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TMI Blog2014 (2) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... case. (3) On the facts and circumstances of the case and in law, learned Assessing Officer, failed to appreciate that since the revenues had been earned as a result of its business operations, the same had to be considered under Article 7 read with Article 5 of the India-Switzerland Treaty. 4. Relevant facts are that the assessee is a company incorporated under law of Switzerland and is a tax resident of Switzerland. The assessee filed its return of income on 24.10.2007 declaring 'rupees nil' as total income. The return of income filed, was accompanied by a note inter-alia stating that during the previous year relevant to assessment year under consideration the assessee operated India specific websites (www.ebay.in and www.b2motors.ebay.in) that provides an online platform for facilitating the purchase and sale of goods and services to users based in India. Further the assessee has entered into marketing support agreements with eBay India Private Limited (hereinafter referred to as eBay India) and eBay Motors India Private Limited (hereinafter referred to as eBay Motors), which are eBay group companies, for availing certain support services in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the direction of DRP also held that the assessee has a permanent establishment in India in the form of its entities eBay India and eBay Motors. Therefore the Assessing Officer was right in coming to the conclusion that the fees received for services provided to the customers for permitting them right to use software platform is fees for technical services and the Assessing Officer has rightly taxed under Article 12 of the Treaty. Being aggrieved, the assessee has filed this appeal before the Tribunal. 7. At the time of hearing learned AR submitted that that similar issue has been considered by the Tribunal in assessee's own case for A.Y. 2006-07 by its order dated 21.9.2012, copy placed at page 1to 33 of the paper book. Learned AR submitted that in the preceding assessment year, learned CIT(A) treated assessee's gross revenue as 'business profit' as against 'fees for technical services' and the department disputed the said order of learned CIT(A) before the Tribunal (ITA No. 7046/Mum/2010) and the Tribunal in para 5 of the said order considered the nature of operation of the assessee. It is relevant to reproduce para 5 of the said order as under :- 5. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intends his products to be listed more prominently on the assessee's website, then some amount of fee is charged for that purpose as well. Such later payment is charged only once at the time of registration of the seller with its products on the assessee's website. On the successful completion of the sale, the assessee raises periodic invoice on the seller for the "user fee". The sellers are required to make payment of the user fee to eBay India/eBay Motors for the transactions undertaken on the websites of the assessee. After making collection from the sellers, eBay India/eBay Motors remit the user fee, so collected, to the assessee. These two companies, namely, eBay India and eBay Motors have entered into an agreement with the assessee for rendering market support services reproduced above. The assessee, in turn, reimburses the costs incurred by them with 8% mark-up." 8. Learned AR submitted that the Tribunal after considering the modus operandi of the transactions undertaken through the website operated by the assessee has held vide para 12 of the said order that fees received by the assessee cannot be described as FTS but is in the nature of 'business profits'. The said paras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as FTS as the assessee has no role to play in effecting sales. That it is in the nature of business profits. Respectfully following the order of the Co-ordinate Bench of the Tribunal in assessee's own case for A.Y. 2006-07 (supra), we reverse the orders of the authorities below and allow ground No. 2&3 of the appeal taken by the assessee. 11. Ground No. 4&5 of the appeal are as under :- Permanent Establishment in India and attribution of profits (4) Without prejudice to the above, learned Assessing Officer/DRP has erred in holding that eBay India Private Limited and eBay Motors India Private Limited constitute a Permanent Establishment of the appellant under the provisions of Article 5 of the India-Switzerland Tax Treaty. (5) Without prejudice to Ground No. 3&4, learned AO has erred in not appreciating that only so much of the profits as are attributable to the permanent establishment could have been taxed in India and since the appellant had compensated eBay India Private Limited and eBay Motors India Private Limited at arms length, there could not have been any further attribution of income which cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by eBay India and eBay Motors about the websites of the assessee, which are discussed in para 25 of the above order, has held vide para 33 that, the assessee has no PE in India as per para 5&6 of Article 5 of the DTAA. In this regard, we consider necessary to reproduce para 25 to 36 of the above order which are as under :- 25. Before we evaluate and examine the contentions raised by the rival parties, it is relevant to see precisely the nature of services performed by eBay India for the assessee. The functions required to be done by eBay have been enumerated in clause 3.1 of the agreement, which we have reproduced in earlier part of this order. The first function is to suggest the assessee of legal requirements relating to the business of eBay in Indian territory. Next is to provide market data relating to the industry and also providing marketing and promotional services within India as directed by eBay International. eBay India is also required to perform payment processing and collection activities related to the assessee's business in India and thereafter remitting the same. It is further required to prepare and discuss the Budget for other smaller mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons between the vendors and the buyers, which eventually results into the revenue to the assessee, are done through the assessee's websites situated and controlled from abroad. The role of eBay India, in this regard, is mainly compartmentalized in facilitating the sellers to make the payment to the assessee in India itself. In a way, eBay India is basically providing market support services to the assessee. Under such circumstances, the question arises as to whether eBay India and eBay Motors can be considered as permanent establishment of the assessee. 26. The authorities below and the ld. DR have chiefly harped on the assessee having PEs in India through Article 5(5) and (6) of the DTA. In fact, paras 5 and 6 of Article 5 of the DTA are complementary to each other. Para 5 of Article 5 can come into play to constitute the PE in India, only if it is successfully proved that so called agent is not an independent agent. If the person who carries on business in India for the foreign enterprise, is independent agent as para 6, then one need not look into the mandate of para 5 of Article 5 of the DTA. The issue will close there and then. There can be no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become dependent agents of the assessee. 30. Now, we need to examine as to whether or not these dependent agents constitute permanent establishments of the assessee. If any of the conditions given in para 5 of Article 5 of the DTA is satisfied, then such dependent agents will constitute dependent agent PEs of the assessee in India. In the otherwise case, the test of PE will fail. 31. Clause (ii) of para 5 of Article-5 of the DTA refers to the dependent agent habitually maintaining a stock of goods or merchandize for or on behalf of the enterprise. This clause has no application in this case because the goods or merchandize are delivered by seller to the buyer directly who enter into contract through the assessee's website. There is no requirement on the part of eBay India or eBay AG to maintain any stock of goods or merchandize on behalf of the sellers. As such, it becomes crystal clear that the second condition is not satisfied as eBay India does not maintain any stock of goods for delivery for or on behalf of the eBay AG. Clause (iii) applies where the dependent agent manufactures or processes the goods or merchandize in that St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India has at no stage negotiated or entered into contract for or on behalf of the assessee. Simply by providing marketing services to the assessee or making collection from the customers and forwarding the same to eBay AG, it cannot be said that eBay India entered into contracts on behalf of the assessee. Neither there is any mention in the assessment order nor the ld. DR has specifically invited our attention towards any contract entered into by eBay India or eBay Motors, during the discharge of their functions or otherwise, for or on behalf of the assessee. Thus the test laid down as per clause (i) of para 5 of Article 5 of the DTA also fail in the present case. 32. We are mentioning even at the cost of repetition that in order to treat any person as permanent establishment within the meaning of paras 5 and 6 of Article-5 of the DTA, it is of utmost importance that such person should first answer to the description of 'dependent agent' and then such dependent agent must perform either of the three activities as mentioned in para 5 of Article 5 of the DTA. Unless the dependent agent carries on any of activities as mentioned in para 5 of Article 5 of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. It was stated by him that this course of action is not open to the ld. DR as it has never been the case of the AO that the assessee has permanent establishment in India under Article 5(2)(a) of the DTA. This argument, in the opinion of the ld. AR, amounted to the ld. DR transgressing the boundaries of his jurisdiction and setting up an altogether a new case. To fortify his view in this regard, he also sought to place reliance on certain decisions. 35. It is observed that the AO in remand proceedings has held the assessee to have earned the revenue from its business operations in India chargeable to tax as 'Business profits' under Article 7 of the DTA. He held so by holding eBay India and eBay Motors to be the assessee's PEs as per paras 5 and 6 of Article 5 of the DTA. The submission of the ld. DR, which has been objected to by the ld. AR, is to treat eBay India and eBay Motors as PEs of the assessee under Article 5(2)(a). We find no force in the submission of the ld. AR on this count. By raising this argument, the ld. DR has simply tried to support the view point of the AO as regards the assessee having permanent establishment in India, though from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the maintenance or the operation of the websites. They have absolutely no say in the matter of entering into online business agreements between the sellers and the assessee or the finalization of transactions between the buyers and sellers resulting into the accrual of the assessee's revenue. As eBay India and eBay Motors are required to perform only market support services for the assessee, it cannot be said that they form 'place of management' of the assessee's overall business. This contention also, therefore, fails." 16. The Tribunal in view of the above has held that though eBay India and eBay Motors are dependent agents of the assessee, but do not constitute 'dependent agent PEs' of the assessee in terms of Article 5 of the DTA. It is held that these concerns cannot be treated as the PEs of the assessee in terms of Article 5(2)(a) of the DTA. Since the assessee has no PE as per Article 5 of the DTA, there can be no question of computing business profits of the assessee as per Article 7 of the DTA in relation to the revenue generated from India. Respectfully following the same, we allow ground No. 4&5 of the appeal taken by the assessee and hold that the said business pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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