TaxTMI 
TaxTMI 
2019 (2) TMI 1942
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.... convenience and brevity. The assessee has also filed stay application for assessment year 2015-16. 2. The first common grievance in assessee's appeal relates to the denial of having any Permanent Establishment [PE] in India. At the very outset, the ld. counsel for the assessee stated that to avoid protracted litigation, he is not pressing this common grievance. 3. However, the ld. DR submitted the following written submissions in this regard, explaining the stand of the revenue: "PRELIMINARY 1. The assessment order and the DRP directions /order of the CIT(A) are emphatically relied upon. 2. This submission is restricted only to specific aspects. On balance aspects, above orders and oral submissions are relied upon. Claim during Assessment Proceedings- Function/Claims As per Assessee As per Survey documents Collection of market Info ZTE India (AO-4) Huang Dabin Q-4 (AO-9) Time to time clarifications and communicating with the assessee ZTE India (AO-4) Huang Dabin Q-2 (AO-9) Identifying business opportunities ZTE India (AO-4) Act as interface with Indian customers ZTE India (AO-4) ....
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....s. (Huang Dabin Q16 p.93 Annex-1) - ZTE China as a vendor of ZTE India helps us to prepare the technical documents in respect of supply of equipments. (Huang Dabin Q10 p.94 Annex-1) - We need technical support from ZTE China for installation and commissioning of equipments supplied by ZTE China. The employees of ZTE China come on short visits to render such technical support. (Huang Dabin Q.5 p.95 Annex-1) - Office of ZTE China (India Office) shown as 804-808, Tower-B, Global Business Park, Gurgaon India and Rajesh Singh shown as contact person (p.21 Annex-7 as per Q. 25 to Huang Dabin p.91 Annex-1) C. ITAT Order dt.30.05.2016 S.No Findings & Observations of Hon'ble ITAT Ref. Para No Challenged 1 Business Connection (not a GOA before ITAT) 2 Existence of PE under Art-5(1), 5(2)(c), 5(2)(u) &5(4) not pressed 13 No 3 Level of PE's participation /Functions carried out by PE 46, 50 No 4 Attribution of Profits to PE 50 Yes (194,195,196,227, 228) 5 Whether activities are preparatory & auxiliary in character (not a GOA before ITAT) 28....
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....ZTE India relating to assessee; * It was never claimed that the statements given during the course of survey are not correct or don't reflect the business processes and practices followed by the assessee; * Assessee vide its submission dt. 15.3.13 submitted that there was no change in the facts and circumstances from earlier years in respect of business model, revenue streams and their taxability in India. (AO-09-10) * No evidence produced to controvert the finding of facts recorded by Hon'ble ITAT in para-46 of its order relating to the functions and operations carried out by the assessee in India through its PE. * The findings of the Hon'ble ITAT on the role and functions of the PE and the activities & operations carried out by such PE has not been challenged before the Hon'ble High Court. The questions of law raised before the Hon'ble ITAT relate only to the attribution of income to such PE. It was claimed that marketing, negotiation and conclusion of contracts are not revenue generating activities (as distinct from preparatory and auxiliary activities) and consequently no income should be attributed to the PE (Ref....
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....ess transactions, maintenance & repair facilities)." (pp.301-302) "c. Beginning & End of a PE 78 ...... The PE ceases to exist as soon as the first of the indispensible elements of Art. 5(1) OECD and UN MCfor of Art. 5(5) OECD and UN MC. respectively) has dropped out. Insignificant interruption of the business activity are not taken into account. Apart from such short-term interruptions, the leasing out of an enterprise or a PE by the taxpayer will usually bring the PE of the lessor taxpayer to an end. Likewise, a PE ceases to exist as soon as one of the negative elements contained in Art-5(4) or (6) OECD and UN MC occurs. It is important to note, however, that the determination of the beginning and end of a PE is relevant for capital taxation only. By contrast, it need not be considered for income tax purposes. This is particularly true with regard to Art 7(1) & (2).... as the rules on attribution of profits to a PE allow an attribution of earnings and expenses to the PE even if they have accrued at a time when the PE had not subsisted yet - or vice versa, after the PE ceased to exist." (pp.348-349) E. Analysis of Documents relating to ....
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....39; the trial system p.330, Survey Doc, Vol.Ill Confidential & Non-disclosure Agreement between ZTE Corp &Teracom signed by Mr. D.Bhattachraya for ZTE Corp who is an employee of ZTE India (refer to p. 1215 of Survey Doc, Vol-X) p.649-652, Survey Doc, Vol.VII MOU for Business Alliance Partnership between ZTE Corp &Teracom CLIP phones (signed by Mr. D.Bhattachraya for ZTE Corp who is an employee of ZTE India (refer to p. 1215 of Survey Doc, Vol-X) p.676-683, Survey Doc, Details of Legal advice sought & fees paid. It may be noted that the law farm Fox Mandal& Co discussed various issues including the following which proves that ZTE Corp had its own employees working in India as well as seconded employees to ZTE India who were working for it - Termination of employment of Rajan Kalsi Finalization of secondment agreements with ZTE India Discussion and advice to Deepak Thakur of ZTE India (refer to p. 1215 of Survey Doc, Vol-X) on various issues (after receiving mail from ZTE Corp) i.e. * FRRO * Customs * Contract Employee * IP Issues * Corporate Guarantee matter regarding ASTER-Kenya p.663-671, Survey Doc, Vol.VII Letter from Calyon Bank address....
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.... Assistant to CMD ZTE lndia(also at p.751,754,755,806-815) p.725-726, Survey Doc, Vol.VIII Letter to BSNL/ITI from ZTE Corpn showing offices at Bangalore 8i New Delhi too signed by Huang Zuwei, MD p.727-730,802 & 820-821,824,828, Survey Doc, High Court Notice to ZTE Corpn send to Gurgaon address p.731, Survey Doc, Vol.VIII Letter to Chairman Telecom Commission dt. 4/8/2006 from ZTE India Ltd. in ZTE India Letterhead signed by President South Asia stating that 'we are doing business in India for last 5 years' i.e. from 2001 although ZTE Telecom India Pvt. Ltd. was incorporated only on 9/12/2003. This shows the merger of functional identities between ZTE Corpn& ZTE Telecom India although the p.743-744, Survey Doc, Vol.VIII Letter from ZTE Corpn in ZTE Corpn letterhead to ITI signed by Liu Ren, MD, ZTE Telecom India on behalf of ZTE Corpn. p.752-753, Survey Doc, Vol.VIII Letter from Huang Zuwei, MD, ZTE India on behalf of /for ZTE Corpn p.757, Survey Doc, Vol.VIII Agreement with ITI signed by Liu Ren, MD ZTE Corpn who is an employee of ZTE India (refer to p. 3 of Survey Doc, Vol-X) p.758,767, Survey Doc, Letter from Himanshu Gupta, Man....
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....p.946-954, Survey Doc, Vol.VIII Sales Contract between ITI & ZTE dt. 27/12/04 & Letter from ITI addressed to Bangalore Office p.1434 Vol-XII of PB Contract between Atlas India & ZTE China dt. 2/12/04 signed by Zuwei Huang, MD, ZTE Corpn, Gurgaon p.1449 Vol-XII of PB Contract between ShyamTelelink& ZTE China dt. 5/9/08 signed by Zhao Wangxin, SekharTatia both employees of ZTE India. p.1520 & 1522 Vol-XII of PB 4. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below qua the issue. We find that in assessment years 2004-05 to 2009-10, when this issue was agitated before the Tribunal, the Tribunal in ITA No. 5870/DEL/2012 at para 13 of its order observed as under: "At the time of hearing, the ld. counsel for the assessee submitted that he has instructions from his clients that the dispute between the assessee and the department may be settled and, therefore, on the most contentious issue regarding existence of PE in India, he has instructions not to press the same." 5. This ground was accordingly not considered by the Tribunal in earlier assessment years. Since during the captioned assessment ....
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.... "Activities performed by PE, summarized by AO as under, - Supervision and control of projects in India by MD of ZTE India - Meetings at Tendering/ Pre Bid stage in India - Preparation of Bidding Documents in India - Signing and submissions of bids in India - Price and contract negotiations in India - Preparation of draft agreements and MOUs in India - Signing of agreement in India - Entering contracts in India - Obtaining Purchase Orders/ other supply orders on behalf of ZTE China - LC opening and supply of equipments/ handsets - Shipment of equipments/ handsets - Customs clearances - Transportation and delivery - Installation and commissioning - Supervision of installation and commissioning - Technical support services - Quality assurances - After sales services and replacement - Concluding agreements and MOUs on behalf of ZTE China - Performance Guarantee of the . company- ZTE - Coordination with Government Departments - negotiation at Government level - Decisions regarding....
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....Nortel Canada and services of expatriate workers had also been taken as part of the execution of the work by the PE. Thus, the level of operation carried out in India were extensive and under such circumstances Tribunal had attributed 50% of the net profit arising out of Indian transactions as assessee's income. 50. Having discussed the entire case law and after considering the factual aspects, we find that the level of operations carried out by assessee through its PE in India are considerable enough to conclude that almost entire sales functions including marketing, banking and after sales were carried out by PE in India and, therefore, keeping in view the decision of Hon'ble Supreme Court in the case of ITA 5870/Del/12 & ors. - ZTE Corporation Ahmedbhai Umarbhai & Co. (supra), the decision of Rolls Royce (supra) and Nortel Networks India International Inc. (supra), we are of the opinion that it would meet the ends of justice if 35% of net global profits as per published accounts out of transactions of assessee with India are attributed to PE in India in respect of both hardware and software supplied by assessee to Indian customers. At this juncture we may point ....
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....el relied upon following decisions: - DIT Vs. Ericsson AB (2012) 343 ITR 470 (Del.); - DIT Vs. Infrasoft Ltd. (2013) 39 Taxmann.com 88 (Del.) - Aspect Software Inc. Vs. ADIT (2015) 61 Taxmann.com 36 (Del.) 73. We have considered the submissions of both the parties and have perused the record of the case. We find that in the case of Alcatel Lucent, France Tribunal in para 12,13 & 14 it has been held as under: "12. We have carefully considered the arguments of both the sides and perused relevant material placed before us. We find that learned ( (A) allowed the relief to the assessee following the decision of ITAT in assessee's own case for AY 1997-98 in ITA No.407/Del/200l. The ITAT had delivered the above ITA 5870/Del/12 & ors. - ZTE Corporation decision following the decision of Special Bench of ITAT in the case of Motorola Inc. (supra). We find at Hon'ble jurisdictional High Court upheld the decision of ITAT of Special Bench in the case of Motorola Inc. (supra) in the case of DIT Vs. Ericsson A.B. (supra). In the appeal by the Revenue, question No.3 pre posed before the Hon'ble Jurisdictional High Court and admitted by their....