TaxTMI 
TaxTMI 
2020 (6) TMI 4
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.... installed on various computing platforms. The company had entered into an agreement with American Express (India) Pvt. Ltd., a company incorporated in India and having a presence in New Delhi and which catered to needs of Japan, Asia Pacific, Austria, New Zealand, EMEA, US and LAC Regions and various other countries and locations. 2.1 The return of income for the year under consideration was filed in the capacity of the representative assessee on 16.02.2006 and assessment was completed under section 143(3) of the Act. Subsequently, the Assessing Officer noticed that there was an agreement under which the assessee company would develop and maintain applications and would also allow the use of systems software and such applications including use of incidental software to American Express (India) Pvt. Ltd. As per the said agreement, a consideration of US Dollars 263, 523 was paid by American Express (India) Pvt. Ltd. to the assessee company. The Assessing Officer was of the opinion that the consideration received as compensation for the use of or the right to use of the systems software and applications software by American Express (India) Pvt. Ltd. was covered by the definition of ....
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.... between India and USA. The royalties deemed to arise in India, as the payment is by the Indian company. Considering the provisions of Section 9(1)(vi) and provisions of Article 12(2) of the tax treaty between Indierand USA, such royalties are taxable in India @15% of the gross amount of such royalties. The assessee has filed return of income for A. Y. 2003-04 on 16.02.2006, however, this royalty income is not offered to tax. In the notes attached to the statement of total income, even the facts relating to the receipts of such income is not disclosed. The assessee was also carrying out the business related to customer focused sales '("CFS") business through AEIPL. In this service American Express, US provided better to its existing card members. As per the assessee such services were rendered during the period 01.10.2002 to 31.01.2003 and around 90 employees at the Gurgaon facility participated in this service. The process is explained below: 1. Receive card member call 2. Under take steps to verify callers identity 3. Card Member request for information/ maintenance of its account 4. Customer service executive provides information/ performs maintenance on account ....
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....he agency Permanent Establishment (uPEn) of the assessee in India. The income relating to CFS services has been taxed in the case of American Express International Inc., an affiliated company of the assessee for A.Y. 2003-04. That company has claimed that no such business belonged to them, however such claim is not substantiated by American Express International Inc. As the AEIPL had the agreement with the assessee only, therefore, the CFS business is also considered to the belonging to the assessee and such income has escaped assessment. This is without prejudice to the finding given in the assessment order of American Express International Inc. In the return of income, the income attributable to such PE is not disclosed. 4. The assessee has set up an equipment in the form of midrange and mainframe computer and network at Phoenix USA and AEIPL was using this computer and network from 01.04.2002. The assessee was allowing the AEIPL use of mainframe and midrange computing facilities situated at Phoenix, storage of data on the mainframe or providing access to server incidental, electronic mail access, consolidated data and network access. An amount of USD 3,661,721 was payabl....
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....xport Activities by AEIPL from the new facility in the normal course.' AND WHEREAS it was agreed by AETRSCO to reimburse certain initial set-up costs, incurred by AEIPL for the new facility viz. American Express Global Service Centre (AEGSC). AND WHEREAS AEIPL has set up the new facility to perform the above Export Activities in accordance with the specifications and standards as suggested by AETRCO from time to time; AND WHEREAS AETRSCO and AEIPL have concluded a separate Export Agreement' dated 2CP day of December 2002 to document the terms and conditions of their arrangement inter alia for AEIPL to undertake Export Activities from the said new AEGSC facility for exports to AETRSCO end AETRSCO Designated Offices. NOW THEREFORE, in consideration of the mutual convenants hereinafter set forth, the parties agree that the above recitals are made a part of this agreement, and that: 1. Under the terms of the 'Export Agreement' AEIPL shall perform Export Activities for AETRSCO in accordance with the strict specifications and standards provided by AETRSCO. AETRSCO acknowledges that such specifications and standards provided by them are stricter than as may be ordi....
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....and also the rendering of services are subject to instruction of the assessee and the deputed employees of the assessee are comprehensively controlling the business of AEIPL, therefore, the AEIPL is also a dependent agent PE of the assessee. The assessee in the return of income filed has not shown any income, which is attributable to the PE of the assessee, as discussed. The assessee has not shown the income from various sources mentioned above in the return of income filed for A.Y. 2003-04 on 16.02.2006. The order u/s 143(3) was passed on 31.03.2006. As discussed in the preceding paragraphs, the assessee had not disclosed fully and truly all material facts and income accruing, arising or deemed to accrue or arise in India to the assessee as per the provisions of Section 5(2) r.w.s. 9 of the Act and relevant provisions of the tax treaty. Therefore, I have reason to believe that income chargeable to tax has escaped assessment for A.Y.2003-04. Accordingly, it is a fit case for issue of Notice u/s 148 of the Act and such notice is being issued." 2.3 The original assessment had earlier been complied vide order dated 31.03.2006 u/s 143(3) of the Act wherein the assessment was c....
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.... for the assessee company. 2.7 With respect to the fourth reason, as stated in the reasons recorded, that the assessee had seconded some employees to American Express (India) Pvt. Ltd. which continued to be the employees of the assessee and that American Express (India) Pvt. Ltd. was reimbursing the assessee company an amount equal to the compensation and other benefits incurred by the assessee from time to time for the seconded employees which thus constituted a permanent establishment in terms of provisions of Article-5(1) of DTAA between India and USA and since the assessee had not shown any income attributable to the permanent establishment of the assessee, the resultant income had escaped assessment, it was submitted that the agreement relating to the second-ment of the personnel between American Express India Pvt. Ltd. and the assessee were duly furnished during the course of assessment proceedings and that in terms of the said agreement the second-ment of the employees was to be under the direct supervision of American Express (India) Pvt. Ltd. and their reporting was to the management of American Express (India) Pvt. Ltd.. It was also submitted that the actual reimbursemen....
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....ssessing Officer has erred in completing reassessment proceedings which is without jurisdiction and bad in law as the proceedings are initiated * without bringing on records any fresh information and material to form basis of reasons to believe of income having escaped assessment. * merely on a change of opinion viz-a-viz original assessment. 2.2 That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in requiring the appellant to furnish the details not relating to the reasons for initiation of reassessment under section 147 of the Act and thus, making roving enquiries on matters, un-connected with the reasons for opening of the reassessment proceedings. Ad-hoc addition of business income from Customer Focused Sales ("CFS) alleging Indian Permanent Establishment ("PE") of the appellant 2.3 That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in * constituting American Express (India) Private Limited ("AEIPL") as a fixed place PE of the appellant in India. * constituting AEIPL as a dependent agent PE of the appellant in India * treating the entire amount of revenue so alleged ....
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....ceipts of INR 201,626,798 added to the income of the appellant (without prejudice to the ground no. 2.6 and without admitting additions so made). (Not Pressed) Interest under section 234A and 234B 2.8 That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in levying interest under section 234A of the Act. 2.9 That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in charging the interest under section 234B of the Act. 3.1 That on the facts and circumstances of the case and in law, the Hon'ble DRP has erred in alleging that * AElPL's infrastructure is beneficially owned by the appellant and constitutes the set-up of assets of the appellant in India. * since the reimbursement of costs of AEIPL in setting-up the facility are not included in the cost-base, transfer pricing is adversely affected. * AEIPL promoted the "American Express" brand of the appellant group and has not created any brand identity of its own. * the appellant did not submit the details of the income of the appellant from CFS activities without appreciating the fact that such activities were run on trial basis. ....
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..... Authorized Representative argued that it was merely a case of change of opinion vis a vis the original assessment. It was also submitted that the Assessing Officer, while initiating the reassessment proceedings, had made incorrect allegations in as much as the assessee had duly filed the copies of various agreements (which are now part of the Paper Book) in response to the query raised by the Assessing Officer during the course of original assessment proceedings. It was submitted that, therefore, the issues raised had already been examined by the Assessing Officer. It was also submitted that the issue of permanent establishment had also been examined in the original assessment proceedings as was apparent from the various replies filed by the assessee during the course of original assessment proceedings and which was a part of the record. The Ld. Authorized Representative submitted that para-3 of the draft assessment order sought to tax income from Customer Focused Sales (CFS) although this issue was not part of the reasons recorded by the Assessing Officer before the initiation of the reassessment proceedings and, therefore, the same could not be brought to tax in the reassessmen....
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....d that the reassessment proceedings were legally correct. 5.0 We have heard the rival submissions and have also perused the material on record. We have also gone through the reasons as were recorded prior to the assumption of jurisdiction for reassessment. It is seen that the reassessment proceedings were initiated on the basis of the information which was already available with the Department at the time of completion of the original assessment proceedings. It is apparent that no new information or material has been brought on record by the Assessing Officer to establish or even indicate that any income for the year under consideration has escaped assessment. One of the allegations by the Assessing Officer has been that the assessee has not offered to tax the royalty of USD to 263,532 received from American Express (India) Pvt. Ltd. towards the right given for use of Global Makers System, Software and application. This allegation is factually incorrect in as much as it is apparent from the records that American Express (Indian) Pvt. Ltd. had filed the return of income in the capacity of the representative assessee for the assessee company on 28th November, 2003 wherein this royal....
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.... definition of royalty both under the Act as well as the DTAA but was not offered to tax. In this regard again it is seen that this observation of the Assessing Officer is incorrect in as much as the assessee had duly offered the royalty of USD 3661,721 equivalent to Rs. 17,61,45,689/- in the return of income filed by the American Express (India) Pvt. Ltd. in the capacity of the representative assessee for the assessee company. Thus, on this count the reassessment has been initiated on an issue which was factually incorrect and was already concluded and would thus not be sustainable. 5.3 Fourthly, the reassessment proceedings have been initiated on the ground that the assessee had seconded some employees to American Express (India) Pvt. Ltd. which would constitute a fixed place of business of the assessee company. In this regard also, it is seen that the assessee had furnished copies of agreement relating to the second-ment of employees during the course of the original assessment proceedings vide submissions dated 13th March, 2006 and, thus, apparently, this issue also was examined by the AO and it was the view of the Assessing Officer then that there was no fixed place PE and th....