TaxTMI 
TaxTMI 
2022 (3) TMI 660
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....tablishment ("Fixed Place PE") and Supervisory Permanent Establishment ("Supervisory PE") of the assessee in India under the provisions of Article 5 of the Double Taxation Avoidance Agreement entered into between India and Japan. ("India-Japan DTAA"). The other common issue relates to attribution of income from offshore supply of raw materials and components and supply of capital goods to the alleged PE of the assesee. 4. The assessee is a foreign company and a tax resident of Japan. It is governed by the provisions of the India-Japan DTAA being more beneficial. It is engaged in the business of manufacturing of clutch systems and facing for cars, motorcycles, utility vehicles, specialized tools and dies and molding and machining of plastics. The assessee entered into a joint venture agreement with Rico Auto Industries Limited ("Rico Auto") and formed a JV company in India, namely FCC Rico Limited ("FRL") in the year 1997. The assessee also incorporated a wholly owned subsidiary in India namely, FCC Clutch India Private Limited ("FCC Clutch") on 7.11.2014. Both FRL and FCC Clutch are engaged in business of manufacturing and supply of automobile clutch assemblies. As a part of res....
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....product line in India for which end-to-end supervision has been rendered by the assessee. The period of stay of these employees in India exceeded 6 months and hence it constituted Supervisory PE of the assessee in India. Based on these reasoning, the Ld. AO proceeded to tax the receipts from sale of raw materials and capital goods by attributing 50% of the profits to the alleged PE. 7. Before the Hon'ble DRP, the objections raised by the assessee were rejected and the order of the Ld. AO was upheld by recording the following findings: "3.3. The AO has elaborately discussed the issue in the draft assessment order holding that FCL constitutes a PE for the assessee under Article 5 of the India-Japan DTAA. The submissions made by the assessee before the Panel are the same which were submitted before the assessing officer and the Assessee has been unable to controvert the findings of the AO, holding that the assessee has an Fixed Place PE and Supervisory PE in India. 3.3.2 The Hon'ble ITAT in the case of HUAWEI TECHNOLOGIES CO LTD, China ,V. AD1T (ITA Nos. 5253/Del/2011, 5254/Del/2011, 5255/Del/2011 & 5256/Del/2011 dated 21/03/2014) - Del ITAT on the issue of ex....
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.... assessee as, on examination of the TP Study Report of FCL, the Panel finds that * In FCL substantial shares are held by FCC Japan, thus financially it is dependent on FCC Japan * The supply chain framework seen from TP study report which clearly reflects the role of the AE in India and its dependence on capital goods and material for the production of goods to customers identified by the assessee. * Participation of FCC Japan in the operations of the AF, which extends to identifying Indian suppliers/vendors, and also soliciting customers for the FCL products * The Assessee controls and supervises FCL. * FCL is both legally and economically dependent on the assessee. * The sales claimed as direct are covered on account of Force Of Attraction on account of sales or other similar activities in the contracting state. * The employees of the assessee are frequently visiting and engaging in non-technical monitoring and supervisory activities * The products manufactured by FCL are sold to automobile manufacturers who have global collaboration with the assessee In view of the above discussion, it is apparent t....
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....ured, products manufactured, manufacturing processes etc. and the degree of control exercised by the assessee on Indian entity. The aforesaid facts signify that the business of the assesee is extended to India which is performed through engineers on visit to the work place in India. Thus, the work place at factory is the Fixed Place PE where the visiting engineers has control and access. In support, the Ld. DR relied on the judgment of the Hon'ble Delhi High Court in the case of GE Energy Parts Inc. (ITA No. 621/2017, dated 21.12.2018). (iv) Supervisory PE is created due to the presence of the foreign expats in India throughout the year on various dates and their scope of work does include supervisory function in the form of technical guidance for the manufacturing and assembly work. It may be added that supervisory function includes the role of observing and directing/guiding the manufacturing and assembly activity. It also includes guidance on operational procedures for manufacturing facilities. Further, the stay period of engineers may be less than six months in the relevant assessment year but the project is in progress from the previous year(s) and hence, the threshol....
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....ed, though not accepted, that title of goods is transferred in India, no attribution of supplies could be made in absence of a PE in India. For attributing the income from supply of goods, the role of PE in such supplies would have to be established. In the instant case, neither the constitution of PE has been established nor has it been established that the alleged PE has played any role in supply of goods. Accordingly, no attribution could be made. (iii) Due to non-satisfaction of disposal test and carrying on of business activity test by the assesee in India, allegation of Fixed Place PE is misconceived as held by the Hon'ble Supreme Court in Formula One World Championship [Civil Appeal No. 3849 of 2017]and E-Funds IT Solutions Inc. [Civil Appeal No. 6082 of 2015] Further, reliance placed by the Ld. DR on the decision of Hon'ble Delhi High Court in the case of GE Energy Parts (supra) is not correct as the facts of the case were completely different. In the said case, the overseas company had a Liaison Office (LO) in India and the expatriates were having specific chambers/rooms allotted to them with their name plates affixed and they were occupying the same. Suc....
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....s, question of establishment of supervisory PE does not arise. Services of the nature rendered by the assessee may give rise to Service PE (and not supervisory PE), however, in the absence of Service PE clause in the India- Japan DTAA, this issue becomes academic. The supervisory PE of the assesee was not established either in AY 2014-15 or AY 2015-16 as no building site or construction, installation or assembly project has been undertaken by FRL in India for which any supervision service was rendered by the assesee. Hence, the issue of computing the period of six months in the present case is academic. On the contrary, if the argument of the Ld. DR is accepted it would lead to a situation where the building site or construction, installation or assembly project is forever because on the year to year basis technical personnel are coming to India under the contract and it is unimaginable that such activity will continue till the Indian AE manufactured goods from the technical information provided by the assessee for manufacturing process of finished goods in India. 12. We have heard the Ld. Representatives of both the parties at length and perused the material on record. The prim....
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....rrying on its business with its own clients for which the assessee provides time to time technical assistance as required by it. The business of the assesee is not being carried out from the alleged Fixed Place PE. The Ld. DR in support of his contention that FRL constitutes Fixed Place PE of the assessee has placed reliance on certain clauses of the Licence Agreement and argued that title of goods supplied by the assessee to FRL passed in India and hence the assessee is carrying on business in India. In our opinion, reference to these clauses is irrelevant to conclude that the title of goods passed in India and thus Fixed Place PE of the assessee is created in India in view of the judgment of the Hon'ble Supreme Court in Mahabir Commercial Co. Ltd (supra). Since the goods were manufactured outside India, sale of goods took place outside India and consideration was also received by the assessee outside India, title passed outside India and hence the assessee has not carried out any operation in India in relation to supply of the raw material and capital goods. We therefore hold that the assessee does not have a Fixed Place PE in India. 13. Now coming to the Supervisory PE, Artic....