AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1670
X X X X Extracts X X X X
X X X X Extracts X X X X
....s branch offices in Singapore in the name and style of M/s. Arrow Electronics India Limited which in turn had immediately opened a liaison office (LO) in Bangalore in 1994, obtaining approval of the RBI. Later on, this company opened branches of the LO at Hyderabad, Mumbai, New Delhi & Pune. However, the main operations and control remained with Bangalore office where 59 employees were working as against 16 employees in all other branches put together. The Singapore based company was exclusively set up to service the customers in India only and they constitute the entire customer base of the company. 03. Arrow Group started a fully owned subsidiary of M/s. Arrow Asia Pac limited in the name of M/s. Arrow Electronics India Private Limited in December 2002. However, till July 2003, no effective operation was carried out by the subsidiary. The LO itself was taking care of the operations till July 2003. Subsequently, it became in- operative. The sales of the Indian subsidiary are shown from July 2003, it continues till date and is reported to be filing its return from July 2003. A survey was conducted on 28.08.2006 on the liaison office premises in Bangalore where the office o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... branch had business connection in India and against the finding that the Singapore Company had a PE in India and determination of 40% of the total profits as attributable to the Indian operations etc, the assessee filed appeals before the CIT (A). The CIT (A) dismissed them for ays 2000-01& 2001-02. However, in the appeals related to ays 2002-03 to 2004-05, the CIT(A) gave part relief on the adjustments made by the TPO. Aggrieved, the assessee filed two appeals in I.T (TP). A Nos. 209 & 210/Bang/2011 for ays 2000-01& 2001-02 with similar grounds of appeal. One of the appeal grounds is extracted as under: 04. The assessee also filed similar additional grounds of appeals for ays 2000-01& 2001-02, one of the appeal grounds is extracted as under: Additional grounds of appeal no 2: The CIT (A) ought to have appreciated that on the facts and in the circumstances of the case, no interest was chargeable u/s.234B of the Act and consequently he ought to have directed the AO to delete the interest charged u/s.234B of the Act. Additional grounds no 3 : 1. The learned CIT (A) erred in confirming the assessment order u/s.143(3) r.w.s.147 of the Act dt.28.12.2007, which was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so involved in finding potential customers, price negotiations, concluding contracts, following up of payments etc., The AO finally concluded that the LO was virtually doing the business but was carefully avoiding the outcome of the act by ensuring the goods delivery by HO and receipt of payments was in Singapore. LO was surviving on remittances received from Singapore office and it was taking care of its expenses out of these remittances. This was essentially done in order to adhere to the stipulation of the RBI. The LO was not permitted to do any activity pertaining to industrial, commercial or trading in nature. Apart from that, any income arising from a business connection in India was liable to be charged to tax in India as per provisions of section 9(1)(1). The appellant wanted to avoid that also as also the provisions of 7 and Article 5 of India Singapore DTAA. The AO finally concluded that the appellant should have apportioned a portion of the profit to Singapore operation and the balance to Indian Operations since the LO could have been regarded as Indian permanent establishment. The AO did exactly that, which was not done by the appellant. AO held that there is no mathema....
X X X X Extracts X X X X
X X X X Extracts X X X X
....middlemen, determining its marketing and remuneration of sales personnel, undertaking warranties and other functions. In support of their arguments they have quoted judgment of the Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley and Company Inc. It is held that this judgment was applicable only to the facts of the relevant case and it has no application to the facts of the appellant's case and hence is not relevant. Incidentally this judgment was based on clarification issued by the CBDT in circular no.23 of 1969. Since the circular itself is now withdrawn, the facts of the case are no longer relevant to the appellant's case. The appellant has also argued that preparatory to the auxiliary activities, the Indian LO carried on certain activities and their case is covered under Article 5(7) of the tax treaty between India and Singapore. It is held that that the Indian LO was carrying on activities right from the year 1996 and it was not a preparatory activity and accordingly the appellant's argument does not survive. The restriction of the activities by the RBI is cited as one of the reasons to claim that they have-not conducted any business operations nor ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 07.02.2000 vide Circular No.712009 [F.No. 500/ 135/2007- FTD-l], dated 22.10.2009. Accordingly relying on the above circular has no significance as it is no longer operative. It is worthwhile to mention that the appellant themselves have filed returns in response to the notices u/s 148 by declaring income on the cost +6% basis. By filing the returns in response to the notices u/s 148 the appellant has categorically admitted that a portion of income was earned in India and was taxable in India. The only issue which remained to be decided was whether the quantification of profits of LO to HO was 40:60 or otherwise. Considering the appellant's submissions the AO was asked to submit the remand report and in turn the AO has submitted the remand report where-in he has reiterated whatever is stated in the assessment order. However, the AO has reiterated the fact that the appellant's themselves admitted to the activities of the .LO are taxable in India by showing income at cost + 6% basis. In view of the appellant's own admission by showing income attributable to the Indian operations, the appellant has indirectly accepted the Fact that they had business connection i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the conduct of the appellant as found out after the survey u/s 133A and the appellant's own admission of existence of partial income attributable to the Indian operations do not support the appellant's arguments that their case is not covered under Section 9 (1) (i) as also their argument about existence of PE in India. It is also further held that the AO has taken enormous pains in quantifying the percentage of profit attributable to Indian operations at 40% as depicted in page 16 and 17 of the assessment order. It is held that the AO was reasonable in considering sectoral weightage at 50:25:25 for functions performed, assets employed and risks involved. Further, it is held that AO was correct in taking only 10% towards assets and risks in the intra sectoral ratio pertaining to LO and the balance 90% to the HO. Even in the functions performed, the 8 broad parameters as discussed in page 16 of the assessment order practically cover every aspect of functions performed and relative weightage allocation is also held to be proper and the final quantification of 565 to LO and 235 to HO on a scale of 800 is held to be perfectly justified and accordingly quantification of 7....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Aggrieved by the finding that the Singapore branch had business connection in India and against the finding that the Singapore Company had a PE in India and determination of 40% of the total profits as attributable to the Indian operations and against the determination of adjustment u/s 92CA for these years etc, the assessee filed appeals before the CIT(A). The CIT (A) gave a part relief on the adjustments made by the TPO . Aggrieved, the Revenue filed three appeals I.T (TP).A Nos.617 to 619/Bang/2011for assessment years 2002-03, 2003-04 & 2004-05 with similar grounds of appeal. One of the appeal grounds is extracted as under: 09. The assessee filed three cross -objections Nos.31 to33/Bang/2011 on I.T (TP). A Nos.617 to 619/Bang/2011 for assessment years 2002-03, 2003-04 & 2004-05 with simila r grounds of appeal. One of the cross -objection's grounds is extracted as under: 10. The assessee also filed similar additional grounds of appeals for ays 2002-03 to 2004-05, one of the additional grounds is extracted as under: Additional grounds of appeal no 2: The CIT (A) ought to have appreciated that on the facts and in the circumstances of the case, no interest was chargeable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atio which was 3.09 times, 3.48 times and 1.85 times higher as compared to the AO. This is because of the fact, that the TPO has not considered applying the determined percentages attributable to the LO which was held by the department itself at 40%. of the global sales. Besides that, it was stated that by not giving working capital adjustment of 2.75%, 2.81% and 1.92%, the TPO has arrived at a much higher figure as compared to what the AO under identical circumstances has computed. The appellant has also relied on the following judgments in support of the working capital adjustment: (a) Philips Software Centre Pvt. Ltd Vs. ACT (119 TTJ 721) (b) Sony India Pvt. Ltd Vs. CIT (315 ITR 150) (C)Egain Communications Pvt. Ltd (Delhi Tribunal in ITA No.1885/PM/2007). (d) Mentor Graphics P. Ltd., [109 ITD 101] [2007] [Delhi] After considering the appellant's arguments on these issues only two issues have to be determined. (i) Whether the determined margin of ALP for three years are to be applied on the total turnover or on the turnover of the LO which is determined to be 40% of the total turnover. (ii) Whether the appellant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs. 30,42,98,005/-) and the ALP is to be taken at Rs. 52,82,613/- for AY 04-05. Though this figure is slightly lower than the income determined by the AO, in view of the AO's non allowance of Singapore expenses the profit was determined at Rs. 92,04,320/- though in the other two years AO has allowed the same." 11. We heard the rival submissions and gone through relevant material, From the above, it is clear that the CIT (A, consistent with the departmental stand for a ys 2000-01 & 01-02 which is also confirmed by the CIT (A) as also in view of the AO's protective assessment wherein he has taken 40 : 60 to the LO :HO, held that the percentage of ALP as determined by the TPO should have been applied only on 40% of the total sales and the ALP should have been determined accordingly. When there is no uniformity in adoption of the PLR rate as determined by the CMIE, it is not possible to allow working capital adjustment as requested by the appellant though the appellant is right in asking for certain percentage of working capital a dj u s t m e n t . Considering the fact that the AO has independently determined the profit attributable to the LO, corresponding to this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bstantial business for and on behalf of the company to justify the apportionment of income of the company in the manner as done by the assessing authority and accordingly the income as determined by the assessing authority ought to have been deleted and the income as declared by the appellant ought to have been accepted and allowed. The learned Commissioner (A) ought to have appreciated that the company being a non-resident, the provisions of DTAA applies and accordingly no income other than what was declared by the LO accrued in India for taxation. 5. The learned Commissioner (A) erred in holding that the LO was the permanent establishment of the appellant company. 6. Assuming that the LO was deemed to be a permanent establishment, there being no income other than the income declared accrued to the appellant company through LO, the impugned enhancement of income was opposed to law and the impugned addition is accordingly liable to be deleted. 7. Without prejudice the additions are excessive, arbitrary and unreasonable and ought to be deleted in full. Document 2 The appellant respectfully submits that the additional grou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iew that the assessee was a mere service provider and thus bifurcated the sales on a hypothetical basis when there was no formal division of profits between the assessee and the AE. Document 6Traceback (most recent call last): File "C:\inetpub\vhosts\taxmanagementindia.com\httpdocs\python_image_text_project\google\direct_extract_text.py", line 19, in from google_doc_api import process_single_document File "C:\inetpub\vhosts\taxmanagementindia.com\httpdocs\python_image_text_project\google\google_doc_api.py", line 345 elif mime_type in ["image/gif"]: IndentationError: expected an indented block after 'if' statement on line 341 Document 7 The appellant respectfully submits that the additional ground of appeal enclosed to this memo was omitted to be raised when the appeal for the relevant assessment year was filed before the Hon'ble ITAT, Bangalore. This ground does not involve any investigation on the facts otherwise than found on the records of the department and is a pure question of law and goes into the very root of the matter. Hence, it is prayed that additional ground may be admitted for advancement of substantial case of justice ha....