TaxTMI 
TaxTMI 
2019 (12) TMI 1283
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....rrying any business at its disposal in India and hence it does not have any Fixed Place PE in India under Article 5(1) of the Treaty; - VGSIPL should not be the Appellant's PE merely due to the fact that it is the Appellant's group company. Agency PE in India 3. erred in holding that VGSIPL constitutes an Agency PE of the Appellant in India under Article 5(5) of the Treaty; The learned AO/ DRP failed to appreciate that Transaction between the Appellant and VGSIPL are on principal to principal basis and there is no agency relationship; VGSIPL should not be the Appellant's PE merely due to the fact that it is the Appellant's group company; VGSIPL is an independent agent and hence does not lead to a Dependent Agent PE of the Appellant in India; without prejudice to the contention that VGSIPL is an agent of independent status, failed to appreciate that VGSIPL does not exercise authority to conclude contracts on behalf of the Appellant in India, maintain any stock of the merchandise of the Appellant, from which it makes regular deliveries on behalf of the Appellant and secure orders wholly or almost wholly for the App....
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....ion fees in India 11. erred in considering sole distribution fees of Rs. 5,01,86,605 taxable in India, in the absence of PE and business connection in India. Levy of Interest under section 234B of the Act 12. erred in levying interest of Rs. 1,21,40,837 under Section 234B of the Act. The learned AO/ DRP failed to failed to appreciate that no interest under Section 234B of the Act can be levied being Appellant is a non resident assesses and its income is subject to deduction of tax at source. Non-receipt of refund of Rs. 55,01,130 13. erred in adjusting the amount of refund of Rs. 55,01,130 while computing tax demand payable which was never received by the Appellant. Levy of Interest under section 234D of the Act 14. erred in levying interest of Rs. 6,05,124 under section 234D of the Act, as the amount of refund of Rs. 55,01,130 was never received by the Appellant. 3. Even though the issues in this appeal are admittedly covered by the decision of coordinate bench dated 3rd September 2019, in assessee's own cases for the assessment year 2009-10 and 2010-11, the matter was heard at length. We however see no reasons to take any v....
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....ed in India, thus, the assessee has business connection in India and has a PE in India within the meaning of Article 5(5) of India Germany tax Treaty. Accordingly the assessing officer attributed 35% of the total income of the assessee in India as attributable to Indian PE. The assessing officer worked out the taxable income by applying operating profit margin of 6.39% as per global audited account and computed taxable income of Rs. 3,11,43,567/-. The ld DRP conformed the action of the assessing officer it its direction dated 06.09.212 holding that that activity of storage, marketing, advertisement, promotion of product of the assessee, soliciting with clients and potential customers, after sales services and support services, supply of spare parts and accessories, taking part in Auto Expo are done by VGSIPL on behalf of the assessee and are carried out from fixed place of business maintained in India. Sales targets are meet jointly established by the assessee and VW group. VW Group sales has no independent authority to act on his own, but is bound by the terms and conditions of the assessee. The ld DRP also relied on the decision of Aramex International Logistic Pvt Ltd.(supra). ....
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....elling the raw materials/CKD. No income from such sale accrues or arises to the Assessee in India. In other words no part of such profits accrue from or can be attributed to any activities of the assessee or his agent in India. The Apex Court in the case of CIT v. Hyundai Industries Ltd. (29 1 ITR 482) has held that in the case of an agreement with a South Korean Company for fabrication and installation of Oil exploration platform, the PE attributable to installation and commissioning came into existence only after the supply of the equipment. Therefore, profits from supply of the platform did not accrue in India. Similarly in the case of Ishikawajima Harima Heavy Ind. Ltd v. DIT ( 288 ITR 408), the Apex court held that profit will not accrue in India in respect of offshore supply of equipment. (The subsequent amendment to sec 9(1)(i) will not affect the decision on profit arising from sale of equipment offshore.) Mere sale of raw materials/ components will not result in business connection and even if it does as per the terms and conditions of the contract between the Assessee and DCIL no income accrues to the Assessee on the basis of any activities carried out, on behalf of the A....
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..... The cars were cleared through customs in India for and on behalf of the ultimate customers. Thus, DCIL had no role to play from the sale or in any activity in promoting the sale to the Assessee directly to the customers in India. They are only collection of information and activities of preparatory or auxiliary in nature. The prices offered to the clients are as per the list price notified by the Assessee. DCIL has no authority to conclude any deal. Thus the mere acting as post office between the Assessee and the client will not render DCIL as a dependent agent. DCIL cannot be considered as habitually procuring orders for the Assessee. In fact DCIL themselves are manufacturing and selling the cars aid procurement of orders for direct shipment of cars by the assessee would in fact he contrary to and against the interest of the DCIL in its manufacturing activity. DCIL by passing on communication from Assessee to the client and vice versa, are merely rendering a very insignificant auxiliary/preparatory service in the sale of CBUs by the Assessee to Indian clients. Therefore DCIL does not constitute a dependent agent of the Assessee. The prices offered to the Indian clients arc as pe....
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....3 & 644 of Paper Book Volume II), the AAR ruled that since 22% - 25% of the income of the applicant is derived from other clients, it cannot be said that its activities are carried out wholly or almost wholly for the foreign company. Thus the applicant, being an independent agent is not covered by the definition of PE in article 5 of the DTAA" 32. From the above it can be seen that merely acting for a non resident principal wou1d not by itself render an agent to be considered as PE for the purpose of allocating profits taxable in the hands of the principal. There should be some definite activity of the PE to which profits can he attributed. Unless it is so established, merely calling a person as agent acting on behalf of foreign non-resident would not by itself render him to be considered as an agency PE and pro tanto part of the profits of the non-resident is liable to be taxed in India. We find that the Revenue has not established that DCIL had carried out any activity to which any profit can he attributed. DCIL was merely carrying out the work of a post office transferring communication from one to another. Therefore, we are not. convinced that the department had establ....
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....same reason ostensibly applies to NIPL also, as the terms and conditions of supply contract continues as spelled out in para 17 of the judgment remains the same. Further, the Hon'ble High Court in paragraph 13 has noted that income which has been earned by the assessee is a result of supply of software and hardware license under the supply agreement and if supply agreement is taken on standalone basis then such supplies under this agreement were made outside India. The properties and goods has passed on to the buyers under the supply contract outside India where the equipment was manufactured and for coming to this conclusion, the Hon'ble High Court has referred and relied upon the judgment of Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. (supra) that such agreement would not be taxable in India and no profit arising from supply of equipment outside India would be chargeable to tax in India. In paragraph 15, the Hon'ble Court has further observed that no doubt the contract in question was signed in India but it may not be a relevant circumstance to determine the taxability of such an income and for this proposition they have....
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.... ratio laid down in aforesaid judgment of Hon'ble High Court in the case of assessee as well as in the case of Nortel, we hold that income of the assessee from off-shore supply of equipments in pursuance of supply contract cannot be brought to tax in India. 20. There is no dispute that the activities of manufacturing of Car is completed by assessee (Audi AG) outside India and constitute a separate and independent activity. The assessee claimed that Cars are sold to Volkswagen Group Sales for further sales in India and Volkswagon Group sales is not acting on behalf of Audi AG nor Audi AG is selling Car through Volkswagon Group Sales. The assessee also claimed that Cars are sold to Volkswagon Group Sales principle to principle basis and thereafter, Volkswagon Group Sales it on a principle to principle basis to the dealers. The sales of goods/Car are completed outside India than income arising from sales by no stretch of imagination can be said to be taxed in India. The assessing officer has not brought any material to counter the stand of the assessee that Cars are not sold to Volkswagon Group Sales on principle to principle basis and thereafter, Volkswagon Group Sales i....
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....ncipal basis On principal to principal basis Any commission paid Commission is paid to liaising services in case of direct sales No commission is paid 22. We have noted that in case of Daimler AG (supra), despite the fact that the AE was performing more activities as narrated in the chart above, it was held that the associated entity not created either fixed place PE nor dependent agent. Further, the income arising on the sales of Car by Volkswagen Group Sales to dealers in India is income accruing or arising in India and is taxed separately in the hands of Volkswagen Group Sales. In our view merely acting for non-resident principal would itself render an agent to be considered PE for the purpose of allocating profit. The assessee is not undertaking any definite activity to which profit can be attributed. 23. In view of the aforesaid discussions, we are of the V W Group sales is an independent and separate entity, which is engaged in selling of fully built up cars imported from the assessee, Volkswagen AG and Skoda India to dealers and distributors. Thus, VW Group cannot be regarded as a PE of assessee in India. 24. The case law relied by ld. ....