TaxTMI 
TaxTMI 
2018 (12) TMI 2012
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndis for both the years:- 1. That on the facts and circumstances of the case and in law, the Assessing Officer (Assessing Officer) erred in making an addition of Rs. 12,60,31,555/- to the income of the Appellant by holding that expatriate employees seconded by the Appellant to its subsidiary, viz., Samsung India Electronics Private Limited ("SIEL") constituted fixed place permanent establishment ("PE") of the Appellant in India under Article 5(1) of the DTAA. 2. That on the facts and circumstances of the case and in law, the AO and the Dispute Resolution Panel ("DRP") erred in holding that the presence of expatriate employees of SIEL constituted fixed place PE of the Appellant in India. 3. That the AO and DRP erred in not appreciating that the decision of the Hon'ble Delhi High Court in Centrica India Offshore (P) Ltd. v. CIT [2014] 364 ITR 336 (Del) had no application in the facts of the present case. 4. That on the facts and circumstances of the case and in law, the DRP, having noticed the decision of the Hon'ble Tribunal in the Appellant's own case for A.Ys 2004-05 to 2009-10, 2011-12, 2012-13 and 2014-15, wherein it has been held that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a, i.e., SIEL and Samsung India Software Operations Pvt. Ltd. The assessee company had established a project office in India on 14th March, 2013 for which necessary permission from the RBI was taken. The PE was set up and carried out the activities required in pursuance of the contract entered with SIEL for providing technical support assistance in relation to system/equipment used in the operation of LTE networks. However, the operations could not be started till 31st March, 2013. A survey was conducted in the month of June/July, 2010 at the premises of SIEL and in wake of such proceedings, the notices u/s. 131 were issued to the assessee for the Assessment Year 2004-05 to 2009-10. The assessee's case before the Assessing Officer had been that the seconded employees transferred from SEC worked under the supervision and control of SIEL who was the real economic employer and hence it cannot be held that assessee has PE in India in the form of the expatriate employees. The main contention of the assessee as incorporated in the impugned assessment order in this regard reads as under: "it is submitted that all the tests enumerated above do not get satisfied on account of our p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs/ pays salary expense of these expatriates and is responsible for tax withholding required under the Act. Accordingly, it is evident that SIEL has been the real and economic employer of the transferred employees. In this respect, it would be relevant to discuss the concept of real and economic employment." 6. However, the learned Assessing Officer rejected the assessee's contention on the ground that the facts and issues have been decided in the case of the assessee in the earlier years wherein it has been held that assessee has a fixed place PE in the form of expatriates and he also referred to the judgment of Hon'ble Delhi High Court in the case of Centrica India Off shores Pvt. Ltd., reported in (2014) 44 Taxmann.com 300 (364 ITR 336). 7. We find that this issue has been discussed threadbare by the Tribunal right from the Assessment Years 2004-05 to 2014-15 (except for Assessment Year 2013-14) which is impugned before us on exactly similar points. The relevant observation and the discussion of the Tribunal including the statement of expatriates employees are as under:- "20. It is the argument on behalf of the assessee that the assessee is the holdin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Indian subsidiary and the seconded employees were discharging the duties of the subsidiary towards the holding company. He submits that no business of assessee is carried out by the seconded employees according to the statements recorded by the Ld. assessing officer. He, therefore, submitted that there is no basis for the authorities below to conclude that the seconded employees were acting in furtherance of the business of the assessee by sitting in the premises of the Indian subsidiary, thereby they constitute a fix replace permanent Establishment. 23. Per contra, it is argument of the Ld. DR that it is evident from the statements of the expatriate employees well corroborated by the material that the amount was paid to the foreign parent but not to the account of the employees and if it all shouldn't be any convenience as pleaded by the assessee, the part of the salary should've been limited to a foreign account of the expatriate employee but not to the account of the foreign parent. Further, as could be seen even from the mode of payment the salaries are not paid to the expatriate employees after it is received from the SIL. As a matter of fact it was confronted to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ployees reported to, frequency of communication with headquarters in Korea etc, ld. DRP dealt with almost all the aspects argued by the ld. DR before us. They found that the assessee is not exercising that kind of absolute control over posting of employees to the Indian subsidiary, but the assessee has been posting the employees only pursuant to the Triparte agreements between the assessee, Indian subsidiary and the concerned employee. Ld. DRP further held that the Indian subsidiary is a company incorporated under the laws governing the companies in India and is confirming to all the rules and regulations that govern the operations of a corporate body in the country, by filing its returns and paying the taxes under the income tax at and other statutes. It was further observed by the library DRP that the international transactions have been reported under the transfer pricing regulations and examined by the TPO. 28. Ld. DRP vide paragraph No. 5.4.4.2 recorded that the observations of the Ld. AO in respect of the assertion as to the subsidiary as PE, the conclusions made by the AO are based on the statement of the various employees of SIEL during the survey conducted at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....formed by SEC through its own employees, or such functions would have been outsourced by it to some third party, in which case the third party would be entitled to some remuneration for these services. However in the present case it is the seconded employees of SEC are performing these functions in addition to their own duties performed by them for SIEL. For performing the above functions of SEC these employees have a 'fixed place of business' i.e. the premises of SEiL available to them. Moreover, it is an admitted fact that apart from these 'seconded employees' who are in the payroll of SIEL, other employees of SEC also come from time to time to India and use the premises of SIEL for the functions performed by them for SEC. This is quite evident from the statement of Sh. Mahesh Sutagatti and Sh. Anshuman Sah, VP (Sales & Marketing). Sh. Suttagati is himself an employee of SEC who was in India for the development of assessee's Wi-max business in India. Sh. Sah has admitted that the employees of SEC come from time to time and work with the local personnel." 32. We have considered the observations of ld. DRP in the light of the above statements. There is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ering of services to subsidiary by the assessee, in view of the fact that there is no provision for a service PE in India-South Korea DTAA, no question of Service PE arises in this matter. As a matter of fact, Ld. DRP vide paragraph No 5.4.4.6 of their Order observed the same. 36. From a reading of Art. 5 of the DTAA, we understand that in order to constitute a PE, there must be a fixed place of business available to the assessee, through which the business of assessee is wholly or partly carried on. In the preceding paragraphs we held that what the expat employees are doing is only the discharge of the functions of subsidiary towards the holding company, which is for the benefit of the business of the subsidiary to make the GBM understand the priorities and preferences of the Indian customers by providing India specific information to GBM's which in turn then carry out research and development to develop India specific products. By no stretch of imagination could it be said that it is in furtherance of the business of the assessee de hors the business of the subsidiary. 37. In the absence of proof as to any management activity of the assessee being conducted in I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e expatriate employees nor any income is derived by the assessee to the expatriate employees. Further, it has been observed by the Tribunal that, since there is no service PE clause in India South Korea DTAA, therefore, no question of service PE arises. Accordingly, the judgment of Hon'ble Delhi High Court relied upon by the Assessing Officer in the case of Centrica (supra) would not be applicable because in that case seconded employees were held to constitute Service PE. In the result, the grounds raised by the assessee are allowed and even the attribution part would be allowed in favour of the assessee because once there is no business activity conducted by the assessee through expatriate employees, then there could not be question of any kind of attribution of estimate. 9. In so far as levy of interest u/s. 234A and 234B is concern, admittedly it would be consequential. 10. The other issue raised in the grounds of the appeal by the assessee is regarding applicability of rate of 15% on all income by the Assessing Officer held to be in the nature of 'royalty' and 'fee for technical services'. 11. Before us, the learned counsel has pointed out that Assessing Officer ha....