TaxTMI 
TaxTMI 
2019 (9) TMI 232
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.... Act, 1961 (hereinafter referred to as 'the Act'). Grounds of appeal of various years are reproduced hereunder to appreciate that the issues are common. 2. The assessee has raised the following grounds of appeal in ITA No. 4559/Del/2018 for the Assessment Year 2004-05:- "1. That on the facts and in the circumstances of the case and in law, the orders passed by the Assessing Officer (AO)/Dispute Resolution Panel (DRP) to the extent prejudicial to the interest of the appellant, are bad in law and void ab- initio. 2. That the AO/DRP erred in upholding the validity of the reassessment proceedings under Section 147 of the Act when initiation of proceedings did not satisfy necessary requisites contained in Section 147 of the Act and there being no reason to believe that any income chargeable to tax had escaped assessment. 2.1 That the AO/DRP erred in upholding the validity of the reassessment proceedings under Section 147 of the Act even though all the transaction between LGIL and Assessee were held to be at arm's length by the Ld. Transfer Pricing Officer ('TPO') and thus there could not be any 'escapement of income' 2.2 That the AO/DRP has erred i....
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....ion to have been allegedly performed by the expatriates in the PE was the import of raw material/ finished goods and parts which function was already captured in the Transfer Pricing Assessment of the Indian subsidiary and hence there arose no occasion to allocate any further profits to such PE. 6. Without prejudice to the above grounds, in absence of a PE of the Appellant in India, or any activity carried out in India the AO/DRP grossly erred in attributing profits to India. 7. That on the facts and in the circumstances of the case, the orders passed by the Assessing Officer (AO) /Dispute Resolution Panel (DRP) are perverse and is based on surmises and conjectures. 8. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under sections 234B and 234C of the Act without appreciating that the Appellant is a non-resident and tax is deductible from the income of the Appellant. 9. That the AO/DRP has grossly erred in law and facts in levying interest under section 234A of the Act. 10. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under section 234D of the Act without apprec....
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....reme Court in S. Qadar Khan & Sons (254 CTR 228) 3.2 That the AO/DRP erred in not appreciating the fact that the expatriate employees of LGIL were working for and furthering the business of LGIL and not that of the Appellant. 3.3 That the AO/DRP completely failed to appreciate that in terms of Article 5(7) of the Double Tax Avoidance Agreement between India and Korea ('DTAA') control of holding company over subsidiary does not in itself create a Permanent Establishment of the non-resident. 3.4 That the AO/DRP erred in law in selectively relying on the statement of expatriate employees and failed to appreciate the true intention of the statements which evidenced that the expatriates were working only for LGIL in India. 4. That the AO/ DRP has erred in not appreciating the fact that in terms of Article 10 of the DTAA, shifting of any profits arising to a non-resident is prohibited if the transactions between the two enterprises have met the arm's length test. In the present case all the transactions between the Appellant and LGIL have been subjected to transfer pricing proceedings and have been found to be at arm's length. 5. Without preju....
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....gs did not satisfy necessary requisites contained in Section 147 of the Act and there being no reason to believe that any income chargeable to tax had escaped assessment. 2.1 That the AO/DRP erred in upholding the validity of the reassessment proceedings under Section 147 of the Act even though all the transaction between LGIL and Assessee were held to be at arm's length by the Ld. Transfer Pricing Officer ('TPO') and thus there could not be any 'escapement of income' 2.2 That the AO/DRP has erred in initiating reassessment proceedings against the Appellant solely on the basis of statements of expatriate employees of LGIL recorded at the time of survey which were not even relevant for the assessment year under consideration. 2.3 That the AO/DRP has erred in sustaining the initiation of reassessment proceedings under section 147 of the Act in the absence of any live link or nexus between the 'information' and the formation of the belief that income chargeable to tax had escaped assessment. Without prejudice 3. That the AO/DRP erred in concluding that the Appellant had a Permanent Establishment ("PE") under Article 5 of the India - Korea D....
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.... a non- resident and tax is deductible from the income of the Appellant. 8. That the AO/DRP has grossly erred in law and facts in levying interest under section 234A of the Act. 9. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under section 234D of the Act without appreciating that no refund was granted to the Appellant. 10. That the AO/DRP has grossly erred in law and facts in initiating the penalty under section 271(1)(c) of the Act and alleging that the Appellant has concealed the true and correct particulars of its taxable income and furnished inaccurate particulars of its income." 5. The assessee has raised the following grounds of appeal in ITA No. 1946/Del/2017 for the Assessment Year 2007-08:- "1. That on the facts and in the circumstances of the case and in law, the orders passed by the Assessing Officer (AO) /Dispute Resolution Panel (DRP) to the extent prejudicial to the interest of the appellant are bad in law and void ab- initio. On Reassessment 2 That the AO erred in initiating reassessment proceedings and the DRP erred in confirming the same without the satisfaction of the....
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....rohibits the conclusion of a PE merely because of control of one company over and another. 3.4 That the AO / DRP erred in selectively relying on, the statements of the expatriate employees of the Indian subsidiary to demonstrate control of the Appellant over the Indian subsidiary. 3.5 That the AO/ DRP has erred in recording that the Appellant had conceded the existence of PE in India. 3.6 That the AO/DRP erred in making assessment on the assumption that there existed a PE of the Appellant in India solely relying on the statements of expatriate employees of LG Electronics India Private Ltd. ( hereinafter referred to as "LGIL") which were inadmissible evidence in terms of the settled position of law. 3.7 That the AO/DRP erred in coming to the conclusion that expatriate employees working in LGIL were working on behalf of the Appellant, ignoring the fact that the expatriate employees were employees of LGIL working under direct supervision and control of LGIL. 3.8 That without prejudice, the conclusions of the AO / DRP are patently erroneous given that all the transactions between the two companies were uninfluenced by their relationship, and....
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.... of its taxable income and furnished inaccurate particulars of its income. 13. That the AO/ DRP has grossly erred in law and facts in initiating the penalty under section 271AA, 271 BA and 271G of the Act." 6. The assessee has raised the following grounds of appeal in ITA No. 6916/Del/2017 for the Assessment Year 2008-09:- 1. That on the facts and in the circumstances of the case and in law, the orders passed by the Assessing Officer (AO) /Dispute Resolution Panel (DRP) to the extent prejudicial to the interest of the appellant are bad in law and void abinitio. On Reassessment 2.1 That the AO erred in initiating reassessment proceedings and the DRP erred in confirming the same without the satisfaction of the necessary requisites for taking such action in terms of Section 147 of the Act. 2.1 That the AO / DRP erred in not appreciating that for initiating reassessment proceedings there has to be a valid "reason to believe" that any income chargeable to tax has escaped assessment. 2.2 That without prejudice at best the formation of belief by the Assessing Officer is a borrowed belief relying on the survey findings without any in....
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....rred in making assessment on the assumption that there existed a PE of the Appellant in India solely relying on the statements of expatriate employees of LG Electronics India Private Ltd. (hereinafter referred to as "LGIL") which were inadmissible evidence in terms of the settled position of law. 3.7 That the AO/DRP erred in coming to the conclusion that expatriate employees working in LGIL were working on behalf of the Appellant, ignoring the fact that the expatriate employees were employees of LGIL working under direct supervision and control of LGIL. 3.8 That without prejudice the conclusions of the AO / DRP which patently erroneous given that all transactions between the two companies were uninfluenced by their relationship and had met the Arm's Length Price test in terms of Transfer Pricing Assessments made on both the companies. 3.9 That without prejudice the AO / DRP also erred in ignoring the provision of Article 10 of the DTAA which neutralizes the tax position in respect of the non-resident assessee, once the transactions between the two related parties has met the Arm's Length Price. 4. That without prejudice the AO / DRP also miserabl....
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....ection 147 of the Act when initiation of proceedings did not satisfy necessary requisites contained in Section 147 of the Act and there being no reason to believe that any income chargeable to tax had escaped assessment. 2.1 That the AO/DRP erred in upholding the validity of the reassessment proceedings under Section 147 of the Act even though all the transaction between LGIL and Assessee were held to be at arm's length by the Ld. Transfer Pricing Officer ('TPO') and thus there could not be any 'escapement of income' 2.2 That the AO/DRP has erred in initiating reassessment proceedings against the Appellant solely on the basis of statements of expatriate employees of LGIL recorded at the time of survey which were not even relevant for the assessment year under consideration. 2.3 That the AO/DRP has erred in sustaining the initiation of reassessment proceedings under section 147 of the Act in the absence of any live link or nexus between the 'information' and the formation of the belief that income chargeable to tax had escaped assessment. Without prejudice 3. That the AO/DRP erred in concluding that the Appellant had a Permanent Establish....
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....s, in absence of a PE of the Appellant in India, or any activity carried out in India the AO/DRP grossly erred in attributing profits to India. 8. That on the facts and in the circumstances of the case, the orders passed by the Assessing Officer (AO) Dispute Resolution Panel (DRP) are perverse and is based on surmises and conjectures. 9. That the AO, DRP has grossly erred in law and facts in directing the levy of interest under sections 234A. 234B and 234C of the Act without appreciating that the Appellant is a non-resident and tax is deductible from the income of the Appellant. 10. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under section 234D of the Act without appreciating that no refund was granted to the Appellant. 11. That the AO DRP has grossly erred in law and facts in initiating the penalty under section 271(l)(c) of the Act and alleging that the Appellant has concealed the true and correct particulars of its taxable income and furnished inaccurate particulars of its income." 8. The assessee has raised the following grounds of appeal in ITA No. 5021/Del/2018 for the Assessment Year 2010-11:- ....
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....voidance Agreement between India and Korea('DTAA') control of holding company over subsidiary does not in itself create a Permanent Establishment of the non-resident. 3.4 That the AO/DRP erred in law in selectively relying on the statement of expatriate employees and failed to appreciate the true intention of the statements which evidenced that the expatriates were working only for LGIL in India. 4. That the AO/ DRP has erred in not appreciating the fact those in terms of Article 10 of the DTAA. shifting of any profits arising to a non-resident is prohibited if the transactions between the two enterprises have met the arm's length test. In the present case all the transactions between the Appellant and LGIL have been subjected to transfer pricing proceedings and have been found to be at arm's length. 5. That without prejudice the AO/DRP also miserably failed to appreciate that the function to have been performed by the expatriates in the PE was the import of raw material/ finished goods and parts which function was already captured in the Transfer Pricing Assessment of the Indian Subsidiary and hence there arose no occasion to allocate any further profits....
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....ing themselves to be influenced for the conclusion relating to existence of a PE merely on account of the alleged control of the Appellant over the Indian subsidiary. 2.3 That the AO/ DRP completely failed to take note of Article 5(7) of the DTAA which prohibits the conclusion of a PE merely because of control of one company over and another. 2.4 That the AO/ DRP erred in placing relying on, selectively, the statements of the expatriate employees of the Indian subsidiary to demonstrate control of the Appellant over the Indian subsidiary. 2.5 That the AO/DRP erred in making assessment on the assumption that there existed a PE of the Appellant in India solely relying on the statements of expatriate employees of LG Electronics India Private Ltd. (hereinafter referred to as "LGIL") which were inadmissible evidence in terms of the settled position of law. 2.6 That the AO/ DRP has erred in relying on the statements of the expat employees recorded during financial year 2010-11 in coming to the conclusion that the Appellant has PE in India for the year under consideration.. 2.7 That the AO/DRP erred in coming to the conclusion that expatriate em....
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....n Panel (DRP) are perverse and are based on surmises and conjectures. 6. That the AO/DRP has grossly erred in law in levying interest under sections 234B/C of the Act without appreciating that the Appellant is a non-resident and in terms of section 209 there arose no liability of the Assessee to pay advance tax being "deductible". 7. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under section 234A of the Act. 8. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under section 234D of the Act without appreciating that no refund was granted to the Appellant. 9. That the AO/DRP has grossly erred in law and facts in initiating the penalty under section 271(1)(c) of the Act and alleging that the Appellant has concealed the true and correct particulars of its taxable income and furnished inaccurate particulars of its income." 10. The assessee has raised the following grounds of appeal in ITA No. 5022/Del/2018 for the Assessment Year 2014-15:- "1. That on the facts and in the circumstances of the case and in law, the orders passed by the Assessing Officer (AO)/Dispute R....
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....ung Electronics Co. Ltd. Vs. DCIT [2018] 92 taxmann.com 171 (Delhi - Trib.). 3. That without prejudice to the above the conclusions of the AO / DRP are patently erroneous given that all transactions between the two companies were uninfluenced by their relationship and had met the Arm's Length Price test in terms of Transfer Pricing Assessment. 4. That without prejudice the AO / DRP also erred in ignoring the provision of Article 10 of the DTAA which neutralizes the tax position in respect of the non-resident assessee, once the transactions between the two related parties has met the Arm's Length Price. 4.1 That the issue of existence of permanent establishment has become academic in view of the law laid down by the Hon'ble Supreme Court in Honda Motor Company Japan vide its order dated 14.03.2018 in Civil Appeal No.(s). 2833 of 2018. 4.2 That without prejudice the AO / DRP also miserably failed to appreciate that the function to have been allegedly performed by the expatriates in the PE was the import of raw material and parts which function was already captured in the Transfer Pricing Assessment and hence there arose no occasion to allocate any ....
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....cal services receipts. The Appellant did not file any return for the relevant period, as according to assessee no portion of its income arose in India on account of off-shore supplies and since tax had already been deducted on other payments. In AY 2007-08, the Appellant had entered into the following transactions with its Indian subsidiary/ Associated Enterprise ('AE'), i.e., LG India: S. No. Nature of transaction Amount (INR) 1. Sale of raw material and consumables 4,54,89,84,783 2. Sale of finished goods 3,74,47,63,325 3. Sale of capital goods 2,43,22,114 4. Sale of software 8,41,70,000 5. Royalty 109,29,84,000 6. Sales commission 11,11,67,130 7. Design Development Fees 38,96,50,581 8. Education and Training expenses 24,42,283 9. Sample and Testing 4,14,444 10. Repair charges 1,947,621 11. Cost Sharing - ICC Sponsorship 25,73,14,212 12. Reimbursement of expenses 9,13,800 Total 1025,73,29,518 12. The above mentioned transactions were also reported by LG India in its transfer pricing study and were referred to the transfer pricing officer (hereinafter refer....
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.... the alleged PE. The details of the additions as proposed by the AO are tabulated as under: Particulars Amount (Rs.) Export of raw material and consumables 454,89,84,783 Export of finished goods 374,47,63,325 Export of capital goods 2,43,22,114 Sales Commission 11,11,67,130 Sale of parts (sample and testing) 1,22,137 Total 8,42,93,59,489 Applying NP ratio @ 3.87% 32,62,16,212 Attribution of Income @ 25% 8,15,54,053 14. The Appellant filed objections against the draft assessment order before the DRP on 29.04.2016 (Page 103). On 05.12.2016 the Appellant furnished letter submitting without prejudice that though the Appellant did not concede the existence of fixed place PE, income attributable to the alleged PE be determined at 10% (profit margin) of 50% of salary cost of expatriates. The DRP treated the said letter as a concession and recorded a finding that the Appellant had conceded the existence of a Fixed Place Permanent Establishment. Thus, DRP came to the conclusion that income of the PE could be ascertained by imputing costs in terms of salary paid to the employees of the AE and applying a reasonable mark-up on such costs....
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....le Tax Avoidance Agreement ("DTAA"). In coming to the aforesaid conclusion, the assessing officer has held that LG Electronics India Ltd. ("LGEIL"), the Indian subsidiary, was legal and economically dependent on the Appellant and that the Appellant exercised total control over the Indian subsidiary inasmuch as, i.e., (i) Technology is provided to the Indian subsidiary by the Appellant under the Technology Assistance and Royalty Agreement; (ii) The purchase of raw material, finished goods and other consumables from the parent company and its AEs is without any price negotiation and without any search of non-resident vendors by LGEIL; (iii) The key positions in the Indian subsidiary are staffed by expatriates seconded by the Appellant; (iv) Such expatriates are controlling positions where critical decision making is involved and supervising the affairs of the Indian subsidiary and looking after the interest of the Appellant; (v) Several short term expatriates have been repeatedly visiting India for business purposes, i.e., to promote the business of the Appellant company. In view of the above, the assessing officer concluded that ....
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.... business activity through the place of business. This is referred to as the 'business activity' test. However, an exception is carved out in Article 5(4)(f) excluding preparatory and auxiliary activities. The 'core business' of the foreign enterprise should be conducted through the place of business. Thus, there should be a nexus between the place of business and carrying on of business. In order that the foreign enterprise resident of a Contracting State can be said to have a fixed place PE in the other Contracting State, it is essential to demonstrate that the foreign enterprise has a fixed place available at its disposal in the other Contracting State, which is used for purposes of business of that foreign enterprise in that other contracting State. He submitted that in order that the foreign enterprise resident of a Contracting State can be said to have a fixed place PE in the other Contracting State, it is essential to demonstrate that the foreign enterprise has a fixed place available at its disposal in the other Contracting State, which is used for purposes of business of that foreign enterprise n that other contracting State. He further referred to several judicial precede....
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.... In terms of the provisions of the Companies Act, 1956, the directors appointed on the Board of the company stand in a fiduciary relationship vis-à-vis the company in which they hold directorship and owe a fiduciary duty to such company. In case of conflict of interest between the company of which they are director and the company which has nominated such person as director on the former company, such director owe a sense of duty to the company of which he is a director and is expected to take a position in the interest of the company of which he is a director. He referred to the decision of Honourable Supreme Court in the case of Vodafone International Holdings BV vs. UOI and Another : [2012] 341 ITR 1 placed at pgs 65-204 of case law paper book Vol. I ( pgs. 101/102/109-110/114- 115/150-152) made the pertinent observations with regard to the status and independence of the legal entities under holding company - subsidiary structures that. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent est....
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....ion, such a subsidiary company constitutes an independent legal entity. Even the fact that the trade or business carried on by that subsidiary company is managed by the parent company does not constitute the subsidiary company a permanent establishment of the parent company" 25. He further placed reliance on AAR ruling in the case of TVM Ltd (237 ITR 230) and the decision of the Hon'ble Mumbai Tribunal in the case of Daimler Chrysler AG (133 TTJ 766) wherein it was held that an Indian company controlled by a foreign company, being the parent company, cannot be held to constitute PE merely on this account. He further referred to the decision of the Hon'ble Delhi High Court in the case of DIT vs. E Funds IT Solution (364 ITR 256) (affirmed by the Supreme Court), wherein it was observed that a subsidiary of a foreign company is an independent legal entity that does not constitute PE in India, unless the contrary is proved. The Hon'ble High Court placed reliance on various commentaries including Para 7 of the OECD Commentary to Article 5, to observe that the following factors would not be relevant in determining PE of the foreign company in India: • Close connection bet....
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....so undertakes independent valuation of the various alternative sources of supply; c) LGEIL determines periodic sales and production forecast; d) Thus LGEIL independently decides what to purchase and how to purchase and at what cost; vii. The board of directors of LGEIL independently takes all important business decisions relating to the business of LGEIL, viii. The reports sent by LGEIL to the Appellant are reports sent to the shareholders; ix. Advice sought by LGEIL from the Appellant is in terms of Technology License Agreement. 27. Coming to the issue of Expatriate employees he submitted that Indian subsidiary is the legal and economic employers of those expat employees. He submitted that based on the requirement / vacancy in LGEIL organizational hierarchy, the HR department of LGEIL floats a request to the Appellant for recruitment of a person suitable to the said job requirement. In case, the suitable candidate is available within the global pool, the Appellant may sound such potential candidate for placement / secondment to LGEIL. The recruitment of such candidate to fill in the position in LGEIL is pursuant to mutual consultatio....
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....lhi High Court and reported as DIT vs. HCL Infosystems Ltd. : [2005] 274 ITR 26. b) The Bangalore bench of the Tribunal in the case of IDS Software Solutions (India) (P) Ltd. v. ITO (International Taxation) : [2009] 122 TTJ 410 on similar facts held that the managing director nominated by the US Corporation was an employee of the Indian company and, therefore, reimbursement of his salary by the Indian company to the US Corporation did not constitute "fees for technical services". c) The Supreme Court in the case of Carborandum Co. vs. CIT : [1977] 108 ITR 336(SC) held that foreign technical personnel whose services were made available to the Indian company outside India and who were employed by the Indian company on the basis of the agreement between the foreign company and the Indian company and were under the latter's control were employees of the Indian company. d) The Hon'ble Supreme Court in the case of CIT vs. Eli Lilly and Co. (India) Pvt. Ltd. [2009] 312 ITR 225 held that part of the salaries received in Netherlands by the expatriate employees seconded to India were for services rendered in India and, therefore liable, to tax in India. The App....
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.... ii. Paul Mathews and Sons v. CIT : 263 ITR 101 (Ker) iii. CIT vs. Dhingra Metal Works : 328 ITR 384 (Del) iv. CIT vs. Subhash Chand : ITA No. 875/2010 (Del) v. CIT vs. Sunil Aggarwal : 379 ITR 367 (Del) vi. ITO vs. Vijay Kumar Kesar : 327 ITR 497 (Chattisgarh) vii. TDI Marketing (P.) Ltd. vs. ACIT : (2009) 28 SOT 215 (Del) viii. Ashok Manilal Thakkar vs. ACIT : 279 ITR 143 (AT)(Ahd) ix. Meeta Gulgutia : 395 ITR 526 (Del) - para 40/41 He submitted that such statements, therefore, needs to be ignored from consideration. 29. Even otherwise he submitted that analysis of the statements hereunder would show that the inference drawn by the assessing officer that the expatriate employees seconded by the Appellant continued to be employees of the Appellant company during the period of their secondment to LGEIL and that such employees carried on business of the Appellant is factually not sustainable. He referred to various statements of expat and other employees to show that all business decision are independently taken by G India, what is the recruitment process of expats, reporting to Korea is just to support ....
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....LGEIL or to the head quarter in Korea or both?" A. "I report to Director (Mfg) in India. For the import I discuss directly with the concerned suppliers." "Qn. Please explain the procedure of procurement of material in LGEIL in detail?" A. "I concerned only with raw material so not aware of finished goods. After receiving parts, development request I decide vendor as well as price and the process for affiliate companies is same as for other vendors." • Statement of Mr. Mong Nam Jung, (Page 705) "Qn. Do you obtain any suggestion regarding R & D matters from your head qr. Korea or any other associated concern?" A. "No we decide our R & D matters." • Statement of Mr. Beom Seok Kang, (Page 708) "Qn. Whom do you report for manufacturing progress carried out at LGEIL or to the head quarter in Korea or both?" A. "I report to Director (Mfg.) in India. I do not report to Head quarter in Korea." Qn: "Please explain the procedure of manufacturing work in LGEIL in detail?" A. "Based on sales forecast for the month, production planning team gives plan quantity to production team." â....
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.... A. "Generally we import the items where the local substitutes or technology is not available like semi conductor, panels, air conditioner compressor or where the cost competitiveness or quality standard are not as per the LG specification or requirement" II. Recruitment process of Expats • Statement of Mr. Jae Hyun Lee, (Page 701) "Question: In LGEIL, to whom you are reporting?" "Answer: I am reporting to Director (Manufacturing) Mr. H.D. Rew of LGEIL., Noida" "Question: How you were LGEIL whether it a transfer, reallocation, re-employment?" "Answer: I visited India in November 2009 on the call of Mr. H.D. Rew and he interviewed me and asked me to join LGEIL to improve the productivity of Air conditioner as I am an AC expert • Statement of Mr. Umesh Kumar Dhal, (Page 709 - 710) "Qn. Please explain the procedure of employment in LG Electronics India for both Indians as well as expatriates?" A. "Manpower plan for every year is finalized in consultation with functional head and Managing Director. The skills required is assessed based upon that the requirement whether Indian employees or Koreans....
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....er of position from Korea to India which was informed to me by the HR department of LG Korea. Normally the term of deputation/transfer for foreign service expatriate is four years which can be extended or reduced in discussion with the MD of LG Electronics India and global CEO through global HR department of LG Korea. After the completion of tenure in India, the next position is also decided by global CEO who informs us through the corporate HR department of Korea Ans: In my case no interview was taken by LG Electronics India. Generally in the case of FSEs when the MD comes for some meetings in Korea he may meet informally to the candidate coming to India. The LG Electronics India HR also did not interview me. To sum up in the case of FSEs the MD of LG India discusses with corporate HR of Korea and shortlisted candidate is informed by corporate HR about their postings to India" III Post completion of tenure in LG India • Statement of Mr. H.C. Moon, (Page 676) "Q. When you are going to complete your tenure of posting in India? Whether after completing your term in India in this company, do you plan to move out of India or would try to....
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....t Appellant had no office / place of management in India so to constitute fixed place PE in India. Furthermore, even if it be assumed that there was such fixed place available to the Appellant (which is strongly disputed), it has not been shown by the Revenue that such alleged fixed place was available at the disposal of the Appellant. It is the submission of the Appellant that even if such fixed place is presumed (despite the objections of the Appellant) such fixed place was not used to carry on any business of the Appellant in India, much less core business of the Appellant. For the aforesaid reasons Appellant cannot be said to have a fixed place PE in India so as to subject the Appellant to tax in India with respect to business profits. He further relied up coordinate bench decision in case of Samsung Electronics Co. Ltd. vs. DCIT : [2018] 64 ITR (Trib) 99 The aforesaid decision rendered by the co-ordinate bench of the Tribunal on identical facts is, therefore, a binding precedent and needs to be followed. 33. On the issue of attribution of profit , he submitted that even otherwise there can be no attribution to the alleged PE for the following reasons: i. The Appell....
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.... Supreme Court • Rolls Royce Plc (339 ITR 147) [Delhi High Court] • Rolls Royce Singapore (347 ITR 192) [Delhi High Court] • Hyundai Rotem Company (ITA No. 3300 to 3302/DEL/2009) [Delhi ITAT] • Galileo International (114 TTJ 289) [Delhi ITAT] • Ranbaxy Laboratories Limited (114 TTJ 1) [Delhi ITAT] iii. To support his above contention, Ld AR referred to observation of the OECD in Model Tax Convention on Income and on Capital (2014 version) on paragraph 2 to Article 7 as well, which is reproduced as under: "16. The basic approach incorporated in the paragraph for the purposes of determining what are the profits that are attributable to the permanent establishment is therefore to require the determination of the profits under the fiction that the permanent establishment is a separate enterprise and that such an enterprise is independent from the rest of the enterprise of which it is a part as well as from any other person. The second part of that fiction corresponds to the arm's length principle which is also applicable, under the provisions of Article 9, for the purpose of adjusting the profits of asso....
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....arch 1997, as per which both entered into a mutual foreign collaboration agreement. Thereafter a Technical assistance and royalty agreement was entered into between these two entities on 1-7-2001 by which LGI, in the capacity of a licensee, obtained a right to use the technical information, designs, drawings and industrial property rights for the manufacture, marketing, sale and services of the agreed products from the LGK i.e. the licensor." 37. However, this basic document defining the relationship between the assessee and LGEIL was never produced. Accordingly, and in view of several instances of such non-cooperation (as will be highlighted later), this submission of the Revenue is based upon the details furnished by the assessee before the lower authorities and the evidences collected during the course of Survey. The assessee has contended on the basis of various decisions and case laws statements recorded during the course of survey are not admissible as evidences. In this regard, it is submitted that a majority of statements relied upon by the AO are recorded on oath u/s 131 of the Act. The following table depicts the details of statements taken and relied upon by revenue- ....
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....rt has been reversed.......It was further made clear that 'the authorities will decide the matter uninfluenced by any of the observations made in the impugned judgment.' The material fact to be noted is that the Hon'ble Supreme Court did not vacate the principles laid down by the Hon'ble High Court on merits, but simply held that in the absence of factual position concerning that case in writ petition, the authorities under the Act were to decide the proceedings independent of such principles. In so far as the legal principles articulated by the Hon'ble High Court.......are concerned, these stand as such. If these are not affirmed by the Hon'ble Supreme Court, the same cannot be equally considered as overruled as well....." 40. He otherwise stated that three is severe non compliance by the assessee during the course of assessment proceedings in providing the details. He submitted that there s no information forthcoming from the assessee on the issue of existence of PE. He referred that such instances where queries have been raised and replies are either vague, or evasive. He referred to Details called for in respect of Seconded Employees& employees who ha....
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....rofile, period of stay and nature of services rendered. Reply dt. 21.03.16- As desired, the details of expatriate employees visiting India on long term basis is enclosed in Annexure-3 (p.547). In this regard, we wish to submit that these expatriates were employed by LG India and were not working under the direction, supervision and control of the assessee during the deputation period. - 22. Please furnish the above details of the employees of your associated enterprises.(Not furnished) - 23. Please give the names and address of the employees, residents and non-residents who were working for each project. Also give the duration of their stay at each project site. Reply dt. 21.03.16- The above details are not applicable as the assessee has not executed any project in India. (p.525) - 43. Please furnish the Appointment Agreement and the terms and conditions for secondment of expatriates in India. (Not furnished) - 44. Please furnish the copies of the following agreements-(Not furnished) i. Subsisting employment agreement between the expatriate and the foreign company ii. Secondment agreement between the expatriate....
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.... • H.D.Rew-(PB-II,p-693-698) i. I visited several countries...sometime I visit to procure material, sometimes for R&D work. I visited Korea in connection with services meeting with HQ people.(p.695) ii. I am reporting to MD Mr. M.B.Shin of LGEIL &some part to HQ, Korea. There is no clear classification. For LGEIL, I am reporting to MD and whenever I want some support, I report to HQ, Korea. To enhance the manufacturing capability and for technical know-how and manufacturing performance, I report to Korea. Parallel-ly, I am reporting this also to MD, LGEIL as he is overall in-charge of the company.... In some case I directly report to HQ where I need to get support such as technical support.(p.696-697) • Jay Hyun Lee- (PB-II, p-701) i. I visited India in November 2009 on the call of Mr. H.D.Rew and he interviewed me and asked me to join LGEIL to improve the productivity of AC as I am AC expert. • Mong Nam Jung- (PB-II,p-701-706) i. Since my joining, I have gone abroad (Korea)approx. 6-7 times....we decide our R&D matters (during such visits)... I decide (plan to visit HQ) on my own and I request Korea for time ....
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....p companies. 42. He therefore submitted that In the light of the submission of the assessee that there is no written contract/agreement between SGEK & SGEIL governing the terms and conditions of employment of the seconded employees to LGEIL, the entire process of employment of expat personnel with LGEIL can be summed up on the basis of the statements given by the expats themselves as under- LGEIL intimates its need for expat employees to LGEK LGEK selects the expat employee to be deputed to LGEIL LGEK informs LGEIL the salary to be paid to the expat (cannot be less than the salary earlier drawn) The position of the expat in his/her new employment remains unchanged (cannot be posted to a lower post) Interview by the LGEIL is not mandatory The expat need not resign from his earlier post (it is a 'transfer of position from Korea to India') Letter communicating the transfer and posting with LGEIL may be issued by LGEK The expat's promotion to a senior position is decided by LGEK The next posting after completion of the 'tenure' of the expat in LGEIL is decided by LGEK. Expats may report directly to LGEK or seek assistance from LGEK or visit LGE....
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....survey of Indian market which is done by experts of Korea and experts from India c. Based on the survey result, Korea decides whether the existing technology will work or some changes are required d. Development agreement is made between India and Korea accordingly. e. LGEIL coordinates with LGEK to define such product development process. f. Product development is a 4 step process- i. Making of Prototype ii. Product Verification iii. Quality Verification iv. Mass Production g. The first two steps are done in Korea and at the time of product verification, LGEK makes bill of material and charges it to LGEIL. • The Indian company is controlled by all the three verticals (CEO, Regional HQs & COO) The MD of the Indian Co reports to the heads of all the presidents i.e. Heads of Mobiles, Home Ent & also to RHQ. (PB-II,p.692) • Manufacturing Excellence, Global Best Practices, Training etc. supported by 'Product Company'(LGEK)(PB-II,p.662) • Some expenses are borne by 'Product Company'(PB-II,p.662) b) Marketing- • Other divisions i.e. HR, Sales, Mark....
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....onditions of secondment of employees either during assessment proceedings or before DRP. However, the fact that LGEK reimburses a part of other expenses like 'Rent', 'Depreciation', 'Power, fuel & electricity' leads sufficient credence to the existing and alive business presence of LGEK in India in general and within the premises of LGEIL in particular. To that extent, it also leads to the satisfaction of the 'Disposal' and 'Business' tests relating to presence of PE under Art-5(1) of the DTAA. 47. On the issue of Legal and Economic Dependence & Influence of LGEK on LGEIL, he submitted that this issue also came up before Hon'ble Special Bench in the case of LGEIL. The observations of Hon'ble ITAT in this regard are reproduced as under- Repercussions of parent AE's influence "11.1. The ld. DR contended that- - The foreign AE exercises complete control and influence over the economic behavior of the assessee because of it being hundred percent subsidiary. - ...... all the arguments advanced by the ld. AR to the effect that it is solely for the assessee to decide on the question of incurring of AMP expenses, are based on the presumption of se....
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....the Govt. of India's approval for payment of such royalty payment. It was stated that from this Article it was evident that the amount of royalty to be paid by LGI to LGK for use of its brand name falls in the exclusive domain of LGK. The assessee has no role at all to play in such decision, except following the dictate of LGK. - The sum and substance of his contention was that since LGK exercises complete control over the economic decisions of LGI, the separate legal character of the assessee should be overlooked notwithstanding the fact that LGI is a legally separate entity. 11.3. We are convinced with the submissions advanced on behalf of the assessee in this regard but only to the extent of not ignoring the legal character of the Indian AE simply because of the close relationship between the two enterprises. If we proceed with the presumption that since the foreign enterprise has influence over the economic behavior of the assessee and hence the separate legal character of the Indian enterprise should be overlooked, then it would mean that the such separate legal character of the assessee will be lost not for one transaction but for all practical purposes.....
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.... evidence to indicate that either the BOS was not a strategy inter alia for advertising and marketing on a global level or the assessee did not adopt it. 12.4 LG Electronics Singapore Pte Ltd's (LGESL) marketing division is responsible for developing a range of marketing and sale strategy. Marketing functions are provided by LGESL to LGEA for establishing consistent and effective marketing and promotion strategies in the respective countries........In answer to question about the building of brand "LG in India and how LGK controls this brand in India, he replied that "They give us set of guidelines on how to depict the brand in various places like advertising, shops etc". In response to the next question about the names of the expatriates employed in the marketing department and their role and responsibilities, he gave the name of Mr. Gilbert Ahn, Vice President Marketing, by stating his role to coordinate marketing inputs between India and Korea for smooth implementation. He also named four persons with the names Mr. D.S. Shin (Appliances) ; Mr. Joy Seo (TV); Mr. M.J. Jeon (AC.); Mr. G.B. Kim (DAV); and Mr. Jaesung Choi (GSM mobiles) as assisting in the strategy and c....
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....re is an informal or an oral understanding, the existence of such agreement cannot be specifically found out because of it being not express. However, such an informal or oral agreement, which is latent, can be inferred from the attending facts and circumstances to make it patent. Such inference can be drawn from the conduct of the parties. It follows that a 'transaction' can be both express as well as oral. So long as there exists some sort of understanding between two AEs on particular point, the same shall have to be considered as a transaction, whether or not it has been reduced to writing. 9.12. The ld. AR has vehemently argued that when the assessee incurred AMP expenses for its business purpose and recorded them as such, the Revenue went wrong in re-characterizing this transaction by splitting it into two parts, viz., one towards advertisement expenses for the assessee's business and second towards the brand-building for the foreign AE. He fortified this contention by relying on the judgment of EKL Appliances Ltd. (supra). There is absolutely no doubt that para 17 of the judgment unambiguously lays down that the tax administration should not disregard th....
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....onal manner' would do, tied with the fact of the assessee also simultaneously advertising the brand of its foreign AE." 48. On the issue of PE he submitted that question of the existence of PE under Art-5(1) & Office PE under Art-5(2) may be viewed from the above perspective of non-compliance by the assessee, statements of the employees, facts disclosed by the Indian AE and the existing decisions of Hon'ble Tribunal in the case of LGEIL. He submitted that It is well established that historically, the employees of the assessee have been visiting and present at the premises of LGEIL year after year and it was obligated to provide them with a "geographically fixed space"(both for the purpose of office/ business/ bureaucratic work as well as for residence) as well as other perquisites associated with it. The fact that the MD of LGEIL and other expats are employees of LGEK and have a place at their disposal at the premises of LGEIL proves that such places can form a permanent and fixed place at the disposal of LGEK in India. In view of the above, the claim of the assessee that there was no fixed place at its "disposal" deserves to be rejected since the assessee was always having ....
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....te PE are: a place of business may thus be constituted by a pitch in a market place, or by a certain permanently used area in a customs depot (e.g. for the storage of dutiable goods). Again the place of business may be situated in the business facilities of another enterprise. This may be the case for instance where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise. At the same time, it is also clarified that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise." (Emphasis supplied) 50. He submitted that Hon'ble SC further explained that the term "Place" should be understood and interpreted in the context as well as through the lens of the object and purpose of Art-5 of OECD/UN MC rather than as per characterization from a purely legal (both common & civil) perspective. This is a reiteration of what Hon'ble SC had observed in the case of Azadi Bachao Andolan. In that case it was held that - "130. The principles adopted in interpretation of treaties are not the same as those in interpretation of a statutory legislatio....
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....ion of "Place", (FOWC; Para-37 "The OECD view can hardly be reconciled with the two court cases.") it went on to analyze the concept of "Disposal". It highlighted the differences of opinions/approach in the method of interpretation of the concept as adopted by OECD - a Liberal Subsidiary Approach (i.e. PE should be treated like subsidiaries) as against a more Stricter and legalistic approach by the Canadian and Indian Courts as well as the differences in the approach by the Indian Courts itself (i.e. Ericsson and another competing enterprise). The Hon'ble SC went on to build on and expand the concept as explained by Vogel i.e. "intensity of control" over the 'place' as the deciding factor for 'at the disposal' issue. It was recognized that this 'intensity of control' varies from activity to activity and depends upon the 'business activity' carried on by the enterprise from such place. As per Vogel "The degree of control depends on the type of business activity that the taxpayer carries on. It is therefore not necessary that the taxpayer is able to exclude others from entering or using POB."This approach and methodology was confirmed by Hon'ble SC when it held - "In all, th....
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....just the activities and presence at certain place over a sufficiently long period will be the decisive factor to create a PE. This expansion is further strengthened by another example provided, where a company engaged in paving a Road will constitute a PE. Following the OECD commentary, the words "through which" must be given broad interpretation in order to cover all business activities which are carried on at a particular location that is "at the disposal" of the enterprise for the purpose of performing such activities. The painter example does not offer any reference regarding the permission of the painter to enter a building, thus lacking of sufficient control over his assumed place of business. In that context it seems, that the mere performance of the business activity may constitute a PE according to the commentary, as long as an enterprise is exercising its business activity for a sufficiently long period of time. (P.244)" 53. He stated that above observations show that the power to effectively control a location and the permanence of the business activities are interconnected issues. If an enterprise is able to exert a significant level of control over the plac....
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....s, such an access for a period up to six weeks at a time during the F-1 Championship season was sufficient for the purposes of Article 5(1) of DTAA. Further, as the tenure of RPC was five years, it meant that such an access for the period in question was of repetitive nature." The Hon'ble Supreme Court once again reiterated the above by observing that "68 (iii)......The appellants are trying to trivialize the issue by harping on the fact that duration of the event was three days and, therefore, control, if at all, would be for that period only." The Hon'ble Supreme Court accordingly proceeded to affirm the decision of Hon'ble High Court by observing as under- "70) We are also of the opinion that the High Court has rightly concluded that having regard to the duration of the event, which was for limited days, and for the entire duration FOWC had full access through its personnel, number of days for which the access was there would not make any difference. This aspect is discussed by the High Court in the following manner, and rightly so: "52. It is evident that for the duration of the event as well as two weeks prior to it and a week succeeding it, FOWC han....
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....elative having regard to the nature of the business, it is hereby held that the circuit itself constituted a fixed place of business. 71) A stand at a trade fair, occupied regularly for three weeks a year, through which an enterprise obtained contracts for a significant part of its annual sales, was held to constitute a PE. Likewise, a temporary restaurant operated in a mirror tent at a Dutch flower show for a period of seven months was held to constitute a PE. 72) The High Court has also referred to some of the judgments, which are of relevance. We would like to take note of those judgments as we had agreed with the conclusions of the High Court on this issue: In Universal Furniture Ind. AB v. Government of Norway25, a Swedish company sold furniture abroad that was assembled in Sweden. It hired an individual tax resident of Norway to look after its sales in Norway, including sales to a Swedish company, which used to compensate him for use of a phone and other facilities. Later, the company discontinued such payments and increased his salary. The Norwegian tax authorities said that the Swedish company had its place of business in Norway. The Norwegian court agreed....
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.... provided for in article 3(1)(h) of the OECD Model. This Hon'ble Tribunal in the case of Qualcomm Incorporated (I.T.A. Nos.: 3701 and 3702/Del/2009, 5343/Del/2010 and 4608/Del/11) held that the term "Business" has a wider connotation and must be understood in that context. In that case, the Hon'ble Tribunal had held that "No doubt, manufacturing is an important part of business but the business per se is little more than manufacturing." Furthermore, as per the amended commentary of UN Model to Art-5 as reproduced by Hon'ble High Court in the case of eFunds IT Solution and others, "....the carrying on of the business of the enterprise through this fixed place of business. This means usually those persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the state in which the fixed place is situated." In the light of above, the question that needs to be answered is "whether the business of the enterprise is wholly or partly being carried on from such fixed place". It is the contention of the assessee that the premises of LGEIL and more particularly the place at the disposal of the expat employees of LGEK are EXCLUSIVELY....
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....ave a subsidiary. We in LG India are introduced to this Menu Card, and offered a choice to select from these products(ONLY). Here we take our pick of the products based on the market dynamics and Indian customer preferences... About selection of product - our choice is limited to the offering made as per the Menu Card and cannot choose any other besides that.- A.M. Kootiyat, AGM (PB-II,p.716) This further highlights the fact that it is LGEK which takes all decisions on the products to be offered and LGEIL can only make a choice from such offers by LGEK. • Manufacturing Process starts from the fact that global technology are available in Korea and they want to bring it to India. The second step is survey of Indian market which is done by experts of Korea and experts from India. Based on the survey result, Korea decides whether the existing technology will work or some changes are required Development agreement is made between India and Korea accordingly. LGEIL coordinates with LGEK to define such product development process. Product development is a 4 step process and the first two steps are done in Korea and at the time of product verification, LGEK makes bill of mater....
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....iness expenses are also reimbursed. He further submitted that the reimbursement of total cost did not include all these expenditure which are also not reported by the assessee is an international transactions. He further submitted that there is maintenance of inventory at the facilities. He further stated that 2nd and employees are carrying on the assessee's business in India. He further stated that the control over production process product development and research et cetera are also by of the assessee. He stated that control over sales, marketing policies and processes also of the assessee. Over and above the visiting employees are also supporting the other functions like markets et cetera. He stated that visiting senior personals also monitor performance and direct interaction with the customers. On top of it is stated that after sales and warranty services are also provided by the assessee. He therefore submitted that which segment of the business of the assessee is not carried out in India is a question. He therefore submitted that there is no doubt that the business of the assessee is carried out from the fixed place of business are available to the assessee in the form of i....
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....petitions are, accordingly, dismissed as withdrawn with liberty to the petitioner to pursue its statutory remedies. 9. It is also made clear that the Appellate Authority will examine the matter uninfluenced by any observation/ finding of the high court regarding the existence of a permanent establishment of the petitioner in India" In that view of the matter, the finding of the Hon'ble Allahabad High Court (while disposing of the Writ Petition) that the Appellant had PE in India had to be considered as non-est in terms of the apex Court direction to take independent decision in the matter regarding existence of PE of the Appellant in India, de hors the observations made by the Allahabad High Court. Furthermore, the reliance placed by the CIT DR on para 8.9 of the decision of the Special Bench in the case of LG Electronics (supra) is clearly misplaced. The aforesaid observation by the majority in the Special Bench decision been reversed by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. Commissioner of Income Tax [2015] 374 ITR 118 (Del) para 156 at page 1072 of paper book 3, Maruti Suzuki India Limited vs. CIT [2016] 3....
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....that merely because the Appellant has not been able to give details of the visit of short term expatriates, in absence of any documentation being maintained, it is sought to be inferred that the short term expatriates have a fixed place available in India and are visiting India for furtherance of the Appellant's business so as to constitute fixed place PE in India. He submitted that the short term expatriates visit India for technical support to be provided in terms of the technical license agreement, for visiting customers in India for products imported and sold in India, for undertaking market survey for new products and for shareholder activities. Thus In the aforesaid background, it is the respectful submission of the Appellant that non-furnishing of information regarding visits of short term ex-patriates should not be viewed adversely. 67. On the functional independence of the Indian subsidiary he submitted that with regard to recruitment of expatriate employees, the process and functions relating to manufacturing, marketing etc., the CIT DR had contended that such functions of LGEIL are controlled by the Appellant. It is submitted by the CIT DR that the Appellant was activ....
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.... to the conclusion that the Indian Company was carrying on the business as an independent enterprise; as an independent manufacture, the assessee bore all the risks associated with its products in India and abroad; the assessee planned and executed its own manufacturing strategy as considered necessary and appropriate; the stipulation in the license agreement that the technology would be used for sale of goods in designated jurisdiction or specified territory was not an unusual requirement. On that basis, the Delhi High Court ultimately concluded that the question of recharacterizing the Indian company as a contract manufacturer was unwarranted. Having regard to the aforesaid submissions, it is respectfully submitted that the assessing officer erred in concluding that - (1) the assessee had a fixed place PE in India; and (2) in attributing profit to the alleged PE as percentage of the salary paid to the expatriate employees employed by LGEIL. He submitted that order of the assessing officer therefore calls for being reversed. With regard to the marketing functions, the CIT DR had sought to infer the functional dependence of LGEIL on the Appellant, which i....
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.... LGEIL had rendered service to the Appellant (for which a mark-up was to be received), in the submissions of the CIT DR the expenses incurred by LGEIL is for maintenance of a fixed place on behalf of the Appellant. The aforesaid will expose the fallacy in the arguments raised by the CIT DR for the first time before the Hon'ble Tribunal. In that view of the matter, there is no merit in the submissions of the CIT DR that reimbursement of expenses, inter-alia towards rent, depreciation, and power and fuel point out to existence of fixed place PE in India. 69. On the issue of reliance on the decision of special bench of ITAT in assessee's own case, he submitted that The CIT DR has referred to the observations in the majority decision of the Special Bench in the case of LG Electronics to the effect that the advertising strategy of LGEIL was dictated and controlled by the Appellant. It is respectfully submitted that reliance placed by the CIT DR on the aforesaid observations contained in paras 9.9, 9.12, 11.1, 11.3, 11.4, 12.3 and 12.4 of the majority decision is completely misplaced. The Special Bench decision (majority view) held that LGEIL was rendering service of brand promotion t....
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....e should be available to carry on its own business (emphasis supplied). As stated earlier, even if it is presumed that the Appellant had a fixed place in India, no business of the Appellant was being carried out through such fixed place. That apart, the Delhi High Court in the case of E-funds (supra) in paras 30 and 50 thereof referred to the core business of the foreign enterprise being carried out through the PE in the other Contracting State, to constitute fixed place PE in that other State. The CIT DR was therefore not correct in observing that there is no reference to core business in the DTAA. 72. On the attribution of Profit, he submitted that ld CIT DR has not disputed that the title to the goods exported by the Appellant passed outside India but sought to contend that since the process of importing goods (by LGEIL), started in India and follow up was done in India, attribution of profits to the alleged PE in relation to the sales made by the Appellant to LGEIL was required. In rebuttal he submitted that , the goods exported by the Appellant to LGEIL are against purchase orders placed by LGEIL. The manufacturing of goods takes place outside India and the title of the goo....
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....r form as under :- Comparative chart showcasing similarity in Statements recorded during survey S.No. Samsung Electronics Co. Ltd. LG Electronics Inc., Korea 1. Statement of Sh. Kyoung Soo Kim s/o Shri Jong Suk Kim A. Please identify yourself? I am Kyoung Soo Kim s/o Jong Suk Kim aged 40 yrs, working with Samsung India Electronics as Deputy General Manager (Purchasing). B. Being the purchase incharge do you get any direction from Samsung electronics Korea regarding import of raw materials? Korean company gives me information on quality, delivery & cost of raw materials. C. Who are you reporting here? I am reporting K W Cho M D. D. By whom have you been issued the appointment letter for working in the Samsung electronics India P. Ltd.? I have been issued the appointment letter by Samsung electronics Corporate Korea. E. Who decides the pricing of import? I am guided by the Korean company Samsung electronics Korea, then I decided the purchase. Statement of Sri Soonkwang, s/o Sri Jeonhyun Kwon A. Please give your identity? I am Soonkwang working as General Manager (Procurement) of LG Electronics, Noida since December, 2007. B. Pl....
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....er in Samsung Korea? Normally daily. J. You communicate directly or through your GEO? It depends on issues. Something which may affect the business result seriously will be discussed with my boss, MD but in most cases of simple opinion exchange the communication is done without MD intervention. K. To whom do you generally communicate in Korea? Mr. Ryu, Vice President in Mobile Communication Division and many other persons. L. From where do you generally import your products, please give details product-wise. (1) Mobile Phone: : Korea, China & Vietnam, (2) Monitor : Malaysia, (3) OMS : Philippines, (4) Printer : China (5) Lap Top Computer : China M. The computers in your office have operation system installed in Korean, as well as the communication between the heads is in Korean. What is the reason for it? Sometimes in Korean. Sometimes in English. Communication between only Koreans is done in Korean normally. But when any Indian or non-korean is involved we use English. Statement of Shri H.D. REW S/o J.H. REW A. Please identify yourself. I am H.D. REW working as Director (Manufacturing) in L.G. Electronics India Pvt. Ltd. since January 2....
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....loyees, the said salary has been offered to tax by the employers in India. For administration conveyance part of the salary is paid to Samsung Korea which in turn paid to expatriate employees all in Korea. The part salary which is remitted outside India is of the individual expatriate and if it has to be-remitted for their conveyance then it should be in their respective South Korea Bank A/cs and not in the Bank a/c of Samsung Electronics Corporation. Please give reason for this. For Administered conveyance the salaries paid to Samsung Electronics Corporation Korea. D. What is the Administration conveyance in remitting the salary to the A/c of the parent company that is Samsung Electronics Corporation. The expatriate employees have personal obligations in Korea. To avoid any inconvenience for their personal obligation in Korea the salaries paid by Samsung Electronics Korea to expatriate Bank A/c and same is reimbursed by Samsung India Electronics Pvt. Ltd. E. Does this reply in Q4 mean that the salaries of the employees of Samsung India Electronics Pvt. Ltd. is paid by SEC South Korea and the same is reimbursed by SIEL. No. Samsung Electronics is only a conduit fo....
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....nal qualification with salary being received presently and in the past? I am working here in the Company at Greater Noida since Jan 2008. Prior to it, I was working in this same company at Korea. I am MBA (Accounts & Finance) from America. Presently I am getting Rs. 3.50 Lacs approximately (Indian Rupees) (gross salary). I do not remember what deductions are from my salary but net salary is being credited to my SB A/c with ICICI Bank at Greater Noida. I do not remember my Bank A/c No. House rent which is on a/c of my house is being paid by the company directly to the house owner after deducting it from my salary. Are you receiving any amount abroad in the form of salary/payment/ reimbursement/allowance etc. by whatever name it is called, other than salary received or any payment received by you in India? No. I am not in receipt of any type of payment abroad. 4. Statement of Mr. Anshuman Sah A. Please identify yourself I am Anshuman Sah working as Vice- President (Sales & Marketing) for Telecom Systems in Samsung Electronics India Ltd. I have been working here for 7 months. B. How frequently do you deal with the expats while carrying out your duties as VP-Sales & M....
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....arded by Korea to us from where a suitable candidate is selected after interview on video conferencing. D. Whether the expatriate employees get any salary, perquisite or allowance reimbursement, payment by whatever name called outside India during their stay in India? No. How is the salary and perquisites of Korean expatriates decided? For deciding the salary there is clear norm that whatever salary a person is drawing in the parent country plus the benefit of house + car and driver + education support for the children is paid. E. When expatriates employees are posted in India whether they have any relationship with the parent i.e. LG Korea or any of its AE. When the employee leves India whether they resign or they are transferred? I need to check and revert back on the above question. However, the expatriate employees do not resign in India when their term finishes in India they go back. 5. Statement of Sh Kyong Yeol Kim, vice President, HA marketing, A. Please identify yourself and your nationality. I am Sh. Kyung Yeol Kim, Vice President, Samsung Electronics Pvt., Ltd., HA (home appliance) marketing. I am a national of Republic of Korea. B. How o....
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....age the functioning of different divisions in India, as stated by you in answer to question 11? GBM is more common sales they touch more sale teams then me M. Who takes the policy decision regarding the financing of various business divisions of SIEL? MD&CFO N. How are such policy decisions taken? Are they through the board meetings or your independent decisions? Both O. But none of the minutes of board meetings show any such policy decisions being taken in board meetings? I am not sure because I have joined less than 6 month but major issue show all board members. P. Who takes the policy decision regarding which product/model are to be manufactured and which are to be purchased and traded? Sales. I just concern Profit & loss Q. In case of major investment or policy decision of setting up a factory in Chennai etc, is the consent or approval of headquarters at Korea taken? Yes R. Is this approval necessary? Say if you have your own funds and you want to launch a manufacturing unit of new product, still you would require approval from headquarter at Korea? Yes Statement on oath of Mr. M.B. Shin S/o I.K. Shin A. Please identify yourself? ....
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....nvolve local sales & marketing in SIEL's strategic direction. For example: to introduce Samsung products on Global consumer's requirements; - Sales Forecast for sales and production; - More strategic direction setting and also liase with Samsung HQ for product development and production; - Also, by meeting Indian customers- try to make strategy of sales & marketing with other employee of SIEL. B. How do you liase with Samsung HQ for products development and production? By reading Indian Consumer's insight and finding the better product for India, I request HQ to develop Indianized products. In this process, there needs lots of explanation & persuasion. Once HQ decided to develop the product by utilizing HQ's rersource in initial stage and then factory prepare its production facilities for material locally and other country's factory. If possible, factory is trying to purchase its material locally. C. In the Liasoning activities with the HQ, do-you send information collected from India to Samsung Korea. So that they can develop a product suitable for India? Definitely D. How Often do you communicate with HQ and what is the mode of communic....
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....arket and are accountable for the results. Who is responsible for purchases and imports? Purchase of raw materials Manufacturing Setup is responsible. For certain setup of purchase general affairs is responsible, for imports, imports team is responsible. How are new product introduced in India? Depending upon the market need and consumer service, LG Korea Product Company develop products through their R&Ds. There .....which need ....then and those who do not, do not take it. There.......are done jointly by local team and Korea team. Core technologies are decided in Korea and according to local insights changes are made in consonance with HQ and subsidiary. For e.g. LCD technology being global platform was developed in HQ Korea but 'Jazz" was developed as per local insight of India. Please elaborate how research is done by Korean Co. in India i.e. how market need and consumer services are done? Consumer insight surveys are conducted to understand consumer preference through independent agencies and occasionally by employees of LG India. Final analysis is jointly done by HQ & LG India or at times by LG India. About R&D details I am not competent to reply. ....
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.... then why is HQ concerned with Ageing Stock? Because of Global performance. 9. Statement of Mr. Mahesh Sutagatti A. Please give your introduction? Working as Manager in Samsung Electronics since 2004 Oct 15 at their HQ R&D in Suwon, before this I had taken a sabbatical of approx. 1 year, before this worked with L&T Infotech (Bangalore) for 3 years approx. as Project Leader, before that worked in Arvind Mills (Pune) for approx. 8 yr. B. You are drawing your salary from which company and what is the amount of salary? Samsung Electronics Corp. Suwon South Korea, my salary is being paid by Samsung Electronics approx 3200000-3500000 Won (net in my salary account) in Won. C. What is your scope of work in Samsung Electronics South Korea? Incharge for interoperational testing between base station and mobile devices, Also take care of trail test with operators for mobile wimax. D. Since when have you been in India and what is your scope of work in India? Arrived at Bombay on 18th June, Scope of work is to plan POC/proof of concept trial test with RIL and assist states assets. E. Who instructed you to proceed to India and help Samsung Electronics....
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.... Regional HQ. 10. Statement of Mr. Chungseop Song Q13. Do you receive the Guidelines from Korea regarding Purchases? Ans. Yes, Sometimes I receive guideline from Korea. Q14. What type of Guidelines you receive? Ans. Regarding Vendors (Foreign Suppliers) 77. To this ld CIT DR submitted that there is major difference in the facts of that case as well as in the impugned case. He submitted that there is complete information available with AO and there is no allegation that any information is withheld. In the preset case assessee till to date has not given many details, therefore that decision cannot be applied. 78. The ld AR also placed on record rebuttal note to various other oral submissions made by the ld CIT DR which is as under :- I. Non Compliance A. To meet the argument of the Department that there has been a non compliance by the Appellant to the notice dated 11.11.2014 under section 142(1) of the Act, the Appellant firstly referred to pages 1191 - 1193 of the paper book volume - 4. The said pages contain the list of dates and events to show the manner in which the reassessment proceedings proceeded in the case of the Appellan....
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....n of the statement at Pg 710 is reproduced as follows: "Qn: Who sends the requisition to LG korea and whether probable candidates come for interview to India or not. Also whether the Indian directors visit Korean office for recruitment or not? Ans. The MD of LG India forwards the requirement of Korean candidates to HR at head quarter. Based upon that they propose the available candidate whose willingness is pre-checked by them. From this list the candidates are interviewed either through VC or whenever senior person visits Korea they interview them." Statement of Mr. H.C. Moon, Vice President at Pg 676 was also referred to the relevant portion is reproduced as follows: "Q: When you are going to complete your tenure of posting in India? Whether after completing your term in India in this company, do you plan to move out of India or would try to remain in India in any company because you have a skill and experience? Ans: By the end of 2011 or start in 2012, but not sure, I would complete my tenure in India. To leave India or not would depend then and there's position. I am not sure about my future situation. But I may stay in India even af....
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.... that the Appellant had reported all the transactions with LG India to the TPO and, therefore, the TPO was aware of all the transactions between the Appellant and LGIL and consequently applied his mind thereto. Copy of the order of Ld. TPO is at page 254 of the paper book volume - 1. L. With regard to the submission of the Department that the order of the TPO in case of LGIL was passed prior to survey at the premises of LGIL and prior to the survey report prepared by the survey team, it was submitted that the DRP directions and the TPO's order giving effect to the directions of DRP, were passed subsequent to the survey at the premises of LGIL and the date of the survey report. In that view of the matter, it could not be presumed that the DRP / TPO were not aware of the findings of the survey team. In this connection, the Appellant relied upon the judgment of the Full bench of the Hon'ble Delhi High Court in CIT vs. Kelvinator of India 256 ITR 1. The relevant portion of the judgment is reproduced for the convenience of this Hon'ble bench as follows: "23. We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed ....
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....the AO/ TPO made no adjustments qua the transactions of purchase / sale of goods and rendition of services, In view of the settled legal position, no further attribution could be made to the alleged PE once the transactions between the Appellant and LGIL were held to be at arm's length in the successive transfer pricing assessments concluded by the TPO, both, in the case of LGIL as well as the Appellant. P. The decision of the Hon'ble Supreme Court in the case of ITO vs. Techspan India (P.) Ltd. : [2018] 302 CTR 74 (SC)(supra) relied upon by the Department relates to the validity of reassessment proceedings. While dismissing the appeal of the Revenue, the Supreme Court observed as under: "12. Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing office....
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....ned by the appellate authority) cannot be allowed to stand. In that view of the matter, the observations of the Hon'ble High Court sought to be relied upon by the Department are rendered non est and are no longer good law. U. To support its contention the Appellant had relied upon its earlier note and the judgments relied thereupon. V. Reimbursement: V. The original Technical Collaboration agreement was entered into between the Appellant and LG India on 01.07.2001 which is filed at pages 901 of paper book Vol - 3. The said agreement was amended on 01.01.2002 to bring in Article 21 (at page 921 of the paper book Vol - 3). W. With regard to Article 21, it was pointed out that the said Article was in the context of manufacture and sale of air conditioners / washing machines in India. It was further pointed out that notwithstanding that the original agreement did not contemplate reimbursement of warranty expenses, it was open to the parties to modify the terms of the contract as per section 62 of the Indian Contract Act and that it is amended contract which would govern the parties thereafter. X. It was further pointed out that the Appellant....
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....lenging the attribution made by the assessing officer to the alleged permanent establishment ("PE"). 79. During the course of hearing, bench asked both the parties to refer to the decision of the honourable Delhi High Court in case of GE energy parts incorporation vs CIT in 101 taxmann.com 142 (Delhi) where the facts are somewhat similar. The learned CIT DR vehemently stated that the identical issue has been considered by the honourable Delhi High Court in that particular case which covers the issue against the assessee. The learned authorised representative vehemently stated that there is a substantial difference between the facts of the case before the honourable Delhi High Court and before us. He extensively referred to the business structure in the case of GE parts incorporation as well as the assessee. He extensively referred to various paragraphs of the order of the honourable Delhi High Court specifically para number 73 and 74 of that order. He submitted a seven-page note to say that the facts of the decision before the honourable Delhi High Court are quite distinct. He also referred to a pictorial representation of the business model of the appellant and GE energy. He th....
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....n when he comes to India. He lends his experience to MSAS in India as an employee of MSCO as he retains his lien and in that sense there is a service PE (MSAS) under Article 5(2)(1). We find no infirmity in the ruling of the ARR on this aspect. In the above situation, MSCO is rendering services through its employees to MSAS. Therefore, the Department is right in its contention that under the above situation there exists a Service PE in India (MSAS). Accordingly, the civil appeal filed by the Department stands partly allowed." In fact, even the OECD Commentary on Article 15 of the Model Convention, on which learned counsel for CIOP has placed great reliance, interestingly notes that "[t]he situation is different if the employee works exclusively for the enterprise in the state of employment and was released for the period in question by the enterprise in his state of residence." This was clearly, and critically, not done in this case. 81. The ld AR submitted that decision of the Delhi High Court in the case of Centrica (2014) 364 ITR 336 Delhi is distinguishable on facts. In that case the issue for consideration was whether the amounts reimbursed by the Indian company to....
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.... AO has based his conclusion on the material discussed in the draft order. The conclusions by the AO are as below: The above contention of the assessee has been considered by me. The findings from the facts of the case based on the survey material, technical collaboration agreement and the various replies submitted by the assessee reveals the following: 1. M/s LGEIL is working under the total control of the parent i.e. LG Electronics Inc, Korea and the control is such which cannot be treated as shareholder's control. 2. All the purchases from so called third parties are finalized by the parent in Korea itself and the Indian entity has no power to interfere in these purchases. 3. The raw materials, finished goods and other consumables purchased by LGEIL are through the parent company or other AEs for which there is no price negotiation between seller i.e. LG Electronics Inc, Korea and its AEs and purchaser i.e. LGEIL. 4. No single instance or evidence has been furnished by the assessee that could reflect that the contract for the sale from the parent or its AEs has been cancelled on account of price negotiation. 5. The purchase o....
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....lectronics Inc, Korea is factually incorrect is not supported by its own submission, where it has been stated that: a. Technology is provided under the technology assistance and royalty agreement which is a separate agreement and income from the same has been duly offered to tax. Can having a separate agreement or paying of taxes on these incomes change the very nature of technological dependence on the parent. b. The list of key personnel's hold by the expatriates furnished by the assessee itself reveals the dependence in term of human resources on the parent company. c. The purchase of raw material, finished goods and other consumables from the parent company and its AEs without any price negotiation and without any search of non-resident vendors by LGEIL reveals the economic dependence of the subsidiary on its parent. d. These facts have been revealed to the assessee many times. The assessee's version of the human resources dependence of a subsidiary over parent is not forthcoming. The assessee has tried to point out the events by singling them and stating that it is not a relevant criteria for Permanent Establishment. It may appear f....
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....sessment Year ('AY5) 2007-08 SUB: Objections filed before the Hon'blc Dispute Resolution Panel ('Hon'ble Panel') against the draft assessment order dated 28 March 2016 passed under section 147/ 143(3)/ 144C of the Income-tax Act, 1961 (the 'Act') This is with reference to the hearing before the Hon'ble Dispute Resolution Panel ('Hon'ble Panel') on 30 November, 2016 wherein the captioned matter was argued. The objections have been filed by the assessee before your goodself inter alia on the issue of alleged Permanent Establishment (PE) in India and related attribution. In this regard, as discussed with the Hon'ble Panel, the assessee submits that without prejudice to the assessee's view towards the non existence of PE in India, from the limited perspective of attribution of income to the alleged PE, it is being acceptable to the assessee that the taxable income of the assessee in India is directed to be determined at 10% (Profit Margin) of 50% of salary cost of expatriates in India during the relevant year. To clarify, where the salary cost of expatriates in India during the relevant year is Rs. too, the assessed income of the asse....
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....for example, between the head office abroad and a branch in India, are also subject to these transfer pricing regulations. Also, the regulations would apply to transactions between a foreign enterprise and a PE of another foreign enterprise. The term permanent establishment has not been defined in the provisions but its meaning may be understood with reference to the tax treaties entered into by India." During the course of presentation of the Finance Act, Hon'ble FM had stated in his speech dated 25/04/2001 asunder: "Transfer pricing provisions are proposed to be modified to clarify that these regulations shall also apply to transaction between the Head Office and its branch and that adjustment made to the transfer price in the case of one enterprise shall not by itself form the basis of a consequential adjustment in the case of the other enterprise." The transactions with an overt branch office or a group of key employees placed strategically in the AE establishment would be examined and the TP norms shall apply on such transactions also. Determination of income attributable to a PE (having regard to provisions contained in India-Japan DTAA i.e. separat....
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....tory of the matter is in the assessment records with the AO. The panel accepts the same in view of the facts of the case. The action of the TPO/AO is upheld, subject to charge on the wages/ remuneration paid to the seconded employees at the cost-plus margin of 20% on 'salary attributed to India operations' (being a reasonable attribution basis the work performed for the AE-though the assessee seeks only 10%) and existence of PE conceded by the assessee. The assessee has agreed to the issue of PE and the attribution because salary is charged to the PE. The rate offer is not reasonable as the extents of activities performed are substantially more than the quantum conceded by the assessee. As it is clear that these employees exercise significant influence on the business decisions benefitting the parent AE. The panel directs as above. The objections are disposed of as above." 83. Therefore it is apparent that the learned dispute resolution panel has gone under the presumption that assessee has conceded the aspect of the existence of the permanent establishment in India of the assessee. The assessee now denies the above fact and says that it has never considered the issue of the exi....
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....- 09, the assessee before the learned dispute resolution panel on 02/08/2017 has stated that the assessee has not appeal before the ITAT against the quantum of attribution arrived at by the learned assessing officer, however assessee has filed appeal for assessment year 2007 - 08 in ITA number 1946/del/2017 on 31/03/2017 before the income tax appellate tribunal. Therefore there is a sharp contradiction in the submission of the assessee before the learned dispute resolution panel and before us for the reason that the assessee is contesting before us the existence of permanent establishment as well as the profit attribution for assessment year 2007 - 08 and all other years except few but before the learned dispute resolution panel it has made a statement of fact on 02/08/2017 that assessee has not filed any appeal for assessment year 2007 - 08 which was in fact filed before us on 31st of March 2017. 86. In view of the above facts it is apparent that as per the letters of the assessee mentioned in the direction of the learned dispute resolution panel, the assessee has reserved its right to challenge the existence of the PE at various forums and in case of other associated concerns ....