TaxTMI 
TaxTMI 
2020 (10) TMI 934
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....2 declaring income of Rs. 19,54,96,219/-. AO during the course of assessment proceedings noted that the assessee has three project offices in India namely :- TISCO Purulia Teesta Projects 3. He noted that assessee has entered into contract with West Bengal State Electricity Board, Calcutta (WBSEB) on 11.08.2000 in respect of Purulia Pumped Storage Project. These agreements are as under- a) Contract for Erection, Testing and Commissioning of Equipment and Materials inrespect of Electro Mechanical Equipment (Lot 6. 1) of Purulia Pumped Storage Project. b) Contract for supply of equipment and materials in respect of Electro Mechanical Equipment (Lot 6.1) of Purulia Pumped Storage Project. 4. The assessee has also entered into contract with Tata Iron and Steel Company Limited on 31.03.1998 for the following: a) Design manufacture and supply of imported plant, machinery and equipment with auxiliaries b) Supply of imported designs and drawing, foreign technicians' services for supervision of detailed engineering in India, c) Design manufacture and supply of indigenous plant, machinery and equipment d) Supply of indigeno....
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....sion of Rs. 84,06,07,736/- on total sale of Rs. 39,67,73,32,478/. It was explained by the assessee that the commission was paid to MIPL for support services rendered and the same has been charged at market price. However the AO noted that such commission paid was allowed @0.8905556% in assessment year 2008-09, 2009-10, 2010-11 and 2011-12. He, therefore, restricted such commission to Rs. 35,33,48,865/- by applying the same rate. Accordingly the excess commission paid during the year of Rs. 48,72,58,871/- was disallowed by him. 6.1 AO also made addition to Rs. 22,31,645/- being the guarantee fee received from Bussan Auto Finance Pvt. Ltd and network maintenance service fee of Rs. 5,88,86,927/- received from MIPL due to certain mismatch of the Form 26AS. Accordingly the AO determined the taxable income of the assessee at Rs. 31,39,26,317/- as against the returned income of Rs. 19,54,96,219/-. 7. In appeal the Ld. CIT(A) upheld the view of the AO that MIPL has been constituted as a dependant agency permanent establishment of the assessee company in India. He however, held that 20% of the gross trading profit is to be attributable to the operations of the assessee in India. He....
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....of assessee in India without there being any basis for the same. 5. (i) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 22,31,645/'- made by the AO on account of Guarantee fees. (ii) That the addition has been confirmed despite the fact that the income appearing in Form 26AS is not taxable in the hands of the assessee. i; (iii) Without prejudice to the above, the credit of the tax deducted at source on such income has not been given to the assessee. 6. (i) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 5,88,86,927/- made by the AO on account of Network Maintenance Service Fees. (ii) That the addition has been confirmed despite the fact that the said income appearing in Form 26AS is not taxable in the hands of the assessee. (iii) Without prejudice to the above, the credit of the tax deducted at source on such income has not been given to the assessee. 7. That the respondent craves leave to add, amend or alter any of the grounds of appeal." 10. Ld. Counsel for the assessee did not press ground of a....
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....r to Article 5(7) of DTAA between India and Japan, which reads as under :- "7. Notwithstanding the provisions of paragraphs 1 and 2, where a person- other than an agent of an independent status to whom paragraph 8 applies- is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State, if: (a) he has and habitually exercises in that Contracting State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; (b) he has no such authority, but habitually maintains in the first mentioned Contracting State a stock of goods or merchandise from. which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned Contracting State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises con....
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....rocurement of orders habitually. As against this the assessee's contention has been that MIPL is only providing support services and it is not securing order on behalf of assessee company. It may be relevant to further mention that the expression 'has' shall mean a legal existence. Whereas 'habitually secures orders' shall mean a systematic conduct on the part of the agent. Thus it is not only a legal right to secure order but also it is to be found, as a matter of fact that agent has habitually secured order. 4.2 Further, in this case the TP study of MIPL was subject matter of examination by the TPO. The FAR (Function performed, Assets deployed and Risk assumed) analysis has been accepted by the TPO. These agreement on the basis of which Assessing Officer has levied the allegation were also before the TPO. Thus, there cannot be any allegation that MIPL has performed any function beyond what has been stated. Functional and economic analysis of the transactions entered into having been examined nothing further can be imputed. The services of MIPL to assessee company were support services similar to the activities of a Liaison offices. This fact gets also....
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.... a permanent establishment of the other. Thus, the fact that MIPL is controlled by the assessee company shall not mean that MIPL is a PK of the assessee company. 4.4 Our view gets supported by the judgment of Hon'ble Delhi High Court in the case of Director of Income Tax And Others Versus M/s. E Funds IT Solution and Others 364 ITR 256 Delhi, where the Hon'ble court has held as under:- " 31. Paragraphs 4 and 5 of Article 5 relate to creation of agency PE in the second contracting country. Agency replaces fixed place with personal connection. Arvid K. Skaar in his work "Permanent Establishment" has opined that primacy of 'location test" of the basic rule is consistent with the conceptual structure of the PE clause itself. An agency will constitute a PE only when a PE cannot be found according to those conditions in the basic rule which are altered or replaced by the agency clause. OECD and UN Model Treaties recognize agency PE. The principle being, that a foreign enterprise may choose to perform business activities itself or through a third, person in the other States. An agent is a representative who acts on behalf of another with third persons. International ....
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....nnot be considered to be a dependent agent PE of the Principal, otherwise it would negate the overriding effect of paragraph 6 to Article 5, a provision which precedes and seeks to give recognition to separate legal entity principle associated with juristic incorporated enterprises. However, a subsidiary may become dependent or an independent PE agent provided the tests as specified in paragraphs 4 and 5 are satisfied. A dependent agent is deemed to be PE of the principal establishment under paragraph 4, if one of the three conditions specified in sub-clause (a) to (c) are satisfied. Under sub-clause (a), a dependent agent should have authority and should habitually exercise the said authority to conclude contracts on behalf of the foreign enterprise. What is meant by the term "authority to conclude contract" has been subject matter of controversy on whether participation in negotiations by the agent is sufficient or not. However, this is not relevant for the decision of the present appeals in view of the factual matrix of the present case. Subclause (b) refers to an agent who habitually maintains stock of goods or merchandise from which he regularly delivers goods or merc....
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....es" has certainly reference to systematic course of conduct on the part of the agent. Reference to OECD Commentary and Klaus Vogel was made and. it has been observed :- " Para. 4 uses two expressions :"has and "habitually exercises an authority to conclude contracts on behalf of the enterprise in question. While the expression "has\\ may have reference to the legal existence of such authority on the terms of the contract between the principal and agent, the expression "habitually exercises\\ has certainly reference to a systematic course of conduct on the part of the agent.If despite the specific provision of the soliciting agreement, it is found,as a matter of fact, that TVI is habitually concluding contracts on behalf of TVM without any protest or dissent, perhaps it could be presumed either that the relevant provisions of the agency contract are a dead letter ignored by the parties or that the principal has agreed implicitly to TVI exercising such powers notwithstanding the terms of the contract. If such a situation is found to exist, then perhaps it could be said that TVI constitutes a permanent establishment for TVM despite the clauses of the contract relied ....
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....ing 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 cross objection is accordingly allowed. 13. So far as ground of appeal No. 3 and 4 of the Cross Objection are concerned, the same relate to attribution of profits to DAPE. We find identical issue had come up before the Tribunal in assessee's own case for the assessment year 2010- 11. We find the Tribunal vide ITA No. 4377/Del/ 2016 order dated 22nd September, 2020 has decided the issue in favour of the assessee by holding as under :- "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 assessee's own case for the AY 2005- 06 by the order of Hon'ble ITAT Delhi dated 14.09.2017 bearing ITA N....
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....l No.2 and 3, the assessee has challenged the order of the CIT(A) in upholding the action of the AO regarding attribution of profit @ 20% of the gross trading profit determined by the CIT(A). 55. After hearing both the sides, we find this issue stands decided in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y. 2005- 06 where it has been held that the assessee is not a Dependent Agent Permanent Establishment and no income is attributable. Respectfully following the decision of the Tribunal in assessee's own case for the preceding assessment year, grounds of appeal No.2 and 3 raised by the assessee are allowed. Thus, in view of the above, issue is squarely covered by the assessee;s own case and no income is attributable." 15. Respectfully following the consistent decisions of the Tribunal in assessee's own case for the preceding assessment years and in absence of any contrary material brought to our notice we hold that no further profit could be attributed since assessee is not a Dependent Agency Permanent Establishment. Grounds of appeal No. 3 and 4 of the assessee are accordingly allowed." 14. Respectfully followin....