TaxTMI 
TaxTMI 
2017 (4) TMI 391
X X X X Extracts X X X X
X X X X Extracts X X X X
....Appeals) erred in law as well as in facts in holding that the appellant's branch office in India ('India BO') constitutes a permanent establishment ('PE') in India in terms of article 5 of the India-US Double Taxation Avoidance Agreement ('US DTAA'). 3. The hon'ble Commissioner of Income-tax (Appeals) erred in law as well as in facts in holding that the fee for software maintenance of Rs. 52,92,089 received by the appellant during the year constitutes fee for included services ('FIS') in terms of article 12 of the US Double Taxation Avoidance Agreement. 4. Without prejudice to ground 2, the hon'ble Commissioner of Income-tax (Appeals) erred in not accepting the appellant's submission that there is no necessity for further attribution of income to the India BO, since the India BO has been compensated at the arm's length. 5. The hon'ble Commissioner of Income-tax (Appeals) erred in law by not adjudicating on the appellant's plea that even the income of Rs. 1,14,00,547, though offered in the return of income as FIS, is not taxable since it is not FIS in terms of article 12 of the US Double Taxation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iable to be taxed as business profits under the head "Income from business" since the aforesaid branch office constituted permanent establishment of the assessee-company. In addition to that, the income from FIS of the assessee as well as the income from marketing activities of the branch were also held as taxable as part of business profits of the assessee-company in India. 7. Being aggrieved, the assessee filed appeal before the Commissioner of Income-tax (Appeals) and made detailed submissions to challenge the assessment order on various fronts. The learned Commissioner of Income- tax (Appeals) allowed a part relief by accepting some of the grounds and rejecting the remaining. The learned Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer in treating the branch office as permanent establishment and also confirmed the action of the Assessing Officer in holding that if fee for software maintenance of Rs. 52,92,089 received by the assessee during the year constituted fee for included services (FIS) in terms of article 12 of the Double Taxation Avoidance Agreement and also confirmed the addition of Rs. 1,14,00,547 which was offered by the assessee als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....observations lack precision. The relevant part of the observations of the learned Commissioner of Income-tax (Appeals) are reproduced hereunder for ready reference : ". . . The Interwoven Inc. (India) is required to maintain adequate and complete sales organisation to market, promote assist in delivery of Interwoven's products in the territory. As per scope of services contained in clause B of annexure A, Interwoven Inc. (India) is required to distribute software of the Interwoven and maintain, professional and training services offered by Interwoven in connection with that software. As per clause (2) of the terms and conditions, the contractor will maintain as representative set of products principally for demonstration purposes, a stock of merchandise belonging to Interwoven or otherwise make any commitments whatsoever on behalf of Interwoven, as agent or otherwise. Clause (c) of paragraph 2 provides that contractor will use its best efforts to support Interwoven's efforts to market and solicit orders for the products within the territory. The contractor will conduct its activities under this agreement in a lawful manner, in accordance with the highest standards ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The BO was not to have any authority to conclude contracts in the name of the HO. All orders received by the BO were forwarded to HO immediately upon receipt by the BO. All such orders were subject to acceptance or rejection by the HO for any reason whatsoever at the HO's sole discretion. The BO was also not permitted to make any representations or warranties without prior written approval of the HO. The BO could also be required to maintain a stock only for demonstration purposes. The HO would directly ship products to customers, with support from the BO where required. It was reiterated that all contracts relating to software licences and services were concluded by the HO directly with the customers and none of the sales were routed/concluded through/by the BO. The consideration for the software and services were received outside India and none of those receipts were reflected in the bank account of the BO. 12. Further, during the financial year 2005-06 relevant to the assessment year 2006-07, the BO had three employees with a view to demonstrate the limited activity profile of the BO, appointment letters issued to the employees of the BO were also filed by learned couns....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed counsel that the facts involved in the case before us are identical with a view to draw parity between the facts of the said case and the facts of the case before us, the following factual analysis was made before us by the learned counsel. 15. It was submitted that the Indian branch office of the assessee-company was engaged in marketing, promoting and assisting and delivery of products of the assessee-company in India and extending its sales and marketing programmes and components in India. The following features in the activity profile of the assessee-company and its branch office were brought to our notice : "(i) BO is not a party to any legal contract with the customer; the head officer enters into such contracts; (ii) BO does not take title or own or have risk of loss as to the software products, at any point of time; (iii) Head office, and not BO, invoices the customer; (iv) BO does not receive funds from customers (the payments are being made by the Indian customers directly to the bank account of Interwoven, US); (v) BO does not remit funds to the head office on behalf of the customers; (vi) The right to use the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... re [2009] 181 Taxman 94 (AAR) and by the Mumbai Income-tax Appellate Tribunal in Deputy DIT (International Taxation) v. Staubli A. G. India Branch Office [2010] 40 SOT 14 (Mumbai) (URO). 19. It was submitted that the assessee does not have a permanent establishment in India under the agency permanent establishment of the assessee in India since mere provision of marketing services or making fee collection from customers and forwarding would not result in concluding contracts or securing orders nor assistance in sale of products in India without any authority to negotiate terms of sales or conclude a contract on behalf of principal. 20. It was emphasised that the BO was engaged in pre-sales marketing support services, and these activities cannot be regarded as concluding contracts or securing orders for or on behalf of the head office. Reliance was placed on principles emerging from the judgments of eBay International AG v. Asst. DIT [2012] 25 taxmann.com 500 (Mumbai); Lubrizol Corporation USA v. Asst. DIT (International Taxation) [2013] 33 taxmann.com 424 (Mumbai-Trib); and Deputy DIT (International Taxation) v. Daimler Chrysler A. G. [2010] 133 TTJ (Mumbai) 766. 21. It w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gone through the entire spectrum of the facts made available before us. It is noted by us that there are apparent contradictions in the facts narrated by the learned counsel before us and as has been noted by learned Commissioner of Income-tax (Appeals) to arrive at the conclusions drawn by him. On the one hand, the learned Commissioner of Income-tax (Appeals) is saying that while the branch office will maintain stock, but the assessee states that the branch office was required to maintain stock of goods only for demonstration purposes and was not permitted to make any commitments on behalf of the head office. Similarly, there are various other contradictions which have been tabulated in the earlier part of our order. In addition to that various features as have been brought out before us, the activity profile of the branch office has not been examined by either of the lower authorities. As has been observed by us in the earlier part of our order that the Assessing Officer has not done any factual analysis at all and the learned Commissioner of Income-tax (Appeals) has done a brief factual analysis but that was full of mistakes or lacks clarity and precision. Under these circumstan....