TaxTMI 
TaxTMI 
2026 (8) TMI 1336
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.... and in the circumstance of the case and in law, the Ld.CIT(A) was right in allowing in respect of sale of CKD kits to DCIL that the assessee was not liable to tax u/s. 9 of the IT Act? 2. Whether on the facts and in the circumstance of the case and in law, the Ld.CIT(A) was right in holding that treating the assessee not to have a PE under Article 5 of the Treaty? 3. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) was correct in holding that the assessee does not carry out any operation in India in respect of Parts/CKD to DCIL and therefore cannot qualify to have PE under Article 5(1) and 5(2) of the Treaty? 4. Whether on the facts and in the circumstance of the case and in law, the Ld.CIT(A) was correct in holding that the DCIL constitute an independent agent? 5. Whether on the facts and in the circumstance of the case and in law, the Ld.CIT(A) was correct in holding that the no profit accruing to the assessee on sale of CBU cars directly to the Indian customers can be attributable to the PE of the assessee? 6. The appellant craves leave to amend or alter any ground or add a new ground which may be n....
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....ady been decided in its favour by the Tribunal in earlier years. However, the AO observed that the Department had challenged the Tribunal's decisions before the Hon'ble High Court and "Hence for the purpose of continuity and keeping the issue live, the same is re-considered on the same lines as in previous year as the facts of the matter remains the same for this year too." The AO held that the income from the sale of CBU cars and spare parts accrued or arose in India u/s. 5(2) and 9(1)(i) of the Act. According to the AO, MBIPL acted as the exclusive distributor of the assessee's products in India under various distribution and supply agreements, thereby establishing a business connection in India. The AO further rejected the assessee's contention that it had no PE in India under Article 5 of the India-Germany DTAA. It was held that MBIPL constituted the assessee's PE in India as: (i) MBIPL functioned as the assessee's office/place of management/branch and sales outlet; (ii) MBIPL was economically and legally dependent upon the assessee; (iii) MBIPL habitually secured orders, maintained stock and facilitated sales on behalf of the assessee; and (iv) the rela....
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....led appeal before the Tribunal and raised various grounds challenging the order of CIT(A). The Ld. CIT-DR submitted that the CIT(A) was not correct in accepting the contention of the assessee that it was not liable to tax u/s. 9 of the Act in respect of sale of CKD kits to DCIL. The CIT(A) was also not correct in holding that the assessee does not have a PE in India. The Ld. CIT-DR supported the grounds of appeal and relied on the order of AO. He, however, admitted that the issues are covered by the decisions of the Tribunal in assessee's own case. 7. On the other hand, the Ld. AR of the assessee supported the order of CIT(A). He submitted that all the issues are recurring in nature and are covered by the decisions of the ITAT in appellant's own case starting from AYs 2001-02 to AY 2013-14. He has submitted a chart showing that the impugned grounds raised by the revenue are covered by the decisions of the co-ordinate Bench of this Tribunal in different AYs. 8. We have heard both sides and perused the materials on record. We have also carefully gone through the decisions of the co-ordinate Bench in assessee's own case for different AYs. We find that the issues in the impugned ....
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....n the latest order, the Tribunal vide its order dated 03.11.2016 for AY 2010-11, had decided the aforementioned issues in favour of the assessee by following the view earlier taken by the coordinate benches of the Tribunal in the assesses own case for A.Ys 2008-09 and 2009-10, by observing as under: "5. We find that on both the issues the Tribunal has decided the matter in favour of the assessee right from assessment year 2001-02 to 2009-10. In the latest order, the Tribunal vide order dated 28th September, 2016 for the assessment year 2008-09 and also for assessment year 2009-10 have decided this issue in the following manner:- Ground No.1 5. At the very outset id. AR appearing on behalf of assessee submitted that this issue has already been decided in favour of assessee in assessee's own case by Hon'ble ITAT in ITA Nos. 9211/M/2004, 6718/M/2006, 8520/M/2004, 6574/M/2006 for 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 200203 as pointed out by Id. AR and the operative para is reproduced below for the sake of convenie....
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.... The assessee further submits that provisions of Circular No. 23/1969 dated 23 July 1969 ('Circular23') issued by the Central Board of Direct Taxes ('CBDT') would be applicable to the case of the assessee (refer Pg 551 to 553 of the paper book Volume II), Circular 23 has clarified the applicability of provisions of section 9 relating to business connection, to certain specific situations. There are various judicial precedents which have held that circulars issued by the CBDT are binding on. the Revenue authorities and assessee's should be given the benefit of favorable provisions of circulars-For eg the decision of the Hon'ble Bombay High Court in case of SET Satellite (Singapore) Pte Ltd v Dy. DIT. IT (2008) 307 FIR 205, (Refer Pg 678, 679 & 699 of Paper Book Volume II). 11. After hearing, both the sides, we find force in assessee's arguments. The assessee merely sells the raw materials/CKD units to DCIL. It is DCIL which carries out further activity of assembling the same and selling the finished cars. There are no further activities carried out by the Appellant in India in this connection. This transaction ends with the appellant selling mat....
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....ant. The appellant's AR has made the similar set of submissions as it was submitted in the appellate proceedings for A Y 1997 -98 arid AY 2000-01. The appellant's AR has made similar set of submissions as it was submitted that by him in the appellate proceedings for A.Ys.2007-08 and 2000-01, which has already been adjudicated as referred above. Thus, I find that the issue involved in these grounds of appeal has been decided in favour of the appellant by my predecessor CIT(A) in A,Ys 1997-98 and 2000-01 keeping reliance on decision of the jurisdictional ITAT, Mumbai's decision in A.Ys. 2001-02 and 2002-03. This, following the rule of consistency, I consider it proper and appropriate to be in agreement with my predecessor GIT(A)s decision and accordingly hold that the appellant does not have a business connection in India as the MBIPL does not constitute a business connection of the appellant in India u/s.9 of the Act and, therefore, its income in respect of sale of CBU cars directly to the customers in India is not taxable in India. 11. Even in case of sale of CBU cars/ raw materials and spare parts to MBIPL, I have examined the facts of the case and the submiss....
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.... in India and that MBIPL does not constitute the business action of the assessee in India u/s. 9 of the Act and therefore the income in respect of sale of CBU cars to MBIPL is not taxable in India, while following the judicial consistency and following the orders of Hon'ble ITAT in assessee's own case, we dismissed this ground of appeal raised by revenue. Ground No. 2:- 8. At the very outset Id. AR appearing on behalf of assessee submitted that this issue has already been decided in favour of assessee in assessee's own case by Hon'ble ITAT in ITA Nos.9211/Mum/2004, 6718/Mum/2006, 8520/Mum/2004, 6574/ Mum/2006 for 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 ld. AR and the operative para is reproduced below for the sake of convenience: "The next issue is that the assessee has challenged the contention of the A0 that the assessee has a PE in India under Article 52 )(a), (b), (c) and (g) of the Treaty. 13. The Assessing Officer's arguments in this respect are us under: DCIL ....
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.... by its Board of Directors who manage the appellant's business from Germany and not through a fixed place of business in India. The appellant does not carry out any business operations in India and thus, no decisions leave alone significant decisions in respect of the business of the appellants are taken by DCIL. Accordingly, DJL does not constitute a place of management of the appellant in India. As regards the MD and ED, the appellant has submitted that the MD and ED have signed separate agreements with DGJL which specifically state that the management papers exercisable by the MD and ED shall be subject to the supervision and control of the Board of Directors of DCIL. Further the appellant has sought to rely on the rulings in the case of Carborandum co. Vs. CIT (108 ITR 335) and Tekniskil ('Sendirian) Berhad (222 ITR 551) to argue that the deputation of the MD and ED do not constitute a PE for the appellant in India. Sales outlet/ warehouse of the appellant- The goods stored in the warehouses of DCIL. and sold at the sales outlets of DIL are those which belong to DCIL. As regards sale of parts/ CKD such sales are made by the appellant to DCIL on a princ....
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....anagement of the assessee's business is by the Board of Directors at Germany. The MD and ED actually become on deputation as employees of DCIL and work under the directions and control of the Board of DCIL. As regards sale of parts/CKD such sale are made by the assessee to DCKIL on principal to principals' basis and on sale such parts/ CKD become the property of DCIL. Hence DCIL does not constitute sales outlet/ warehouse of the assessee. Hence we are of the opinion that the assessee does not carry out any operations in India in respect of sale of parts/ CKD to DCIL and therefore cannot qualify to have a PE in this respect under Article 5(1) and 5(2) of the treaty. Therefore we confirm the order of the Ld. CIT(A) and dismiss ground No.(i) and ('ii) raised by the Revenue. In the result, the revenue's appeal is dismissed. ITA No. 6718/Mum/2006 A. Y. 2002-03 Revenue's appeal As the facts of the case are identical in Revenue's appeal in ITA No.9211/M/04 for the reasons sated in appeal for A. Y. 2001-02 (supra), we hold DCIL does not constitute the Assessee's business connection in India and thus, the assessee's income from sale....
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....that this issue has already been decided by Hon'ble ITAT in favour of assessee. Therefore, while following judicial consistency and following the orders of Hon'ble ITAT in assessee's own case, we dismiss this ground of appeal raised by revenue. Ground No. 3:- At the very outset ld. AR appearing on behalf of assessee submitted that this issue has already been decided in favour of assessee in assessee's own case by Hon'ble ITAT in ITA Nos. 9211/Mum/2004, 6718/Mu m/200 6, 8520/Mu m/2 00 4, 6574/Mum/2 006 for 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: "The CITA) has held that though the CBU cars are sold directly by the assessee to Indian customers, activities are carried out in India by DCIL acting on behalf of the assessee in concluding the sale vis-ã-vis the Indian customers. Even though the agreement entered into by the assessee with DCIL is categorized as General Agency Agreement, DCIL is a pr....
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....nt establishment, thee shall be allowed as deductions, expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere and according to the domestic law of the Contracting State in which the permanent establishment is situated. 28. In the instant case DCIL is being considered as dependent agent and so constitutes an agency PE of the assessee in India. The relevant article under the DTAA between in India and Germany is Article 5(5) in which the agency PE is defined as under; 5(5) Notwithstanding the provisions of paragraphs 1 and 2 where a person other than An agent of an independent status to whom paragraphs 6 applies is acing in a contracting state on behalf of an enterprise of the other contracting state that enterprise shall be deemed to have a permanent establishment in the first mentioned state, if this person. Has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods....
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....rity to conclude any deal. Thus the mere acting as post office between the assessee and the client will not render DCIL as a dependent agent. DCIL cannot be considered s habitually procuring orders for the assessee in fact, DCIL themselves are manufacturing and selling the cars and procurement of orders for direct shipment of cars by the assessee would in fact be contrary to and against the interest of the DCIL in its manufacturing activity. DIL by passing on communication from assessee to the client and vice versa, are merely rendering a very insignificant auxiliary/preparatory service in the sale of CBUs by the assessee to Indian clients. Therefore DCIL does not constitute a dependent agent of the assessee. The prices offered to the Indian clients are as per list price notified and so whether DCIL is involved or not the price charged to the customer would be the same. No profits can be attributed to the services of DCIL in India. In fact by engaging the services of DCJL, the profit of the assessee is reduced to the extent of the commission paid to DCIL. First Appellate Authority in the present case has also decided this issues in favour of assessee, the operative para of....
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....uring orders for the Appellant or in any way seeking to project itself as the agent of the Appellant in India. MBIPL IS merely acting in its ordinary course of business and hence, cannot be held as an agent of the Appellant in India. 31. With respect to the sale of CBU cars by the Appellant to MBIPL, it is observed that, the sales of CBU cars are made at arm's length on principal to Principal basis. The CBU cars, once purchased by MBIPL from the Appellant become property of MBIPL. The selling prices and the terms of sale of these CJ3U cars are determined by MBIPL itself. The sale of the said cars is recorded in the books of MBIPL and MBIPL pay tax on the said profits. In selling those cars, MBIPL does not conduct itself in a manner that it is acting on behalf of the Appellant. The Appellant also does not have any control or say in the sale of those cars. 33. In view of the above, I am of the considered view that in case of sale of CBU cars by the Appellant to MBIPL and also directly to customers in India, MBIPL is not acting on behalf of the Appellant in India and hence, the fundamental condition of constituting a PE as mentioned in Article 5(5) of the Treaty ....
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....bunal concluded that there is no agency PE in India. In case of Kno Werx Education (India) P Ltd (301 ITR 207) (Refer pg 619 & 632) of paper book volume II), the authority for Advance Rulings has observed that since the applicant doe riot conclude any contract on behalf of the foreign company, doe not maintain stock of goods/ merchandise belonging to the foreign company and also carries on a variety of activities besides promoting examinations of the foreign company, the appellant enjoys an independent status. Accordingly, the applicant cannot be deemed to be a PE of the foreign company in India. Similarly, in case of Specialty Magazines (p) Ltd (274 ITR 310) (Refer pg 633 & 644 of paper book Volume II), the AAR ruled that since 22%-25% of the income of the applicant is derived from other clients, it cannot be said that its activities are carried out wholly or almost wholly of the foreign company. Thus the applicant, being artgent is not covered by the definition of PE in article 5 of the DTAA. 32. From the above it can be sent hat merely acting for a non resident principal would not by itself render an agent to be considered as PE for the purpos....
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....e para of CIT(A) is mentioned below: 34. Ground No.9 relates to the issue of attribution of profit to the activities of the Appellant in India. I have already held in the above paragraphs that business connection/FE in India. As the facts in this issue are similar to the facts m the case of the Appellant for AY 1997-98 and AY 2000-01, as held in my predecessor's order number CJT(A)- 10 /DDIT('IT,)- 1(2)/ IT58/ 09-10 (Old No.1T-295 /07 -08) dt 14-05-2010 for-AY 1997-98 and in order in Appeal 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, I hold that no part of the profits accruing to the Appellant from the sale of CBU cars and raw materials to MBIPL and directly to the customers can be attributed to the activities of MBIPL in India. In view of the same, in my considered view, the issue of percentage of profit as decided by the A.O as attributable to the activities of the PE in India does not have any relevant as it has been held by him in the foregoing paras that the MBIPL cannot be held as PE of the appellant in India and accordingly, the appellant's this ground of appeal becomes infructuous in view of the afore ....
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....the Income/payments which are in mischief of TDS provision no liability to pay advance tax is put of the recipient. Once the Income is subjected to TDS provision, then that is outside the provisions of the advance tax as per the mandate of Section 209 of the Act and this view has been fortified by the decision of the Hon'ble High court of Bombay in the case of NGC Network Asia LLC (supra). We do not find any reason to interfere with the order of the CIT(A) as the principles laid down In the case of NGC Network Asia LLC (supra) squarely applicable to the facts of the case, We accordingly confirm the order of the CIT(A). Respectfully following the aforesaid decision of the Tribunal we uphold the order of the CIT(A). 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: 36. I have considered the appellant AR's arguments and have perused the decisions quoted above. Relying on the above mentioned judgments and also Hon'ble Tribunals decision in Appellant's own case for AY 1997- 98 (ITA No: 371 7jMumj2009) it is held that the levy of interest u1s.234B was....