IN THE INCOME TAX APPELLATE TRIBUNAL
“I” BENCH, MUMBAI
BEFORE SHRI
PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI SANDEEP
SINGH KARHAIL, JUDICIAL
MEMBER
ITA No. 1220/Mum./2021
(Assessment Year : 2017–18)
UPS Asia Group Pte. Ltd. Bhagwati Compound
Plot no.2, Compartment 10/11 Marol Co–operative Industrial Estate Off.
M.V. Road, Andheri
(East)……………. Appellant
Mumbai 400 059 PAN – AABCU5192M
v/s
Asstt. Commissioner of
Income Tax International Taxation Circle–4(3)(1), Mumbai……………. Respondent
Assessee by : Shri Nitesh Joshi
Revenue by : Shri Milind S. Chavan, Sr. AR
O R D E R
PER SANDEEP
SINGH KARHAIL, J.M.
The captioned appeal has been filed by the assessee
against the final assessment order
dated 29.04.2021 passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ("the Act") by the Assessing Officer
for the assessment year
2017–18.
2.
In
the present appeal,
primarily, two issues arise for our consideration viz., (i) whether
or not the assessee has a Business
Connection under section 9(1)(i) of the Act and a Permanent
Establishment (hereinafter referred to as ―P.E.‖) under Article–5 of the India–Singapore Double Taxation Avoidance Agreement (hereinafter referred to as ―India–
Singapore DTAA‖);
and (ii)
if the assessee
is said
to have Business Connection / P.E., then how much of
the profit can be attributed to the said Business
Connection / P.E. particularly when the transaction is at arm's length price.
3.
The brief facts of the case as
emanating from the records are: During the
relevant assessment year, the assessee filed its return of income on 30.11.2017, declaring total income of Rs.1,35,759. The assessee is a company incorporated under the laws of
Singapore and is engaged in the business of provision of supply chain management including the provision of freight forwarding
and logistic services.
The assessee had entered into a
―Regional Transportation
Services Agreement‖ w.e.f. 01.01.2012
with
Indian Associated Enterprise (“Indian
A.E.”) namely UPS SCS (India) Pvt. Ltd. for the provisions of freight and logistics services.
Under the Transportation Agreement, the assessee
arranged to perform international freight transportation through the Ocean Liner / Airlines and provides overseas support services, while the
Indian A.E. performed freight and logistics services
in India to its India customers and to the assessee.
4.
During the course of assessment proceedings, the assessee was asked
to explain as to why the Indian A.E. should not be treated as Business Connection of the assessee in
India under section 9(1)(i) of the Act
and profit be attributable thereto for the relevant assessment year. The Assessing Officer, vide draft assessment
order dated 27.12.2019, passed under
section 144C of the Act held that the assessee had a Business Connection in India
under section 9(1)(i) of the
Act in the form of its Indian
A.E. and thus its business income attributable to operation in India is taxable in India. The Assessing Officer
further held that the Indian A.E. of the
assessee constitutes P.E. of assessee in India within the meaning of Article–5(1), 5(2) and 5(8) of
India–Singapore DTAA. The Assessing Officer
following the approach adopted in the assessment order for the
assessment year 2015–16, in assessee’s own case, attributed profit of Rs.2,09,53,496 to the
said P.E. of the assessee in India.
5.
The assessee filed objections
before the Dispute Resolution Panel (hereinafter referred to as ―the DRP‖) against the addition proposed in the
draft assessment order. The DRP, vide its directions dated 17.03.2021, following its directions issued in assessee’s own case for the assessment year 2015–16, rejected the objections
filed by the assessee. The Assessing Officer,
in conformity with the directions issued
by the DRP, passed the final
assessment order under section 143(3) r/w section 144C(13) of the Act. Being aggrieved, the assessee is in appeal before
us.
6.
During the course of hearing, Shri Nitesh Joshi, the learned
Authorised Representative (hereinafter
referred to as ―the learned A.R.”) appearing
for the assessee submitted that the Indian A.E. of the assessee was remunerated at arm's length price and,
therefore, no further profit is required
to be attributed in the present case. In support of his submissions, the learned A.R. placed reliance upon the
decision of the Co–ordinate Bench of the Tribunal rendered in assessee’s own case for the assessment years 2013–14, 2014–15 and 2015–16.
7.
On the other hand, Shri Milind S.
Chavan, the learned Departmental Representative (hereinafter referred to as “the learned D.R.‖) appearing for the Revenue submitted that the
decision relied upon by the Tribunal in assessee’s own case for the preceding assessment years
pertained to DTAA between India and
Mauritius and thus is not applicable to the facts of the present case. The learned D.R. further submitted that the
determination of the profit
attributable to the A.E. should be on the basis of the provisions of the Act.
8.
We have considered the rival
submissions and perused the material available
on record. At the outset, it is pertinent to note that the Transfer Pricing
Officer, vide order dated 28.01.2021, accepted the value of international transactions as reported by
the Indian A.E. in Form no.3CEB filed
along with its return of income and made no adjustment to same. Thus, it is not disputed that the
transaction between the assessee and its Indian A.E. was conducted
at arm's length and the transfer pricing analysis
of the same was also accepted by the Transfer Pricing Officer. We find that on identical issues,
the Co–ordinate Bench of the Tribunal in assessee’s own
case vide order dated 14th July 2021, passed in UPS Asia Group Pte. Ltd. v/s DCIT, ITA no.7171/Mum./ 2017,
etc., for the assessment years 2013–14,
2014–15 and 2015–16, has allowed the assessee’s
appeal by observing as under:–
―4. So far as the above issue is concerned, learned representatives
fairly agree, that admittedly as the assessee has paid arm‘s length remuneration to its Indian agent- as determined by the Transfer
Pricing Officer, the issues is covered by the coordinate bench‘s
decision dated 29th
January 2021 in the case of ADIT Vs Asia Today Limited, in ITA No 1878 & 1879/Mum/2008 for the
assessment years 2002-03 & 2004-05. Learned
representatives fairly accept that position. We see no reasons to take any view of the
matter than the view taken by the coordinate bench in the aforesaid decision
wherein the coordinate bench has inter alia observed
as follows:-
―6. To adjudicate on these appeals, at this stage, only a minimal facts need to be taken note of. The assessee before us is a foreign telecasting company incorporated in Mauritius and having a tax residency certificate of Mauritius. It sells advertising time and collects subscription revenues through its Indian affiliates Zee Telefilms Limited and El Zee, but its claim was that since it does not have any permanent establishment in India, no part of its income was taxable in India. The Assessing Officer did not accept the claim. He was of the view that its Indian agent constitutes virtual projection of the foreign company, and, therefore, it has a permanent establishment in India, in the light of Hon'ble Andhra Pradesh High Court's judgment in the case of CIT Vs Vishakhapatnam Port Trust (144 ITR 146). Referring to this judgment, and analyzing the facts of the case of the assessee, in the assessment order for the assessment year 2002-03, for example, the Assessing Officer concluded as follows:
5.2.3 Now keeping the above in view point, one has to look into the factual aspects of the case, particularly the following:
Ø The assessee could not have earned any income from
India but for its Indian
agent, ZTL/EI Zee.
Ø The 'brand name' used by the assessee is same as
that of its agent in India, that is,
ZEE. Thus, for persons desirous of doing business with the assessee in India, there is no difference between
ZTL/EI Zee and Asia Today Ltd. it
is seen that in a number
of TDS certificates issued to the assessee, the name 'Zee TV' or 'Zee
ZTL/EI Zee Cinema' or 'Zee Telefilms' were used. There terms were therefore, used interchangeably.
Ø The income stream of the assessee is from selling of
advertising time and these are 'sold'
by ZTL/EI Zee. Almost all the advertisers are
from India and the advertisements are solicited by the Indian company. The advertisers book the slots on
the channel by coming into contact
with employees of ZTL/EI Zee at their
office. The other stream of revenue is 'subscription
revenue' which is also collected by ZTL/EI Zee on
behalf of the assessee.
Ø The payments are collected by ZTL/EI Zee and the same is remitted to Mauritius by it.
Ø The employees of ZTL/EI Zee are employees of Zee
group as a whole and they perform
functions as required by ATL also.
Ø In the case of other telecasting channels also it is
held by the revenue authorities that their agent in India constitute a Permanent
Establishment.
5.2.4. The above stated factual position clearly brings out that the assessee's case falls under Article 5(1) of the Indo-Mauritius treaty when the business of the assessee is carried out through a fixed placed in India and in effect, is a virtual projection of the assessee in India.‖
7.
The Assessing
Officer further observed
that, without prejudice
to the above analysis, the assessee has an agency permanent establishment in India, under article 5(4) of India Mauritius
DTAA, inasmuch as its Indian agents are the dependent agents. As for the plea that in case the assessee is held to
have a dependent agent permanent
establishment, as was held by the Assessing
Officer, no further profits can be attributed in the hands of the assessee
as the agent has been paid arm's length remuneration services rendered, the
Assessing Officer rejected the said plea, and
observed as follows:
5.3.3 No Further Profits can be taxed in view of Article 7(2) of the Treaty:
The next submission of the assesses is that even if it is assumed that there is a PE in India, as per Article 7(2) of the Treaty, where an enterprise carries on business in India through a PE, the profits attributable to such PE shall be the profits that the PE would have made, if it were a distinct and separate enterprise dealing independently with the enterprise of which it is a PE. Thus, the profits attributable to the PE shall be the profits it would have made, if it were an independent enterprise. Since the assessee is making an arm's length payment to ZTL/EI Zee, ZTL/EI Zee would have made the same profits dealing with an independent enterprise. Since the said profits are already taxed in the hands of ZTL/EI Zee, no further profits can be attributed to the activities performed by it. Further, the assessee has laid Emphasis on CBDT Circular No. 5 dated September 28, 2004 which states that profits attributable to a PE have to be computed having regard to the arm's length principle. For the detailed reasons given in following paragraphs, I do not find merit in
the claim of the assessee that if payment to ZTL/EI Zee is made at arm's length, then it extinguishes the tax liability of the assessee in India.
8. It was in this backdrop that the taxability of the
assessee, in respect of advertisement
revenue and subscription revenues earned through
its agents in India, was confirmed. However, when he carried the matter in appeal before the learned
CIT(A), he held that the assessee does not have any permanent
establishment in India. Therefore,
the assessee cannot be taxed in respect of its income from Indian operations. The relevant facts for the other assessment year are, as learned representatives fairly
agree, materially similar. The Assessing
Officer is aggrieved and in appeal before us. The assessee's cross-objections, however, deal with an even more fundamental aspect. That aspect is that given the fact that the assessee has
paid arm's length remuneration to its
Indian agents, no further taxability can be attributed to its income
earned through the agents
in India.
9. We have heard the rival contentions, perused the
material on record and duly considered facts of the case in the light of the applicable legal position.
10.
We find that it's an admitted position
that the assessee does not have any office or place of
management of its own, and its presence
in India is only through its agents. Undoubtedly, in terms of Hon'ble Andhra Pradesh High Court's
path-breaking judgment in the case of Vishakhapatnam Port Trust (supra),
" 'permanent establishment' postulate the existence of
a substantial element of an enduring or permanent nature of a foreign
enterprise in another country which can be attributed to a
fixed place of business in that country"
and "it should be of such a nature that it would amount to a virtual projection of the foreign
enterprise of one country into the soil of another
country" [Emphasis, by underlining, supplied
by us, here as also
elsewhere in this order]. What is equally important is in the fundamental analysis justifying the existence of permanent establishment under Article 5(1) and 5(2),
as we have reproduced earlier, there is not even a whisper of a mention about any
fixed place of business. All this
analysis points out is that "The assessee
could not have earned any income from India but for its Indian agent, ZTL/EI Zee" and that "The
employees of ZTL/EI Zee are employees of Zee
group as a whole and they perform functions as required by ATL also", but then the agent and the
principal being from the same busines group would not obliterate their separate legal
existence. It is only elementary that there cannot be a permanent
establishment under the basic rule,
i.e., 5(1), unless there is a fixed place of business. It is by
now well settled in law that in order to constitute a fixed place permanent
establishment under Article 5(1), there has to a fixed place of business from which business
of the foreign enterprise is carried out, and such a place of business
should be at the
disposal of foreign enterprise. As observed by a coordinate bench of this Tribunal, relying upon the landmark Special Bench decision in the
case of Motorola Inc Vs DCIT [(2005) 95 ITD SB 269 (Del)] and in the case of Airlines Rotables Ltd Vs JDIT [(1911) 44 SOT 368 (Mum)], "The physical test, i.e.,
place of business test, requires that there
should be a physical location at which the business is carried out. However, mere existence of a physical
location is not enough. This location
should also be at the disposal of the foreign enterprise
and it must be used for the business of foreign enterprise as well. A place of business should be at the disposal of the foreign enterprise for the purpose of its own business activities. This place has to be owned, rented or otherwise at the disposal of the assessee, and a mere occasional factual use of place does not suffice". Even a case is not made out for the satisfaction of this condition by the Assessing Officer, and, as such, there is no case for the existence of a permanent establishment under Article 5(1). As for the permanent establishment under Article 5(2), even by definition, there cannot be a permanent establishment under Article 5(2) unless it is at least alleged to be covered by one of the specific clauses in article 5(2). As we discuss the case made out by the Assessing Officer, it is also important to note that the Assessing Officer concludes his relevant analysis by adding that "In the case of other telecasting channels also it is held by the revenue authorities that their agent in India constitute a Permanent Establishment", but in none of these cases the permanent establishment is said to be under basic rule, i.e., Article 5(1) and Article 5(2), and in all these cases, the permanent establishment is dependent agency permanent establishment, i.e., under Article 5(4). Even the case of the Assessing Officer thus hinges on the applicability of Article 5(4). There can be permanent establishments through the presence of the agency, for example. There can be virtual projections even without a fixed place of business, such as in the case of a dependent agency permanent establishment, but such cases will be covered by article 5 (4) rather than article 5(1) and 5(2). The detailed analysis by the Assessing Officer, as extracted earlier in this order, also makes that position evident. At best, therefore, it is a case of dependent agency permanent establishment under Article 5(4), and learned Departmental Representative also accepts that. There is no conflict between 'virtual projection of a foreign enterprise' and the 'dependent agency permanent establishment', and it's in this light that we have to take note of the analysis of legal position. There can be simple situations in which a foreign enterprise operates through an agent, acting as a franchise, and such a franchise can virtually project business of the foreign enterprise on the soil of another country. Clearly, therefore, just because there is virtual projection of business, as the case is made out by the Assessing Officer, it is to be inferred that that there is a permanent establishment under the basic rule, i.e., Article 5(1) an 5(2), and negate the existence of a dependent agency permanent establishment, as would at best emerge out of the facts marshalled out by the Assessing Officer. As we are examining this aspect of the matter, it may also be useful to refer to the following extracts, defining permanent establishment, from the India Mauritius Double Taxation Avoidance Agreement [(1984) 146 ITR (St.) 214]:-
ARTICLE 5
PERMANENT ESTABLISHMENT
1.
For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through
which the business of the enterprise is wholly or partly carried on.
2. The term "permanent establishment" shall include—
(a) a place of management ;
(b) a branch ;
(c) an office ;
(d) a factory ;
(e) a workshop ;
(f) a warehouse, in relation to a person providing
storage facilities for others ;
(g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ;
(h) a firm, plantation
or other place where agricultural, forestry, plantation or related activities are carried on ;
(i) a building site or construction or assembly project
or supervisory activities in connection therewith, where such site, project or supervisory activity
continues for a period
of more than nine months.
(j) the furnishing of services, including consultancy
services, by an enterprise through
employees or other personnel engaged by the enterprise
for such purpose, but only where activities of that nature continue (for the same or connected
project) for a period or periods aggregating more than 90 days within
any 12 month period.
3. 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 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 for collecting information for the enterprise ;
(e) the maintenance of a
fixed place of business solely—
(i) for the purpose
of advertising,
(ii) for the supply
of information,
(iii) for scientific research,
or
(iv) for similar activities,
which have a preparatory or auxiliary character for the enterprise.
4. Notwithstanding the provisions of paragraphs (1) and
(2) of this article, a person acting
in a Contracting State for or on behalf of an
enterprise of the other Contracting State [other than an agent of an independent status to whom the provisions
of paragraph (5) apply] shall be deemed to be a permanent establishment of that enterprise
in the first-mentioned State if:
(i) he has and habitually exercises in that
first-mentioned State, an authority
to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase
of goods or merchandise for the enterprise; or
(ii) he habitually maintains in that first-mentioned
State a stock of goods or merchandise
belonging to the enterprise from which he regularly
fulfils orders on behalf
of the enterprise.
5. An enterprise of a Contracting State shall not be
deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that
other State through a broker, general commission agent or any other agent of an
independent status, where such
persons are acting in the ordinary course of their business. However, when the activities of such an agent are
devoted exclusively or almost
exclusively on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning
of this paragraph.
6. The fact that a company, which is a resident of a
Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or which carries
on business in that other Contracting
State (whether through a permanent establishment or otherwise) shall not, of itself, constitute either company a
permanent establishment of the
other.
11. The case of the Revenue is thus clearly confined to the existence of DAPE on the facts of this case. The question thus arises as to what are the tax implications of the existence of a dependent agent permanent establishment (DAPE) under Article 5(4). The DAPE is, after all, a type of permanent establishment, and the very concept of permanent establishment is a compromise between source rule and residence rule inasmuch as it provides justification to trigger source jurisdiction taxation over business activities of a foreign enterprise. Unless there is a PE in the source jurisdiction, there cannot be taxation of business profits of the foreign enterprise in the source jurisdiction, and when there is a PE in the source jurisdiction, only so much of profits of the foreign enterprise, as are attributable to a PE, can be taxed in the source jurisdiction- as is the unambiguous mandate of Article 7(1). It is in this context one has to examine the tax implications of DAPE, and that tax implication is that the profits attributable to the DAPE are brought to tax in the source jurisdiction. The next logical point, therefore, as to how to compute profits attributable to a DAPE, and it is this aspect of the matter which has been a subject matter of academic debates and controversies. There are two approaches to it i.e., to borrow the terminology employed by International Tax Law Reports (see 2007, Volume 9; Part 5; at pages 963-964), first- a "single taxpayer" or "zero-sum approach", and, second- "two taxpayers" or "non zero-sum approach". While Philip Banker, a well known international tax lawyer, has all along advocated zero-sum approach, late Klaus Vogel touched a different chord, in his column 'Tax Treaty Monitor' in the 'Bulletin for International Taxation (November 2007 at page 475) and given his approval for "two taxpayers approach". The latter is also in consonance with Authorised OECD Approach of the OECD. On materially similar facts of dependent agency permanent establishment for a similarly placed foreign telecasting company as in this case, in the case of DDIT Vs Set Satellite (Singapore) Pte Ltd [(2007) 106 ITD 175 (Mum)], a coordinate bench, speaking through one of us, (i.e. the Vice President), had upheld the "two taxpayer approach", in computation of DAPE profits, and observed as follows:
11.
The particular difficulty in the case of a dependent
agent permanent establishment
is that DAPE itself is hypothetical because there
is no establishment - permanent or transient- of the GE in the PE state. The hypothetical PE, therefore, must be visualized
on the
basis of presence of the GE as projected through the PE, which in turn depends on functions performed, assets used and risks assumed by the GE in respect of the business carried on through the PE. The DAPE and DA has to be, therefore, be treated as two distinct taxable units. The former is a hypothetical establishment, taxability of which is on the basis of revenues of the activities of the GE attributable to the PE, in turn based on the FAR analysis of the DAPE, minus the payments attributable in respect of such activities. In simple words, whatever are the revenues generated on account of functional analysis of the DAPE are to be taken into account as hypothetical income of the said DAPE, and deduction is to be provided in respect of all the expenses incurred by the GE to earn such revenues, including, of course, the remuneration paid to the DA. The second taxable unit in this transaction is the DA itself, but this taxability is in respect of the remuneration of the DA. The provisions of the tax treaty are silent on this issue, and rightly so, because the taxability of the DA is quite distinct of the taxability of the enterprise of the contracting state which is in respect of PE of such an enterprise. At the cost of repetition, it is not the DA who constitutes PE of the GE, but it is by the virtue of a DA that the GE is deemed to have a PE, a DAPE though, in the other contracting state. We are of the considered view that in addition of the taxability of the DA in respect of remuneration earned by him, which is in accordance with the domestic law and which has nothing to do with the taxability of the foreign enterprise of which he is dependent agent, the foreign enterprise is also taxable in India, in terms of the provisions of Article 7 of the tax treaty, in respect of the profits attributable to the dependent agent permanent establishment. As we have elaborated earlier in this order, a dependent agent permanent establishment is distinct from the dependent agent. While computing the profits of this dependent agent permanent establishment, a deduction is to be allowed for the remuneration paid to the dependent agent as that is cost of operation of the dependent agent permanent establishment and as it has been incurred for generating the revenues attributable to such hypothetical permanent establishment. Let us take a very simple example to understand the mechanism of this approach. Let us assume that there is an electronic equipment distributor by the name of Sing Co. based in Singapore. He sources the electronic equipment from all over the globe and sells the same to its customers in India. Instead of having a regular office in India, and instead of carrying out the marketing activity in India, he projects his business in India through an Indian Co. by the name of Ind. Co. There is no dispute that Ind. Co. is a dependent agent of the Sing Co. In consideration of the services rendered by Ind. Co., Sing Co. pays Ind. Co. commission @ 30 per cent on sales plus reimbursement of expenses. Sing Co., however, procures the electronic equipment from China, shipped directly to India and sells it in India after a mark up of 200 per cent. We further assume that the reasonable handling costs of Sing Co. for souring the merchandise is 60 per cent on cost. In a particular year, Sing Co. sells goods worth $ 3 million in India. Let us further assume that expenses incurred by Ind. Co., to earn the agency remuneration, is
$ 8,99,000. The profits taxable in India, in such a case and based on the treaty provisions before us, should be as follows :
A. Commission earned by Ind. Co. $9,00,000
Less : Deductible expenses of Ind. Co $ 8,99,000 Taxable in the hands of the Ind. Co. $ 1,000
B. Profits attributable to Sing Co.'s DAPE in India
Sales consideration 30,00,000
Less : Commission paid to Ind. Co. 9,00,000(-)
: Cost of purchases 10,00,000(-)
: Sing Co.'s handling charges 6,00,000(-) 25,00,000
Profit of the DAPE or, in other words,
profits Attribute to India operations of the Sing Co. $ 5,00,000
As far as 'A' in the above example is concerned, it does not have anything to do with the income of the foreign company. This taxability is in the hands of the domestic dependent agent and is on net basis after taking into account the expenses incurred by the agent for earning of remuneration whether or not the same relates to the business of the foreign company or not. As regards 'B' above, it represents the earnings of the foreign company attributable to the dependent agent permanent establishment, on account of its having a dependent agent in source country. This income is taxable in the hands of the foreign company in the source country and the tax credit in respect of such taxability will be available to the foreign company in residence country. If, in this example, we are to assume that the income of the PE is only the remuneration earned by the agent on net basis, we will end up in a situation that while profits of Sing Co. attributable to India operations will be $ 5,00,000, the taxability of the profits will be confined to only $ 1,000. What is to be taxed under Article 7 is income of the foreign enterprise attributable to the permanent establishment in the host country. The income attributable to the permanent establishment in the host country is the income attributable to foreign company's operations in the host country, which, in turn, implies the income attributable to the activities carried on the foreign enterprise in the host country. That income, as shown in 'B' above is the income arrived at by taking into account revenues generated by the PE and deducting therefrom the expenditure incurred by the foreign enterprise to earn those revenues. However, it is open to the foreign enterprise to claim appropriate adjustment for the foreign enterprise's overheads and even a reasonable charge, on account of activities of the foreign enterprise carried on outside the host country, by treating the foreign enterprises as a fictionally separate entity.
12.
Learned counsel,
however, contends that since the profit attributable to the PE are the profits which the PE "might be expected to make if it were a distinct
and separate enterprise engaged in the same or similar activities under the same or
similar conditions and dealing wholly
independently with the enterprise of which
it is permanent establishment", the taxable profits of the foreign enterprise cannot extend beyond
the profit earned by the dependent
commission agent. The line of reasoning adopted by the learned counsel is that PE is nothing but the dependent agent,
and, the taxability of PE can only,
therefore, be in respect of the earnings of the agent. Learned counsel has, with his inimitable oration,
erudition and legal skills, woven a complex web of arguments to support this legal proposition. However, as it sometimes happens, the quality of arguments in support of a legal proposition is inversely proportional, proportional if it is, to the merits of the proposition sought to be advanced. This is one such occasion. Let us set out the reasons why we think so, and, in the process, deal with various arguments of the learned counsel one by one.
13. At the outset, we must reiterate that a dependent
agent (DA) and a dependent agent
permanent establishment (DAPE), in our humble
understanding, are two distinct things. As we have stated earlier, it is as a result of existence of
a dependent agent that the foreign
enterprise is 'deemed to have' a permanent establishment in the country in which dependent agent is situated.
14. Under Article 7 of the treaty, the taxability is of
the foreign company. What is taxable
under Article 7 is profit earned by the foreign
enterprise, as it Article 7(i) provides that "The profits of an enterprise of a Contracting State shall be
taxable only in that State unless the
enterprise carries on business in the other Contracting State through a permanent establishment situated therein".
Agency remuneration paid by the
foreign enterprise is not an income of the foreign
enterprise but an expenditure of the foreign enterprise. The taxability of any profit under Article 7
has to be in the hands of the foreign
company and not the host company of which dependent agent is resident. Therefore, in it is patently erroneous to
suggest that by payment of tax
liability by the dependent agent, tax liability of the foreign
principal is discharged. So far as Article 7 is concerned, it deals with the taxability of the foreign company.
15. Under the scheme of the Act, the taxable unit is the
foreign company, though the quantum
of income taxable is such income as may
be held to be attributable to the permanent establishment of the foreign company
in India. The tax liability
of the foreign company and
not the Indian dependent agent. However, in case we are to uphold the stand of the learned counsel, we will end up
in a situation that taxability of Indian company
is to be allowed to extinguish tax liability of the foreign principal.
16. Learned counsel has relied upon the commentaries of
various authors including Phillip
Baker, Prof. Roy Rohtagi and Prof. David R. Davies.
It is contended that according
to these distinguished authors, payment of arms length remuneration by a foreign
company to its agent extinguishes tax liability of the foreign
principal. With respect, and for the reasons we have set out above, we are of the considered view that in the dependent
agency permanent establishment
situation, this proposition does not hold good.
In any event, this approach proceeds on the assumption, which turns out to be fallacious assumption on the facts of the present
case, that dependent
agent and dependent
agent permanent establishment are one and the same thing.
17. Learned counsel has then relied upon the order of
this Tribunal in the case of Dy. CIT v.Roxon OY [2006] 103 TTJ (Mum.) 8911 which was authored by one of us. This
decision, however, did not deal with the peculiarities of a dependent
agent permanent establishment. This decision dealt with the taxability of the
installation PE, and, the principles dealing with computation of profits of installation PE, in our considered view, do not have any bearing on the computation of profits of the dependent agency PE. We are, therefore, not persuaded by this reasoning either.
12.
Late Prof Klaus Vogel, one of the very eminent international tax scholars of our times, had favoured the path adopted by the coordinate bench. In his last in Tax Treaty Monitor
(Bulletin for International Taxation, November
2007, page 475), referring to the above coordinate
bench decision, he had this to say: "One can understand that many have problems imagining how
profits should arise to a permanent establishment which, as the Tribunal itself repeatedly stated, does not exist in reality and is a
non-entity "wholly hypothetical and
fictional". Such sceptics should consider, however, that the parent enterprise as a rule will aim to realize receipts
from the contracts
concluded by the dependent agent which, in addition to compensating
the agent's fee, include a surplus profit, for otherwise the
parent would lack any commercial reason for employing the agent. This surplus is not– or only secondarily–
attributable to activities in the
parent's residence country. Rather, it is a profit that
the parent obtains
through employing the agent in the country in which the profits arise. Fairness
("inter-nations equity") requires that the surplus profit be taxed in that state. If the drafters of a
treaty or model treaty want to
provide this, they must notionally attribute it to a contact in that
state. This does not mean that they must attribute it to a person or an object in the real world. In the world of law, a
legal concept, a figure of thought, will do. The agency permanent
establishment is such a figure of thought which makes it technically possible
to connect the surplus profit to the agent's state.
Thus, it is not
only possible, but it is the rule that a profit exceeding the agent's compensation will be submitted to the
agent's state". Philip Baker, another
eminent international tax expert whose work in referred to, with approval and respect, in many of the
judicial precedents from Hon'ble
Courts above, did not agree with this approach. In his editorial comments in the International Tax Law
Reports, he has favoured the other alternative approach
to this issue, i.e., the single taxpayer
approach. He observed that, "One view (to which editor of these law reports
subscribes) is that if the dependent agent is being remunerated on a correct
arm's length price for the function he performs,
risks he assumes, and the assets he employs in his agency, there is no basis for attributing any further profits
to the DAPE over and above the arm's length remuneration
to the agent", and reasoned the same
by observing that ―As soon as
one
abandons
the single taxpayer approach, one needs to start
attributing the DAPE functions that
were not performed by the agent, assets that were not employed by it and the risks that were not assumed
by it. In other words,
the two taxpayer approach
requires an abandonment of reality and entirely hypothetical attribution which, in arm‘s length world which
must have some basis in reality, is
simply a licence for arbitrary allocation of profits. Ultimately, that‘s what Tribunal
did here‖. There is thus a cleavage
of academic opinion on the approach to the DAPE profit attribution and that is a highly contentious issue on the first principles.
When the matter travelled
before Hon'ble High Court, however, these views
of the coordinate bench did not find favour with
Their Lordships. Rejecting the theory about separate profit attribution for the dependent agency permanent establishment
vis-à-vis the dependent agent, Their Lordships have, in the
judgment reported as Set Satellite Pte Ltd Vs CIT [(2009) 307 ITR 205 (Bom)], observed
as follows:
10. From a reading of Article 7(1) of the DTAA it is
clear that the profits of an
enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through
a permanent establishment situated therein. The profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent
establishment. In para 2 while determining
the profits attributable to the permanent establishment the expression used is "estimated on a reasonable
basis". The DTAA does not refer
to arm's length payment. The principles contained in the matter of income from international transaction on an arm's length price are contained in section 92
of the Income-tax Act. The principles
have been clarified by the Finance Act, 2001 as also Finance
Act, 2002. From the order of the CIT, which has been accepted it is clear that the Appellant herein has paid to its
PE on arm's length principle. It recorded a finding of fact that the Appellant had paid service fees at the
rate of 15 per cent of gross ad revenue
to its agent, SET India, for procuring advertisements during the period April 1998 to October, 1998.
The fact that 15 per cent service fee
is an arm's length remuneration is supported by Circular No. 742 which recognizes that the Indian agents of foreign telecasting companies generally retain 15 per cent of the ad revenues
as service charges. Effective November 1998, a revised arrangement was entered into between the parties whereby the aforesaid amount was reduced to 12.5 per
cent of net ad revenue (i.e., gross
ad revenues less agency commission). Simultaneously, the Appellant also entered into an arrangement entitling SET India to enter into agreements, collect and retain all subscription revenues. Considering all these aspects and the fact that the
agent has a good profitability record, it held that the Appellant has remunerated the agent on an
arm's length basis.
This finding of the Tribunal has not been disputed by the Revenue. The entire contention of the Revenue is that the advertisement revenue pertaining to its own channel and AXN Channel are also taxable in India.
11. We may firstly point out that CIT has dealt with the
issue as to why the advertisements received
by the Appellant were not liable for being taxed in India based on the
CBDT Circular No. 23, dated 23-7-1969
which clearly sets out that where a non-resident's
sales to Indian customers are secured
through the services of an agent in India,
the assessment in India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent's
services, provided that (i) the non- resident principal's business activities
in India are wholly channelled through his agent; (ii) the contracts to sell are made outside
India; and (iii) the sales are made
on a principal-to-principal basis. The CIT(A) had recorded a specific finding
in favour of the Appellant
in
the affirmative on all three counts. It is in these circumstances that it was held that the advertisement revenue received by the Appellant may be from the customers in India is not liable for tax in India. That CBDT Circulars are binding needs no repetition. If authorities need be cited. We may now refer to the judgment of the Supreme Court in UCO Bank v. CIT [1999] 237 ITR 889. In that judgment the issue was whether Circular of 9-10-1984 was inconsistent or whether there was contradiction in the circular and Section 145 of the Income-tax Act. The Supreme Court observed that :—
"... In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119 of the Income-tax Act. As such, the circular would be binding on the department." (p. 901)
See also CIT v. Hero Cycles (P.) Ltd. [1997] 228 ITR 463 (SC). It would thus be clear that the Circular No. 23 would be binding on the Assessing Officer and had to be considered while assessing the tax liability of an assessee.
The Tribunal in its judgment has not considered the effect of the finding recorded by the CIT (Appeals) based on the Circular and which circular was relevant for the purpose of deciding the controversy in issue. This circular read with Article 7(1) of the DTAA would result in holding that the income from advertisement if neither directly nor indirectly attributable to that of the permanent establishment, would not be taxable in India. The Tribunal in fact in para 10 has recorded a finding that Article 7(2) provides that the arm's length price is the criterion for computation of these hypothetical profits. In our opinion the entire rational or reasoning given by the Tribunal has to be set aside. In matters of tax what has to be considered and more so in international transactions if there be a treaty, the provisions of the treaty and if the provisions of the treaty are more advantageous to an assessee, then the construction will have to be given which is advantageous to the assessee. At this stage we may note that on behalf of the assessee learned Counsel has produced an order passed by the Additional CIT (Transfer Pricing-II), Mumbai in the matter of determination of arm's length price with reference to all the transactions reported in Form No. 3CEB filed by the assessee. The assessee is SET India, the depending agent. The order records that the assessee is engaged in the business of providing audio-visual television content and also acts as an advertising agent of Set Satellite Singapore Pvt. Ltd. The assessee distributes these channels to the Indian cable operators and that the assessee has applied the TNM method to determine the arm's length price for its international transaction. It, however, clarified that the order is in respect of reference received for assessment year 2002-03 and not for subsequent assessment years.
12.
We may now consider the judgment in Morgan Stanley & Co. Inc's case (supra). The Appeals dealt with the Double Tax Avoidance
Agreement (DTAA) between India and United States. That treaty advocated
application of the arm's length principle or provided a mechanism for avoiding double taxation on income. The issue involved, Morgan Stanley and Company
(for short, "MSCo.") and one of the group companies
of Morgan Stanley,
Morgan Stanley Advantages Services Pvt. Ltd. (for short
"MSAS"). An agreement was entered
into for providing certain support services to MSCo. MSCo. outsourced
some of its activities to MSAS. MSAS was set up to support the main office functions in equity and
fixed income research, account reconciliation
and providing IT enabled services such as back office operations, data processing and support centre
to MSCo. On 5-5-2005
MSCo. filed its advance ruling
application . The basic question
related to the transaction
between the MSCo. and MSAS. The advance ruling was sought on two counts (i) whether the
applicant was having PE in India under Article 5(1) of the DTAA on account of the services
rendered by MSAS under the services agreement dated 14-4-2005 and if so (ii) the amount
of income attributable to such PE. It was ruled that MSAS should be regarded as constituting a service PE under
Article 5(2)(1). On the second question the AAR ruled that the transactional
net margin method (TNMM) was the most appropriate method for the determination of the Arm's Length Price (ALP) in respect of the service
agreement dated 14-4-2005
and it meets the test of arm's length as prescribed under
section 92C of the 1961 Act and no
further income was attributable in the hands of MSAS in India. The said ruling of AAR on the question of
income attributable to the PE was the
subject-matter of challenge by the Department. Insofar as the issue of PE is concerned the Supreme Court
was pleased to hold that it agreed
with the Ruling of the AAR that stewardship activities would fall under Article 5(2)(1). Dealing with the
question of deputation, the Court
held that on the facts that there is a service PE under Article 5(2)(1)
and as such held that the Department was right in its contention that there exists a PE in
India. Considering Article 7 of that treaty
the Court observed that what is to be taxed under Article 7 is income of the MNE attributable to the PE
in India and what is taxable under
Article 7 is profits earned by the MNE. Under the Income-tax Act the taxable unit is the foreign company,
though the quantum
of income taxable is income
attributable to the PE of the said foreign company
in India. The Court observed that the important question which arises for determination is whether the AAR is right in
its ruling when it says that once the
transfer pricing analysis is undertaken there
is no further need to attribute profits to a PE. The Court further noted that the computation of income arising
from international transactions has
to be done keeping in mind the principle of arm's length price. The Court further reiterated that the main point for determination is whether the AAR was right in ruling that as long as MSAS was remunerated for its services
at arm's length,
there should be no additional profits attributable to the applicant or to MSAS in India.
After considering the various methods by which arm's length price can be determined the Court observed as under
:—
"As regards determination of profits attributable to a PE in India (MSAS) is concerned on the basis of arm's length principle we have
quoted Article 7(2) of the DTAA. According to the AAR where there is an international transaction under which a non-resident compensates a PE at arm's length price, no further profits would be attributable in India. In this connection, the AAR has relied upon Circular No. 23 of 1969 issued by the Central Board of Direct Taxes. This is the key question which arises for determination in these civil appeals."
After discussing the
various issues the Court in its conclusion held as under :—
"As regards attribution of further profits to the PE of MSCo. where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer of pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represent the value of the profit attributable to his service. In this connection, the Department has also to examine whether the PE has obtained services from the multinational enterprise at lower than the arm's length cost."
In our opinion
considering the judgment, if the correct arm's length price is
applied and paid then nothing further would be left to be taxed in the hands of the Foreign Enterprise.
13.
Considering the above principle as may be discerned from the judgment in DIT (International Taxation)
292 ITR 416 (supra) it would be clear that—
(1)
Considering the CBDT Circular No. 742 it would be fair and reasonable that the taxable income is
computed at 10 per cent of the gross
profits. In the instant case insofar as marketing services are concerned by the arm's length principle
what has been paid is more than 10
per cent as can be seen from the order of CIT(A). This was not disputed by the revenue in its Appeal before the ITAT.
(2)
The only contention advanced and which found favour
with the Tribunal was that the
advertisement revenue received by the assessee
was also income liable to tax in India. The CIT(A) relied upon Circular No. 23 of 1969. That Circular read with
Article 7(1) would result in holding
that advertisement revenue received by the appellant are not taxable
in India as long as the
treaty and the Circular stands.
14. In the light of the above
Appeal filed by the Appellant herein is allowed
and the order of the ITAT is set aside. Merely because tax on income was paid for some assessment years would not stop the assessee
from contending that its income is
not liable to tax. The order
of CIT is restored except
to the extent that it has said that it cannot interfere because the Appellant had paid the tax.
That part is set aside.
13.
In the light of Hon'ble jurisdictional High Court's judgment in the case of Set Satellite (supra), so far as
profit attribution of a DAPE is concerned,
the legal position is that as long as an agent is paid an arm's length remuneration for the services
rendered, nothing survives for taxation
in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent
agency permanent establishment is wholly tax neutral.
14.
An interesting offshoot of this legal position is that, as on now, the existence of dependent agency
permanent establishment is of no tax
consequence. Whether there is a DAPE or not, the taxation is only of the agent's
remuneration, which is taxed anyway dehors the existence of a DAPE. Such an approach may sound somewhat
incongruous from an academic point of view inasmuch as what was considered to be a threshold limit for
source taxation ceases to have any
relevance for source taxation, and as, on a conceptual note, PE, whether a fixed base PE, DAPE or any other
type of PE, provides for threshold
limits to trigger taxation in the source state, but then if as a result of a DAPE, no additional profits,
other than agent's remuneration in
the source country - which is taxable in the source state anyway dehors the existence of PE, become taxable
in the source state, the very
approach to the DAPE profit attribution may seem incompatible with the underlying scheme of taxation of
cross border business profits under
the tax treaties. These aspects, however, cannot come in the way of the binding force of judicial
precedents from Hon'ble Courts above.
The SLP against this decision is said to pending before Hon'ble Supreme Court, but that does not, in any
way, dilute the binding nature of this binding judicial precedent.
In all fairness to the learned Departmental Representative, however, we may take refer to observations in another coordinate bench decision in the case of Delmas France vs ADIT [(2012) 17
taxmann.com 91 (Mum)], to the effect,
"Similarly, before accepting
DAPE profit neutrality theory, we will still have to deal with learned
Departmental Representative's plea that
as per the law laid down by Hon'ble Supreme Court in the case of DIT v. Morgan Stanley & Co Inc. [2007]
162 Taxman 165 (SC), the arm's length
remuneration paid to the PE must take into account 'all the risks of the foreign
enterprise as assumed
by the PE', but then in an agency PE situation, unlike
a service PE situation which was the case before the Hon'ble
Supreme Court, a DAPE assumes
the entrepreneurship risk in respect
of which agent can never be compensated because even as DAPE inherently assumes the entrepreneurship risk, an agent cannot
assume that entrepreneurship risk. To
this extent, there may clearly be a subtle line of demarcation between the dependent agent and the
dependent agency permanent establishment.
The tax neutrality theory, on account of existence of DAPE, may not indeed be wholly unqualified- at least on a
conceptual note". However, these issues are wholly academic
before this forum because Hon'ble
jurisdictional High Court has taken a specific call on the issue to the effect
that the Morgan Stanley decision
of Hon'ble
Supreme Court covers the
DAPE situations as well. In a series
of decisions of the coordinate
benches, the same view is reiterated. The successive
coordinate benches in assessee's own case for
different assessment years have upheld
the contentions of the assessee
and held that once an arm's
length remuneration is paid to the agent, nothing further
survives for taxation
in the hands of the DAPE which,
at best, can be brought to tax in the hands of the assessee. In any event, whatever
be the academic justification for an alternative approach to the issue, the law laid down by Hon'ble Courts above
is to be deeply respected and loyally
followed. Respectfully following the law laid down by Hon'ble Courts above and
consistent with the stand of the
coordinate bench decisions, we uphold the plea of the assessee for the present years as well. We, therefore,
hold that even if there is held to be a dependent
agency permanent establishment on the facts of this case, as at best the case of the
Assessing Officer is, it is wholly tax-neutral inasmuch
as the Indian agents have been paid arm's length remuneration, and nothing further
can, therefore, be taxed in the hands
of the assessee.
15.
It has not been the case of the revenue authorities at any stage that the remuneration paid to the Indian
agent is not an arm's length remuneration
for the services rendered by the agents concerned, yet a prayer is now made that the matter should be sent back to the assessment
stage for detailed findings in this regard. In a written note filed by the learned Departmental Representative, it has been submitted that, ― it is humbly submitted that in the case of DIT Vs Morgan
Stanley (292 ITR 416 (SC) The Hon‘ble Apex Court in para 32 of its order (page 124 of PB II) has
carved out an exception. It has held that ‗The situation would be
different if transfer pricing analysis does not adequately reflect the functions performed
and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to the PE for those
functions/risks that have not been
considered. Therefore, in each case,
the data placed by the taxpayer has to be examined as to whether
the transfer pricing
analysis placed by the taxpayer is exhaustive of attribution of profits and that would depend on the corporates on the basis of the concept of Economic Nexus is an important feature
of Attributable Profits
(profits attributable to the PE)‘. Taking into considering the above and applying to the facts of the case, it is
humbly submitted that all the international transactions entered into by assessee have not been examined
by the authorities below‖. There is no material whatsoever before us to show, or even indicate, that
the remuneration paid to the agents
is not arm's length remuneration. In any case, the agent has been paid a remuneration at the rate of
ten percent of the related revenues which is accepted
as an arm‘s length price, in similar
circumstances, in a large number of cases- including assessee‘s
own cases for the assessment years,
other than the assessment years in which
this aspect of the matter is requested to be sent back for specific adjudication. Learned Departmental Representative himself submits that so far reliance of the assessment on the coordinate bench decisions for the assessment years 2006-07 to 2012-13
are concerned,
―in the other cases relied upon by the assessee, the transfer pricing
adjudication was made while
in the present case, no such adjudication was made, and hence the decisions
are not applicable as distinguishable on facts‖. We have also noted that the matter has come up for specific consideration of the
Assessing Officer, and yet he has not
found any deficiencies on the specific issue of adequacy of arm‘s length remuneration. It is not that this aspect was not examined. It was examined but the
Assessing Officer did not find specific
fault in the agent‘s remuneration not being in accordance with the FAR analysis. He has rather proceeded
to, in a way, disregard the foreign entity altogether by suggesting that no business
risk is assumed by the foreign company, i.e. the
assessee, as the content is provided by the Indian
agent and the viewership is Indian, and, for that reason, the viewership is linked to
the Indian PE. We have noticed
that the Assessing Officer has specifically picked up the aspect of ―functions and risk taken by the PE‖ under that heading and title of
the paragraph 5.3.4, in the assessment year 2002-03 for example at page 31 of the assessment order, noted that ―there is no reason as to why
the assessee should assume risk after having acquired the content in
a
working
state
from
the content provider‖, that ―all
risks for
up
linking and finally relaying the signals in India is borne by the transponder company and not the assessee‖, and, therefore, concluded that ―in view of the
above discussions, it can be seen that major
part of the risk in terms of market risk and technology risks are borne by
the ZTL/El
Zee‖
and
that
―almost
85% to
90% revenues from advertisement and subscription of
the assessee comes through Indian
viewership which is undoubtedly linked with the PE i.e., ZTL/El Zee‖. This is not the Indian viewership which is relevant
in this context. What was relevant was the role played by the agent in
India and whether the remuneration
paid by the assessee company, for the services
of the agent, was a fair and arm‘s length remuneration vis-à- vis the functions performed, assets employed
and risks assumed
by the Indian agent. No issues are raised on the inadequacy of
agent‘s remuneration by the Assessing
Officer, and now a fresh inning is sought to find these inadequacies and improve the case of the revenue. That is impermissible. In his
analysis, while the Assessing Officer
has proceeded on sweeping generalizations about the risks assumed by the PE but there is no specific
FAR analysis which could support that the agent‘s
remuneration not being an arm‘s length remuneration, and the Assessing Officer
has proceeded on the basis that all
the business risks of the assessee (i.e. the foreign company) are borne by the PE as PE is the content provider
and responsible for up
linking activity. That‘s too sweeping a generalization to meet any judicial approval, and, on the same set of
findings, the coordinate benches have
disapproved the stand of the Assessing Officer. Under these
circumstances, we see no reasons to remit the matter to the file of the Assessing
Officer for a fresh round of ALP ascertainment proceedings, as prayed by the learned
Departmental Representative. The plea
of the assessee, as raised in the cross-objections, therefore, merits acceptance. Whether there is a DAPE or not, there are no additional profits to be brought to tax as a result
of the existence of the DAPE, and, therefore, the question
about the existence of a DAPE on the facts
of this case is wholly
academic.
16.
Once we hold, as we have held above, that in the light of the present
legal position, existence
of dependent agency permanent establishment in wholly tax-neutral,
unless it is shown that the agent has not been paid an arm's length remuneration, and when it is not the case of the Assessing Officer, as we have noted earlier,
that the agents have not been paid an
arm's length remuneration, the question regarding
the existence of dependent agency permanent establish– ment, i.e., under article 5(4), is a wholly academic question. We humbly bow to the law laid down by Hon'ble
Courts above. The limited argument before us is that here is a case of dependent agency permanent
establishment, and the existence of a DAPE, in the light of these discussions, is wholly tax-neutral-
particularly in the light of the legal
position regarding profit attribution to the DAPE. We need not, therefore,
deal with the question about the existence of a DAPE, as it is an academic exercise with no tax effect
involved. The related grounds of appeal
are thus infructuous.
5. Even though learned representative have fairly agreed that the issues raised in these appeals are
squarely covered by the aforesaid decision,
the learned Departmental Representative has nevertheless relied upon the stand of the Assessing Officer. We see no
reasons to take any other view of the
matter than the view so taken by the coordinate
bench. Respectfully following the same, we uphold the plea of the assessee
and hold that the observations above will apply mutatis mutandis
here as well. The assessee
gets the relief accordingly.‖
9.
Insofar as the submissions made by the learned D.R. is concerned, we do not find any merit in same as the issues have already
been decided by the Tribunal in favour of the assessee and against the Revenue in the preceding assessment years in assessee’s own case. Further, facts and circumstances of the present case are similar to the assessment year 2015–16, which have also not been denied by the Revenue. Thus, respectfully
following the decision of the Co–ordinate Bench rendered in assessee’s own
case cited supra, we hold that when the Indian A.E. is remunerated at arm's length price no further profit attribution
is required and the issue of
existence of P.E. becomes wholly tax neutral. Accordingly, the addition made by the Assessing Officer
is directed to be deleted.
10.
In
the result, appeal
by the assessee is allowed
in terms of our aforesaid findings.
Order pronounced in the open court on 08/03/2022
Sd/- PRASHANT
MAHARISHI ACCOUNTANT MEMBER
Sd/- SANDEEP
SINGH KARHAIL
JUDICIAL MEMBER
MUMBAI, DATED: 08/03/2022
Copy of the order
forwarded to:
(1)
The Assessee;
(2)
The Revenue;
(3)
The CIT(A);
(4)
The CIT, Mumbai City
concerned;
(5)
The DR, ITAT,
Mumbai;
(6)
Guard file.
Pradeep J. Chowdhury Sr. Private Secretary
Assistant
Registrar ITAT, Mumbai