TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1710
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....utset, it would relevant to mention here that, in assessee's own case this Tribunal in the appeals for the assessment years 1997-98 to 2000-01; and assessment years 2002-03 and 2003-04, the issue of PE has been decided against the assesse and also the issue of attribution of profit, which matter had also travelled up to the Hon'ble Delhi High Court and by and large the order of the Tribunal has been upheld. However, before us the learned counsel for the assesse, Mr. Percival Billimoria submitted that not only the facts and circumstances have changed but also now there are judicial principles laid down by the Hon'ble Supreme Court on the concept of PE. Before we discussed the arguments put forth by both the parties it would be relevant to capture the background and brief facts of the case. 3. Rolls Royce Plc (herein referred to as assessee or RRPL), is a UK based company, which has a wholly owned subsidiary, Rolls Royce International Ltd., which in turn has another wholly owned subsidiary, Rolls Royce India Ltd. (herein referred to as RRIL). Both these subsidiaries are also incorporated in UK, There exists a service agreement between Rolls Royce International Ltd. and Rolls Royce ....
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.... extension/projection of its customer facing business unit, who has the responsibility to sell the products belonging to the group. iii) RRIL acts like a sales office of RRPlc and its group companies. iv) RRIL and its employees work wholly and exclusively for the Rolls Royce Pic and the Group. v) RRIL and its employees are soliciting and receiving orders wholly and exclusively on behalf of the Rolls Royce Group. vi) Employees of Rolls Royce Group are also present in various locations in India and they report to the Director of RRIL in India. vii) RRIL and its employees are also service permanent establishment of Rolls Royce Plc and group. viii) The personnel functioning from the premises of RRIL are in fact employees of Rolls Royce Plc. This has been admitted by the M.D. Mr. Tim Jones, G.M., Mr. Ajit Thosar and documents like terms of employment of G.Ms." 4.1 Thus, it was concluded that office of RRIL in India was PE of RRPL under Article 5(2)(f) of India-UK DTAA and also under Article 5(2)(k). Accordingly, Assessing Officer computed the total profits on the contract of the assesse-company in India as per Rule 10; and held that 75% of the profits should be attri....
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.... separate PEs, and if any attribution has been finalized from that particular PE, then no profit should be attributed once again in the hands of the assesse also. In sum and substances, the crux of his argument is that, firstly, RRPL cannot be said to have PE in India as it is purely making sale from outside India; Secondly, LO was never at disposal of RRPL for any of its activities or for its employees; thirdly, there is no DAPE in the form of LO; fourthly, without prejudice, same activities arising from same set of facts cannot give rise to 2 PEs, i.e., one PE of RRPL and then other PE for RRIL; and lastly, attribution of PE of RRIL has already attained finality under MAP resolution for the same assessment years, therefore, the same PE cannot be taxed again in the hands of RRPL. He also laid emphasis to demonstrate that the alleged PE of RRPL has been considered PE of RRIL by the department from the orders of the Ld. CIT(A) in the case RRIL, who has independently recorded a finding of PE of RRIL in India, based on the same activities, relying on the same set of averments contained in the same remand report. Whence the activities alleged to be within the scope of the PE of RRIL ar....
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....tion of profit of RRIL has nothing to do with RRIL. The facts and finding recorded by the Tribunal in the case of the assessee for attribution of profit of PE, has been highlighted by him in the following manner: "A. Taxation in the hands of RRPIc - ITAT order dt.26/10/07 for RRPIc [p.76-10S of PB-2 for A.Y. 2004- 05] * The Support services requested by Rolls-Royce International [RRIL] & performed by Rolls Royce India Ltd. [RRIL]. [para-19, p.91] * The activity of this fixed place is a core activity of marketing, negotiating, selling of the product belonging to the group. [p.102] * 35% of Global Profits in respect of sales effected in India attributed to PE [i.e. marketing activities only; p.105] ITAT order dt.30/01/09 for RRPIc [MA][p. 106-114 of PB-2 for A.Y. 2004-05] * Claim by assessee - Since agent of the assessee namely RRIL is remunerated in terms of agreement with it, and the AO/TPO has also attributed profit to the PE in the form of dependent agent, namely RRIL, no further income is taxable in the hands of the assessee in view of the decision of Hon'ble SC in the case of Morgan Stanley & Co Inc.[p.110] * "The assessee carried on marketing activi....
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....s rendered by agent in India is much more than expected of it in terms of the agreement and obviously for which the agent is not remunerated. Therefore, even in terms of Hon'ble Supreme Court's decision in such, a case there would be need to attribute profits to the P.E. for those functions/risks that have not been considered. In the order, the Tribunal have also considered that the P.E. in India is not only because of the dependent agent's presence in India but also because of fixed place as per Article 5(1) and also in terms of Article 5(4)(c) of the Treaty. The extinguishment as propounded as per Circular 23 of 1969 or as held by the Hon'ble Supreme Court in Morgan Stanley & Co. Inc. (supra) will apply only where the profit attributable to the non-resident is only to the extent of remuneration payable by the non-resident to the agent. Therefore, the assessment in the present case will not extinguish and the income will be computed on the basis of finding given in Para 24 of the order."[para 5; p.l13] As evident from the above- the profit attributed to the PE of the assessee RRPlc is on the basis of the "profit attributable to his own activities in India" whi....
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....IL solicit & receive orders on behalf of RR Group. [HC, para16; p.122] Employees of RR Group are present and report to RRIL. [HC, para16; p.122] RRIL is compensated on the basis of agreement between RRIL & RRlnt. [TPO, p. 2 of PB-2 for A.Y. 2004-05] TP adjustment in respect of international transactions with RRlnt. [TPO, p. 2 of PB-2 for A.Y. 2004-05] As can be seen, RRIL "provides commercial information service and marketing support service to Rolls Royce International Ltd." It is the functions carried on by RRIL vis-a-vis its service agreement with RRlntl which was the subject matter of TP adjustments. RRIL was never subjected to taxation w.r.t. any services it had provided to the assessee RRPlc." 9. In so far as the pleadings of the Ld. Counsel for the assessee that attribution of profit stands settled by MAP in the case of RRIL, he submitted MAP only takes care of relief or removes double taxation, if any and any income attributed through the process of MAP cannot be held to be "taxed not in accordance with the convention". In other words, neither the income in its entirety nor any part of it which was attributed through MAP represents an amount which has been sub....
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....ly assessed to tax in India and its profit and taxability now has attained finality in the form of agreement under MAP. It was also submitted that notwithstanding whether there is any independent PE of assessee in India or not, but the same activities arising from the same set of facts as alleged by the Revenue cannot give rise to two PEs, i.e., one PE for the assesse and another PE for RRIL. To canvass this point the ld. counsel has drawn our attention to the various findings of ld. CIT(A) in the case of RRIL and remand report of AO as contained in the appellate order dated 15.02.2009. He has pointed out that in the said order the ld. CIT(A) has relied upon same contents of report of survey conducted at the LO office of RRIL and exactly the same material has again been used in the case of the assessee also; and therefore, for the same activity there cannot be two PEs for two different entities. As culled out from the records, the survey of RRIL office in India had revealed certain facts which has been used by the Revenue authorities for holding that Rolls Royce Group has a PE in India. The contents of the survey have been discussed by this Tribunal in its order and have reached to....
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.... But, if there is no interlacing of activities of two entities, then activity of one entity cannot result into PE of another entity, because to establish a PE the business carried out by a foreign entity alone should be taken into consideration. Here in this case if it has been found by the Tribunal that independently also the activity of assessee was somehow linked with LO, therefore, no interference can be made and since this issue has been decided against the assesse we do not find any reason to go into further deep analysis and form a different view, because there is no material change in facts and circumstances. RRIL activities was carrying out sales and marketing in India for RR International and nothing has been produced before us to show that these activities were also assessed as business PE on a profit split or appropriate method. The record shows that RRIL was assessed only as a dependent agent and a service PE on the cost plus margin basis and therefore, it cannot be concluded that the attribution of PE in India is fully exhausted by the assessment of RRIL or nothing remained to be assessed in the hands of the assessee. Once there is a finding that activities of LO have....