TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 1129
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....of INR 50.71). Ground No. 2: Treating Mobileum (India) Private Limited ('MIPL') as Dependent Agent Permanent Establishment of the Appellant in India 2.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO in constituting MIPL as Dependent Agent Permanent Establishment ('DAPE') of the Appellant in India under Article 5(4) of Double Taxation Avoidance Agreement between India and United States of America ('India-US tax treaty')- The learned CIT(A) erred in ignoring the fact that MIPL is neither an agent of the Appellant (but a service provider), nor dependant on the Appellant and that MIPL neither has nor exercised any authority to conclude contracts on behalf of the Appellant and do not bind the Appellant in any other manner. Ground No. 3: Attribution of further profits to the DAPE of the Appellant in India i.e. to MIPL, over and above the arms's length remuneration paid to MIPL 3.1 Without prejudice to Ground No. 2, on the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO in attributing further profits to DAPE, thereby ignoring th....
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....ompany incorporated under the laws of United States of America ('USA') and a tax resident of USA. The Appellant is engaged in the business of developing and providing voice and data roaming solution to worldwide mobile operators. The Appellant sells 'Mobileum Software / Mobileum Product1 alongwith third party hardware and third party software to mobile operators across the globe and also provides incidental services. The Appellant has entered into agreements with various customers in India for supply of Mobileum Products, third party hardware and third party software and provision of allied services like installation, training, maintenance and support. During the year under consideration, the Appellant has earned following revenue from its customers in India: i) Supply of Mobile urn Software- USD 2,15,841; ii) Provision of installation, training, maintenance and support services ('Fee for Technical Services') - USD 3,11,349; iii) Supply of Third Party Software- USD 1,60,253; and iv)Supply of Third Party Hardware- USD 15,68,864; The revenue earned by the Appellant from its Indian customers during the year under consideration towards installation, tr....
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.... agent MIPL, since all the operations such as installation, maintenance etc are/were done by MIPL. That, further, most important aspect is the brand name used by the assessee is same as that of its agent in India. Hence, Ld.CIT(A) held that thus, it is understood that a foreign enterprise is virtually projected into the territory of another country, in any manner; it constitutes a PE in that country. Accordingly, he agreed with the Assessing Officer that there is a DAPE in India. Further, the assessing officer has rejected the assessee's arguments that the MIPL was compensated at arm's length price for the reason that transfer pricing assessment in the case of appellant has not being carried out. The assessing officer has also relied on the fact of the withdrawal of circular No. 23 of 1969 by the CBTD. The TPO has attributed 50% of the revenue received by the appellant from its Indian customers has since details of expenditure were not provided by the assesee; the TPO has estimated 80% in case of income from sale of software and technical fees, and profitability of 20% on sale of third party hardware. Before the Ld.CIT(A), the assessee submitted that the transfer pricing ....
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....gards the quantum of attribution of revenue the assessing officer's view has to be upheld in the absence of details of expenditure. The assessee even during appellate proceeding^ has not given the details. Therefore, this ground of appeal is dismissed." 6. Apropos ground No.5 Ground No. 5: This issue relates to treatment of receipt from Indian customers from supply of Mobileum Software and third party software as royalty. The Ld.CIT(A) held that the assessee, though stated that limited rights have been given to the customers to enable the user to operate the programme but it is given with same rights to the end user. Hence, he was in agreement with the AO, as, in substance the license is granted permitting the ultimate user to copy and download the software, the CD would not be helpful to the end user and accordingly, it constitutes royalty under the provisions of Section 9(1)(vi) of the Act and Article 12(3) of the India-US tax treaty. That, therefore, any consideration made for the use of a process would constitute royalty and since the definitions of term "royalty" as appearing in Explanation 2 to Section 9(1)(vi) of the Act and Paragraph 3 of Article 12 of India-US DTAA....
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....f computer software to Indian customers as Royalty under Article 12 of India-USA Tax Treaty. The said view was upheld by the CIT(A). 3.5 It is submitted that the amount in question cannot be brought to tax in India for the following reasons a. Since one proceeds on the footing that there exists a PE of the Appellant in India, then, as per the provisions of Article 12(6) of India-US DTAA, the alleged royalty, which would be effectively connected with the so-called PE, would be dealt with as per 'Article 7 - Business Profits' and not as per 'Article 12 - Royalties and Fees for Included Services*. The consequence would be that since the so-called PE is already remunerated at an arm's length, ' neither the royalty nor any other income would be chargeable to tax in the Appellant's hands ft is submitted that if this submission is upheld, then, it would not be necessary to go into the question as to whether or not the amounts in question are in the nature of royalty. b. In any event, the decision of Karnataka High Court relied on by the AO has been overruled by the Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Private Limited ....
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....no adjustment to be made in the hands of the assessee, is decided in favour of the assessee in assessee's own case for the A.Y. 2007-08 by the Coordinate Bench of the Tribunal in ITA No. 8862/Mum/2010 by order dated 17.11.2017 following the decision of the Hon'ble supreme Court in the case of CIT v. E-funds I.T. Solutions Inc., in Civil Appeal No. 6082 of 2015 dated 24.10.2017. Ld. Counsel for the assessee submitted that following the decision of the Hon'ble supreme Court, the Coordinate Bench held that once no income is chargeable to tax in India is attributable to the assessee for the reason that the transaction between the assessee and its AE has been found at arm's length price, no further income chargeable to tax in India can be said to be attributable on account of PE. Ld. Counsel for the assessee referring to the order passed by the Transfer Pricing Officer u/s. 92CA (3) of the Act for the A.Y. 2005-06 in the case of M/s. Zee Telefilms Ltd., which is the agent of the assessee, it is submitted that the TPO accepted the transactions are at arm's length and no adjustment has been made to the International transactions entered into by the assessee with its associate enterprise....
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....gn center for development of software for call centres. eFunds International (India) Pvt. Ltd. is a wholly owned subsidiary of IDLX Holdings BV, Netherlands. IDLX is a wholly owned subsidiary of eFunds Corp. The major international transactions undertaken by the assessee during the year is given below: Sl.No Description of transaction Method Value (In Rs.) 1 Financial Shared Services (Back Office) TNMM 33.9 Cr. 5 2 Call Center Services (Shared Service Centre) TNMM 88.03 Cr. 3. 3 Software Development (Offshore for call centres) TNMM 57.58 Cr In addition to the above the assessee has also provided software development services to overseas eFunds group entities. The international transactions undertaken by the assessee were examined visa-vis the method applied by the assessee for arriving at the arm's length price. The assessee has relied on the Transactional Net Margin Method (TNMM) in respect of all the major international transactions. After examination of the documentation and discussion with the authorized representative of the assessee, no adverse inference is drawn in respect of the Arm's Length Price (ALP) of the international transactions, as....
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....uted to PE. The situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the taxpayer has to be examined as to whether the transfer pricing analysis placed by the taxpayer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. Lastly, it may be added that taxing corporates on the basis of the concept of economic nexus is an important feature of attributable profits (profits attributable to PE)." (at pages 27-28)" The learned Counsel also relied in ITAT's decision in the case of Taj TV Ltd. vs ADIT (international Taxation) (2017) 162 ITD 674 (MumTrib.) "18. As regards ground No.1 of the Revenue's appeal, it is admitted fact that, similar to ground which has been decided in the assessment year 2007-08. Therefore, in view of the finding given there in, we hold that no further income chargeable to tax in India can be said to be attributable to....
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....in India can be said to be attributable for the PE of the assessee. Since, without prejudice to the ground is adjudicated in favour of the assessee, we are not adjudicating other grounds in this regard. 13. As regards ground No.5, the issue of treatment of royalty, we note that the issue is now covered in favour of the assessee by the Hon'ble Supreme Court decision as above in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT and ANR [Civil Appeal Nos. 8733-8734 of 2018 (Supreme Court)]. In the said decision Hon'ble Supreme Court has held that the decision of Samsung Electronics Company Ltd. (supra) which has been relied upon by the CIT(A) is not good law. Hon'ble Supreme Court had concluded as under:- Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions cont....