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2023 (8) TMI 957 - AT - Income TaxIncome taxable in India - Fixed place PE in India - project office in India - Addition u/Article 5 of India - Germany Double Taxation Avoidance Agreement (DTAA) - assessee is a non-resident corporate entity incorporated under the laws of Germany and a tax resident of Germany - whether the profits earned on offshore supply of 8 number of train sets to DMRC can be attributed to the alleged PE of the assessee India? - HELD THAT - Essentially the contract is a divisible Contract. On a careful perusal of observations of learned DRP, it is observed that learned DRP has misconstrued the terms of the agreement between the DMRC and the Consortium partners as well as the terms of the Consortium Agreement. DRP has erroneously assumed that the activities under Cost Centre D are also performed by the assessee. Whereas, factually and in terms of the contract, such activities falling under Cost Centre D were not only performed by BTIL but the profits from such activities have been offered to tax by BTIL. Therefore, in our view, the receipts from offshore supply of rolling stock cannot be taxable in India as the transfer of title over the goods has taken place outside India. Whether BTIL constitutes a fixed place PE of the assessee in India? - As analyzing the facts and materials on record in the touchstone of the ratio laid down in the judicial precedents cited before us, we are of the view that none of the conditions of fixed place PE as enshrined under Article 5(1) of India Germany tax treaty stand satisfied to construe BTIL as the PE of the assessee in India. Thus, in view of our aforesaid conclusion, we hold that the attribution of profit qua the receipts from offshore supplies to the alleged fixed place PE in the form of BTIL is unsustainable as, in our view, BTIL cannot be construed as PE of the assessee in India.
Issues Involved:
1. Whether the project office of the assessee and Bombardier Transportation India Ltd. (BTIL) constitute a fixed place Permanent Establishment (PE) of the assessee in India under Article 5 of the India-Germany Double Taxation Avoidance Agreement (DTAA). 2. Attribution of profit from offshore and onshore supplies to the alleged PE of the assessee in India. Summary of Judgment: Issue 1: Fixed Place Permanent Establishment (PE) The core issue was whether the project office of the assessee and BTIL constitute a fixed place PE of the assessee in India under Article 5 of the India-Germany DTAA. The assessee, a non-resident corporate entity from Germany, entered into a consortium with BTIL to execute a contract with Delhi Metro Rail Corporation (DMRC). The scope of work was clearly divided between the assessee and BTIL, with the assessee handling offshore activities and BTIL managing onshore activities. The Assessing Officer considered the project office of the assessee as a fixed place PE and attributed profits from both offshore and onshore supplies to this PE. The Dispute Resolution Panel (DRP) agreed with the assessee that the project office had no involvement in offshore supplies but considered BTIL as a fixed place PE of the assessee, attributing 35% profit to this PE. Issue 2: Attribution of Profit The Tribunal examined whether BTIL could be considered a fixed place PE of the assessee for attributing profit from offshore supplies. It was determined that the contract with DMRC was divisible, with specific cost centers assigned to each consortium partner. The Tribunal found that the activities under Cost Centre D were performed by BTIL, which offered the profits from these activities to tax in India. The Tribunal concluded that the receipts from offshore supply of rolling stock could not be taxed in India as the transfer of title occurred outside India. The Tribunal also held that the Revenue failed to demonstrate that the premises of BTIL were at the disposal of the assessee, a necessary condition for establishing a fixed place PE under Article 5(1) of the India-Germany DTAA. Conclusion: The Tribunal ruled that BTIL does not constitute a fixed place PE of the assessee in India, and thus, the attribution of profit from offshore supplies to the alleged PE is unsustainable. Consequently, the appeal was allowed in favor of the assessee. The other issues raised by the assessee were deemed either academic or consequential and did not require adjudication. Order Pronounced: The appeal was allowed, and the order was pronounced in the open court on 14th July, 2023.
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