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2018 (3) TMI 1206 - AT - Income TaxStatus of the expatriate employees working with the SIEL and the nature of functions they are performing - Existence of PE in India - whether they are actually the employees of the assessee and placed with the subsidiary to run the business of the assessee, or they are assessee s employees who are seconded to SIEL and the SIEL is the economic employer who exercises full control over them? - Held that - There is no doubt that there is seemless information exchange between the employees of the assessee and the expat employees. The statements show that such information exchange relates to the models/designs to the liking of the Indian consumers, plans and strategies relating to the sale of the products, detailed stock/logistical status, the market strategies both the mid and long terms etc. As rightly argued by the Ld. AR that none of the statement would go to show that the any activity of the global business management (GBM) has ever been conducted in India or that the market survey that is conducted in India, as spoken by the expatriate employees has nothing to do with the business of the Indian subsidiary and it is solely for the benefit of the assessee. We therefore find that the activities spoken by the expatriate employees in their statements are in the nature of reporting required in the course of discharge of the functions of the subsidiary company towards the holding company, and such activities do not constitute a PE under Article 5(4)(d), (e) and (f) of the DTAA. What the expat employees are doing is only the discharge of the functions of subsidiary towards the holding company, which is for the benefit of the business of the subsidiary to make the GBM understand the priorities and preferences of the Indian customers by providing India specific information to GBM s which in turn then carry out research and development to develop India specific products. By no stretch of imagination could it be said that it is in furtherance of the business of the assessee de hors the business of the subsidiary. In the absence of proof as to any management activity of the assessee being conducted in India or that it is established that the decisions relating to the products to be manufactured, pricing in the domestic markets, or the decisions relating to the launch of such products in India is taken by the assessee, we find it difficult to agree with the authorities below that through the expatriate employees the assessee has been conducting the business of assessee in India - no evidence that is placed on record by the assessing officer to show that by way of business through these expatriate and seconded employees, the assessee derived any business income in India. There is neither any business conducted by the assessee in India through the expatriated employees nor any income is derived by them though the activities of the employees. Consequently we hold that there is no fixed place PE of the assessee constituted through the expatriated employees. Issue is, therefore, answered in favour of the assessee. Addition of 10% estimated income of total remuneration cost of expatriate employees seconded to SIEL In India - Held that - In view of our finding that there is no business activity that is conducted by the assessee through the expatriate employees, the question of estimated income does not arise. Levy of interest u/s 234B and 234A - Held that - As held in the preceding paragraphs that there is no business activity that is conducted by the assessee through the expatriate employees, the question of estimated income does not arise and consequently the liability of the assessee to deduct TDS or interest liability under section 234 A and B does not arise. This issue is, therefore, answered in favour of the assessee in all the assessment years, and against the revenue Short credit of taxes - Held that - In respect of the assessment year 2011-12, it is submitted on behalf of the assessee that a sum of ₹ 18,15,99,203/-was withheld by the SIEL and it is lying to their credit. It is further submitted that the Ld. AO allowed credit of taxes only to the extent of ₹ 17, 79, 07, 391/-, thereby there is an offence of short credit of taxes to a tune of ₹ 36, 91, 812/-. Assessee is aggrieved by this alliance of short credit. We direct the Ld. AO to grant credit of the TDS to the assessee if they fulfilled the requisite conditions of possessing a valid certificate as per the Act.
Issues Involved:
1. Reassessment proceedings under Section 147/148 of the Income Tax Act for AY 2004-05 to 2009-10. 2. Existence of a 'fixed place' Permanent Establishment (PE) in India in the form of seconded expatriate employees operating from the premises of Samsung India Electronics Private Limited (SIEL). 3. Addition of 10% estimated income on the total remuneration cost of expatriate employees seconded to SIEL in India. 4. Levy of interest under Section 234B and 234A of the Income Tax Act. 5. Short credit of taxes withheld by SIEL as against the credit of taxes claimed by the assessee in its return of income for AY 2011-12. Issue-Wise Detailed Analysis: 1. Reassessment Proceedings Under Section 147/148 of the Act for AY 2004-05 to 2009-10: The assessee argued that the reassessment was based solely on employee statements without independent material, that the Ld. AO cannot reassess issues beyond those for which proceedings were initiated, and that the Ld. AO accepted the taxpayer's contention regarding the non-declaration of royalty/FTS income. The Ld. AO countered that the reassessment was valid as there was non-disclosure of royalty income, which was later admitted by the assessee. The Tribunal found that the reassessment was justified due to the significant difference between the original and revised returns, indicating income escapement. 2. Existence of a 'Fixed Place' Permanent Establishment in India: The Tribunal examined statements from expatriate employees and found that the employees were seconded to SIEL and were under its control, not the assessee's. The Tribunal noted that the activities of these employees were for the benefit of the Indian subsidiary and not the assessee. The Tribunal held that the activities of the expatriate employees did not constitute a PE under Article 5 of the India-South Korea DTAA, as they were performing duties for SIEL and not for the assessee's business. 3. Addition of 10% Estimated Income on the Total Remuneration Cost of Expatriate Employees: The Ld. AO attributed income to the alleged PE based on the remuneration of expatriate employees, adding an estimated 10% income. The Tribunal, however, found that since there was no business activity conducted by the assessee through these employees, the question of attributing income did not arise. 4. Levy of Interest Under Section 234B and 234A of the Act: The Tribunal held that since there was no business activity conducted by the assessee through the expatriate employees, the question of estimated income and consequently the liability for interest under Section 234A and 234B did not arise. 5. Short Credit of Taxes for AY 2011-12: The assessee claimed a short credit of taxes withheld by SIEL. The Tribunal directed the Ld. AO to grant credit of the TDS to the assessee if they fulfilled the requisite conditions of possessing a valid certificate as per the Act. Conclusion: The Tribunal allowed all the appeals of the assessee, dismissing the Revenue's appeal, and pronounced the order in the open court on 22.03.2018.
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