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2023 (8) TMI 1587 - AT - Income TaxExistence of Permanent Establishment (PE) in India - incomes to accrue or arise in India - HELD THAT - Sales of the assessee in India are effected through its distributors. The sales and marketing team of SanDisk India engage in educating the customers about SanDisk products. Once a customer is interested in a product, the distributors of the assessee are notified who would then negotiate the price and place the purchase order with the assessee. Therefore, it is not forthcoming from the statements recorded that SanDisk is totally responsible for concluding contracts on behalf of the assessee. AO has not brought on record any other material to support his case. Therefore, reliance on the statements of employees of SanDisk India are not conclusive of existence of permanent establishment of the assessee in India. We further draw support from the decision in the case of Net App B.V 2017 (7) TMI 420 - ITAT DELHI wherein under similar facts and circumstances, the Tribunal concluded that the Indian company engaged in providing marketing support services with no authority to conclude contracts, did not constitute a permanent establishment of the foreign entity. Assessee appeal allowed.
Issues Involved:
1. Existence of Permanent Establishment (PE) in India. 2. Attribution of profits to the alleged PE. Issue-wise Detailed Analysis: 1. Existence of Permanent Establishment (PE) in India: The primary issue was whether the activities of SanDisk India constituted a Permanent Establishment (PE) for the assessee in India. The assessee, a company incorporated in Ireland, argued that SanDisk India only provided marketing support services and did not engage in activities that would create a PE, such as negotiating or concluding contracts on behalf of the assessee. The Revenue, however, contended that SanDisk India's activities went beyond the scope of the agreement, effectively creating an 'Agency PE' in India. The Tribunal examined the nature of activities performed by SanDisk India, as revealed during a survey conducted by the Revenue. The Assessing Officer had relied heavily on statements from SanDisk India employees, which suggested that SanDisk India was involved in sales activities. However, the Tribunal noted that these statements aligned with the permitted activities under the agreement and did not conclusively prove that SanDisk India was concluding contracts on behalf of the assessee. The Tribunal emphasized that the sales were executed through independent distributors, and SanDisk India merely facilitated communication and provided marketing support. The Tribunal referred to the definition of "business connection" under Section 9 of the Income Tax Act and the India-Ireland Double Taxation Avoidance Agreement (DTAA), noting that SanDisk India did not have the authority to conclude contracts or secure orders habitually. The Tribunal also drew parallels with the case of Net App B.V, where similar facts led to the conclusion that no PE existed. Consequently, the Tribunal found that the activities of SanDisk India did not create a PE for the assessee in India. 2. Attribution of Profits to the Alleged PE: The second issue concerned the attribution of profits to the alleged PE. The Revenue had attributed a portion of the assessee's global profits to the alleged PE in India, bringing a sum of Rs. 27,26,12,355/- to tax. The assessee contended that since SanDisk India was remunerated at arm's length for its marketing support services, no further attribution of profits was warranted. The Tribunal noted that the Revenue had failed to provide a basis for the attribution of profits and had incorrectly deducted administrative costs while computing the taxable income. The Tribunal emphasized that once transactions are at arm's length, further attribution of profits is not justified. The Tribunal's decision to delete the addition made by the Assessing Officer was consistent with the principle that an Indian agent remunerated at arm's length extinguishes any further profits to be attributed to the agency PE. Conclusion: The Tribunal concluded that SanDisk India did not constitute a PE for the assessee in India, and the attribution of profits by the Revenue was unwarranted. The appeals for Assessment Years 2012-13 to 2016-17 were allowed, and the appeal for Assessment Year 2017-18 was partly allowed, with the addition made by the Assessing Officer being deleted. The Tribunal's decision was based on a thorough examination of the facts, the applicable law, and relevant case precedents.
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