TaxTMI 
TaxTMI 
2025 (10) TMI 426
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....') 2013-14, 2017- 18, 2018-19 and 2019-20 and assessee's appeal pertain to AYs 2014-15, 2021-22 and 2022-23. These are second round of appeals before the Tribunal. Initially, these appeals were decided by the Tribunal. Aggrieved with various orders of the Tribunal, cross appeals were filed by the assessee and Revenue before the Hon'ble Delhi High Court, who vide its order dated 06.03.2015 revived all these appeals before the Tribunal by setting aside the Tribunal's orders as under: 4. As is manifest from the above, the communication records that the competent authorities of both countries had desisted from making any determination on whether Convergence US had established an Indian PE as per Article 5 of the India-US Double Taxation Avoidance Agreements. However, and solely with the objective of settling that dispute which straddled multiple years, the parties appear to have agreed to an exercise of attribution. It is thus apparent that the issue of PE remained untouched. 5. However, and although the MAP determination had concluded in 2017 itself, this fact clearly does not appear to have been brought to the attention of the Tribunal and which has evidently procee....
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....ii. Service PE iii. Attribution of Profits iv. IPLC/ Link Charges 11. 724/ Del./2023 i. Dependent Agent PE ii. Service PE iii. Attribution of Profits iv. IPLC/ Link Charges 3. The ITA No. 7727/Del/2017 of AY 2013-14 is taken as lead case. ITA No. 7727/Del/2017 and ITA No.130/Del/2018 of AY 2013-14: 4. The relevant facts giving rise to this appeal are that the assessee ('CVG'), a company incorporated in the United States of America ('USA'), is a tax resident of USA under terms of Article-4 of the Double Taxation Avoidance Agreement ('DTAA') between India and USA. The assessee provides outsourced customer and marketing support services as well as comprehensive customer management services. Convergys Indian Services Pvt. Ltd. ('CIS') is a subsidiary of the assessee company in India. The assessee takes services of CIS, its Indian Associate Enterprise ('AE'), for its overseas customers. The CIS provides IT enabled services i.e. call Centre and back-office services in the relevant year. The CIS provides services under the sub-contract arrangement with the assessee on service charge of 14% mark-up over the cost. The CIS has provided following services to the ....
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....of the Ld. CIT(A) that the assessee had a fixed place of PE in India in terms of Article 5(1) of the DTAA. However, the Tribunal attributed the profit on account of assets provided by the assessee to CIS and followed the methodology provided in the order of the Tribunal in AY 2006-07 for arriving at the profit attributable to PE in India. Further, the Tribunal upheld the finding of the Ld. CIT(A) that the assessee had neither service PE nor dependent agent PE in terms of Article 5(2)(1) and Article 5(4) of the DTAA. The Tribunal also upheld the finding of the Ld. CIT(A) that the payments for link charges did not qualify as equipment royalty and process royalty in terms of the Article 12 of the DTAA; hence, the same was not taxable in India. Permanent Establishment (PE): 9. At the outset, Shri Sachit Jolly, Sr. Counsel representing the assessee submitted that the issue of PE was squarely covered by the decision of the Hon'ble Supreme Court in the case of E-Funds IT Solution Inc reported in 399 ITR 34, wherein it had been held that the burden of proving the fact that a foreign taxpayer had a PE in India was on the Revenue. Further, the Ld. Sr. Counsel, placing emphasis on the d....
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....o determine and decide location PE. The allegation that e-Fund India did not bear sufficient risk is irrelevant when deciding whether location PE exists. The fact that e- Fund India was reimbursed the cost of the call centre operations plus 16% basis or the basis of margin fixation was not known, is not relevant for determining location or fixed place PE. Similarly what were the direct or indirect costs and corporate allocations in software development centre or BPO does not help or determine location PE. Assignment or sub-contract to e-Fund India is not a factor or rule which is to be applied to determine applicability of Article 5(1). Further whether or not any provisions for intangible software was made or had been supplied free of cost is not the relevant criteria/test. e-Fund India was/is a separate entity and was/is entitled to provide services to the assessee's who were/are independent separate taxpayer. Indian entity i.e. subsidiary company will not become location PE under Article 5(1) merely because there is interaction or cross transactions between the Indian subsidiary and the foreign Principal under Article 5(1). Even if the foreign entities have saved and reduced thei....
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....n of income attributable to the PE are highly debatable and contentious questions which require findings of facts at the first instance and cannot be made matters to be decided for the first time in an appeal under section 260A of the Act. ...... ...... 63. Two employees of e-Fund Corp were deputed to e-Fund India in the assessment years 2005-06. The case of the assessee and e-Fund India is that they were deputed to look towards development of domestic work in India. Payment of these employees as per the Revenue to the extent of 25% was borne by e-Fund India and balance 75% was borne by e-Fund Corp. The Assessing Officer on this basis has observed that this reduced cost base of e-Fund India as remuneration was paid by e-Fund Corp and the said employees were at liberty to perform functions of e-Fund Corp even while working for e- Fund India. The response of the assessee as quoted in the assessment order was that e-Fund India, apart from export activities had also domestic business in India. This was evident from the return of income filed by e-Fund India where domestic income was computed separately as it was not eligible for deduction under Section 10A of....
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....itted that the Ld. CIT(A) and the Ld. AO/TPO had erred in holding that the assessee had fixed place PE and outsourcing of business to the Indian AE resulted in creation of a PE due to the close association between the assessee and CIS by applying functions performed, assets used and risk assumed (FAR) criteria to determine fixed place of business. It was contended that outsourcing/assignment or sub-contract to CIS would not determine applicability of Article 5(1) of the DTAA. The AE of assessee would not become location PE under Article 5(1) of the DTAA merely because there were regular interactions or cross transactions between the assessee and CIS. It was further submitted that no part of the main business and revenue earning activity of the assessee was carried out through a fixed business place in India which had been put at the assessee's disposal. The CIS had only rendered support services which enabled the assessee in turn to render services to its foreign clients abroad. It was categorically submitted that the assessee had not rendered any service to any client in India. Thus, the outsourcing/contracting of work to CIS would not give rise to a fixed place PE, argued the Ld.....
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....cipal to Principal business between the assessee and CIS and thus, the tests specified under Article 5(4) and Article 5(5) of the DTAA were not satisfied. The Ld. CIT(A)'s categorical finding that conditions and requirements of agency PE not satisfied was upheld by the Tribunal in first round of appeal. 13. The Ld. CIT-DR argued vehemently and defended the order of Ld. AO/TPO. He prayed for upholding the assessment order by setting aside the order of Ld. CIT(A). 14. We have heard both parties and have perused material available on the record. We find merit in the arguments/contentions/submission of the Ld. Sr. Counsel. Further, the Ld. CIT-DR failed to bring any material on the record to demonstrate and establish the existence of fixed place PE, service PE and dependent agent PE. We have taken note of finding of the Tribunal, in first round of appeal, with respect to the issues of service PE and dependent agent PE as under: "7.0 As far as the department's appeal is concerned, it is challenging the act of the Ld. CIT (A) in holding that the assessee did not have a dependent Agent PE or a service PE in India and it also challenges the reduction in profit attribution do....
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....n identical facts, we dismiss the related grounds raised by the department. 7.1 As far as the issue of dependent agent PE is concerned, it is again seen that this issue was decided in favour of the assessee by the Tribunal in assessee's own case in assessment year 2006-07 and the relevant observations are contained in Para 4.26 which are reproduced here in under for a ready reference: - "4.26. In the light of above, even assuming, CIS is not an agent of CMG, it does not have any authority to conclude contracts or secure orders on behalf of CMG and hence CMG does not have a Dependent Agent PE in India." 7.1.1 We also note that the Ld. CIT (A) has duly taken note of this order of the Tribunal as has made the following observations: "Regarding the constitution of dependent agent of PE (DAPE) of the Appellant in India, I am in agreement with the submission of the Appellant and the order of the ITAT in Appellant's own case for AY 2006-07 and AY 2008-09. In view of the business model of the Appellant and in absence of any material on record that the conditions mentioned in Article 5(4) of the DTAA is satisfied viz. habitually exercising authority to co....
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.... Internet access, business data exchange, video conferencing, and any other form of telecommunication. IPLC is one of the basic requirements for Information Technology enabled services like Business Process Outsourcing. In the instant case, IPLCs allow a dedicated capacity for a private, secure communication link from India to the US over the Internet which enables CIS to communicate with the customer. It was submitted that CVG makes payment for such link charges to telecom service providers in the USA and cross charges the portion of the cost incurred by it in connection with the India half link to CIS, which is accordingly reimbursed by CIS to CVG. The Ld. AR submitted that the AO has made an addition on account of such link charges by stating that they are taxable as 'Equipment Royalty' in terms of Article 12(2) read with Article 12(3)(b) of the DTAA and accordingly taxed it @ 10% on gross basis. In addition to the finding of the AO that link charges are taxable as 'Equipment Royalty', the AO also held that the payments pertaining to link charges are taxable as 'Process Royalty' both under the Act as well as DTAA. It was submitted that the link charges do not qualify as Equipmen....
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....Court concluded that amendment in section 9 will not affect DTAA, and the term Royalty' would have to be understood as defined DTAA only. 8.10 As discussed above, the Hon'ble I TAT, Delhi in its order dated May 10, 2013 in Appellants own case/or Assessment Tear 2006-07 and Assessment Year 2008-09 has held that there is no transfer of the right to use, either to CMG or to CIS. The ITAT observed that the Appellant has merely procured a service and provided the same to CIS. Further, ITAT observed that even otherwise, the payment is in the nature or reimbursement of expenses and accordingly not taxable in the hands of the Appellant. Therefore, it is held that the said payments do not constitute Royalty under the provisions of the DTAA. 8.11 Respectfully following the Hon'ble ITAT decision in the case of the Appellant and jurisdiction High Court's decision of New Skies Satellite BV (Supra) wherein it is held that the amendment in section 9 will not affect the DTAA, I find that the payment of link charges received by the Appellant from Convergys India Services Rut. Ltd. would not qualify as "process" royalty in terms of Article 12 of lndia-US DTAA. Hence, the ground of ....