TaxTMI 
TaxTMI 
2023 (4) TMI 1303
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....and circumstances of the case and in law, NCR Global Solutions Limited ("NCR GSL" or "the Company" or "the Appellant") respectfully craves, leave to prefer an appeal under Section 253(1)(d) of the Income-tax Act, 1961 ("the Act") against final assessment order dated 6 June 2022 ("impugned order") (received by the Company on 7 June 2022) issued under Section 143(3) read with Section 144C(13) of the Act, by the Deputy Commissioner of Income-tax, Circle-2(2)(2), International Tax, New Delhi ("Ld. AO") purportedly in pursuance of the Directions dated 17 May 2022 issued under Section 144C(5) by the Dispute Resolution Panel -2 ("Ld. DRP"), New Delhi, interalia on the following grounds which are without prejudice to each other: 1. That Ld. AO/ Ld. DRP erred, in law and on facts, in computing the total income of the Appellant at INR 72,81,14,426 as against returned income of INR 28,89,94,067. 2. Impugned Order and Directions issued by Ld. DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law. 3. Impugned order and Directions i....
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.... Appellant has an Agency PE in India. 4.2. The Ld. AOI Ld. DRP has erred, in law and on facts, in alleging Agency PE on the surmise that NCR India works mainly or wholly on behalf of the Appellant, NCR India has authority to conclude contracts on behalf of the Appellant and NCR India habitually secures orders in India, mainly or wholly for the Appellant. 4.3. Impugned order has failed to appreciate that business activities undertaken by the Appellant and NCR India are on principal-to-principal basis and that NCR India is not an agent appointed by the Appellant. 5. Ld. AO/Ld. DRP has failed to discharge the burden of proof while arbitrarily holding that Appellant has a place of business in India and that NCR India has satisfied the conditions to be treated either as a Fixed place PE or has an Agency PE in India. 5.1. Ld. DRP has erred in law and on facts, in drawing adverse conclusion on existence of Agency PE and Fixed place PE merely by placing reliance on clause 6.1 (a) and 6.1 (b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India. 5.2. Both Ld. AOI Ld. DRP have erred, in law....
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.... The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with law." 3. Facts giving rise to the present appeal are that the assessee filed its revised return of income on 30.11.2018 declaring income amounting to Rs.28,89,94,067/- and offered to tax at special rate @ 10% under the provisions of Double Taxation Avoidance Agreement ("DTAA") between India and Ireland. The case was selected for scrutiny assessment. The Assessing Officer ("AO") passed a draft assessment order dated 29.09.2021 u/s 143(3) of the Income Tax Act, 1961 ("the Act"). During the course of assessment proceedings, the AO observed that the assessee company during the relevant Assessment Year, had earned revenue from CIPL in the form of sale of software, export of goods, reimbursement and Royalty for use of technology and brand. Accordingly, he issued a show cause notice, calling upon the assessee as to why the end user license fee from software products and updates should not be considered Royalty and Fees for te....
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....e of clarity, the relevant contents are reproduced a sunder:- MAY IT PLEASE YOUR HONOURS It is respectfully submitted that the captioned appeals were heard by the Hon'ble Bench on 28 February 2023. During the hearing, the Authorised Representative on behalf of the Appellant submitted that conclusion of ld. Assessing Officer (Ld. AO")/ ld. Dispute Resolution Panel ("ld. DRP") on existence of fixed place/ agency PE of the Appellant in India was without any factual foundation and basis. It was submitted that tax department has failed to discharge initial burden of proof to establish PE of Appellant in India. Reliance in this context was placed on decisions of Hon'ble Supreme Court in case of ADIT vs. E-Funds IT Solution Inc. [2017] 399 ITR 34 (SC). It was further submitted that the basic tests laid down for constitution of a fixed place PE in the case of Formula One World Championship [2017] 394 ITR 80 (SC) were not satisfied in the present case. On a without prejudice basis (ground of appeal no. 6), it was submitted that since the impugned transactions of sale of software/ hardware undertaken from outside India to group company in India i.e., NCR Co....
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.... 150,43,99,820 26.10.2022 Ld. AO incorporated transfer pricing adjustments made towards margins earned in software service provider segment and imputed notional interest on outstanding receivables, and disallowed depreciation on goodwill 29.10.2021 In the TP Study report, NCR India considered cost of import of software and hardware purchases from NCR GSL as part of Operating cost for benchmarking of CSP Segment. After TP Scrutiny, Ld. TPO did not find fault with above approach, and arm's length price was accepted. The only adjustment made by Ld. TPO was towards software development segment. 2018-19 (Currently in dispute before the Hon'ble Tribunal) NCR GSL 30.11.2018 28,89,94,067 06.06.2022 (Pg 70-99 of Appeal Set) Ld. AO held that NCR India constitutes fixed place/ agency PE of NCR GSL in India and attributed receipts from export of goods and sale of software to NCR India. While the Ld. TPO and Ld. AO of NCR India continued with earlier year's characterisation of transaction of software and hardware to NCR India as a sale on Principal-toPrincipal basis, Ld. AO of NCR GSL deviated from the Same and alleged that NCR India is an agent/PE....
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....ny and the proceedings are ongoing. However, in the TP Study of NCR India, the same consistent approach as in earlier years of treating purchase of software and hardware from NCR GSL as Principal-toprincipal transaction, and including in operating cost for TP benchmarking of Complete Solution Provider Segment was continued. transaction was substantiated to be at arm's length in TP Study report. It is respectfully submitted that sale of software from outside India in absence of PE was being contested as taxable in India as Royalty, however, after the decision of Hon'ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. vs CIT: [2021] 432 ITR 471 (SC) such consideration for sale of software cannot be lawfully characterised as Royalty and subjected to tax under the Act read with Article 12 of IndiaIreland DTAA. Further, existence or otherwise of permanent establishment is a factual exercise and the onus is on department to establish the same. In this regard, Appellant relies on decision of Hon'ble Delhi high court in case of Nortel Networks India International Inc. vs. DIT: [2016] 386 ITR 353 (Delhi). As per the documents and submissions on reco....
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.... @ 40% plus applicable surcharge and cess. Ld. Counsel for the assessee has pointed out various discrepancies in the findings of the authorities below. Some of them being that the finding that the assessee concluded sales of software/hardware through its PE and affiliates. In India, NCR GSL has appointed a group entity namely, NCR Corporation India Pvt. Ltd. for executing software products and services and hardware services in exchange of payments of CIPL distribution activities. The say of the assessee is that sale affected in India is principal to principal. There is no evidence placed by the authorities below that the sales were affected through NCR Corporation India Pvt.Ltd. since no invoice was raised in the name of the assessee by the Indian customers. Moreover, the Revenue failed to rebut the fact that impugned transaction of sale of software/hardware was undertaken outside India to group company in India and were subjected to transfer pricing scrutiny in the hands of the alleged PE and same was accepted to be at arm's length price. Therefore, nothing further would be attributable to the alleged PE. Hon'ble Supreme Court in the case of DIT vs Morgan Stanely & Co. (supra) has....
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....d by the Department are partly allowed with no order as to costs." 8. It is also argued that since the sale of software was affected outside India in the absence of PE, it would not be taxable in India as Royalty. Moreover, after the judgement of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs CCIT [2021] 432 ITR 471 (SC), such consideration for sale of software cannot be lawfully categorized as Royalty and subjected to tax under the Act r.w. Article 12 of the India Ireland DTAA. The Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs CCIT (supra) has held as under:- 169. "Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to ded....
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....ncome of INR 23,25,76,760. 2. Impugned Order and Directions issued by Ld. DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law. 3. Impugned order and Directions issued by Ld. DRP, grossly erred, in alleging that Appellant has a Fixed place Permanent Establishment ("PE") for business in India, to carry on the business of sale of software products without indicating any basis for same. 3.1. Ld. AO/ Ld. DRP have failed to provide even a vague indication on why contentions of Appellant are incorrect and further in substituting their own imaginary facts as basis for alleging that the Appellant has a Fixed place of business in India to carry on the business. 3.2. Impugned order erred in ignoring relevant and complete facts brought on record explaining Appellant's business with Indian entity and proceeded on unsubstantiated and imaginary presumptions to hold existence of PE and further perpetuated such error by attributing income on imaginary and baseless presumptions. 3.3. Ld. AO erre....
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.... 5.1. Lo. DRP has erred in law and on facts, in placing reliance on its directions issued for AY 2018- 19 wherein adverse conclusion on existence of Agency PE and Fixed place PE is drawn merely by placing reliance on clause 6.1 (a) and 6.1 (b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India. 5.2. Both Ld. AO/ Ld. DRP have erred, in law and on facts, by not passing a speaking order, not considering material brought on record and assuming facts without bringing on record any material to establish the allegations made against Appellant. 6. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on facts, in attributing income to alleged PE without indicating any valid basis, purely based on speculations and without taking cognizance of the fact that profits/ income earned in relation to activities in India (by alleged PE, i.e., NCR India), have already been offered to tax in India and margin earned on such activities has been accepted to be at arm's length. 7. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in ....