TaxTMI 
TaxTMI 
2021 (9) TMI 1129
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....,88,512 (i.e. USD 3,11,349 converted using conversion rate 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 uph....
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....ct. 3. Brief facts of the case are as under:- Mobileum Inc (hereinafter referred to as 'the Appellant' or 'Mobileum') is a Company 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 1,6....
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....ate website for MIPL and it is shown as part/entity/dependent agent of Mobileum Inc. as per the website. That It is also a fact that assessee i.e. Mobileum, Inc. would not have earned income from India but for its Indian 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 ass....
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....t is actually not on the issue of attribution of profits for a PE but it is for the entities which are not having any business connection and also a permanent establishment, therefore, the assessee's contention is not accepted. As regards 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 t....
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....n. Submissions with respect to Ground No. 5: 3.4 The AO inter alia placed reliance on the decision of Hon'ble Karnataka High Court in case of CIT vs. Samsung Electronics Co Ltd and others (ITA 2802/2005) and treated the revenue earned by the Appellant from supply of off the shelf 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 woul....
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....ench on this issue reads as under:- The Ld. Counsel for the assessee, at the outset submitted that the issue raised in the cross objection by the assessee that, even if it is held that the assessee has permanent establishment in India its income is not taxable in India as it has paid arm's length remuneration/commission to its agent in India which is taxed in India and therefore 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 fo....
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.... In response to notice u/s 92CA, Shri Vijay Iyer, CA of S.R. Batliboi & Co. Chartered Accountants, authorized representative of the assessee appeared form time to time. The documentation prescribed under Rule 10D of the Income Tax Rules was submitted and placed on record. The taxpayer company is engaged in providing IT enabled services which include Back office services and Call centre services. It also has a software design 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 undertake....
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....SAS). In other words, the said ruling equates an arm's length analysis (ALA) with attribution of profits. It holds that once a transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. The impugned ruling is correct in principle insofar as an associated enterprise, that also constitutes a PE, has been remunerated on an arm's length basis taking into account all the risktaking functions of the enterprise. In such cases nothing further would be left to be attributed 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 attributab....
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....tween the assessee and its AE have been found at arm's length prices no further income chargeable to tax in India can be said to be attributable for the PE of the assessee. Hence this ground is decided in favour of the assessee. Since we have decided issue on the preliminary point, we are not inclined to go into the merits of other grounds. 12. We find that the above ratio is fully applicable on the facts of the present case since, it is not disputed that the AE has not been remunerated at ALP, no further income chargeable to tax 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 up....