TaxTMI 
TaxTMI 
2025 (3) TMI 2116
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....4C(13) of the Act, for the AY 2022-23 at 1NR 6,62,56,648 as against Nil as per the return of income. Ground 2: On the facts and circumstances of the case and in law, the Ld. AO has erred in violating the essential principles of judicial discipline by: 2.1. Completely ignoring the orders passed in favour of the Appellant by the Hon'ble Income Tax Appellate Tribunal ('ITAT') in the Appellant's own case for various years (i.e. A.Y 2013-14, AY 2014-15, AY 2015-16, AY 2016-17, AY 2017-18, AY 2018-19, AY 2019-20, AY 202021 and AY 2021-22), wherein the IT AT, after careful examination of the facts of the case (which are identical to the facts for the AY under consideration) held that no fixed place PE and Agency PE of the Appellant is constituted in India; 2.2. Completely ignoring the judgement passed in favour of the Appellant by Hon'ble Delhi High Court ('Hon'ble HC') for AY 2017-18 to AY 2019-20 wherein, Hon'ble HC did not interfere with the findings of the Hon'ble ITAT that the Appellant did not constitute any PE in India; and 2.3. Passing an adverse order on PE by relying on the appeal filed by revenue before Hon'ble HC against the order of ITAT fo....
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....oc and arbitrary basis, by not considering commercial and economic factors governing the business of the Appellant and completely ignoring all submissions of the Appellant in this regard. In doing so, the Ld. AO erred in: 8.1. Applying an ad-hoc methodology to attribute unreasonable profits to the alleged PE. In this regard, the AO erred in benchmarking the profits attributable to the alleged PE with the resale discounts agreed by the Appellant with its AE, DHR India, under a buy-sell distribution arrangement, which is a controlled transaction; 8.2. Ignoring the significantly higher level of functions performed, assets employed and risks assumed by DHR India under the distribution arrangement versus those alleged to have been performed by the PE, leading to excessive and unreasonable profits attribution. Ground 9: On the facts and circumstances of the case, the Ld. AO/ Hon'ble DRP erred in summarily rejecting the submissions placed by the Appellant with respect to reasonable profit attribution, without appreciating the analysis filed by the Appellant during the course of proceedings. In doing so, the Ld. AO/ Hon'ble DRP erred in: 9.1 Ignoring the....
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....as well in assessee's case ITA No. 514/Del/2021 which stands decided against the department as under: "3. The core issue arising in the appeal, as urged in ground no. 1 to 4, is whether the assessee has a Permanent Establishment (PE) in India. Of course, there are ancillary and incidental issues raised in other grounds, including attribution of profit to the PE, in case, it is held that the assessee has PE in India. However, at the outset, we will deal with the core issue as to whether the assessee has a PE in India. 4. Briefly the facts relevant for deciding the issue are, the assessee is a company incorporated in Singapore and is a tax resident of that country. As stated by the Assessing Officer, the assessee is engaged in the business of manufacturing and sale of scientific research instruments and peripheral. For the assessment year under dispute, the assessee had filed its return of income in India declaring nil income. In course of assessment proceeding, after calling for necessary details and examining them, the Assessing Office noticed that the products sold by assessee require maintenance, calibration, which involves servicing, repairing and supply of spa....
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....fficer found that DHR Holding India Pvt. Ltd., for all practical purposes, acts as an Indian representative of the assessee company and also maintains inventory of spare parts in their premises. He further observed, DHR Holding India Pvt. Ltd. is maintaining a warehouse in its premises for the equipments of the assessee and the premises is used as a sales outlet for soliciting or receiving orders. Thus, he concluded that the assessee has a fixed place PE in India. 7. Further, the Assessing Officer observed, DHR Holding India Pvt. Ltd. habitually exercises a predominant role in India for concluding contracts on behalf of the assessee and also habitually maintains in India stock of goods or merchandise from which it is regularly supplying goods merchandise on behalf of the assessee. He also observed that DHR Holding India Pvt. Ltd. acts solely on behalf of the assessee while providing services to assessee's customers in India. Therefore, DHR Holding India Pvt. Ltd. can be considered as a dependant agent PE of the assessee. On the aforesaid premises, the Assessing Officer issued a show-cause notice to the assessee to explain as to why the receipts on account of AMC should not....
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....t sales to customers in India. He submitted, the sales were made from outside India. In this context, he drew our attention to the sample invoices indicating sales made from Singapore to the customers in India. He submitted, since the scientific equipments require regular maintenance, repairing etc., the assessee enters into AMC with the customers. However, since the assessee is located outside and its employees do not travel to India, the assessee has sub-contracted the repair and maintenance related activities to DHR Holding India Pvt. Ltd. He submitted, the assessee has entered into three agreements with DHR Holding India Pvt. Ltd.; first is Sales Commission Agreement for direct sales; second is Distribution Agreement; and third is Marketing Support Agreement. Drawing our attention to the relevant clauses of the three agreements, learned counsel for the assessee submitted, there is nothing in the agreements to suggest that DHR Holding India Pvt. Ltd. has allowed the assessee to use its premises as warehouse or as a sales outlet for soliciting orders. He submitted, under the Distribution Agreement, DHR Holding India Pvt. Ltd. has been appointed as a nonexclusive distributor....
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...., their statements, if at all adverse to the assessee, would not have any relevance. He submitted, in any case of the matter, the statements recorded from the concerned employees were neither confronted to the assessee nor any opportunity of cross examining them was offered to the assessee. Thus, he submitted, the Assessing Officer has not properly understood the legal relationship between the parties. He submitted, since the assessee did not have either fixed place PE or dependant agent PE in India, no part of its income is taxable in India. Therefore, attribution of profit to the PE in such scenario will not arise. In support of his contention, learned counsel relied upon the following decisions: (i) ADIT Vs. M/s. E Funds IT Solution Inc. (Civil Appeal No.6082 of 2015) (ii) DCIT Vs. Lubrizol Corporation, USA (2017) 83 taxmann.com 13 (Mum. - Trib.) 13. Strongly relying upon the observations of Assessing Officer and learned DRP, learned Departmental Representative submitted, the terms of agreements between assessee and DHR Holding India Pvt. Ltd., coupled with the statement recorded from two of the employees of a customer of the assessee in India cl....
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....-book. On perusal of such invoices, it becomes very much clear that sales to Indian customers have been directly made by the assessee from Singapore. It is also evident, in respect of such sales the assessee has also entered into AMC with Indian customers. It is the contention of learned counsel for the assessee that all AMC and warranty related work has been sub-contracted to DHR Holding India Pvt. Ltd. As stated by the Assessing Officer, the assessee had entered into three separate agreements with DHR Holding India Ltd. The first agreement between the assessee and DHR Holding India Pvt. Ltd. is Sales Commission Agreement. On a perusal of this agreement placed at page 13 of the paper-book, it is noticed that the assessee has appointed DHR Holding India Pvt. Ltd. on non-exclusive basis for providing services related to sales, installation, warranty for the products and spare parts sold directly by the assessee to customers in India. Clause 1.1 of the agreement says that the assessee may solicit or, upon an order being placed by a customer, take orders requiring delivery of products, whereas, the assessee designates DHR India Pvt. Ltd. as an authorized warranty related service provi....
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....territory, the assessee shall pay DHR India a commission applied against the net sales price of the product towards remuneration for the assistance rendered and to be rendered, and the business goodwill developed by DHR India and such commission shall be payable by the assessee to DHR India upon the issuance of the invoices for the products shipped to the customers. Clause 11 of the Treaty say, DHR India shall report all warranty claims made in respect of all products to the assessee. In case of providing any spares under warranty/maintenance, DHR India will provide for the same out of its own stock and DHR India shall have the right to get a replacement product/part free of cost from the assessee or cross charge the cost of the product/part to the assessee. 17. Thus, the Sales Commission Agreement not only defines the scope of services of DHR India but also makes it clear that DHR India will have to provide the services stipulated under the agreement, regardless, whether the product was purchased from assessee or from DHR India. The scope of services under Exhibit - A to the agreement indicates that the DHR India is required to do liasoning in relation to orders from cust....
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....el or reschedule any of its purchase orders for the products. However, such cancellation or rescheduling has to be in terms with the agreement. Clause 2.6 provides that during the term of this agreement, DHR India shall be entitled to purchase products from the assessee, subject to, resale or distribution discount. Clause 3 of the agreement provides for prices of products and terms for distribution activities as well as discounts to be provided thereon. 19. Thus, a reading of the Distribution Agreement as a whole, makes it clear that the purchase of products by the DHR from assessee for the purpose of resale in India is on principal to principal basis and no agency relationship is there between the parties. This fact is further clarified from Clause 11.1 which provides that DHR India shall at all times act only as an independent contractor, and never as a legal representative of the assessee. It further provides that nothing in this agreement shall be construed to give either party the power to direct or control the daily activities of the other party, or to allow DHR India to negotiate or conclude contracts on behalf of the assessee, or to constitute the parties as princi....
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....e by overseas entities from time to time * On overseas's entities request, act as a transmission channel to receive and transmit copies of any documents: * Any other incidental activities in relation to servicing that may be required by the customers; 21. For providing such services, the assessee is to be remunerated at cost plus markup at arm's length basis. Clause 4 of this agreement defines the status of DHR India as an independent contractor which does not have and cannot represent itself as having any authority to enter into any obligation on behalf of the assessee or to bind the assessee contractually in any way. It also stipulates, DHR India has no authority to negotiate or conclude or procure any contract or order on behalf of the assessee or any of its group companies or otherwise bind the assessee or any other group companies in any way in this regard. It also provides that DHR India shall conduct or deal with any potential or existing customers in a manner that may lead to the belief that DHR India has the authority to conclude the terms of the contract or to bind the assessee in any manner. It also provides that DHR India may take up/provide s....
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.... by DHR India under the Distribution Agreement and kept in its inventory cannot be considered to be the products belonging to the assessee, as, they are sales transaction on principal to principal basis for resale by DHR India to Indian customers. Further, clause 11.1 and 11.2 of Sales Commission Agreement makes it clear that any replacement of products/spares under warranty/maintenance has to be provided by DHR India out of its own inventory and DHR India will have the right to either get a replacement from assessee or cross charge the cost to the assessee. Therefore, the terms of the agreements make it clear that assessee does not have a warehouse or sales outlet in India to constitute a fixed place PE in India under Article 5(1) of the Treaty. Thus, in our view, the conclusion drawn by the Assessing Officer that the assessee has fixed place PE or dependant agent PE is not borne out from any cogent material/evidence brought on record. 24. Unfortunately, learned DRP has not properly appreciated the facts and simply adopted the version of the Assessing Officer. There is nothing on record to suggest that the assessee is utilizing the premises of DHR Holding India Pvt. Ltd. ....