TaxTMI 
TaxTMI 
2019 (7) TMI 859
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....ablishment' ("PE") in India. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 1:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 1:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to re-compute the Appellant's total income accordingly. Without prejudice to the foregoing 2:0 Re.: Attribution: 2:1 The Assessing Officer/the Dispute Resolution Panel has erred in holding that 50% of receipts are attributable to the alleged PE of the Appellant in India. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law pr....
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....PE') in India so as to attribute certain income which is taxable in India. 4. Briefly put, the relevant facts are that the appellant assessee is a company incorporated in the USA and is also a tax-resident of USA. It is engaged in the business of diamond grading and preparation of diamond dossiers. Assessee filed its Return of income for Assessment Year 2010-11 declaring a total income at Rs. 3,96,828/- on the plea that it was a tax resident of USA and entitled to be taxed in accordance with the provisions of India-USA Double Taxation Avoidance Agreement ("DTAA") to the extent they are more beneficial. The income so declared was on account of 'Instructor Fee' earned from GIA India Laboratory Private Limited (in short 'GIA India Lab'), which is a company incorporated in India. However, the Assessing Officer was not satisfied as according to him, GIA India Lab, to whom the diamond grading services has been rendered, constituted a permanent establishment (PE) of the assessee in India and to that extent, the assessee's receipts from the diamond grading services would be taxable in India. The Assessing Officer arrived at this conclusion on the ground that the assessee and GIA India L....
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....ndia. 6. Prior to the setting up of the subsidiary, the assessee contracted with a third party "consolidator" called "International Diamond Ltd." Under the consolidator arrangement, the consolidator coordinated the collection of diamonds from India, and the assessee graded the diamonds and issued grading reports. It was agreed between the parties to the consolidator arrangement that the cost to the consumers would be divided in the ratio of 90:10 (90 for the assessee and 10 for the consolidator). It was explained that this arrangement continues to exist even after formation of GIA India Lab. It has been emphasised before us and which also emerges from perusal of assessee's stand before the lower authorities that whenever GIA India Lab faces capacity and / or technical constraints, it sends stones for grading to other entities of the GIA Group across the globe, including the assessee before us. This is done in terms of a 'GIA Gem Grading Services Agreement' which has been entered into by the various entities of the Group including the assessee and GIA India Lab. For example, if GIA India Lab receives diamonds for grading of a quantity in excess of what it can handle or be....
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.... stand of the lower authorities which is to the effect that the Assessing Officer was correct in arriving at the conclusion that the assessee company had a PE in India and therefore, business income attributable to such PE is liable to be taxed in India. In support, he has relied on the decision of the Hon'ble Supreme Court in the case of Formula One World Championship Ltd (2017) 394 ITR 80 (SC). 9. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around as to whether or not the subsidiary of the assessee company i.e., GIA India Lab can be construed as its PE in India. The income-tax authorities have invoked section 9 of the Act and/or Article 5 of the India-US Treaty in order to say that the assessee company has a PE in India. On the contrary, as per the assessee, the impugned receipts are in the nature of business profits, and in the absence of any PE in India, the same are not taxable in India. Factually speaking, it is evident that the on perusal of the agreements, the transaction o....
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....viding support for carrying on core activities being performed by the taxpayer or associated transactions, cannot be the basis to construe the Indian subsidiary as PE of the foreign tax payer. Further, before the Hon'ble Delhi High Court, the Department had contended that the foreign company had a joint venture or partnership with Indian subsidiary as the businesses of the assessee company and the Indian subsidiary were inter-linked and closely connected (which is also contended in the case of the assessee before us) and therefore the Indian subsidiary was regarded as PE of foreign company in India. The aforesaid argument of the Revenue was repelled since the conditions under Article 5 of the DTAA were not met and it has been held that PE cannot be established merely because of transactions between associated enterprises or the principal sub-contracting or assigning the contract to the subsidiary. 11. Factually, in the case of the assessee company, there is no joint venture arrangement between the assessee company and GIA India Lab vis-à-vis gem grading services rendered by the assessee company to GIA India Lab since it is GIA India Lab who enters into agreement with ....
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....orking under control and supervision of e-fund India. In the facts of the instant case, since the said services are rendered outside India and none of the employees/ personnel of the assessee company has visited India and therefore, service PE is not triggered in the case of the assessee company. 13. In terms of Article 5(4) of the India - US/DTAA, an agency PE is created where a person-other than an agent of an independent status to whom paragraph 5 applies - is acting in India on behalf of an enterprise of the USA, that enterprise shall be deemed to have a permanent establishment in India, if: (a) he has and habitually exercises in India an authority to conclude 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; (b) he has no such authority but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of....
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....e company nor has it secured any orders for the assessee company in India. Thus, GIA India Lab cannot be regarded as 'agency PE' of the assessee company in India. 16. Before parting, we may also note the reference made by the Ld. Representative to the assessment concluded by the Assessing Officer for assessment year 2009-10. It was explained that during the assessment proceedings for assessment year 2009-10, a similar query i.e. why GIA India Lab should not be construed as PE of the assessee company in India was raised, but after considering the detailed response furnished by assessee vide reply letter dated 02 November 2012, no addition whatsoever was made, which is evident from the Assessment Order (AY 2009-10) dated 26 March 2013. Thus, in this background it was all the more incumbent upon the Revenue in this year to discharge its onus as to why a different stand is being adopted, especially in the face of the fact that the nature and source of income in question remains the same. Therefore, on this aspect also, we are not inclined to uphold the stand of the assessing authority. 17. Before parting, we may also refer to the reliance placed by the Ld. DR on the judgment in t....