TaxTMI 
TaxTMI 
2021 (5) TMI 477
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....ng the impact of Advance Pricing Agreement being signed by the assessee's Indian associated enterprises, namely GIA India Laboratory Pvt Ltd, with the Central Board of Direct Taxes, in terms of which a part of the royalty received by the assessee company from its Indian AE had to refund to the Indian AE. As learned representatives fairly agree, the short question requiring our adjudication, on this point, is whether the amount so refunded by the assessee company to its Indian AE, in terms of the APA terms, can still be taxed in the hands of the assessee company as its income. As learned representatives fairly agree, that is the core issue requiring our adjudication, even though learned CIT(DR) puts it rather differently as whether, given the framework of law on transfer pricing, any such adjustment in royalty income can be allowed to the assessee as a result of an APA to which the assessee is not even a party. Whichever way one looks at it, the core issue really is whether or not the quantification of royalty income in the hands of the assessee will stand reduced by the refund granted by the assessee tin terms of the APA that the assessee's AE has entered into with the CBDT. Revenu....
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..... While the authorities below had no issues about the quantum of income so offered to tax, there were certain issues with regard to the manner in which the said income is to be taxed as the stand of the authorities below has been that the assessee had a permanent establishment of the assessee in India, and the royalties so offered to tax, being attributable to such a permanent establishment, are liable to be taxed on a net basis under article 7 of the Indo US tax treaty. While we are not really concerned with the merits of that aspect of the matter as of now, suffice to note that, as a result of these disputes, the assessment of income is yet to reach finality. 5. In the meantime, GIA India reached out to the Central Board of Direct Taxes for an Advance Pricing Agreement (APA), under section 92CC, in respect of, inter alia, the above transactions. 0n 7th May 2018, the APA was finally entered into between the GIA India and the CBDT. This APA was for five consecutive previous years, namely financial period ended 31st March 2014, 2105, 2016,and 2017, it also covered, as a rollback period, four consecutive preceding previous years as well i.e., financial periods ended 31st March 201....
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....any deduction on account of royalty. In order to provide necessary clarity the manner of computation of payable royalty for different years and the additional income to be included in the modified return in this respect has been included in Appendix IV to this agreement based on the information furnished by the applicant. 7. It was in this background that the 'year-wise working of the royalty payable and the adjustment amount based on the working given by the applicant' was set out in Appendix IV of the said APA, and the relevant portion of the working was as follows: The assessment year 2011-12 Sr. No. Particulars FYE March 2011 F 46.5:53.5 Split (including Management Fees and excluding Royalty) i) For India (C * % ) 426,669,616 426,669,616 ii) For US (C * % ) 490,899,451 490,899,451 G Royalty (%) H 1) As per the 46.5 : 53.5 Split [= F (ii)/A] 25.51% ii) Actual paid ( = D / A ) 35.62% Primary Adjustment &nbs....
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....sp; i) For India (C * % ) 929,422,416 929,422,416 ii) For US (C * % ) 1,069,355,468 1,069,355,468 G Royalty (%) H 1) As per the 46.5 : 53.5 Split [= F (ii)/A] 31.58% ii) Actual paid ( = D / A ) 46.41% Primary Adjustment i) Actual Royalty (= D) 1,571,338,680 1,571,338,680 ii) Royalty as per Split [= F (ii)] 1,069,355,468 1,069,355,468 Primary adjustment (H) = [(i) -(ii)] 502,003,212 502,003,212 The assessment year 2015-16 Sr. No. Particulars FYE March 2015 F 46.5:53.5 Split (including Management Fees and excluding Royalty) i) For India (C * % ) 1,601,310,544 1,601,310,544 ii) For US (C * % ) 1,842,368,046 1,842,368,046 G Royalty (%) H 1) As per....
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....6 2,49,39,39,966 8. The net result of the above APA is that the royalties which were received by the assessee company from its Indian AE, namely GIA Laboratory India Pvt Ltd, were required to be partially refunded to the Indian AE. Whatever was held to be in excess of the arm's length price arrived at under the aforesaid APA was required to be refunded. The details of royalties actually paid, held to at arm' length price under the APA, and required to be refunded to the Indian AE can be summed up as follows: Assessment year Royalty actually paid by the Indian AE ( In INR) ALP of the royalty as concluded in Indian AE's APA with the CBDT Amount to be recovered by the Indian AE, from the assessee, under the APA 2011-12 68,53,46,239 49,08,99,451 19,44,46,788 2012-13 79,48,51,211 56,48,03,982 23,00,47,229 2013-14 141,39,35,180 94,26,19,067 47,13,16,113 2014-15 157,13,38,680 106,93,35,468 50,20,03,212 2015-16 288,71,40,778 184,23,68,046 104,47,72,732 2016-17 261,86,26,595 168,83,59,419 93,02,67,176 2017-18 597,75,36,448 348,35,96,482 249,39,39,966 &nb....
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....ance, is that the amount which has been refunded by the assessee to its AE cannot be treated as income in the hands of the assessee, and must, therefore, be reduced from its taxable income as 'royalties'. 11. Learned senior counsel submits this issue, along-with another ground of appeal dealing with a connected facet of taxability of the royalty income, which has been rendered infructuous in the present context in the light of the coordinate bench decision holding that the assessee company did not have a permanent establishment (PE) in India, has been taken up by way of an additional ground in the first three assessment years, i.e. 2011-12, 2012-13 and 2013-14. This appeal as also the other six appeals of the assessee, which have been taken up for hearing today, are the appeals in which hearing was concluded earlier and these appeals have now been refixed for hearing de novo. It was further pointed out that these additional grounds of appeal was admitted earlier and argued at length, and there is no reason not to admit the same for these proceedings now. Learned Departmental Representative does not dispute this submission, but vehemently opposes the admission of this additional ....
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.... these appeals, the learned senior counsel then begins, on merits, by submitting that the income on account of royalty which can be taxed in the hands of the assessee is the net amount, as finally received by the assessee after the adjustments made pursuant to the APA settlement of the Indian AE, and not the amount as initially billed and received by the assessee. The subsequent event of refunding the amount of royalty, as a result of the Indian AE entering into APA with the Indian tax authorities, is not a standalone event, and it has to be essentially considered in conjunction with the original payment of royalties by the Indian AE to the assessee company. He submits that for example, in the assessment year 2011-12, the initial amount billed and received by the assessee, on account of royalty by the Indian AE i.e., GIA-India, was Rs. 68,53,46,239, but then, after giving a refund of Rs. 19,44,46,788, in terms of the requirements of the Indian AE's APA, the net royalty income of the assessee was only Rs. 49,08,99,451. The fact that the refund was made in a subsequent year does not really matter as it is admittedly on account of the royalty income booked in the assessment year 2011-....
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....s determined by AO under sub-section (3) of section 92C. It is then pointed out that, in contrast, no corresponding prohibition provided in section 92CC to 92CE, which are the provisions governing the APA scheme, nor is there any such prohibition in rule 10F to 10T, rules 44GA, rule 10MA and 10RA, which are the relevant rules for the APA scheme. It is therefore submitted that where a suo motu adjustment to the transfer price is made by an enterprise pursuant to an APA, a corresponding effect thereof must be allowed to the AE. It stands to reason that a prohibition should exist in section 92C and not in section 92CC. Section 92C deals with a situation where an assessee declares a price to be ALP which is found not to be correct on scrutiny by Transfer Pricing Officer. Therefore, when an adjustment is made to ALP under section 92C, it is provided that the corresponding benefit is not to be given to the AE. However, in contrast, the APA under section 92CC is a voluntary agreement between an assessee and the Department and is not a determination by the AO/TPO where the ALP declared by an assessee is found to be incorrect. Besides, the APA, as in the present case, has the effect of v....
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....ssee are not in the context of the Transfer Pricing Provisions of sections 92C , 92CD, and 92CE. Further in the case of Bokaro Steel Ltd., the entries were reversed in the second year. Here there is no record that entries are reversed and it is not the case that Royalty agreement is cancelled. What has merely happened is that ALP has been determined at different price than that recorded in the books of the Indian Company. Similarly in the case of Godhra Electricity Co. Ltd., the subject matter of enhancement of tariffs was litigated upto the Apex Court. The decision was applicable to the assessee. In the case of the assessee here, apart from the fact that there is no evidence or any reversal on records in the present proceedings, the question is whether it is voluntary in the case of the assessee and if so will it go to reverse the entries ab-initio, or it will apply to the year in which reversal is made. 5. The claim of the assessee is in the nature of secondary adjustment since it pertains to the associated enterprise as a result of the primary adjustment. The proviso to sec. 92C(4) reads as "provided further that where the total income of an associated enterprise is com....
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....payment of royalty. A perusal of the APA shows that the same was determined based on the various international transactions relating to the payments made between the Indian enterprise GIA India to the foreign affiliates, including the assesee GIA Inc, in respect of the grading services, management services and royalty. The ALPs were determined for all these three transactions. This no suo motu adjustment as claimed by the assessee before your honours. This is resolution of dispute between the TPO and the GIA India in respect of transfer pricing issues. Further, the Ld AR has claimed that where a suo motu adjustment to the transfer price is made by the enterprise pursuant to an APA , a corresponding effect thereof must be allowed to the AE. This clearly shows that this is admitted to be a transfer pricing adjustment, and a secondary adjustment is sought. Under Appendix II there is reference to payment of royalty in item 5.1(iii). This refers to the Appendix -I (1)(b)(iii). A perusal of the same shows that the determination was made keeping in view the operating profits resulting from the transactions. Thus, it is humbly submitted that the Advance Pricing Agreement ....
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....d not give a corresponding effect in the computation of income of the AE, would result in double taxation and an unjust collection of tax twice over by the Department, which can never be the intention of the legislature and any interpretation which leads to such absurd result must be avoided. Reliance was placed on Hon'ble Supreme Court's judgments in the cases of CIT Vs J H Gotla (156 ITR 323) and K P Varghese Vs ITO (131 ITR 597). As regards reliance placed by the learned Departmental Representative ("DR") on the provisions of section 92CE of the Act, it is contended that such a reliance is completely erroneous and misconceived for the following reasons: The said provision, has been inserted by the Finance Act, 2017 with effect from 01 April 2018 i.e., Assessment Year 2018-19 onwards. The first proviso to section 92CE of the Act in terms provides that the provisions of this section shall not apply if the primary adjustment is made in respect of an assessment year commencing on or before 01 April 2016 - the years under consideration are Assessment Year 2011-12 to 2016-17 and therefore the provisions of section 92CE cannot have any application. Without prejudice t....
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....ermined in the APA, "the applicant (i.e., the GIA India) shall raise the appropriate invoice on the AE to recover the aforesaid excess payment made and show the respective excess amounts as additional income in the modified return of the respective years." Under rule 10F(f) critical assumption means "the factors and assumptions that are so critical and significant that neither party entering into an agreement will continue to be bound by the agreement, if any of the factors or assumptions are changed." It is, thus, clear that one of the fundamental assumptions of the said APA was partial recovery of royalty from the assessee, i.e., to the extent of the excess of actual payment of royalty by the GIA India to the assessee vis-à-vis arm's length price of the royalty as determined under the APA. Under these circumstances, the bonafides of the adjustments, in quantum of royalty payable by the GIA India to the assessee, cannot be questioned. The next question is, what is its impact on the income of the assessee. Obviously, these royalty refunds by, or royalty recoveries from, the assessee are not standalone events, which can be seen in isolation with the receipts of related royalt....
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....at part of receipt of an income which the assessee has bonafide refunded to the person from whom such an income was received. As is the well-settled legal position, in order that an income is taxed in the hands of an assessee, it must be a real income, which the assessee has actually earned in reality, and not a mere hypothetical income which assessee could have earned but, in fact, did not earn. 17. Learned CIT (DR) suggests that it is beyond the scope of Section 253 to get into a question which already stands concluded by accepting the quantum of income that the assessee had offered to tax. There is little substance in this argument. Section 253 only refers to the orders against which appeals can be filed before the Tribunal. As for the powers of the Tribunal, Section 254 describes these powers in the widest terms by stating that the Tribunal may, after giving both the parties to an appeal an opportunity of being heard, "pass such orders thereon as it thinks fit." As to whether such a new issue can be raised for the first time before us, we may refer to the observations made by Hon'ble Delhi High Court, in the case of Orissa Cement Ltd Vs. CIT [(2001) 250 ITR 856 (Del)], as fo....
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....ome on the basis of arm's length price results in a reduction of taxable income increase of loss, the provisions of Section 92 will not apply, but that is a wholly irrelevant observation. It is not the question of computation of income on the basis of ALP adjustments in the hands of the assessee, but the issue is whether the royalty actually received post refund is to be taken into account as income of the assessee or whether the original figure of royalty income, despite the refund, could be taxed in the hands of the assessee. The approach of the DRP was thus wholly superficial. As regards the observations by the DRP that the assessee cannot benefit from the APA that GIA India has entered into with the CBDT, and the terms of the APA cannot be imported into the assessment of taxable royalty in the hands of the assessee, once again this observation is also very superficial. It is not the content of the APA, but the impact of the APA, that is relevant for the assessee. In terms of the APA, a recovery of royalty is made from the assessee by the GIA-India. This shows that the recovery is bonafide. What is, however, even more material, from our perspective, is that as a result of this b....
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....e had a legal obligation to do so or not is not material, but what is material is whether it was commercially expedient for the assessee to do so. The answer, to our mind, is in the affirmative. It is also important to note that in the assessment year 2018-19, the Assessing Officer himself has reduced the amount refunded, as above, from the royalty income of the assessee. When it was pointed out to the learned Commissioner (DR), he explained that the legal position post 1st April 2018 is materially different. Learned Commissioner (DR) seeks to justify this difference in treatment on the ground that while Section 92CE was in force with effect f the question of making any secondary adjustment could only arise in the hands of GIA India and not in the hands of the assessee from 1st April 2018, which permits secondary amendment, the law did not permit secondary adjustments for a period prior to 1st April 2018 as pertaining to the assessment years before us. It may be recalled that, as noted earlier, stand of the assessee is concerned, so far as secondary adjustments under section 92CE are concerned, these adjustments can only be made in the hands of the assessee and not its AE, and, the....
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....lign the transfer pricing provisions in line with OECD transfer pricing guidelines and international best practices, a new section 92CE has been inserted in the Income-tax Act so as to provide that the assessee shall be required to carry out secondary adjustment where the primary adjustment to transfer price, has been made suo motu by the assessee in his return of income; or made by the Assessing Officer has been accepted by the assessee; or is determined by an advance pricing agreement entered into by the assessee under section 92CC of the Income-tax Act; or is made as per the safe harbour rules framed under section 92CB of the Income-tax Act; or is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or 90A of the Income-tax Act. 45.4 It is also provided that where as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advan....
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....s nothing to do with the taxability of correct income in the hands of the foreign AE to which payment for the international transaction has been made, inasmuch as, this provision cannot be seen as a bar on repatriating back the excess payment made (i.e. actual payment minus the arm's length price) even if there was no statutory obligation to do so. In our humble understanding, there was no bar, even in respect of the period prior to insertion of Section 92CE, on any secondary adjustments being made by parties to a transaction. It is also important to note that so far as the APAs are concerned, under rule 10 M (1)(vi) of the Income Tax Rules 1962, an APA may, amongst other things, include "the conditions, if any, other than provided in the Act or these rules" and, therefore, as long as an APA refers to secondary adjustments, whether specifically permissible under the law or not, these secondary adjustments are to be carried out. It is also important to bear in mind the fact that no secondary adjustment can anyway be unilateral in nature. When an assessee is to raise an invoice on its AE abroad, that invoice is to be accounted for by the entity issuing the invoice as also by the enti....
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....ons of the second proviso to Section 92CE(1) was that relief granted by insertion of words "on or after the 1st day of April 2017" in Section 92CE(1)(iii) was with prospective effect. Learned CIT(DR) has been a bit too naïve in ignoring the import of words "if any, by virtue of provisions of this sub-section as they stood immediately before their amendment by the Finance (No. 2) Act, 2019 shall be claimed and allowed" in the proviso, and, therefore, ended up reading a bit too much into this rather innocuous and unidimensional provision. It is thus not correct to say that, in principle, in terms of the provisions of section 92CE, no refund of taxes could be claimed or allowed on account of secondary adjustments- even if, for example, as in this case, such secondary adjustments end up reducing the income of the foreign AE assesses as a result of partial repatriation of income. A lot of emphasis is then placed by the learned CIT(DR) on the claim that the action of the assessee, in partially refunding the royalty amount to the GIA India, i.e., Indian AE, was voluntary inasmuch as the assessee was not a party to the APA. Nothing, however, turns on this plea. Whether the refund w....
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....had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to accept the total income as returned. 3:0 Re.: Holding that the Appellant has a "business connection in India: 3:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that the Appellant has "business connection in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no business connection in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 3:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the appellant had business connection in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 3:4 The Appellant submit....
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....tuted as a fixed place PE of the assessee in terms of Article 5(1) of the India- USA DTAA. As per Article 5(1) of the Indo-USA DTAA, a fixed place PE arises when the foreign entity has a fixed place in India through which its business is wholly or partly carried on. In this context, the learned Counsel pointed out that a similar situation has been considered by the Hon'ble High Court of Delhi in the case of E- Funds IT Solutions (supra), which has been upheld by the Hon'ble Supreme Court. In that case, it has been held that a subsidiary cannot be regarded as a 'fixed place PE' of the parent company on the ground of a close association between the Indian subsidiary and the foreign taxpayer. In that case, it was noted that because various services were being provided by E-Fund India (Indian subsidiary) to the taxpayer or that the foreign tax payer was dependent upon Indian subsidiary (e- Fund India) for its earnings or assignment or sub-contract of contracts to e-Fund India or e-Fund India being reimbursed on a certain costplus basis or saving / reduction in cost by transferring business or back office operations to the Indian subsidiary or the manner and mode the pay....
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....in India for a period or periods aggregating to more than 90 days within any twelvemonth period; or the services are performed within India for a related enterprise. Hence, a service PE is triggered if the services (other than included services as defined in Article 12 'Royalties and Fees for Included Services') are rendered by the assessee company through employees or other personnel and activities of that nature continue in India for a period or periods aggregating to more than 90 days within any twelve-month period; or the services are performed within India for a related enterprise. The assessee company renders 'grading services' and 'management services to GIA India Lab'. In fact, 2 graders who were earlier employed with the assessee company are now employed with GIA India Lab and are on the payrolls of GIA India Lab and are working under control and supervisions of GIA India Lab and therefore, no service PE is created in India in terms of India- US DTAA. The Supreme Court has affirmed the decision of the Delhi High Court in E- Funds (supra) wherein it has been held that two employees deputed to e-Fund India fund India did not create a service PE as the....
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....independent agent, i.e., - That he should be an agent of independent status; that, he should be acting in the ordinary course of his business; and, that his activities should not be devoted wholly or almost wholly on behalf of the foreign enterprise for whom he is acting as agent. 15. GIA India Lab is an independent/separate legal entity in India which is engaged in rendering of grading services. Further, considering the functions and the risks assumed by GIA India Lab vis- à-vis its business activities in India (as has been recorded in the transfer pricing study report - which functional and risk analysis has been accepted by the Transfer Pricing Officer both in the case of GIA India Lab and in the case of the assessee company), GIA India Lab is an independent entity which is rendering grading services to its clients in India. GIA India Lab also bears service risk and all client facing risks vis-à-vis the stones sent to the assessee company for grading purposes (as has been recorded in the Transfer Pricing Study Report). Hence, GIA India Lab is not acting in India on behalf of the assessee company. Further, GIA India Lab is not having any authority to conclu....
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....view, stands on an entirely different fact-situation. In the present case, there is no material to show that the assessee dictates to the Indian subsidiary as to what activities it is authorised to engage in. We have also noted earlier that the Indian subsidiary is operating in an independent manner and there is nothing to show that factually speaking the Indian subsidiary constitutes a PE of the assessee in India. Thus, on account of difference in fact-situation, the reliance placed by the Ld. DR in the case of Formula One World Championship Ltd. (supra) is misplaced. 18. In view of the aforesaid discussion, in our considered view, the Assessing Officer has erred in invoking section 9 of the Act and/or Article 5 of the India-USA DTAA in order to say that the assessee company has a PE in India. Thus, assessee succeeds on this issue 27. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the plea of the assessee that the assessee did not have any permanent establishment in India under article 5 of the Indo US tax treaty, or business connection India under section 9 of the Income....
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....ring the year u/s. 44DA of the Income Act, 1961: 6:1 The Assessing Officer the Dispute Resolution Panel has erred in holding that the royalty income is "effectively connected" with the alleged PE of the Appellant in India and is therefore taxable u/s. 44DA of the Income Tax Act, 1961 @40%. 6:2 The Appellant submits that considering the facts and circumstances of its case and law prevailing on the subject and in particular the provisions of the India-USA DTAA, the Assessing Officer/ the Dispute Resolution Panel the "royalty" received by it during the year under consideration is not taxable u/s. 44DA of the Income-tax Act, 1961 and hence the stand taken by the Assessing Officer/ the Dispute Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 6:3 The Appellant submits that the Assessing Officer be directed to tax the "royalty" income in accordance with the provisions of section 9 (1) (vi) of the Income-tax Act, 1961 read with Article 12 of the India-USA DTAA and be directed to accept the total income as returned. 33. Learned representatives agree that once we come to the conclusion that ....
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.... The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty taxable in its hands in its hands for the year under consideration should be restricted to Rs. 49,08,99,451/- in accordance with the APA. 8:3 The Appellant submits that the Assessing Officer be directed to consider the royalty income worked out in terms or the APA and to re-compute its total income and tax thereon accordingly. 9:0 Re: Restricting the taxation of royalty income aft effectively connected to the PE only to Rs. 49,08,99,451/- 9:1 The Appellant submits that in case it is held that any part of royalty income is effectively connected to the alleged PE or the Appellant then such amount should be restricted to Rs. 49,08,99,451/- which is in accordance with the APA dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 9:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty, if held to be connected to the alleged PE, should be restricted to Rs. 49,08,99,451/ in accordance with the APA 9:3 The App....
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....dering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 2:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to accept the total income as returned. 3:0 Re.: Holding that the Appellant has a "business connection in India: 3:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that the Appellant has "business connection in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no business connection in India and the stand taken by the Assessing Officer/the Disput....
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....that the 7.27% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE taxable in India. 5:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, even if it is held that the Appellant has a PE in India no further income can be taxed in India as the alleged PF has been remunerated at an Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 5:3 The Appellant submits that the Assessing Officer be directed to accept the total income as returned 5:4 Without prejudice to the foregoing and inspite of specific directions in this regard by the Dispute Resolution Panel, the Assessing Officer has erred in holding that 20.31% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE and taxable in India. 48. Learned representatives fairly agree that in view of our conclusion that the assessee did not have any permanent establishment or business connection in India, the issues regarding attribution of profits or attribution of profits are ....
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....g Officer be directed to grant the credit of tax deducted at source and re-compute its tax liability accordingly. 54. Learned representatives fairly agree that this issue may be remitted for adjudication de novo after giving yet another opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order. Ordered, accordingly. 55. Ground no. 7 is thus allowed for statistical purposes. 56. In ground nos. 8 and 9, by way of additional grounds of appeal, the assessee has raised the following grievance: 8:0 Re: Taxation of royalty income at Rs. 56,48,03,982 8:1 The Appellant submits that the amount taxable in terms of Article 12(2) of the India-USA Double Taxation Avoidance Agreement [DTAA] should be restricted to Rs. 56,48,03,982 which is in accordance with the Advanced Pricing Agreement ["APA"] dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 8:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty taxable in its hands in its hands for the year under consideration should be restricted to Rs. 56,48,03,982 in acc....
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.... infructuous. 59. In the result, the appeal for the assessment year 2012-13 is partly allowed in the terms indicated above. 60. We now take up the ITA No. 7174/Mum/17, i.e. appeal filed by the assessee for the assessment year 2013-14. By way of this appeal, the assessee appellant has challenged correctness of the order dated 31st October 2017 in the matter of assessment under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the assessment year 2013-14. 61. Ground no. 1 is general in nature and does not call for any specific adjudication. 62. In ground nos. 2 and 3, the assessee has raised the following grievances: 2:0 Re: Holding that the Appellant has a 'Permanent Establishment' ("PE") in India: 2:1 The Assessing Officer / the Dispute Resolution Panel has erred in holding that the Appellant has a Permanent Establishment' ("PE) in India. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. ....
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....: Attribution 4:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that 50% of Receipts are attributable to the alleged PE of the Appellant in India. 4:2 The Appellant submits that considering the facts and circumstances of its case and the1aw prevailing on the subject no part whatsoever of its receipts are attributable to India and the stand taken by the Assessing Officer/ the Dispute Resolution Panel in this regard is incorrect, illegal, arbitrary, baseless, not in accordance with law and hence ought to be struck down. 4:3 The Appellant submits that the arbitrary action of the Assessing Officer/ the Dispute Resolution Panel be struck down and the Assessing Officer be directed to accept the total income as returned. Without prejudice to the foregoing: 5:0 Re.: Estimation of gross profit: 5:1 The Assessing Officer / the Dispute Resolution Panel has erred in holding that the 20.31% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE taxable in India. 5:2 The Appellant submits that considering the facts and circumstances of its case and the law ....
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.... conclusion that there is no PE or business connection on the facts of this case, as we have concluded dealing with preceding grounds of appeal, there will be no occasion of royalty being effectively connected with the PE or taxability of royalty under section 44DA. This issue is also, therefore, academic and infructuous in the present context. 70. Ground no. 6 is also thus dismissed. 71. In ground nos. 7 and 8, by way of additional grounds of appeal, the assessee has raised the following grievance: 8:0 Re: Taxation of royalty income at Rs. 94,26,19,067 8:1 The Appellant submits that the amount taxable in terms of Article 12(2) of the India-USA Double Taxation Avoidance Agreement [DTAA] should be restricted to Rs. 94,26,19,067which is in accordance with the Advanced Pricing Agreement ["APA"] dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 8:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty taxable in its hands in its hands for the year under consideration should be restricted to Rs. 94,26,19,067 in accordance with the APA. 8:....
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.... the appeal for the assessment year 2012-13 for the assessment year 2013-14 is partly allowed in the terms indicated above. 75. We now take up the ITA No. 53/Mum/2019, i.e. appeal filed by the assessee for the assessment year 2014-15. By way of this appeal, the assessee appellant has challenged correctness of the order dated 29th October 2018, in the matter of assessment under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the assessment year 2014-15. 76. Ground no. 1 is general in nature and does not call for any specific adjudication. 77. In ground nos. 2 and 3, the assessee has raised the following grievances: 2:0 Re: Holding that the Appellant has a 'Permanent Establishment' ("PE") in India: 2:1 The Assessing Officer / the Dispute Resolution Panel has erred in holding that the Appellant has a Permanent Establishment' ("PE) in India. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. ....
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....:0 Re.: Attribution 4:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that 50% of Receipts are attributable to the alleged PE of the Appellant in India. 4:2 The Appellant submits that considering the facts and circumstances of its case and the1aw prevailing on the subject no part whatsoever of its receipts are attributable to India and the stand taken by the Assessing Officer/ the Dispute Resolution Panel in this regard is incorrect, illegal, arbitrary, baseless, not in accordance with law and hence ought to be struck down. Without prejudice to the foregoing: 5:0 Re.: Estimation of gross profit: 5:1 The Assessing Officer / the Dispute Resolution Panel has erred in holding that the 20.31% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE taxable in India. 5:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, even if it is held that the Appellant has a PE in India no further income can be taxed in India as the alleged PF has been remunerated at an Resolution Panel in respect thereof....
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....submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty taxable in its hands for the year under consideration should be restricted to Rs. 1,06,93,35,468/- in accordance with the APA. 7 :3 The Appellant submits that the Assessing Officer be directed to consider the royalty income worked out in terms of the APA and to re-compute its total income and tax thereon accordingly. Without prejudice to the forgoing 8 :0 Re: Restricting the taxation of royalty income at effectively connected to the PE only to Rs. 1.06.93.35.468/-: 8 :1 The Appellant submits that in case it be held that the royalty income is effectively connected to the alleged PE in India of the Appellant then such amount should be restricted to Rs. ,06,93,35,468/- which is in accordance with the APA dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 8 :2 The Appellant submits that the Assessing Officer be directed to consider the royalty income, if any, connected to the alleged PE, only at Rs. 1,06,93,35,468/- and to recompute its total income and tax thereon accordingly. 87. In view of ....
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.... stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 2:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to accept the total income as returned. 3:0 Re.: Holding that the Appellant has a "business connection in India: 3:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that the Appellant has "business connection" in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no business connection in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 3:3 The Appe....
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....t the Appellant has a PE in India no further income can be taxed in India as the alleged PF has been remunerated at an Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 98. Learned representatives fairly agree that in view of our conclusion that the assessee did not have any permanent establishment or business connection in India, the issues regarding attribution of profits or attribution of profits are infructuous, and do not call for any adjudication by us. We, therefore, decline to deal with these issues on merits, and reject the same as infructuous. 99. Ground nos. 4 and 5 are thus dismissed as infructuous. 100. In ground no. 6 and 7 , the assessee has raised the following grievances: 6:0 Re: Non-consideration of correct amount of royalty for the year: 6:1 The Assessing Officer / the Dispute Resolution Panel have erred in holding that the Appellant's income by way of royalty for the year is Rs. 2,88,71,40,780/-. 6:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty taxable in its....
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.... of the findings earlier in the order that no part of the royalty income is to be treated as attributable to the PE, and taxed under section 44AD as such, as it has been held that there is no PE on the facts of this case. 102. Ground no.6 is thus allowed for statistical purposes in the terms indicated above, and ground no.7 is dismissed as infructuous. 103. In ground no. 8, the assessee has raised grievance against levy of interest under section 234A on the facts of the case, but no specific arguments have been addressed on this issue. Ground no. 8 is thus treated as not pressed. 104. Ground no. 8 is thus dismissed as not pressed. 105. In the result, the appeal for the assessment year 2015-16 is partly allowed in the terms indicated above 106. We now take up the ITA No.7740/Mum/2019, i.e. appeal filed by the assessee for the assessment year 2016-17. By way of this appeal, the assessee appellant has challenged correctness of the order dated 18th October 2019, in the matter of assessment under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the assessment year 2016-17. 107. Ground no. 1 is general in nature and does not call for any specific adjudicatio....
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....own case for the assessment year 2010-11, we have decided this issue in favour of the assessee and held that the assessee did not have any permanent establishment in India under article 5 of the Indo US tax treaty, or business connection India under section 9 of the Income Tax Act, 1961. The assessee succeeds on this issue. We see no reasons to take any other view of the matter than the view so taken by us above. We, therefore, uphold the plea of the assessee on these points. 110. Ground nos. 2 and 3 are thus allowed. 111. In ground nos. 4 and 5, the assessee has raised the following grievance: Without prejudice to the foregoing 4:0 Re.: Attribution 4:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that 50% of Receipts are attributable to the alleged PE of the Appellant in India. 4:2 The Appellant submits that considering the facts and circumstances of its case and the1aw prevailing on the subject no part whatsoever of its receipts are attributable to India and the stand taken by the Assessing Officer/ the Dispute Resolution Panel in this regard is incorrect, illegal, arbitrary, baseless, not in accordance with law and hen....
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....s. 44DA of the Income-tax Act, 1961. 7:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject and in particular the provisions of the India-USA. DTAA, the Assessing Officer / the Dispute Resolution Panel the "royalty" received by it during the year under consideration is not taxable u/s. 44DA of the Income-tax Act, 1961 since it does not have any PE in India and hence the stand taken by the Assessing Officer/ the Dispute Resolution Panel in respect thereof js incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 7:3 The Appellant further submits that even if it be held that the royalty income is effectively connected to the alleged PE in India of the Appellant then such amount should be restricted to Rs. 168,83,59,420 which is in accordance with the APA dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 115. In view of the discussions earlier- particularly in paragraph 2-21 earlier in this order, the ground of appeal no.6 decided in favour of the assessee, in principle, though the matter will go back to the Assessing Officer for verification....