2018 (8) TMI 852

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....t year 2014-15. 2. The grounds of appeal read as under: Based on the facts and circumstances available of the case and in law, Dominos Pizza International Franchising Inc. (hereinafter referred to as 'Appellant') craves leave to prefer an appeal against the final assessment order dated 31 August 2017 passed by the Deputy Commissioner of Income-tax (International Taxation) - Circle 2(1 )(2) (hereinafter referred to as 'Learned Assessing Officer') under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('Act') on the following grounds. On the facts and in the circumstances of the case and in law, the Learned Assessing Officer/ Dispute Resolution Panel ('DRP') has erred i....

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....Further, DPIFI had provided certain services to Jubilant for store opening. Jubilant pays store opening fees to DPIFI for these services. These services, inter-alia, include completing necessary paperwork, providing advice on store designs, layout, providing marketing and training assistance. DPIFI does not have any other income chargeable to tax in India for AY 2014-15. DPIFI had filed its return of income for AY 2014-15 on 27 September 2014 declaring a total income of Rs. 55, 43, 11, 705 (Franchise fee amounting to Rs. 50, 86, 06, 761 and store opening fee amounting to Rs. 4, 57, 04, 944) earned from Jubilant. Such income was offered to tax at the rate of 15 percent on gross basis as per Article 12 of the India-USA Double Tax Avoidance Ag....

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....b-franchisees but the assessee is entitled to only royalty and store opening fees from sub-franchisees also. Approval of the sub-franchisee agreement is only for the limited purpose of protecting assessee's brand image and business interests. Considering the fact that the master franchisee is an independent business enterprise and restrictions placed on it by the assessee are only to safeguard its brand value and ensure proper receipt of royalty income, we are of the opinion that jubilant does not constitute a permanent establishment or agency PE of the assessee. Consequently, action of the AO in treating royalty income as profit and gains of business under section 44 DA of the IT Act is set aside" 5. However, the Dispute Resolution ....

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....ther than activities prescribed in the agreement. Further, the quality of material and equipment used has to be approved by the assessee. The expenses on advertisement and marketing are also carried out in accordance with the provision of agreement. For expansion of the market or penetration has to be followed with the condition of MFA. Princes are also decided by assessee and not by Jubilant or sub-franchise. On the basis of above observation, the Assessing Officer concluded that Jubilant does not have ITA No.1447/M/16- M/s Dominos Pizza International Franchising Inc economic independence and its modus-operandi is not on principal to principal basis. Therefore, Jubilant is dependent agent for the purpose of determining a PE. The Assessing ....

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....ee. From the sub-franchise, the assessee is entitled only royalty and store opening fees. We have also perused Article-5 of India-USA DTAA and found that none of the condition prescribed under clause-(a) to clause- (l) of Article-5.2 are attracted. The Assessing Officer has relied upon Article- 5.4 of India-USA DTAA. However, we have noted that the assessee has no authority to maintain in the first mentioned state its stock or goods or merchandise from which he regularly deliver goods or merchandise on behalf of the assessee. No activities are carried out by the by Jubilant on behalf of the assessee. In our view, none of the clause either (a), (b) or (c) of Article-5.4 are applicable on the assessee. Therefore, considering the contents of t....