TaxTMI 
TaxTMI 
2019 (3) TMI 2112
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....he case and in law, the Ld. CIT(A) erred in holding that in view of independent principal to principal basis business between the assessee and M/s Mercedes-Benz India Pvt. Ltd. (MBIPL), regarding the sale of raw materials and spare parts, the MBIPL cannot be treated as agent, of the assessee under Article 5(5) and 5(6) of the DTAA .. " 3. The brief facts of the case are that the assessee is incorporated in and a tax resident of Germany. Based on the provisions of the India- Germany Double Taxation Avoidance Agreement (the Treaty), assessee has filed its return of income on 30/11/2013 declaring total income of Rs.107,21,33,636/- which was offered to tax as royalties and fees for technical services @10% under Article 12 of the India Germany Tax Treaty. Apart from the above income, the assessee did not have any income chargeable to tax under the provisions of Section 5 r.w.s. 9 of the Income Tax Act, 1961. Further, the assessee does not have a permanent establishment in India as per Article 5 of the Treaty. Accordingly, income from sale of raw materials, Completely Built up Cars (CBU) to MBIPL and sale of CBU cars directly to customers in India was not offered to tax in the return ....
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....r sale of spare parts, CBU cars and CBU cars directly to customers in India is not liable to tax in India, because the assessee does not having a permanent establishment in India. The relevant observations of the Tribunal are as under :- "4. We have considered rival submissions and perused material on record. At the outset, the learned Authorised Representative submitted before us that identical issue has been decided in favour of the assessee through series of decisions by the Tribunal beginning from assessment year 1997-98 to 2011-12. In this context, he drew our attention to the latest order of the Tribunal passed for assessment year 2011-12, in ITA no. 5704/Mum./2016, dated 31st May 2018. The learned Departmental Representative has not controverted the aforesaid submissions of the learned Authorised Representative. As could be seen from the materials placed before us, this is a recurring dispute between the assessee and the Department right from the assessment year 1997-98. In a series of decisions, the Tribunal has accepted assessee's claim that the income / profit received by the assessee on sale of raw materials and CBU cars in India is not taxable in India. In ....
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....be quashed. Without prejudice to the above, the ld. Counsel for the assessee respectfully submitted that DCIL does not constitute business connection in India and no income accrues arid arise assessee in India for sale of raw materials/ CKD units to DCIL. "Section 9 of the Act provides, inter alia, that income accruing or arising, directly or indirectly through or form any business connection in India, shall be deemed to be income accruing or arising in India and, hence, where the person entitled to such income is a non-resident, if will be included in his total income. Further, non-resident, it will be included in his total income. Further, Explanation (a) to Section 9(1)(i) of the Act provides that in case of a business of which all the operations are not carried out in India, the income deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India- 9. The ld. Counsel for the assessee reiterated the arguments before the ld. CIT(A). He further relied on the following case laws: CIT Vs. Gulf Oil (Great Britain) Ltd. 108 ITR 874 (Bom) (Refer pg 56,62 of Paper Book-I) ....
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....ipment. The subsequent amendment to sect 9(1)(i) will not affect the decision on profit arising from sale of equipment offshore. Mere sale of raw materials/components will not equipment result in business connection and even if it does as per he terms and conditions of the contract between the assessee and /DCIL no income accrues to the assessee on the basis of any activities carried out on behalf of the assessee in India. Therefore in our opinion DCIL does not constitute the assessee's business connection in India and thus, the assessee's income from sale of raw material/CKD units to DCIL would not be liable to tax in India under the provisions of the Act. We therefore concur with the decision of the CIT(A) on this issue and dismiss the ground no. 1.(i) of the Revenue's appeal." 5.1 First Appellate Authority in the present case has also decided this issue in favour of assessee, the operative para of CIT (A) is mentioned below: "10. I took note to the facts of the case and the submissions made by the appellants AR on record. in case of sale of CBU cars directly to the customers, the facts in AV 2008-09 are same as the facts in AY 2002-03 to AY 05-06 an....
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....y manufacturing activity in respect of the CBU cars/ raw materials / spare parts sold by the Appellant to MBIPL nor does it play any role in the subsequent sale CBU curs/ raw materials/ spare parts by MBIPL. MBJPL sells the CBU cars through its own network of dealers. The profit earned by MBIPL from sale of CBU cars purchased from the Appellant is taxed in the hands of MBIPL. 12. In view of the same, respectfully following the findings of the Hon'ble Tribunal in the case of the Appellants own case for AY 2002-03, hold that with regard to sale of CBU cars/ raw Material/ spare parts by the Appellant to MBIPL, the Appellant does not have a business connection in India and that MBIPL does not constitute a business connection of the Appellant in India under Section 9 of the Act and therefore, its income in respect of sale of CBU cars to MI3IPL is not taxable in India. 6. On the other hand, Id. DR relied upon the orders passed by the A.O. 7. We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. After co-joint reading of all the orders pas....
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....AO has stated that DCIL is a sales outlet or warehouse of the appellant. The assessee's key arguments are as under: The commentary to Article 5 of the OECD MC states that the mere existence of a subsidiary does not of itself constitute the subsidiary company PE of the parent. Even the fact that the trade or business of the subsidiary is managed by the parent company does not constitute the subsidiary company a PE of the parent company. The conditions as stated in the definition of PE in Article 5(1) of the Treaty must first be satisfied in order for a place to constitute a PE under Article 5(2) of the treaty i.e. the enterprise must carry out business operations in the other contracting state and such business of the enterprise must be carried on through such fixed base. As regards sale of parts/CKD and CBU sales, no operations in respect of the manufacture and sale of the parts is carried out by the appellant in India. Thus, the key condition for constitution of PE i.e. carrying on of business in India is not satisfied and accordingly the appellant does not have a PE in India. The appellant does not have a right to use DCIL premises and the ....
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....ly considered the submissions of the appellant as well as the observations of the AO. For the appellant to constitute a PE as per Article 5(1) and 5(2) for the Treaty. it would have to be proved that the appellant carries out some business operations in India and further it would have to be proved that the appellant has at its disposal certain fixed place of business in India, and that is business operations is carried out through such fixed place. As regards the parts/CKDs it is evident that the appellant sells the parts/CKDs to DCIL outside India and no activity in relation to such sales is carried out by the appellant in India. DCIL uses the parts/ CKDs in its own business of assembly and sale of cars. The profits from the business assembly and sale of cars are reported in the financials and offered to tax in the return of income of DCIL. The appellant does not carry our any operation in India in respect of the sale of parts/ CKDs to DCIL and accordingly, cannot qualify to / have a PE in this respect under Article 5(1) and 5(2) of the Treaty. Aggrieved, Revenue preferred an appeal before us. In our opinion mere existence of subsidiary does not by itself constitute the subsidiary....
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....ining to A. Y.2009-10, the facts are similar to the appellant's case, which has already been decided by my predecessor CIT(A) in A.Ys. 1995-96, 1997- 98,2000-01, 2001-02 to 2005-06 and 2007-08. I find that my predecessor CIT(A) has decided the issue, which has been raised by the appellant in these grounds of appeal in favour of the appellant vide order in appeal Nos. CIT (A)-10/DDIT(IT)-1(2)/IT- 58/09-1 0 (Old No.IT-295107-08) dt. 14-05-2010 for AY 1997 - 98-and No. CIT (A)-10 /DDIT(IT)-1(2) IT 57/09-10 (Old No.IT- 294 /07-08) dt. 20-05-2010 for AY 2000-01 and CIT(A)-10 DDIT (IT) - 1(2) /IT-58/09-10 (old No. IT 295/07-08) dt. 14-05-2010 for AY 2005-06. I also find that while deciding the issue in favour of the appellant my predecessor CIT(A) has taken note of jurisdictional ITATs decision in the appellant's own case for A. Ys.2001-02 and 2002-03. The appellant's AR has made the similar set of submissions before me also as it was made in A.Ys. 1997-98 and 2000-01. Having the facts available on record and the decision of my predecessor CIT(A) and the appellant's submission, I consider it proper and appropriate to follow the rule of consistency and accordingly hold tha....
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..... DR submits that DCIL is a dependent agent of the assessee in as much as the entirety of the transactions of the assessee in India is though DCIL and DCIL undertakes an active part in concluding a deal for and on behalf of the assessee. We heard both the parties. The issue to be decided is whether DCIL is acting as art dependent on and controlled by the assessee and if so, can DCIL be considered as a permanent establishment (agency is whether any profit be attributed to the activities of such a PE in India. Article 7 of the Double Taxation Agreement reads as under: "7(1) the profits of art of a contracting state shall be taxable only in that state unless the enterprise carries a business in the other contracting state through a permanent establishment situated therein. If the enterprise caries on business as aforesaid, the profits of the enterprise may be taxed in the other state but only so much of them as is attributable to that permanent establishment. (2) Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment stated therein. There shall in each C....
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....at the profits of the PE, the expenses incurred in earning the profits would also be deducted therefrom in arriving at the taxable profits of PE. 30. Now the activity of DCIL are two fold.(1) manufacture of cars using CKD packs and other components. (2) Act as communication exchange in respect of direct sale of CBUs by the assessee directly the clients in India. Even though the commission received by DCIL for helping the sale of CBUs, it is obvious that their main 2ctivity is that of manufacture of cars. Acting as communication conduct is not their main business. Further the dept has not established that DCIL actively canvasses orders for CBUs of Assessee or is actively engaged in negotiating and concluding contracts if and when clients approach DCIL or their agents evidencing interest to buy CBUs from the appellant DCIL passes on communication both sides. Negotiations of price, specifications etc were concluded by the appellant. The sale to the customer was on principle to principle basis. The risk of diminishing in value or damages to the cars is to the account of customer's right from the port of shipment at the manufacturing end. The cars were cleared thro....
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....2001-02 and 2002-03, which was decided by the / Hon'ble ITAT in favour of the appellant. In the course of appellate proceedings, the appellant's AR has made similar set of submissions and arguments as it was made in A. Ys. 1997-98 and 2000-01 arid other preceding A.Ys. referred as above. The appellant's AR has also made the submission before me that the appellant company has made the payment of commission for the services rendered by MBIPL in assisting the appellant in communicating with end customers to whom the appellant has supplied the CBU cars. The' appellant's AR also submitted in his oral arguments that such commission paid was accepted by the transfer pricing officer of the department amid was not altered / challenged by the TPO. Therefore, based on the similar submission, he claimed that the appellant has made the payment t to the MBIPL commission at arm's length price for services so rendered by MBIPL. 29. I have examined the above documents and it can be seen from these documents that MBIPL does not have the authority to conclude contracts in respect of sale of CBU cars by the Appellant to the Indian customers directly and MBIPL merely as....
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.... the orders passed by Hon'ble ITAT for Assessment Years 2001-02 and 2002-03 as pointed out by ld. AR and the operative para is reproduced below for the sake of convenience: 31. The following decisions cited by the assessee can be extracted for this purpose. "the decisions of the Hon'ble Supreme court in case of DIT vs. Morgon Stanley & Co Inc 292 ITR 416 (refer page 555,556 & 565) of Paper Book Volume III, wherein the Hon'ble apex court has observed that since the assessee did riot conclude any contracts on behalf of morgan Stanley & Co. Inc. (MSCo), it did not have an agency PE in India. Similar view has also been taken by the Special Bench o Delhi Tribunal in case of Motorola Inc & Others v DCIT (2005) 95 ITD 269 (refer page nos. 580,589&59) of Paper Book volume II and the Authority for Advance Rulings in case of TVM Ltd v CIT (1999) 237 ITR 230 (Refer page 600 &618) of paper book volume II). The Hon'ble Delhi Tribunal has in the case of Western Union Financial Services Inc (104 ITD 34) (Refer page no. 522 & 547 of paper book volume II), observed that here is no evidence to show that the extent of their activities of the assessee, compar....
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.... view of the specific provisions of the Article 7 of the Double Taxation Avoidance Agreement between Indian and Germany, the part of the profit of the non-resident assessee can be attributed to the activity with DCIL and hence is not taxable in India. 33. as we have held that no profit accruing to the assessee on sale of CBU cars directly to Indian customers can be attributed to the activities of DCIL, we are not deciding upon the correctness or otherwise of the percentage of profits, estimated by the CIT(A), as attributable to the activities of PE in India. Hence ground no.3 raised by the assessee is not decided as being infructuous. 34. in the result, the appeal of the assessee is allowed. 35. the only issue in the assessee's appeal is against the decision of the CIT(A) holding that 255 of the sale price of CBUs sold by the assessee directly to the Indian customers constitutes net profit of the assessee form sale of CBUs and 30% of the same accrues and is taxable in India. 36. As the facts of the case are identical with the assessee's appeal in ITA No. 8520/Mum/04 for AY 2001-02 for the reasons stated in the appeal for AY 2001-02 9 supr....
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....006 of Assessment Years 2001-02 and 2002-03. Before we decide the merits of the case it is necessary to evaluate the orders passed by Hon'ble ITAT for Assessment Years 2001-02 and 2002-03 as pointed out by Id. AR and the operative para is reproduced below for the sake of convenience: "18. Ground No.4 raised by the revenue reads as follows: "4. On the facts and circumstances of the case and in law whether the ld. CIT(A) was correct in holding that when duty is cast on the payer to pay tax at source, no interest viz. 234B can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax on the amount which had not been deducted at source under section 195 of the Income Tax Act, 1961." 19. It is not in dispute before us that identical issue was considered by the A.Y: 1997-98 in ITA No.3727/M/09 and this Tribunal held as follows: We have heard the parties. The Ld Counsel for the assessee submitted that now the issue stands covered in favour of the assessee by the decision of the Hon'ble High Court of Bombay in the case of DIT (IT) v/s. NGC Network Asia LLC, 222 TR 86 (Bom). In this case, it is not....