2015 (10) TMI 299 - AT - Income Tax

Inclusion of reimbursement of expenses received for the purposes of computing the commission income - department s case is that for the puprose of calculation of commission, the reimbursement of expenses, which has been received by the assessee has to be included in the gross sale value, as the commission is payable on the entire sales executed by the assessee including the part/equipment procurred locally - Held that - Schedule A categorically provides that commission is not to be computed on the sale orders which requires the procurement of local content by the assessee, then on such procurement of equipements by the assessee, commission cannot be imputed, because it is the reimbursment of the cost of local equipments procured. Further, it appears that this relevant piece of document which is also a part of Distribution and Representation Agreement , has not been examined by the Assessing Officer. Therefore, for the purpose of verification and examining of the content of this schedule, we restore the matter back to the file of AO, to adjudicate this issue afresh in light of the aforesaid document, because it changes the entire colour of the conclusion drawn by the AO. The AO will also examine the fact, whether the commission is on sale of Varian products only or not. The quantum of commission is a question of fact and cannot be imputed or presumed. In case of reimbursement of expenses from Varian Germany also, the matter is set-aside for examining, whether the commission is on gross sales or on the net of sales of the equipments directly procured by the associate enterprises. If the arrangement with this AE is also the same, then the same conclusion should be drawn in this case also. - Decided in favour of assessee for statistical purpose. Addition on account of attribution of profits by treating the assessee branch as permanent establishment of various VGCs - Held that - This issue, whether the assessee is a PE of various Varian group of companies or not, has been discussed in detail by the Tribunal in assessee s own case for the assessment years 2002-03 to 2006-07 2013 (11) TMI 195 - ITAT MUMBAI . After detail analysis, the Tribunal has finally held that, the Indian branch of the VIPL is not dependent agent of VGCs and therefore, it does not constitute PE for various Varian companies in India, as per Article 5(4) 5(5), respective DTAAs. Thus, in view of the findings given therein and as a matter of judicial precedence, we hold that the assessee branch, does not constitute PE of Varian-Italy and, therefore, the addition being 10% of gross sales made by Varian Italy to its customer in India, cannot be taxed in the hands of the assessee. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of Rs. 84,10,831 on account of inclusion of reimbursement of expenses for the purpose of computing commission income.
2. Addition of Rs. 10,80,117 on account of Attribution of profits to Permanent Establishment (PE).
3. Levy of interest under section 234B of the Act of Rs. 19,63,694.

Issue-wise Detailed Analysis:

1. Addition of Rs. 84,10,831 on account of inclusion of reimbursement of expenses for the purpose of computing commission income:
The assessee, a branch of Varian India Private Ltd., contested the inclusion of reimbursement of expenses amounting to Rs. 84,10,831 for computing commission income. The Assessing Officer (AO) included the reimbursement of expenses received from Varian BV Netherlands, Varian Germany, and Varian Spa Italy in the gross sales for commission calculation, arguing that these reimbursements formed part of the gross sales consideration. The assessee argued that these reimbursements were purely for expenses incurred on behalf of Varian Group Entities (VGCs) and should not be included in the commission calculation. The DRP upheld the AO's decision. However, the Tribunal found that the agreement specified that local non-Varian content procured by the contractor should not be included for commission computation. Consequently, the Tribunal restored the matter to the AO to verify and examine the content of the agreement and determine if the commission should be computed on Varian products only or include local procurements. The ground was allowed for statistical purposes.

2. Addition of Rs. 10,80,117 on account of Attribution of profits to Permanent Establishment (PE):
The assessee challenged the addition of Rs. 10,80,117, asserting that it did not constitute a PE of Varian Italy in India. The AO based his conclusion on previous assessments, treating the assessee as a dependent agent of VGCs and thus a PE. However, the Tribunal noted that in earlier assessments (2002-03 to 2006-07), it had been determined that the assessee was not a dependent agent and did not constitute a PE for VGCs under the respective DTAAs. Consequently, the Tribunal followed the judicial precedence and held that the branch did not constitute a PE of Varian Italy, and the addition of Rs. 10,80,117 was not justified. This ground was allowed.

3. Levy of interest under section 234B of the Act of Rs. 19,63,694:
The assessee contested the levy of interest under section 234B. Both parties agreed that this issue was consequential based on the outcomes of the other grounds. As such, the Tribunal treated this ground as infructuous.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to re-examine the inclusion of reimbursements in the commission calculation and confirming that the assessee did not constitute a PE of Varian Italy. The issue of interest under section 234B was deemed consequential and thus infructuous. The order was pronounced in the open court on 28/02/2014.