TaxTMI 
TaxTMI 
2021 (9) TMI 1169
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..... The return of income for the year under consideration was filed declaring total income at Rs. 1,34,90,540/-. During the course of assessment proceedings, the Assessing Officer reached a conclusion that the assessee company had a Permanent Establishment (PE) in India under Article 5 of India US-Double Taxation Avoidance Agreement (DTAA) in the form of fixed placed PE due to usage of software developed and owned by the assessee in India. The Assessing Officer also noted that there was existence of agency PE on account of agents working in India. Accordingly, the Assessing Officer held that commission income earned by the assessee from its operations in India was taxable in India. The Assessing Officer went on to attribute 50% of the profits earned by the assessee on funds remitted to India. 2.2. Aggrieved, the assessee approached the Ld. First Appellate Authority, who was pleased to allow the appeal of the assessee by following the order passed by the Co-ordinate Bench of this Tribunal in assessee's own case for Assessment Years 2001-02 to 2009-10, wherein it was held that assessee did not have any Permanent Establishment in India in terms of Article 5 of India US-DTAA. The ....
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....6.4.2016, wherein on the basis of 50% of profits attributable to India on a basis as explained in para 4.2 above, a sum of Rs. 5,09,61,837/- was held to be taxable in India. This order of AO is in challenge before me. 4.5 The Ld. AR submitted that identical facts are involved in the appellant's own case for A. Yr. 2001-02 to 2006-07 and A.Yr. 2008-09. The Hon'ble ITAT after analyzing facts in detail has held in its order for AY 2001-02 dated 10/03/2006 in ITA No. 4889/Delhi/2004 (104 ITD 341] that- (i) the appellant had a business connection in India within the meaning of section 9(1) of the Act. (ii) the appellant had neither the fixed place PE nor the agency PE in India and in absence of any PE in India the profits, if any, attributable to India operations could not be assessed as business profits under Article 7 of the treaty. 4.6 Following the above referred order of the Ld. ITAT, my Ld. Predecessor in Appeal No. 122, 123/08-09, 345/06-07 and 121/07-08 for the year 2002-03 to A.Yr. 2005-06 has allowed the appeals in favor of the appellant vide his order dated 01/01/2010. Similarly, my Ld. Predecessor in Appeal No. 98/2010-11 for the A....
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....axed in India as business profits in terms of Article 7 of the India-USA DTAA. 2.1 Whether the Ld. CIT(A) has erred in holding that the software applications installed on the machines in the premises of the agents and dedicated to the business of the money-transfer, do not constitute assessee's Permanent Establishment in India. 2.2 Whether the Ld. CIT(A) has erred in holding that the representatives of the assessee in India do not constitute its Dependent Agent PE in India. 2.3 Whether the Ld. CIT(A) has erred in not attributing any profits against the business activities carried by it through it PE in India. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in holding that the assessee is not liable to pay interest u/s. 234B of the Act, completely overlooking the observations of the Hon'ble High Court in the case of M/s. Mitsubishi [330 ITR 578, Del] that the role of the assessee/payee/deductee in short deduction or non-deduction of tax needs to be ascertained before claim regarding non-liability to interest u/s. 234B of the Act is accepted." 3. The Ld. Sr. DR placed heavily relia....
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....e software is the property of the assessee and it has not parted with its copyright therein in favour of the agents. The agents have only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the purpose from the premises of the agents cannot in our opinion lead to the decision that the premises-cum-software will be the PE of the assessee in India. Under article 5.2(j) and installation may amount to a PE provided it is used for the exploration of natural resources. Therefore, even if the software is to be considered as an installation, since it is not used for exploration or exploitation of natural resources it cannot per se be treated as a PE. ............. Agency PE: 28. The stand of the income-tax department is that the agents are not "independent agents" under article 5.5 of the treaty but are "dependent agents" under article 5.4(a) of the treaty. 29. (A) Are the agents "independent agents"? 30. We shall first address the question whether the agents are "independent agents" under article 5.4. Three conditions are required to be satisfied in order that an agent....
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....n trans-border money transfer and that in the case of nonbanking financial companies and tour operators appointed as agents money transfer business, whether locally or internationally, is not in their ordinary course of business. In the case of the Department of Posts, it is well-known that they accept money orders for transfer of funds within India. Engaging themselves in the same type of business with international ramifications is just an extension of their business. It cannot be said that it is not in the ordinary course of their business. The same is the case with commercial banks. Though strictly speaking it may not be part of their banking business, as the expression is defined in the Banking Regulation Act, 1949 and as contended by Mr. Rajnish Kumar, still it is nobody's case that it is not a lawful activity which they have embarked upon. In fact, they have obtained the approval for such activity from the RBI under section 3(c) of the FEMA. The approval granted by the RBI to Bank of Punjab Ltd. has been filed in the paper book. Though the approval is only for the purpose of FEMA, as rightly pointed out by the learned CIT(DR), the activity engaged in would still, in our ....
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....rators appointed as the agents of the assessee. There is no evidence to show that the extent of their activities for the assessee, compared to all their activities, is so large that it can be said that they are dependent on the assessee for their earnings or revenues. The agents in the present case have not been shown to be economically dependent on the assessee. The income-tax authorities have stated that the agents have not acted in that capacity for any other entity engaged in the money transfer business and therefore their activities are wholly or almost wholly devoted to the assessee. We do not see how this conclusion follows. The agents, as we have seen earlier, have their own businesses or activities amounting to business. They are not carrying on the activity for the assessee, as agents, in exclusion of their other businesses or activities. In this situation, just because they are not acting as agents for any other company carrying on money transfer business it cannot be said that their activities are wholly or almost wholly devoted to the assessee. 34. The learned CIT(DR) has drawn our attention to paragraphs 36 to 38.8 of the revised commentary on the OECD model ....
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.... (at the applicable rate of exchange at the time the refund is made) upon the written request of the sender if payment to the recipient is not made within 30 days excluding Sundays and holidays and that the same will be the case of the fees charged. It goes on to say that the assessee or his agent will in no case be liable for damages for the delay, non-payment or underpayment of the money transfer. The agent is not therefore liable to any risk on this account. 35. We now proceed to consider the question whether the transactions between the agents and the assessee are under arm's length. The agreements filed before us show that the "base compensation" is 30 per cent in the case of the Department of Posts and 25 per cent in the case of others. It may be reduced under clause 6.2 of the agreement with the Department of Posts if the assessee were to assume responsibility for the advertising and promotion of the services or to establish a customer service centre to handle customer queries. The reduction shall not exceed 10 per cent of the gross revenues earned by the agent concerned from the money transfer business done by it in the relevant year. In the case of banks appoi....
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....ough an agent will not be sufficient to merit such an agent being considered a PE, but that this is not the correct view as it would ignore the generality of the preceding words of the paragraph merely because exceptions are carved out in the latter part of the aforesaid clauses only in respect of a particular category of agents (viz., those buying or selling goods). It was held that paragraph 4 of the article "is applicable in all cases where the enterprise in a Contracting State has an agent in the other who does not have an independent status. Such a person will be deemed to be a permanent establishment only if he has, and exercises, the authority to conclude contracts in the name of the enterprise. But even the existence of such authority will not make him a permanent establishment (i) if he is a mere agent for purchase of goods or merchandise; or (ii) being an agent for sale of goods or merchandise is allowed to habitually to maintain a stock of the goods of the enterprise and effect sales there from. The conclusion seems inevitable that even a non-independent agent can be deemed to be a permanent establishment only if he can act independently in the matter of concluding contr....
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....authority to conclude contracts must cover contracts relating to operations which constitute the business proper of the enterprise. It would be irrelevant, for instance, if the person had authority to engage employees for the enterprise to assist that person's activity...". This paragraph has been quoted approvingly by the AAR in TVM Ltd.'s case (supra) (page 244 of the report). Thus the fact that the agents (in the present case) have the authority to appoint sub-agents does not mean that they (agents) have the authority to conclude contracts. The terms of appointment of sub-agents given at page 22 of the paper book as attachment to the contract of agency with Karnataka Bank Ltd. lists the duties and responsibilities of the sub-agents regarding money transfer service requirements, advertising and promotion, exclusivity, locations and hours of operations, payment for the service, delivery standards, maintenance of records, security and confidentiality, accounting, use of software, indemnity, conditions of termination etc. Nowhere in the sub- agency agreement has any authority to conclude contracts has been given to them. In fact, when the agents themselves have no such autho....