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TMI Blog2011 (8) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... , then what would be the appropriate amount of profits attributable to the permanent establishment of the assessee in India? 4. Whether the findings of the Income Tax appellate Tribunal with regard to the existence of the permanent establishment of the assessee in India are perverse?" 2. On an application preferred by the appellant/ assessee, following additional question of law was framed as substantial question of law, to be addressed at the time of hearing:- "Whether a coordinate bench of the tribunal while passing an order can take a contrary view that has been expressed by an earlier coordinate bench in respect of the same assessee where similar issues are involved or should the bench refer it to a larger bench"? 3. We may point out at the outset that Mr. Ganesh, learned Senior Counsel appearing for the appellant/assessee did not press all these questions at the time of hearing. The learned counsel for the assessee did not argue the validity of reopening of assessment under Section 147 of the Income-Tax Act. Even on additional question framed vide orders dated 7th July, 2010, no arguments were raised. Accordingly, questions no. 1 and additional question framed on 7t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributed 100% of profits earning from sale of goods from Indian customer in the assessment year 1997-98 to 2000-01 and 75% of profits in the assessment year 2002-03 and 2003-04. 8. The CIT (A) upheld the order of the Assessing Officer for the Assessment years 1997-98, 1998-99, 1999-00, 2000-01 and held that the offices of the RRIL in India constitute permanent establishment of the appellant in India under Article 5 of the Double Taxation Avoidance Agreement Between India and United Kingdom (hereinafter referred to as "DTAA"). However, the CIT (A) had modified the order of the Assessing Officer to the extent that the profits attributable to the activities carried on India were deemed to be 75% instead of 100% of the estimated profits as held by the assessing Officer. The order of the CIT (A) was carried in appeal before the ITAT and ITAT also upheld the order of the CIT (A). However, it modified the order of the CIT (A) to the extent that the profits attributable to the activities carried on in India were estimated at 35% instead of 75% as held by the CIT (A). 9. Mr. Ganesh has not challenged the order of the ITAT insofar as it has attributed 35% of the global profits to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and development activities are carried out in India. The research and development do contribute to t the profit and in respect of which Tribunal have apportioned 15% thereof and directed to exclude the same while computing global profits. While computing the profit which is to be attributed to the activities in India, only those factors affecting such profit are to be considered. Thus, if some activities are carried out by the assessee wholly outside India in respect of which no profit can be attributable to the activities in India, then such profit cannot be taxed in India. In the same fashion if some activities are carried outside India resulting into loss to the assessee, such loss is also to be ignored while computing the profit, which is composite, to the proportionate of activities in India. The activities in India are in the form of marketing and sales. Therefore, all the expenses incurred till the marketing are to be reduced. The research and development activities which result into loss to the assessee and admittedly not being carried out in India is to be ignored while computing global profits to be attributed to Indian operations. Therefore, the computation of profit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are as under: "(2) Whether the assessee has any income chargeable to tax in India u/s 5 (2) of the Act and whether the assessee has any business connection in India as per Section 9 (1) (i) of the Act? (3) If the answer to Question No.2 is in affirmative, whether, in terms of DTAA between India and UK, the appellant has any PE in India?" 15. The Tribunal first considered the question of business connection. After taking note of the relevant provisions which existed at that time as well as the case law, in para-19, the Tribunal took note of the fact that an agreement was entered into by the assessee with RRIL whereby RRIL was to render certain services to the assessee. From the extent and scope of these services, the Tribunal held that the assessee had a business connection in India within the meaning of Section 9(1) (i) of the Act. It would be relevant to point out at this stage that the aforesaid conclusion of the Tribunal was not rested solely on the agreement with RRIL. It also took into consideration and analysed various papers which were found during the course of the survey and which were not there earlier when the Tribunal had decided the appeal of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , under Article 5 (4), there is no PE in India. It is to be noted that Article 5 (4) has three clauses, namely, a, b & c. Thus, even if one has to hold that the dependent agent has no authority to negotiate and enter into contracts for and on behalf of appellant, still as per clause (c) of sub Article (4), it is found that RRIL habitually secures orders in India for the appellant. It is a set practice that no customers in India are directly to send orders to the appellant in UK. Such orders are required to be routed only through RRIL. This fact is evident from the letter of Mr. L.M. Morgan to Mr. Prateek Dabral and Ms. Usha. In the said letter, it is made clear that even request for quotation/extension could not be communicated directly to the appellant but are to be routed through the office of RRIL. This is applicable even to the orders. The fact is not denied that the orders are firstly received by RRIL from the customers in India and only then communicated to the appellant. Thus, as per Para 4(c) of Article 5, the dependent agent habitually secures orders wholly for the enterprise itself and hence, is deemed to be a permanent establishment of the appellant. The contention of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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