arrives at an independent decision of whether to pursue the identified business opportunity or not. Entire technical and commercial evaluation of the opportunity at this stage is carried out by GE Overseas with inputs from its various functional personnel spanning operations, finance, marketing, etc. In the event, GE Overseas decides to pursue the identified business opportunity, it commences the proposal development process and intimates GE India in this regard. GE India (on receipt of such intimation and under the explicit instructions of GE Overseas) ....
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....ly amongst its various overseas functional heads/ approving authorities (operations, finance, legal, etc) so as to decide whether or not to go-ahead with the contract on the agreed terms and conditions with the customer. If the negotiated contract terms are approved and accepted both by GE Overseas and the end-customer, the contract documents are prepared and executed/signed by GE Overseas. Local inputs are obtained from GE India at this stage on a need basis. 28.9.2. Here again we find that the assessee's submissions are only partly true. Pages 101-103 of the Survey documents PB -II, as discussed above, evidence GE India finalizing MOU with the Indian customer, Pump Design Department of IOC, and advising accordingly to the GE Overseas. Then, there is a mail showing that the change was permitted in the terms of MOU by the Indian team, which was conveyed by GE India to the customer, with a copy to another member of GE India. GE India was negotiating terms with the Indian customers is also borne out from page 195 of Survey Documents PB-I as discussed above, whereby Indian customer was requesting GE India to revise the offer. Similarly, page 82 of Survey Documents PB-I, as discusse....
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....e mere fact that the contracts were formally signed outside India by GE Overseas does not in any manner undermine the doing of core activity of sales by GE India. It is so for the reason that GE India finds customers in India, understands their requirements, negotiates necessary terms and conditions with them, prepares or helps in preparing MOU and finalizes the deal with them. With the doing of all the above activities, when MOU is prepared in India and the Indian customer signs it first in India and then it is sent to GE overseas for signature, for all practical purposes, it will have to be concluded that core sales activity was undertaken by GE India alone. 28.12. Next leg of the submissions to bolster the argument of the preparatory or auxiliary services rendered by GE India was reference to the Roles and responsibilities of some of the expats and employees of GEIIPL etc. supplied by the assessee to Department pursuant to the judgment of the Hon'ble High Court. Based on such details, it was argued that GE India was simply assisting GE Overseas and their role was not more than that of a support staff to GE Overseas, who, in turn, was taking all the relevant decisions regardin....
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....at William was to act as a mere communication channel between the customers in India and GE Overseas. In contrast, when we see his `Job description' given under his own signature in the documents as discussed above, it transpires that he was to: "Organize local aviation team including commercial and military sales leaders; Conduct compliance risk assessments, audits and support training for aviation team members in India; Develop aviation growth strategy for India and obtain HQ support for same." In other words, he was responsible for all the activities of sales in India and only the requisite support was to be taken from HQ. There is an apparent contradiction between what William said in a document signed by him and the picture of his role which the assessee portrayed after the conclusion of assessment. It goes without saying that the primary document duly signed by William showing his job responsibilities will have precedence over what the assessee stated by way of Annexure after the termination of assessment. ii. Kumar Pratyush - Annexure 12 to the assessee's letter pursuant to the Hon'ble High Court's order explains his roles and responsibilities. It has been written that....
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....role and responsibilities of Ashfaq in the letter filed post assessment, on which the ld. AR has relied to canvass that the role played by GE India was only auxiliary and preparatory. iv. Pierson Kenneth - Annexure 19 to the assessee's letter pursuant to the Hon'ble High Court's order explains his role and responsibilities. It has been written, inter alia, that,: `Kenneth's profile was more of locating opportunity and providing marketing development strategies for the GE overseas entity.... Kenneth had no authority to take any decision with respect to the sale of product/parts in the signaling business. All prices and terms and conditions were negotiated and finalized only by the GE overseas entity. Kenneth being technical person did not have any authority to negotiate any terms of contracts in India.' Now let us have a look at his Assignment letter, which shows his position as `Sales & Marketing Manager' of GE Transportation. We fail to comprehend as to what a `Sales & Marketing Manager' will do without any authority to take any decision w.r.t. sale. Fallacy of the assessee's claim in the postassessment letter is established from the Self appraisal report of Kenneth, which s....
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....rcial negotiations were done by the commercial operation team sitting in Italy... Riccardo never took any decision or negotiated on behalf of the GE overseas entity. ... and he was merely acting as channel between the Commercial team and the Customers'. Here again, the assessee misled by stating wrong facts about the working of Ricardo in the post-assessment letter. His Assignment letter shows his position as `Oil & Gas, India Country Leader' of GE Energy. We have noticed from the survey documents above that Ricardo was not only negotiating and finalizing the terms and conditions with customers in India but also not allowing GE Overseas to alter any such terms without the consent of GE India. The assessee did not furnish his Appraisal report and Manager assessment despite a specific request by the AO till the completion of assessment. vi. Nalin Jain (GEIIPL) - Annexure 8 to the assessee's letter pursuant to the Hon'ble High Court's order explains his role and responsibilities. It has been written, inter alia, that,: `Nalin's role was to collect the market intelligence and initiate a dialog with the Indian customer to understand their requirements... His role was to pass o....
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.... details filed by the assessee along with the same letter about some other employees of GEIIPL who were engaged in the activities in India. Despite showing all of them as doing mainly the work of mediator, the assessee has also accepted involvement of some of them in core activities, which is as under : - i. Anand Mohan Awasthy - He is a Mechanical Engineer with Diploma in Finance and is an employees of GEIIPL working since Financial year 2000-01. His designation is `Service Manager'. Annexure 1 discusses his roles and responsibilities, being, `Responsible for aftermarket sales (spares) and services in respect of steam turbines and generators sold by various GE overseas entities in India'. ii. Anand Bansal- He is in Business Administration/Management and is an employees of GEIIPL working since Financial year 2002-03. His designation is `Sales Manger'. Annexure 2 discussing his roles and responsibilities provides through the second bullet point that :`As a part of his job, Anand's role was to formulate marketing strategy for wind energy related equipments in India, which involved, among other things, determining a marketing strategy that helps distinguish GE products from its ....
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....financial viability, and then arriving at the ultimate conclusion of the supplying and pricing. The only condition set out under the R Table process on the Indian employees working for GE overseas entities in India was that the approval was required to be sought from the GE overseas before sending the proposal to customers in India. The assessee has itself admitted through stage 2: Bid/no bid and Proposal development of the `Sales process' that: `In some instances, the proposal development is jointly run by the GE Overseas and GE India teams. However, even in such cases, decision making authority continues to remain only with GE Overseas.' vi. Sanjeev Kakkar - He did his masters in Mechanical Engineering. His designation is `Sales Director'. He is an employee of GEIIPL working since 2000. Annexure 10 discussing his roles and responsibilities provides through the sixth bullet point that:` As a part of his job, Sanjeev would understand the requirements of clients in terms of equipment required as well as financing required and thereafter, communicate these requirements to the overseas entities.' There is again a reference to R Table process and it has been mentioned that he will n....
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....s. Except for lip service that GE Overseas was doing core sale activity and GE Overseas doing only preparatory or auxiliary activities, the assessee did not place on record even an iota of evidence to prove its contention. If we minutely consider the nature of activities done by GE Overseas and GE India, it clearly surfaces that GE India was doing core marketing and sales activity and GE Overseas was doing only auxiliary activities, in aid and support of the activities of the marketing activities carried out by GE India. 28.18. Moreover, para 26 of the OECD Commentary discussing exemption under sub-para (e), being activities of preparatory or auxiliary nature, clearly provides that : `A fixed place of business which renders services not only to its enterprise but also directly to other enterprises, for example to other companies of a group to which the company owning the fixed place belongs, would not fall within the scope of subparagraph e)'. This part of the Commentary explaining `preparatory or auxiliary activities' makes it clear that if a fixed place of business is used for rendering services to more than one companies of a group, as is a case under consideration, then such....
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....the view of the Revenue that PE was constituted in such circumstances and business profits earned in India through this liaison office were taxable in India. 30. We find that the reliance of the ld. AR on DIT VS. E-Funds IT Solutions (2014) 364 ITR 256 (Del) is misconstrued. In that case, the tribunal held that the activities of e-funds India were not preparatory or auxiliary in character in terms of paragraph 3 of Article 5 and hence PE was created in India. The Hon'ble High Court did not concur with this view by holding that, first and foremost, Article 5(1)/(2) should be applicable but then if the activities fall within parameters of paragraph 3, PE is not created for imposing tax in the second state. It was further held that it did not follow that if activities are not covered in the negative or exclusions set out in paragraph 3, a PE is established or deemed to be established under paragraphs 1 or 2 of Article 5. We fail to comprehend as to how the position stated by the Hon'ble High Court is missing here. It has been discussed above that paras 1 and 2 of Article 5 apply and the activities done by GE Overseas are not covered by para 3(e) of Article 5 of the DTAA. 31. In ....
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....) echoed the view taken by the AO, against which the assessee is in appeal before us. 34. We have heard the rival submissions and perused the relevant material on record. Agency PE is subject matter of paras 4 and 5 of Article 5 of the DTAA. Relevant parts of para 4, read as under :- `4. Notwithstanding the provisions of paragraphs 1 and 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, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State if : (a) he has and habitually exercises in the first-mentioned State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercise through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) to (c) ......' 35. Para 4 begins with a non obstante clause keeping aside the provisions of paragraph 1 and 2. These two paragraphs, in turn, deals with fixed place PE to mean a fixed place in the n....
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.... of para 5 refers to agents of independent status who are acting in the ordinary course of their business. When this part is read with para 4, it transpires that if an `enterprise' of a contracting State carries on business in the other contracting State through the agents of independent status, it shall not be deemed to have a PE in the other contracting State. To put it simply, an enterprise of the USA shall not be deemed to have a PE in India if it carries on business in India through agents of independent status. Second part of para 5, which is absent in the OECD Model Convention, makes out an exception to the first part. Starting with the word `However', it states that when the activities of `such an agent' are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this para. 39. The ld. AR contended that the second part of para 5 of Article 5 of the DTAA envisages that the activities of an agent must be wholly or almost wholly on behalf of that enterprise. He submitted that the reference ....
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....terprise, but, for multiple enterprises dealing in one of the three major businesses of GE group. Reverting to part 2 of para 5 of Article 5, it is clear that the activities of agent should be 'devoted wholly or almost wholly on behalf of that enterprise.' The term 'that enterprise' refers to part 1 of para 5, being, an enterprise of a contracting State. The term 'enterprise of a contracting State' has been defined in Article 3(g) of the DTAA to mean: 'an enterprise carried on by a resident of a Contracting State.' On a conjoint reading of part 2 of para 5 of Article 5 and Article 3(g), it is ostensible that part 2 of para 5 refers to an agent looking after the activities of a single enterprise and not multiple enterprises. The ld. AR has relied on the decision of the Mumbai Tribunal in Varian India (P) Ltd. vs. Asstt. DIT (2013) 142 ITD 692 (Mum) in which it has been held that in order to be covered within this part of para 5, it is necessary that the activities of agent must be devoted wholly or almost wholly to one enterprise. 42. Now, we take up the contention of the ld. DR that since the transactions were not at ALP, or for that matter, the international transactions were n....
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....pendent status and, then, says that if the conditions are not satisfied, then, such an agent of independent status `shall not be considered an agent of independent status'. It is further clarified from the use of words 'such an agent' in the opening portion of part 2 of para 5, which relates back to an agent of independent status discussed in first part of para 5. The same analogy follows from last few words of part 2 of para 5 which read that he `shall not be considered an agent of independent status within the meaning of this paragraph.' Since the second part of the para 5 refers to 'such an agent' and 'an agent of independent status within the meaning of this paragraph', it, therefore, becomes utterly obvious that the exclusion enshrined in part 2 of para 5 is of an agent who is otherwise of an independent status. When we read both the parts of para 5, it follows that whereas the first part refers to an agent of an independent status, the second part carving exception to the first part makes it lucid that upon the fulfillment of the given conditions, such an agent of otherwise independent status shall not be considered an agent of independent status within para 5. To sum up, the....
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....ent of independent status to whom para 5 applies, encompasses not only an agent of independent status covered within second part of para 5, but also a dependent agent as such, who is otherwise not an independent agent acting in the ordinary course of his business. Thus, it is axiomatic the 'person' referred to in para 4 refers to an agent of dependent status as such and also an agent of an independent status who is covered in part 2 of para 5. Exception to the first part of para 5 created in part 2 is restricted only to `an agent of independent status', who is otherwise `acting in the ordinary course of his business', but for the time being, his activities are devoted wholly or almost wholly devoted to one enterprise. On the other hand, if there is an agent of dependent status per se whose activities are devoted to one or multiple related enterprises, he will be directly covered within the scope of para 4 of Article 5 of the DTAA. 46. Coming back to the facts of the present case, we find that the expats of GEII and employees of GEIIPL were appointed to act as agent of multiple GE overseas enterprises. It is nobody's case that they were otherwise acting as agents of independent s....
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....ves to examining the issue of agency PE on the touchstone of clause (a) only. 50. Clause (a) of para 4 of Article 5 of the DTAA provides that the agent: "has and habitually exercises in the first mentioned stage an authority to conclude contract on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph." A plain reading of sub-para (a) divulges that the agent will constitute PE if he habitually exercises 'an authority to conclude contracts on behalf of the enterprise' and his activities are, inter alia, not limited to preparatory or auxiliary activities which if carried through a fixed place would not make that fixed place a PE. The expression 'an authority to conclude contracts' has not been defined in the DTAA. Para 5 of Article 5 of OECD Model Convention also uses the similar expression, namely: 'an authority to conclude contracts.' Para 5 of OECD deals with the same subject matter as para 4 of the DTAA with the USA, namely, dependent agent PE. Paras 31-35 of the OECD commenta....
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....nform to this Model Convention as interpreted by the commentaries thereon and having regard to the reservations contained therein." It has further been provided that: ".... their tax authorities should follow these Commentaries, as modified from time to time and subject to their observations thereon, when applying and interpreting the provisions of their bilateral tax conventions that are based on the Model Convention." It is, therefore, comprehensible from para 3 that the OECD commentary is not universally applicable. If a member country of OECD has expressed reservations on any of its parts, then, the Commentary stands modified to that extent in so far as the interpretation of the Conventions of that member country is concerned. Para 30 of the Introduction to the OECD commentary further clarifies that: "Observations on the Commentaries have sometimes been inserted at the request of member countries that are unable to concur in the interpretation given in the Commentary on the Article concerned. These observations thus do not express any disagreement with the text of the Convention, but usefully indicate the way in which those countries will apply the provisions of the Article in ....
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....interpreting the DTAA. 52.3. Notwithstanding the foregoing para, we are not prepared to read each and every line of the OECD commentary as a part of the statute or the DTAA by the doctrine of incorporation. After all, it is only an interpretation of the OECD Model Convention. One should take cognizance of the view given in the Commentary on a holistic basis and not as emanating from individual and selective lines, which, at times, may turn out to be overlapping in nature. 52.4. This brings us back to the paras 32 and 33 of the OECD Commentary dealing with the expression 'authority to conclude contracts.' Para 32.1 states that: `Lack of active involvement by an enterprise in transactions may be indicative of a grant of authority to an agent. For example, an agent may be considered to possess actual authority to conclude contracts where he solicits and receives (but does not formally finalise) orders which are sent directly to a warehouse from which goods are delivered and where the foreign enterprise routinely approves the transactions." It is clear from the above para that lack of active involvement by an enterprise may be indicative of grant of authority to an agent. 'Lack o....
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....ace of business a permanent establishment ..'. This deciphers that the activities of the person leading to the `authority to conclude' a contract, so as to form an agency PE, should not be restricted to exemptions for the constitution of a fixed place PE, such as, preparatory or auxiliary etc. It means that the activities of such a person should be of core nature and not merely subsidiary to the main activities, which obviously rules out negotiating all elements and details of a contract. Reading clause (a) in totality gives a clear idea of constituting a PE when the activities of the person, other than an agent of independent status, are not of preparatory or auxiliary nature. It does not require doing of each and every aspect of the contract, howsoever minor. Our view gets fillip from the judgment of the Hon'ble Supreme Court of Italy in Phillip Morris (supra) in which it has been held that: "the participation of representatives or employees of a resident company in a phase of the conclusion of a contract between a foreign company and another resident entity may fall within the concept of authority to conclude contracts in the name of the foreign company, even in the absence of a....
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....ct are not negotiated from the fixed place in India, then no PE is constituted under Article 5(1) of the DTAA. Paras 1-4 of Article 5 of the OECD Model Convention deal with fixed place PE and its parallel in the USA - DTAA are paras 1-3 of Article 5. Para 5 and 6 of Article 5 of the OECD Model Convention deal with agency PE and their counterpart in the USA - DTAA are paras 4 and 5 of Article 5. Paras 31-35 of the Commentary deal with agency PE as per Article 5(5) of the OECD Model Convention. On the other hand, preparatory or auxiliary activities, etc., have been discussed in paras 23-30 of the OECD commentary. When para 33 of the OECD commentary represents discussion on agency PE, it is too much to argue that the same should be read for fixed place PE as well. One needs to understand the rationale behind making reference to para 4 in para 5 of Article 5 of the OECD. It has been done to indicate that the habitual exercise of an authority to conclude contract in the name of the enterprise shall constitute PE only if the activities of the agent are not limited to those mentioned in paragraphs 4 i.e., of preparatory and auxiliary character. Reference to para 4 of fixed place of busine....
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....rofit was held to be pertaining to marketing activities, the AO applied the same percentage to work out the income chargeable to tax in India. First appeal did not allow any relief. That is how, the assessee is aggrieved against such attribution of income. 56. We have heard the rival submissions and perused the relevant material on record. It is noticed that the exercise of attribution of income by the AO is in two parts, viz., calculation of total profit from the sales made by GE overseas entities in India, which, in the instant case, has been worked out at 10% and second, attribution of such profit to marketing activities, which the AO has taken at 35% of 10%. As regards the first component, being, the estimation of profit on the sales made in India, we find that the AO specifically required the assessee to furnish year-wise entity-wise profits of GE overseas entities for the operations carried out in India. Either such information was not given or a part of the information given did not help in deducing the correct amount of profit. In such circumstances, the AO was left with no alternative, but, to estimate income on some rational basis. He invoked the provisions of Rule 10(....
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....ia and GE overseas playing only a supporting role. In such circumstances, we cannot approve attribution of whole of 35% of the profits relating to sales and marketing to the PE in India. Considering all the relevant facts and adopting a holistic approach, we hold that GE India conducted core activities and the extent of activities by GE Overseas in making sales in India is roughly one fourth of the total marketing effort. Ergo, we estimate 26% of total profit in India as attributable to the operations carried out by the PE in India. Therefore, as against the AO applying 3.5% to the amount of sales made by the assessee in India, we direct to apply 2.6% on the total sales for working out the profits attributable to the PE in India. D. INTEREST U/S 234B 59. The ld. AR contended that interest u/s 234B has been wrongly charged from some of the GE overseas entities which are in appeal before the Tribunal in relation to the assessment years 20007-08 and 2008-09. The same was requested to be cancelled. To support his contention, the ld. AR relied on the judgment rendered by the Hon'ble Delhi High Court in one of the GE overseas entities which has since been reported as DIT (IT) vs. G....