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2022 (12) TMI 1396
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....ee viz. Krones India Pvt. Ltd. ("KIPL") as Dependent Agent Permanent Establishment of the assessee, based on his erroneous observations that the conditions of Article 5(5) of the DTAA between India and Germany ("the DTAA") are fulfilled in the present case. 3. That the learned CIT(A), without appreciating the nature of the business activities carried out by the assessee and KIPL, has erred in making erroneous observations, contrary to the facts, that: a) KIPL habitually secures orders for the assessee; b) KIPL maintains stock of inventory of the assessee; and c) KIPL is economically dependent on Krones AG. 4. That the learned CIT(A) has erred in upholding the taxation of offshore supplies in the hands of the alleged Permanent Establishment ("PE"), without appreciating that offshore supplies are not chargeable to tax; a) under the provisions of the Act; b) as per Article 7 of the DTAA read with Protocol thereto. 4.1 That the learned CIT(A) has erred in confirming attribution of profits in relation to offshore supplies to the alleged Dependent Agent PE, by erroneously holding that the receipts from such business ....
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.... the alleged PE of the assessee. 7.2 That, without prejudice to the above grounds, the learned CIT(A) has erred in confirming attribution of 100% of profit pertaining to Installation & commissioning charges/ technical services to the alleged PE of the assessee in India, on arbitrary basis. 7.3 That, without prejudice to the above grounds, the learned CIT(A) has erred in not reducing the amount of service charges paid to KIPL from the profit of the alleged PE as so computed, for the purpose of attributing and taxing additional income in the hands of the alleged PE. 7.4 That, without prejudice to above grounds, the learned CIT(A) has erred in upholding taxation of the amount of Installation & commissioning charges received from customers, offered to tax on conservative basis by the assessee without prejudice to its claim for non-taxability, in the absence of Installation PE in India of the projects. 8. That the learned CIT(A) has erred in mechanically holding the provisions of levy of interest under section 234B of the Act as consequential in nature, without appreciating that the provisions of the same are not applicable on facts and in law to the ....
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....ntial customers for the systems, machines and solutions for the beverage and food industry. KIPL procures machinery spares produced by its AE's and provides to its customers along with engineering, commissioning and after sales services. 7. The Assessing Officer was carried away with the mention in the TP Study Report KIPL is wholly dependent on use of intangibles owned by the assessee. KIPL is the sole selling and marketing agent of the products of the assessee. KIPL Co-ordinates with the delivery and payment with the customer for which KIPL gets commission. 8. Basis the observations made in the TP Study Report of KIPL, the Assessing Officer formed a belief that KIPL should be treated as agency PE and further the Revenue derived by the assessee should be attributable/effectively connected with such agency PE. 9. In its reply, the assessee emphatically refuted the charges made by the Assessing Officer and strongly contended that it is not a Dependent Agent Permanent Establishment [DAPE] of the assessee. It was strongly contended that even in a case where an enterprise in not held as 'independent agent', it will not automatically become dependent agent. 10. It was br....
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....ssee as DAPE whereas the ld. DR strongly supported the findings of the Assessing Officer/DRP and read the operative part of the respective order. 16. We have given thoughtful consideration to the orders of the authorities below alongwith the relevant documentary evidences brought on record in light of Rule 18(6) of the ITAT Rules. Pursuant to the findings of the ld. CIT(A), the quarrel boils down to the determination of DAPE only. The allegations of the Assessing Officer /DRP in so far as DAPE is concerned are : (i) KIPL habitually secures orders for the assessee; (ii) KIPL maintains stock inventory of the assessee; and (iii) KIPL is economically dependent on the assessee. 17. The agreement consisting of Delivery of Krones Products and services between the assessee and KIPL is at pages 3 to 8 of the Paper Book which have been duly considered by us. This agreement begins on 0101.2007. 18. A perusal of the agreement shows that KIPL does not carry out any manufacturing or processing activity in India using intangibles of the assessee and therefore, assumption of the Assessing Officer is factually incorrect. It further comes out from the agreement th....
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.... and Commissioning Project 58,343,121 30,589,059 Service Charges - Local 6 22,615,445 9,807,162 Service Charges - Foreign 7 22,536,791 29,657,521 Increase / (Decrease) in Cost of Incomplete Projects 8 28,050,000 Total 590,886,477 447,520,89 SCHEDULE - 3 : DEFFERED TAX ASSETS Deferred tax. Asset 3,074,437 785,121 TOTAL 3,874,437 785,121 SCHEDULE -4 : CURRENT ASSETS, LOANS AND ADVANCES Current Assets 17,818,000 4,821,675 Inventory (Valued at lower of cost and net realisable value) Trading Inventory 17,818,000 4,821,675 28,050,000 Cost of Incomplete Projects Unbilled 139,354,844 21,462,282 Service Charges 6,356,0671 231,671,247 Sundry Debtors (Unsecured, cohsidorod good) Outstanding for more than six months Others 145,710,910 2531133,529 SCHEDULE - 9 : COST OF SALES Opening Stock Add: Purchases Less: Closing Stock 4,821,675 ....
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....ween independent persons." 27. A conspectus reading of Article 5 brings out the following key points in connection with Agency PE: (i) A person is acting on behalf of an enterprise. (ii) This person is acting in the other contracting state, i.e. India. (iii) This person habitually concludes contracts or habitually play the principal role leading to the conclusion of contracts that are routinely concluded without material modification. (iv) Agency PE would not be triggered if the person is an independent agent and acting in the ordinary course of that business. (v) This person maintain in the other contracting state a stock of gods or merchandise from which that person regularly delivers goods or merchandise on behalf of an enterprise. 28. The agreement shows that entrepreneurial risk is with the assessee and sharing of risk indicates that each party perform non integrated business activities. 29. The co-ordinate bench Mumbai in the case of Airline Rotables 44 SOT 368 describes rationale of DAPE as follows: "The rationale for dependent agent permanent establishment is simple. A foreign enterprise may chose between busine....
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....PL as DAPE of the assessee and further, since KIPL has been remunerated by the assessee for commission activities on arm's length basis, no further attribution is required in lieu of law laid down by the Hon'ble Supreme Court in the case of Morgan Stanley 292 ITR 416. 33. We, accordingly, hold that pursuant to the specific exclusion of independent agent under Article 5(5) of the DTAA, the case o the assessee falls outside the scope of PE. We, accordingly, direct the Assessing Officer to delete the impugned addition. 34. Appeal of the assessee is allowed. ITA No. 2617/DEL/2017 [Revenue's appeal] 35. The only grievance is that the ld. CIT(A) erred in hodling that the assessee could not be held liable to pay interest u/s 234 B of the Act. 36. This issue is no more res integra as it has now been settled by the decision of the Hon'ble Supreme Court in the case of DIT Vs. Mitsubishi Corporation 130 Taxmann.com 276 wherein the Hon'ble Apex Court has held as under: "19. The dispute relating to the interpretation of the words "would be deductible or collectible" in Section 209 (1) (d) of the Act can be resolved by referring to the proviso to Section 209 (....