TaxTMI 
TaxTMI 
2021 (9) TMI 1169
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....deration 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 relevant finding of the Ld. CIT(A) are being repr....
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....asis 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.Yr. 2006-07 and in appeal No. 153/10-11 for A.Yr. 2008-09 has decided in favour of the appellant vide hi....
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....plications 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 reliance on the assessment order. 4. The Ld. Authorized Representative (AR) placed reliance on the orders of the Tribunal in assessee's own case for Assessment Year 2001-02 to 201....
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....s 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 may be said to be an independent agent: (1) he should be acting in the ordinary course of his business; (2) his activities should not be devoted wholly or almost wholly on behalf of the foreign enterprise for whom he is acting as a....
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....he 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 opinion, amount to a business, though not banking business, because it has been carried on systematically and continuously with the objective of earning commission. Having regard to the variegated services provided by the banks these days, which ....
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....ngs 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 and has relied on the same in support of his argument that the agents in the present case are not independent agents within the meaning of article 5.5 of the DTAA. The commentary discusses what in general are the tests to be applied to ascertain whether the a....
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....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 appointed as agents, the amount of reduction is left to the determination of the assessee. There is no material to show that the rates of compensation are higher in other cases so as to indicate that the agents were discriminated against. The higher rate of compensation in the case of....
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....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 contracts on behalf of the principal, on his own, freely and without control from the latter..." (pages 241-42 of the report). It is therefore necessary to examine whether the agents in the present case have authority, or habitually exercise authority to conclude contracts for the assessee. Here also, the....
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....d 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 authority under their agreement, they cannot delegate the same to their sub-agents (delegatus non potest delegare). 40. There is also no material to hold that the agents have "habitually" exercised the authority to conclude contracts. As already noted, the authority must be to conclude contracts in the conduct....