TaxTMI 
TaxTMI 
2020 (9) TMI 922
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....Projects. The assessee has entered into contracts with National Hydroelectric Power Corporation Ltd. (NHPC) on 6.12.2001 for carrying out Electrical and mechanical Works of Teesta H.E. Project [3 X 1 70 MW (Stage-V) Sikkim, India] These agreements are - a) First Contract - For CIF/CIP Supply of all offshore equipments and materials including Mandatory Spares for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V). b) Second Contract - For Ex-works supply of all equipments and materials of Indian origin for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V). c) Third Contract - For providing all onshore services in respect of all equipments supplied under First & Second Contract and other services for Lot- 6 Electrical & Mechanical works of Teesta HE Project (Stage-V). 4. The AO further noted that the assessee has also entered into contracts with West Bengal State Electricity Board, Calcutta (WBSEB) on 11.08.2000 in respect of Purulia Pumped Storage Project. These agreements are - a) Contract for Erection, Testing and Commissioning of Equipment and Materials in respect of Electro Mechanical Equipment (Lot 6.....
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....nomically independent is not supported by the intentions of the parties in the actual sense. Reliance is placed on the decision of Apex Court in the cases of McDowell and Co. Ltd., and Raman & Co. (67 ITR 11). f) The Hon'ble Supreme Court in the case of Morgan Stanley has very clearly stated that attribution of profits would depend on the functional and factual analysis to be carried out in each case. The above findings are applicable for the present proceedings as well since the facts in both these years are same and this has not been disputed by the assessee with any documentary evidence. In view of the above discussion, it is held that MIPL is DAPE of Mitsui & Co. Japan in India." 5. Accordingly, the AO computed the taxable profits attributable to Indian operation at 50% and made addition of Rs. 1,86,548,468/- to the total income of the assessee. 6. The submission of the assesee that even if it is onstrued that MIPL constitutes DAPE of the assesse in India, the transactions between them being at arms length no further profit is attributable in view of the decision of the Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley & Co. Inc. 292 I....
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....Agency PE of the assesse. The relevant observations of the Tribunal from para 4 onwards read as under :- 4. The Second ground is regarding finding of the learned CIT (Appeals) holding that no income is liable to be attributed in India even if MIPL is considered to be Dependent Agent PE in India. On this issue the learned CIT-DR though stated that though in view of the TPO order under Section 92CA(3) holding the transactions between the assessee and the MIPL at arm's length, addition may not be sustainable, yet argued that MIPL be considered as/Dependent Agent PE in India in terms of Article 5(7) of DTAA between India and Japan. It was contended by the learned CIT-DR on the basis of the allegation levied by the Assessing Officer in the assessment order that MIPL habitually secures order for the assessee in India and MIPL is economically dependent on the assessee as major revenue of MIPL is from the assessee company. Accordingly, it has to be examined whether MIPL can be considered to be a Dependent Agent of the assessee company. In this regard it may be relevant to refer to Article 5(7) of DTAA between India and Japan, which reads as under :- "7. Notwithstandin....
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.... regard we note that the Assessing Officer has made this allegation on the basis that commission has been paid by the assessee company to the MIPL. On this basis it has been assumed that MIPL is securing orders. This contention of the Assessing Officer does not appear to be correct. As per the agreement which has been quoted by the Assessing Officer in the assessment order, MIPL is supposed to put best effort to collect information with regard to Instant Noodle project etc. to make the best effort to find the best candidate, to attend/take care of the visitor from Japan, to make the best effort to analyze the feasibility report. None of these clauses can be interpreted to mean that MIPL is securing orders. On the basis of this clause the Assessing Officer was wrong in assuming that MIPL is securing orders. The Assessing Officer has not brought any other material to substantiate his allegation that may demonstrate that MIPL has secured orders for the assessee. It is to be noted that this clause (c) uses the word 'habitually secures orders'. Thus, there has to be procurement of orders habitually. As against this the assessee's contention has been that MIPL is onl....
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...., it cannot be considered to be a Dependent Agent. The learned DR also made a reference to Conventions on Double Taxation by Klaus Vogel to support its contention that where a person works only for one principle such person is economically dependent on the principal, in "these circumstances the agent though not legally but will be bound to obey his principal's instructions and be regarded as being Dependent Agent. This contention of the learned CITDR again ignores the basic requirement i.e. fulfilling one of the three conditions. It is also important to note that the DTAA provide for treating a person as Dependent Agent. The DTAA has to be strictly interpreted. The DTAA having prescribed the conditions, no further conditions can be read. What learned CIT-DR is canvassing will mean adding new condition in the DTAA. Further, it may be relevant to note that as per Para 9 of this Article 5 in DTAA, it has been specifically provided that if a company in the contracting state is controlled by a company in the other contracting state that itself shall not itself constitute either of company a permanent establishment of the other. Thus, the fact that MIPL is controlled by the assessee ....
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....g agency PE. Klaus Vogel on Double Taxation Conventions, Third Edition at page 345 in paragraph 170 states that interdependence must exist in both legal and. economic respects but the independence is the main criteria. The expression "independent agent" is used with the words "brokers and general commission 7 agents" in paragraph 5 of Article 5 will, therefore, normally not include agents who have power to conclude contracts. Paragraph 38.1 of the OECD Commentary has been quoted above (see paragraph 15). The commentary elucidates and gives illustrations and tests. 33. Earlier U.N. commentary had deviated in some respect from the OECD commentary and had observed that an agent who was wholly or almost wholly engaged by one principal shall be considered to be a dependent agent. This initial position stated in UN commentary has, however, not been accept in subsequent commentaries. The essential criteria being arms length relationship though engagement with one or a group might serve as an indicator of absence of independence of an agent. 34. Subsidiary by itself cannot be considered to be a dependent agent PE of the Principal, otherwise it would negate the ov....
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....ipal are under arm's length conditions the second stipulation in paragraph 5 of Article 5 would not be satisfied, even if the so.id agent is devoted wholly or almost wholly to the foreign enterprise. 36. In Morgan Stanley (supra) Supreme Court rejected the contention of the Revenue that dependent agency was created after recording that Indian subsidiary had no authority to enter into or conclude contracts on behalf of the foreign establishment / agency.The contracts were entered.- into in America arid, were concluded there. Only implementation of those contracts to the extent of back office operations were carried out in India. This legal position is relevant in the present case. 37. In TVM Ltd. vs. Commissioner of Income Tax (1999)237 ITR 230, Authority of Advance Ruling has interpreted the two expression "has" and "habitually exercises" in the case of dependent agent. It has been observed that the expression "has" may have reference to the legal existence of such authority on terms of the contract between the Principal and the Agent, the expression "habitually exercises" has certainly reference to systematic course of conduct on the part of the agent. Reference ....
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.... appeal No.4 raised by the revenue in ITA No.2801/Del/2011. We have already decided the issue and following the decision of the Tribunal in assessee's own case for A.Y. 2005-06 have dismissed the ground raised by the Revenue." 11.1 Since the lower authorities following the orders of the preceding years have held that M/s. Mitsui & Co. Ltd. has been constituted as Dependent Agent PE of the assessee company in India , therefore, following the consistent decisions of the Tribunal in assessee's own case in the preceding assessment years and in absence of any contrary material brought to our notice against the decision of the Tribunal we hold that MIPL is not a Dependent Agency Permanent Establishment of the assessee. Ground No. 2 of the assessee's appeal accordingly is allowed. 12. So far as ground of appeal No. 3 and 4 are concerned these relate to attribution of profits to DAPE. We find this issue also stands squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for asstt. Year 2005-06 vide ITA No. 2335 /Del/ 2011order dated 14th September, 2017 wherein the Tribunal held as under :- "This issue is squarely covered by the asse....