TaxTMI 
TaxTMI 
2021 (6) TMI 254
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....mons (Matt) are in effect working for the Appellant and are rendering supervisions services on behalf of the Appellant. 2. On the facts and in the circumstances of the case and in law, the Ld.AO and Hon'ble DRP erred in concluding that the Appellant constitutes a Service Permanent Establishment (PE) in India under Article 5(2)(1) of India - USA Double Taxation Avoidance Agreement (DTAA). 3. On the facts and in the circumstances of the case and in law, the Ld.AO and Hon'ble DRP erred in taxing the reimbursement of salary as business profits under Article 7 of the India-USA DTAA, without appreciating the fact that these are recovered on cost to cost basis (i.e without any mark-up) and hence does not represent income. 4. Without prejudice to the above, assuming without admitting, if reimbursement of salary is considered as business profits, the Ld.AO and Hon'ble DRO erred in not allowing a corresponding deduction in computing alleged PE's income for amount disbursed by the Appellant to Tim and Matt under the provisions of Article 7(3) of India-USA DTAA. 5. On the facts and in the circumstances of the case and in law, the Ld.AO and Hon'ble DRP erred ....
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....he case and in law, the Ld.AO erred in initiating penalty proceedings under Section 271(1)c of the IT Act. The Appellant craves leave to add/or to alter, amend, rescind, modify the grounds herein above and/or produce further documents before or at the time of hearing of this Appeal. 3. The 1st interconnected issue raised by the assessee vide ground numbers 1 to 5 is that the learned DRP erred in treating Mr. Timothy Earl Madden(Tim) and Mr. Mathew Scott Timmons (Matt) as the employee of the assessee and accordingly attributed their salary to the supervisory PE. 4. The facts in brief are that the assessee in the present case is a foreign company, based in USA. The assessee has one associated enterprises (AE) namely M/s LZAM India in Vadodara Gujarat India. The associated enterprise of the assessee was in the process of establishing a new manufacturing plant at Dahej in India. For this purpose, the AE M/s LZAM entered into intercompany Services agreement vide dated 21-04-2010 with the assessee for providing engineering, technology, design and project supervisory services. As per the agreement, the AE was to pay actual cost plus markup @ 10% to the assessee. Accordingly....
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.... plant. Likewise, these employees have been working on different projects at different locations throughout the globe as employee of the assessee. Thus, it is crystal clear that these employees were working in supervising capacity on behalf of the assessee and constituting the part of the activities carried on with respect to supervisory PE in India. 4.6 The AO also found that the contention of the assessee that the global income of these employees have been suffered the tax in India is not acceptable for the reason that the copies of the passport and bank statements were not furnished. 4.7 Similarly, the AO found that the assessee in the earlier assessment year has itself admitted that the employees namely Mr. Tim and Mr. Matt are visiting India for supervisory purposes in connection with the manufacturing plant at Dahej in India. 4.8 In view of the above, the AO disregarded the contention of the assessee and added salary of above mentioned individual (Managing Directors) including the amount reimbursed by the AE M/s LZAM India to assessee amounting for Rs. 2,54.95,912/- to the income of the supervisory PE of the assessee. 5. Aggrieved assessee preferred an appeal to t....
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....ted entire salary reimbursement of Rs. 2.54 crores as income of assesse. However, in our opinion, only profit related to the receipt has to be taxed. 7.7 As per the Service Agreement, the assesse was to be paid its expenses with a mark up of 10%.The total expenditure in relation to these two employees was Rs. 5,12,19,548/-, as per the details submitted by assessee on Page 494 of paper book, enclosed as Annexure- A. Therefore, the profit @ 10% comes to Rs. 51,21,944/-. The AO is directed to restrict the addition to this amount i.e 51,21,955/-. The AO is directed to delete the balance addition. 7. Being aggrieved by the order of the learned DRP the assessee is in appeal before us. 8. The learned AR before us filed a paper book running from pages 1 to 100 and contended that the persons namely Mr. Tim and Mr. Matt are not the employee of the assessee. As such these are the persons who are working exclusively for the PE of the assessee in India as the managing directors. They are getting their salary after the requisite payment of tax in India. The learned AR in support of his contention drew our attention on the employment contract which are placed on pages 92 to 100 of ....
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....er: (c) For the operation of its business including the various projects that LZAM India undertake in the manufacture and sale of natural products, trading of industrial products and support service for business development in India and other south Asian countries, it needs to employ personnel having the requisite skills and expertise who would be deputed to LZAM India. (D) The deputee has expressed his willingness to be deputed to LZAM India upon terms and conditions to be mutually agreed upon between LZAM India and the deputee. (E) The deputed employee shall be working for LZAM India and will be under the supervision control and management of LZAM India as an employee of LZAM India only. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2.0 DISBURSEMENT OF PAY AND REMUNERATION TO EMPLOYEES 2.1 It is expressly provided and agreed between the Parties that for administrative conveneience and to meet employee requirements, LZAM India has requested and LZAM has agreed to disburse on behalf of LZAM Inida, the pay and remuneration of the employee deputed by LZAM to the employment of LZAM India. 2.2 The delivery....
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....he duties and exercise the powers that the Company may assign to you from time to time. 2. REMUNERATION 2.1 Salary Your basic salary is set forth in Annexure A attached hereto and incorporated herein by reference. The gross remuneration is subject to statutory withholdings and Indian income taxes, as applicable. In the case of Mr. MATT This Agreement serves to confirm your employment in Lubrizol Advanced Materials India Private Limited (hereinafter referred to as "the Company" in accordance with following terms and conditions: 1. EMPLOYMENT Effective as of July 15,2014, you will be employed by the Company in the position of Managing Director (for Lubrizol Advanced Materials activities in India) for a period of three years ( each such each being hereinafter referred to as a "contract year" at our Mumbai office. Your employment shall be subject to your transfer to another location within India if required by the company. You will work solely under the control, direction and supervision of the Company and in accordance with the policies, rules and guidelines of the Company. You will perform the duties and exercise....
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....dia which can be termed as dependent agency PE. As such the entire sale of goods was carried out by the assesse itself from outside India. Mr. Tim and Matt have not provided any services to it in this transaction of sale of the goods for the reason that they are the employees of AE and their salary was paid by the AE. Further the transaction of sale were made at arm length price. Hence there was not any dependent agency PE formed in India. 12.3 Furthermore, it was submitted by the assessee that sale of the goods represents offshore transaction meaning thereby the sale was executed and completed outside India, the risk and tittle of the goods were transferred outside India and payment was also made outside India. As such the offshore sale is not taxable in India as per the provision of section 5 and 9 of the Act. The assessee in this regard also relied on judgment of Hon'ble SC in case of Ishikawajima-Harima Heavy Industries Limited vs. DIT reported in 288 ITR 408. 12.4 However, the AO disregarded the contention of the assessee by holding that these 2 employees namely Mr. Tim and Mr. Matt are working on your behalf with the AE (assesse) in India which establishes the agency....