TaxTMI 
TaxTMI 
2023 (3) TMI 1349
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....rw.s. 144C(13) of the Income-tax Act, 1961 dated 23 October 2019 passed by the Deputy Commissioner of Income-tax, International Tax Circle 1(1)(2), Mumbai [DCIT] for the0020aforesaid assessment year on the following among other grounds: 1. The final assessment order is bad in law The DCIT erred in not following the directions of the DRP and hence, the Impugned assessment order dated 23 October 2019 passed under section 143(3) r w.s. 144C(13) is bad in law. 2. Permanent establishment ("PE" Fixed place PE) 2.1. The DCIT erred in holding that the assessee has a fixed place PE in India and is not following the directions passed by the DRP, wherein the DRP held that the appellant does not have a fixed place PE in India Dependent agent PE 2.2. The DRP erred in holding that the appellant has an agency PE in India. 2.3. The DRP erred in holding that the appellant has an agency PE in India, without appreciating that the DCIT has not concluded that the appellant had an agency PE in India. Thus the conclusion of the DRP that the appellant had an agency PE in India is beyond the DRP's jurisdiction and needs to be overturned. ....
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....evious year converted at Rs 72.19 per Euro. The assessee did not offer the service receipts to tax claiming that as per the Article 12(5)(b) of the India Netherlands Double Taxation Avoidance Agreement (DTAA), such services are liable to be considered as 'Fees for Technical Services' (FTS) only if they 'make available' technical knowledge, experience, skill, knowhow or processes , or consist of development and transfer of a technical plan or technical design. The assessee has contended that it has not made available the technology to RIL. The assessee mentioned that though RIL has applied for a Nil deduction of tax certificate from the income tax department, the same was issued to it only after RIL deducted tax at source on the payments and now the assessee is claiming refund of the same. 4. The essence of the arguments advanced by the assessee before the ld. AO in the original assessment proceedings are as under:- 2.2. The AO has summarised the work processes in his draft assessment order as under: 1. The contract is essentially for repair services of four coke drums. 2. The assesses company had appointed a consultant [Mr. Rupam Saikia) in India, to l....
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.... services The crew members may be the employees of assessee company or of a group company, who would function under the control and supervision of assessee company in India 10 The repair works were earned during the month of March and April 2015. 11 The Equipments were brought to India on 05-03-2015 and sent back from India on 07-05- 2015 The total weight of the machinery brought to India was 59,767 40 kgs [grass weight] 12 Assessee company will provide all weld wire requirements. 13. Weld wires heeded for the scope of work was sold by the assessee to RIL separately for which a separate invoice of EUR 2,49,830 was raised on RIL. The weld wires sued by the assessee for the repair work done at RIL 14. It is claimed that the goods were supplied by the assessee to RIL to the port of Rotterdam, Netherlands and the transfer of title happened outside India. The transport of goods were the responsibility of RIL In view of the same, the transaction was to offshore supply. 15 The assessee has carried out similar repair services with RIL in FY 2016-17 and has received an amount of EUR 31,38,750" 5. The ld. AO was of the view that the pr....
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....nce, thereby passing the 'permanence test'. 6. The ld. AO also held that the third condition for a fixed place PE that such place of business should be at the disposal of the foreign entity is also fulfilled since the office and the lodging premises were at disposal of the assessee. The ld. AO had held that these places are distinct from the jobsite where the reactors of RIL were housed and where the employees of the assessee were provided limited access for undertaking repair / welding works. The ld. AO stated that the assessee had full access to the office site which was near the job site and the assessee through its employees had lodging facilities too. There were no restrictions placed by RIL on these spaces allocated to the assessee. The ld. AO noted that the entire equipment which the assessee brought to India were specialized equipments which required special skills to operate and all the equipments were under the control of the assessee during the entire project and were never leased out to RIL and that those equipments are to be kept by the assessee in its control in order to protect its technology and specialization as well as to safeguard its process and expertise. Th....
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....rdingly the ld. AO held that the claim of offshore transaction to be a sham exercise to decrease the contract value of the assessee in India. Hence the ld. AO held that the entire contract value of Euro 6560712 (6293452 + 267260) is to be considered as business receipts for the purpose of determining the business income in India. 9. The assessee preferred objections before the ld. DRP. The assessee explained the entire modus operandi before the ld. DRP and filed written submissions that the place of business test, permanence test, place of disposal test, unrestricted access of office space to the consultant, space of storing of equipment , boarding and lodging facilities of employees, business activity test , business connection test were not fulfilled in the instant case. The submissions made by the assessee in this regard are reproduced in pages 11 to 18 of the order of ld. DRP together with related case laws. The ld. DRP after considering the submissions of the assessee held that the tests of place of business, business activity, permanence and place of disposal do not lead to the inference of a PE in India but the case of 'Dependent Agent PE' has been made out by the ld. AO.....
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.... with this person and Mr. Rupam Saikia was supporting the assessee company in terms of that agreement. It is seen from the record that Mr. Rupam Saikia had sent an email on 30/06/2014 to the concerned persons of the assessee in Netherlands enclosing a copy of a visit report to the refinery at Jamnagar. The email mentions the designation of Mr. Rupam Saikia as 'Business Development Manager His email address is also mentioned as rupam [email protected]. This email mentions that Mr. Rupam Saikia and Mr. Anrea Pacchiarotti had visited RIL as representatives of AZZ WSI. The email also mentions that Mr. Rupam Saikia shall follow up with RIL for the amended scope of the work and also set up a call with the WSI team to discuss the way forward Subsequent emails between Mr. Rupam Saikia and the AZZ WS! people are also available on record and it is noted that Mr. Rupam Saikia has been kept in the loop throughout. For instance, in the email sent from RIL on 02/09/2014, it is informed that the coker unit of the refinery is planned for shut down in March 2015 and certain documents like the scope of work, repair details & drawing, general conditions of contract etc, were enclosed with a request ....
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.... directly or indirectly, through or from any business connection in India, or through or from any property in India, or tough or from any asset or source of income in India, or through the transfer of a capital asset situated in India. Explanation 1- Explanation 2- For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person with acting on behalf of the resident:- (a) has and habitually exercises in India on authority is conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident, or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident, or (c) habitually secures orders in India, mainly or wholly for the non-residet or for that non- resident and other non-residents controlling controlled by or subject to the same common control, as that non-resident Provided that such business connection shall not include any business activity carried out through....
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....onsidered an agent of an independent status within the meaning of this paragraph if it is shown that the transaction between the agent and the enterprise were not made under arm's length conditions.". 4.3.2 These provisions override the provisions of Article 5(1) and hence a fixed place PE is not essential under this provision. 4.4 The DRP notes that the authority to conclude contracts can be said to exist when the foreign enterprise is bound by the contract entered into by the Agent on its behalf. The term 'habitually exercises signifies a certain degree of permanence, repeatedly and over some period of time. In this regard the assessee has claimed that while Mr. Rupam Saikia was present in the meetings with RIL, the contract was not finalised as there were various clauses on which both the parties had to get internal confirmations. The assessee claims that all preparatory work in order to prepare the contract (both legal and technical) and decision on the quotation of the work order were done in Netherlands and the final decision/clearance was taken in Netherlands. On this ground the assessee claims that there was no business activity carried out in Indi....
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....authorised to negotiate all cleme ts and details of a contract in a way binding c the enterprise can be set to excise this authority in that state' even if the contract is signed by another person in the state in which the enterprise is situated or if the first person has not formally been given a power of representation. The DRP notes that Mr. Rupam Saikia had taken active participation in the contract negotiation and has attended technical/financial discussions with RIL. Therefore, the existence of an Agency PE of the assessee is positively inferred and held accordingly. 4.5. In view of the above discussion the objection no. I of the assessee is dismissed. 10. Having held that there was Agency PE in India, the ld. DRP discussed the action of the ld. AO in treating the receipts from offshore supply of weld wires to be taxable income in India. The observations of the ld.DRP in this regard are as under:- 6. Discussions and directions of DRP: 6.1. The DRP has considered the facts of the case, It is noted that invarishly tecahility if an independent offshore supply of material goeds arises in the resident country and not in the destination country unl....
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....in favour of revenue. The facts in the case of the assessee are even more in favour of the Revenue than in the case of Ansaldo Engergia SPA (supra), as in the case of the assessee, there is not even an Indian subsidiary and the whole contract is being executed by the assessee itself Hence, the DRP upholds the action of the AO in treating the contract as a single contract or a composite contract. The objection no. 2 of the assessee is dismissed. 11. With regard to profit attribution of 30% estimated by the ld. AO as profit attributable to the PE, the ld. DRP after considering the submissions, additional evidences submitted before ld. DRP, remand report of the ld. AO and rejoinder filed by the assessee to the remand report, directed the ld. AO to treat 7.13% of the total receipts from India as the taxable income of the assessee from Indian operations. Further the ld. DRP held that for the purpose of allocation of this resultant profit, the respective role of the AE and the PE needs to be factored in. The ld. DRP held that it is obvious that while the PE has done the marketing and actual execution of the work in India, the intangibles are only with the Head Office at Netherlands an....
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.... are also vitiated and invalid in law. The observations of Delhi Tribunal are as under:- 10. As per the directions of the DRP, in the final set of comparables, Hicks Thermometer [India] Pvt Ltd was included and EDCIL [India] Ltd was excluded. However, we find that in the final assessment order dated 18-5-2021, the Assessing Officer has repeated the draft assessment order verbatim. The relevant part of the final assessment order reads as under: "The Hon'ble DRP, Delhi vide its order dated 17-3-2021 has upheld the findings of the TPO. Since the objections of the assessee to the draft assessment order u/s 143(3) r.w.s. 144C of the Act dt. 21-12-2019 have been disposed off by the Hon'ble DRP, Delhi vide its order dt.17-3-2021, the income of the assessee for the A.Y. 2016-17 is computed as proposed in the draft assessment order u/s 143(3) r.w.s.144C of the Act dt.21-12-2019 as under:- Returned Income Rs.5,37,08,930/- Addition as per Para.3 of order dt. 21-12-2019 Rs.4,90,46,335/- Addition as per Para.4 of order dt, 21-12-2019 Rs.13,97,914/- Total assessed Income Rs.10,41,53,179/- Rounded off Rs. 10,41,53,180/- 6. An add....
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....he decision of the co-ordinate bench in the case Software Paradigms Infotech (P.) Ltd. v. Asstt. CIT [2018] 89 taxmann.com 339 (Bang. - Trib.) and on identical facts, this Tribunal in ITA No. 1980/DEL/2014 Global One India (P.) Ltd. v. Dy. CIT [2019] 112 taxmann.com 185/[2020] 182 ITD 355 (Delhi - Trib.) after considering the decision of the co-ordinate bench, has decided the issue. The relevant findings of the Tribunal in ITA 832/BANG/2017 read as under: '9. We have considered the rival submissions. We find that on identical facts, this Tribunal in the case of Software Paradigms Infotech (P.) Ltd. (supra) has quashed the final order of assessment observing as follows:- "3.3.1 We have heard the rival contention of both parties in the matter and perused and carefully considered the material on record. The undisputed facts on record, as brought out by the discussions above, is that the AO, as per law, was required to pass the final order of assessment dated 17-1-2014 for asst. year 2009-10 u/s. 143(3) r.w.s. 144C of the Act in conformity with the directions issued by the DRP u/s. 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and wi....