TaxTMI 
TaxTMI 
2022 (5) TMI 674
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....r the assessment year ('AY') 2017-18 at INR 4,46,50.443 as against the Nil. returned income. Ground 2: On the facts and in the circumstances of the case and in law, the Ld. AO as well as DRP has erred in holding that the appellant has a Fixed Place PE in India by ignoring facts of the case and provisions of the law and merely placing reliance on a third party statement in response to summon issued to ii under section 131 of the Act. The allegations are unfounded, without any cogent material and on the basis of surmises and conjectures. Ground 3: On the facts and circumstances of the case and in law, the Ld. AO as well as DRP has erred in holding that DHR Holding India Private Limited ('DLIR India') constitutes a dependent agency PE of the Appellant in India by ignoring facts of the case and provisions of the law and merely placing reliance on a third party statement in response to summon issued to it under section 1.31 of the Act. The allegations are unfounded, without any cogent material and on the basis of surmises and conjectures. Ground 4: On the facts and circumstances of the case and in law, both the Ld. AO as well as DRP has erred in alleging that ....
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....ave been performed by the PE; 8.2 Ignoring an analysis furnished by the Appellant determining the profit attribution based on resale margins earned by independent distributors in uncontrolled transactions. Ground 9: On the facts and circumstances of the case, the Ld. AO/ Hon'ble DRP erred in double counting the revenue earned by the Appellant from sale of annual maintenance contracts to customers in India while determining the profit attribution to the alleged PE. Ground 10: On the facts and in law, the Ld. AO erred on facts in law in initiating penalty under section 270A and 271BA of the Act when the facts of the case and provisions of the law do not warrant such initiation of penalty proceedings. 3. The core issue arising in the appeal, as urged in ground no. 1 to 4, is whether the assessee has a Permanent Establishment (PE) in India. Of course, there are ancillary and incidental issues raised in other grounds, including attribution of profit to the PE, in case, it is held that the assessee has PE in India. However, at the outset, we will deal with the core issue as to whether the assessee has a PE in India. 4. Briefly the facts relevant for decid....
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.... On perusing these agreements, the Assessing Officer wanted to ascertain the legal relationship between the assessee and DHR Holding India Pvt. Ltd. Since, as alleged by the Assessing Officer, the assessee did not furnish the required details, he issued summons to two employees of M/s. Arbro Pharmaceuticals Pvt. Ltd., a regular customer of the assessee. In pursuance to the summons issued under section 131 of the Act, the concerned employees of M/s. Arbro Pharmaceuticals Pvt. Ltd. appeared before the Assessing Officer and statements were recorded from them. From the statement recorded, the Assessing Officer found that DHR Holding India Pvt. Ltd., for all practical purposes, acts as an Indian representative of the assessee company and also maintains inventory of spare parts in their premises. He further observed, DHR Holding India Pvt. Ltd. is maintaining a warehouse in its premises for the equipments of the assessee and the premises is used as a sales outlet for soliciting or receiving orders. Thus, he concluded that the assessee has a fixed place PE in India. 7. Further, the Assessing Officer observed, DHR Holding India Pvt. Ltd. habitually exercises a predominant role in India ....
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....out the profit attributable to PE in India at Rs.5,69,67,807/- and taxed it at the rate of 40% with surcharge and education cess thereon. 9. Being aggrieved with the aforesaid decision of the Assessing Officer, the assessee raised objection before learned DRP. However, learned DRP did not find merit in the objections raised by the assessee. Accordingly, he upheld the additions made by the Assessing Officer. 10. Sh. Ajay Vohra, learned Senior Counsel appearing for the assessee submitted, the assessee being a manufacturer and seller of scientific equipments effects direct sales to customers in India. He submitted, the sales were made from outside India. In this context, he drew our attention to the sample invoices indicating sales made from Singapore to the customers in India. He submitted, since the scientific equipments require regular maintenance, repairing etc., the assessee enters into AMC with the customers. However, since the assessee is located outside and its employees do not travel to India, the assessee has subcontracted the repair and maintenance related activities to DHR Holding India Pvt. Ltd. He submitted, the assessee has entered into three agreements with DHR H....
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....such agent has authority to conclude contract on behalf of the assessee. He submitted, the alleged warehouse as mentioned by the Assessing Officer is not belonging to the assessee but belongs to DHR Holding India Pvt. Ltd. for its own inventory. 12. Without prejudice, he submitted, the conclusion of the Assessing Officer is based entirely on the statement recorded from two employees of a customer of assessee, viz., M/s. Arbro Pharmaceuticals Pvt. Ltd. He submitted, those employees are not employees of the assessee or DHR Holding India Pvt. Ltd. Therefore, their statements, if at all adverse to the assessee, would not have any relevance. He submitted, in any case of the matter, the statements recorded from the concerned employees were neither confronted to the assessee nor any opportunity of cross examining them was offered to the assessee. Thus, he submitted, the Assessing Officer has not properly understood the legal relationship between the parties. He submitted, since the assessee did not have either fixed place PE or dependant agent PE in India, no part of its income is taxable in India. Therefore, attribution of profit to the PE in such scenario will not arise. In support o....
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....in India. The assessee has asserted from the stage of assessment proceeding itself that these sales made to Indian customers are effected directly from Singapore and no part of such sale was carried out in India. It has been submitted, in respect of such direct sales, the assessee had entered into AMC with the Indian customers and all AMC and warranty related services are sub-contracted to DHR Holding India Pvt. Ltd. 15. The aforesaid claim of the assessee carries some strength in view of the sample copy of invoices placed in paper-book. On perusal of such invoices, it becomes very much clear that sales to Indian customers have been directly made by the assessee from Singapore. It is also evident, in respect of such sales the assessee has also entered into AMC with Indian customers. It is the contention of learned counsel for the assessee that all AMC and warranty related work has been sub-contracted to DHR Holding India Pvt. Ltd. As stated by the Assessing Officer, the assessee had entered into three separate agreements with DHR Holding India Ltd. The first agreement between the assessee and DHR Holding India Pvt. Ltd. is Sales Commission Agreement. On a perusal of this agreeme....
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....s, DHR India or its designee shall inspect the product and notify the assessee of any damage, tampering, shortage or other discrepancy between the products and shipping documents. Clause 4.1 says, the assessee reserves the right to sell or lease directly any product for post warranty services contract for ultimate use within the territory, regardless of whether the customer placing such order is located within or outside of the territory. Clause 5.1 provides, in respect of any direct sales by the assessee within the territory, the assessee shall pay DHR India a commission applied against the net sales price of the product towards remuneration for the assistance rendered and to be rendered, and the business goodwill developed by DHR India and such commission shall be payable by the assessee to DHR India upon the issuance of the invoices for the products shipped to the customers. Clause 11 of the Treaty say, DHR India shall report all warranty claims made in respect of all products to the assessee. In case of providing any spares under warranty/maintenance, DHR India will provide for the same out of its own stock and DHR India shall have the right to get a replacement product/part fr....
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....wever, title to any product, possession and the risk of loss shall pass from assessee to DHR India once the product is delivered to the carrier contracted by the assessee to deliver the product. Clause 2.3 says, DHR India shall be the importer of record in respect of products purchased by and imported into the territory by DHR India. Further, DHR India shall be responsible for all actions necessary to obtain clearance to import all products into the territory. Clause 2.5 confers right to DHR India to cancel or reschedule any of its purchase orders for the products. However, such cancellation or rescheduling has to be in terms with the agreement. Clause 2.6 provides that during the term of this agreement, DHR India shall be entitled to purchase products from the assessee, subject to, resale or distribution discount. Clause 3 of the agreement provides for prices of products and terms for distribution activities as well as discounts to be provided thereon. 19. Thus, a reading of the Distribution Agreement as a whole, makes it clear that the purchase of products by the DHR from assessee for the purpose of resale in India is on principal to principal basis and no agency relationship ....
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....eas entities; * In conjunction with tire personnel of overseas entities, prepare an annual marketing plan for the territory: * Any other incidental marketing activities. * Interaction with the customers for providing any clarifications from time to time * Receipt of complaints from customers in relation to issues faced on the products sold''' directly by the overseas entities * Ensure timely payment by the customer against deliveries made by overseas entities from time to time * On overseas's entities request, act as a transmission channel to receive and transmit copies of any documents: * Any other incidental activities in relation to servicing that may be required by the customers; 21. For providing such services, the assessee is to be remunerated at cost plus markup at arm's length basis. Clause 4 of this agreement defines the status of DHR India as an independent contractor which does not have and cannot represent itself as having any authority to enter into any obligation on behalf of the assessee or to bind the assessee contractually in any way. It also stipulates, DHR India has no authority to nego....
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....nt agent PE. Further, the allegation of the Assessing Officer that the assessee utilizes the premises of DHR India as a warehouse to stock its goods and sales outlet is not borne out from the materials on record. The facts on record clearly reveal that the assessee's employees have never visited India. Direct sales to Indian customers were made from Singapore through shipment. The sales effected by DHR India are on its own independent status. Therefore, the products purchased by DHR India under the Distribution Agreement and kept in its inventory cannot be considered to be the products belonging to the assessee, as, they are sales transaction on principal to principal basis for resale by DHR India to Indian customers. Further, clause 11.1 and 11.2 of Sales Commission Agreement makes it clear that any replacement of products/spares under warranty/maintenance has to be provided by DHR India out of its own inventory and DHR India will have the right to either get a replacement from assessee or cross charge the cost to the assessee. Therefore, the terms of the agreements make it clear that assessee does not have a warehouse or sales outlet in India to constitute a fixed place PE in Ind....
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....decision, the Hon'ble Supreme Court has further elucidated that for constituting a fixed place PE, there must exist a fixed place of business in India which is at the disposal of the non-resident entity through which it carries on its own business. In the facts of the present case, it is not disputed that there is no direct presence of the assessee in India. It is an admitted factual position that none of the employees of the assessee company ever visited India in connection with assessee's business. Whatever sales of products have been effected to Indian customers is directly from Singapore. Thus, applying the ratio laid down by the Hon'ble Supreme Court, as aforesaid, it has to be held that there cannot be any fixed place PE of the assessee in India. This is so because the revenue authorities have failed to discharge their initial burden of proving such fact. 27. As regards DHR India constituting the dependant agent PE, we have already deliberated on the issue and have held that no material has been brought by the departmental authorities to demonstrate that the Indian entity habitually exercises its authority to conclude contract etc. in terms of Article 5(8) or its activitie....