TaxTMI 
TaxTMI 
2026 (1) TMI 984
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....rder for the sake of convenience and brevity. First, we take up the appeal no. 380/DEL/2023 for A.Y 2020-21 as the lead case. 3. In all these three appeals, two issues are involved: (i) Treating the Indian AE as PE of the assessee and attributing 35% of Offshore sales to Indian AE as income, and (ii) reimbursement of expenses by Indian AE treated as FTS. 4. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. 5. Brief facts of the case are that the assessee, Kyocera Document Solutions Asia Ltd [KDAS for short], is a company incorporated in Hong Kong and is a tax resident of Hong Kong under the provisions of Article 4 of India-Hong Kong Double Taxation Avoidance Agreement ('DTAA'). Kyocera Document Solutions Asia [KDAS for short] was established in July 2010 as the Asian regional sales headquarters in Hong Kong. As the regional headquarter, KDAS supports sales and marketing of Kyocera Document Solutions sales companies and distributors in Asia including Hong Kong, Taiwan, Korea, Thailand, Singapore, India and ....
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....ct office in India. The Assessing Officer relied on the judgment in the case of CIT Vs. R.D. Agarwal & Co. (1965) 56 ITR 20 (SC) wherein it was held that a business connection involves a relation between a business carried on by a non-resident which yields profit or gain and some activity in the taxable territories. 10. Before us the ld counsel of the assessee submitted that Sales Agreement between KDID and the assessee is on a principal-to-principal basis and therefore, KDID is not an 'Agent' of the assessee. KDID while importing goods into India is acting in the ordinary course of business. Further, the terms of Sale Agreement between KDID and the assessee are similar to that of any standard distributor contract with third party agents. The ld AR of the assessee submitted that the allegation of the Assessing Officer is on the basis that, KDID maintains adequate sales, warehouse, and service facilities for effective distribution of products, maintains inventory of the products etc. in India. The ld AR stated that the Assessing Officer ought to have appreciated that, the above activities are not being carried out by KDID on behalf of the assessee but on its own account a....
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....enterprise; or habitually maintains in India a stock of goods or merchandise on behalf of the enterprise; or he habitually secures orders in India, is not satisfied. 14. The ld. counsel for the assessee further submitted that Article 5(6) of the DTAA further clarifies that an agent may not constitute a PE of the foreign enterprise, if the agent has an independent status. In order to construe as an independent agent, various conditions need to be satisfied. While these conditions have not been listed in the DTAA or the Act, guidance can be taken from Model Tax Convention on Income and on Capital 2017 issued by OECD ('OECD Commentary') and various judicial precedents wherein conditions of agent being both legally and economically independent of the principal and such an agent is acts in the ordinary course of its business. The ld AR stressed that such conditions are not met in the case of the assessee. 15. The ld. counsel for the assessee lastly submitted that even if a Indian AE is held PE of the assessee, even then there is no attribution of profit to the PE whereas 35% attribution made by the Assessing Officer is excessive. The role of PE, if any, is very limited. Th....
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....ld. DR relied upon the orders of the authorities below. With respect to Ground No. 2, the ld. DR stated that the Hong Kong DTAA is different from India-USA DTAA and there exists DAPE of the assessee in India. Clause (5) of Article 5 of the DTAA states that there would exist PE in India if any one of the conditions are satisfied. The ld. DR vehemently stated that in the case of the assessee, condition of PE as per clause (c) of Article 5(5) is satisfied in the instant case. 20. With respect to Ground No. 3, the ld DR submitted that the table at page 124 of the Paper Book I, shows managerial and technical services under Article 13 of DTAA and relied on the decision in the case of Volvo information Technology AB 162 taxmann.co, 679 at Para 14 and 15 and order of the ITAT in the case of H.J. Heinz Company 108 taxmann.com 473. Then ld. DR invited our attention to page 21 of the DRP order to buttress his point that the services rendered by the assessee are technical, managerial and consultancy services and hence is covered as FTS. The ld. DR pointed out that 'make available' clause is not available in the India-Hong Kong DTAA and hence there is no requirement satisfaction of 'make ava....
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....ersonnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting Party for a period or periods aggregating more than 183 days within any twelve-month period. 4. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include: (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; (f) the maintenance of a fixed place....
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.... This Sales Agreement ("Agreement") is entered into as of the 1st day of April, 2012, by and between Kyocera Document Solutions Asia Limited, a corporation organized and existing under the laws of Hong Kong ("SELLER"), and Kyocera Document Solutions India Private Limited, a corporation organized and existing under the laws of India ("PURCHASER"). RECITALS WHEREAS, SELLER is a supplier of certain. Products, as defined below, and desires that the Products be sold to customers located within the Territory defined below; WHEREAS, PURCHASER has a sales and distribution organization which. can sell the Products in the Territory; WHEREAS, PURCHASER desires to purchase the Products for resale to customers within the Territory and to otherwise act as a distributor for SELLER; and WHEREAS, SELLER desires that PURCHASER acts as its non-exclusive distributor for the Products within the Territory, and that PURCHASER purchases the Products for the purpose of selling them to customers located therein. NOW, THEREFORE, in consideration of the foregoing premises and in consideration of the mutual covenants and conditions contained in this A....
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.... the first year, and each succeeding year, for an additional year. Section 3.02 This Agreement may be terminated by either party by written notice to the other party given not less than three (3) months prior to the expiration date of the current term. Section 3.03 Either party shall have the right to terminate this Agreement immediately if**** ARTICLE 4 PURCHASER'S RESPONSIBILITIES Section 4.01 During the term of this Agreement, PURCHASER shall: (a) Use its best efforts to market, advertise and otherwise promote the sale and distribution of the Products to purchasers throughout the Territory. (b) Tako all reasonable and necessary actions to satisfy the demand for the Products and applicable accessories throughout the Territory and attempt to increase the demand for the Products by, among other things, servicing all customer accounts with reasonable frequency and soliciting new customer accounts: (c) Maintain adequate sales, warehouse and service facilities for effective distribution of the Products. (d) Maintain an inventory of the Products sufficient to meet the purchase requirements of its customers: ....
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.... its best efforts to provide PURCHASER with at least ninety (90) days prior written notice of Product discontinuation. PURCHASER will make its best efforts to sell or otherwise liquidate remaining inventory of Products. ARTICLE 1 PURCHASE ORDER AND SHIPMENT Section 7.01 SELLER shall have the right, in its sole and absolute discretion, to reject any purchase order, in whole or in part, placed by PURCHASER, and no purchase order shall be binding upon SELLER unless accepted by SELLER in writing or by the delivery of. Products in whole or in partial fülfillment thereof. All purchase orders shall be governed by the provisions of this Agreement. Section 7:02 SELLER shall ship the Products on an agreed shipping date, In the event that SELLER ships the Products in advance of or late for a scheduled shipping date, SELLER and PURCHASER shall discuss and deal with it Section 7.03 SELLER warrants that all Products shipped hereunder shall be free from defects in material, workmanship, and design, and shall conform to the applicable specifications, drawings, samples, and descriptions set forth in this Agreement and purchase orders issued hereunde....
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....he end customers. On the basis of these provisions in the Sales Agreement, the AO concluded that KDID is the Agency PE of the assessee in India. 25. We are of the considered view that the AO has read the Sales Agreement selectively without considering various other sections in the Agreement where it is apparent that KDID purchases the Products of the assessee for resale to customers within Indian Territory and to otherwise act as a distributor for the assessee. 25.1 Section 2.03 provides that KDID is an independent contractor and does not have the right to assume or create any obligation of any kind, express or implied, on behalf of the assessee, except as expressly provided for in this Agreement. Further nothing in the Agreement shall be deemed to establish or otherwise create a relationship of principal and agent between KDID and the assessee. 25.2 Section 2.04 provides that neither party shall possess, nor shall either party hold itself to third persons as possessing, any power or authority to bind the other party in anyway. This shows that KDID has obtained the rights of distribution of the products for itself. Subsequently it had entered into contracts with third part....
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....nder this Article the AO has to establish that KDID habitually exercises in India an authority to conclude contracts for or on behalf of the foreign enterprise; or habitually maintains in India a stock of goods or merchandise from which it regularly delivers goods or merchandise on behalf of the enterprise; or habitually secures orders in India, wholly or almost wholly for the enterprise itself or for other enterprises controlling, controlled by, or subject to the same common control, as that enterprise. We find that none of the conditions of Article 5(5) are met in the case of the assessee. We find that the AO has not provided any evidence/materials to show that KDID habitually binds the assessee or secures order or maintains stock for the assessee. In view of the same, we are of the considered view that no Agency PE exist for the assessee in the form of KDID. Since we have held that the assessee does not have a PE in India in the shape of KDID, consequently the question of attributing 35% of the Offshore sales to Indian AE, as income of the assessee, does not arise. The ground 2 is allowed. 28. As far as the question of FTS in ground 3 is concerned, we find that FTS under Expl....
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....); (SBO) for the purpose of Group managed ERP system for resource planning management (support system); use of software (Bliq) which is - comprehensive source of independent research and data.; cloud solution for Computer system resource for data storage on a common server of the company; email hosting for hosting the domain of the company in order to set up a custom email address. For all these facilities, KDAS pays a fee to entities outside India and collects the same from its group entities such as KDID in India availing such facilities on cost to cost basis. 30. Considering the nature of the activities for which the cost are recovered from KDID and the Assessee's responsibilities towards KDID as stipulated in section 5.01 of the Sales Agreement between the assessee and KDID, we are of the considered view that the assessee has rendered a service to KDID in making all such arrangements which KDID, otherwise on its own, could not have availed. In particular, the section 5.01 of the Sales Agreement specifically provides that assessee would provide to KDID sales and technical information. The assessee has provided to KDID various standard automated facilities from the third parti....