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TMI Blog2014 (2) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... s long as the lien remains with the MSCo the said company retains control over the deputationist's terms and employment - on request/requisition from MSAS the applicant deputes its staff - The request comes from MSAS depending upon its requirement - On completion of his tenure he is repatriated to his parent job - He lends his experience to MSAS in India as an employee of MSCo as he retains his lien and in that sense there is a service PE (MSAS) under Article 5(2)(l) – there was no infirmity in the ruling of the ARR on this aspect - MSCo is rendering services through its employees to MSAS - the AAR was right in ruling that MSAS would be a Service PE in India under Article 5(2)(l), though only on account of the services to be performed by the deputationists deployed by MSCo and not on account of stewardship activities. Income attributable to the Permanent Establishment – Held that:- The Transactional Net Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS - the ruling of AAR is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act 1961 (in short the Act ) seeking advance ruling, following questions are involved: (1) Whether, on the facts and circumstances of the case, the payments received/receivable by the Applicant in connection with the provision of services of technical/professional personnel to Booz Company (India) Private Limited ( Booz India ) is chargeable to tax in India as Fees for Technical Services (in short FTS ) /Royalty under the provisions of Article 12 and its sub articles of the relevant India and the country concerned Double Taxation Avoidance Agreement ( the Tax Treaty ) in the absence of Permanent Establishment( PE ) in India?(expression supplied ) (2) Whether, on the facts and circumstances of the case, the payments received/receivable by the Applicant in connection with the provision of services of technical/professional personnel to Booz India is chargeable to tax in India as FTS under section 9(1)(vii) read with section 115A as well as Section 44DA of the Act in the absence of fixed place PE in India? (3) Whether, on the facts and circumstance of the case, the payments received/receivable by the Applicant towards reimbursement of actual out of pocket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deputed to India and borne by the applicant are part of service provisioning and thus do not have any element of income embedded therein. iv) Payment by Booz India to the applicant is subject to withholding tax @ 10% as per Article 12 3. M/s. Booz Co. NA Inc USA India-USA i) Amount to be treated as FTS under Article 12 (4) read with 12 (6) ii) The amount payable would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account of reimbursement of expenses like air ticket cost, freight charges, courier charges, travel expenses, communication expenses, etc. on the personnel deputed to India and borne by the applicant are part of service provisioning and thus do not have any element of income embedded therein iv) Payment by Booz India to the applicant is subject to withholding tax @ 10% as per Article 12 4. M/s Booz Co. B.V. NETHERLNDS India - NETHERLNDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. M/s. Booz Co. (Australia) P. Ltd. India Australia i) Amount to be treated as FTS under Article 12 (3) (g) read with 12 (4) ii) The amount payable would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account of reimbursement of expenses like air ticket cost, freight charges, courier charges, travel expenses, communication expenses, etc. on the personnel deputed to India and borne by the applicant are part of service provisioning and thus do not have any element of income embedded therein. iv) Payment by Booz India to the applicant is subject to withholding tax @ 10% as per Article 12 8. M/s. Booz Co. SAS France India-France i) Amount to be treated as FTS under Article 13 (4) read with 13 (6) ii) The amount payable would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced. The various terms and conditions governing the relationship between the applicants and Booz India, the global character and profile of the Booz Group, the interdependence amongst the various companies of the Booz Group, the nature of the services rendered and exchanged between the companies of the Booz Group and the location of Booz India s office in India combine to give rise to a case for Booz India being a PE in India from multiple angles. Following signature features of the business model of the Booz Group as mentioned in the various applications are listed below which will indicate that Booz India can be simultaneously/alternatively a service PE, an agency PE and also a fixed place PE: i) The Booz Group is a global network of group companies and in order to optimize the benefits of Booz Group s global business network and expertise, affiliates of Booz Group provide/avail services from each other. (Para B 1.3 of Annexure 1 of the applications) ii) The entire Booz Group is being catered by a basket of approximately 2200 technically/professionally qualified personnel which is utilized for executing any project won by the group/its affiliates. ((Para A 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entity does not find support from the business model of the group. This apart, on facts also Booz India is exclusively dependent on the applicants in various ways. Booz India cannot optimally function without the expertise of the group entities in giving consultancy in the fields in which the group operates, the brand equity the group enjoys, the capabilities the group has developed across the globe and services from the group professionals and experts. Importantly, the group s business is manpower centric in which the only important asset is human resources. In this context, Booz India is exclusively dependent on other group entities in getting the services of appropriate personnel from other entities and job training of these personnel deployed to Booz India. Further, these employees are also under overall control of the applicants. The other group entities are also legally liable in case of third party liabilities. The employees deputed are also contracted by the applicants only. All these inherent and specific dependencies of Booz India make it very clear that it is a dependent agent of the applicants. The assertion of the applicant that no PE exists in the cases is devoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax payable shall be aggregate of- (A) the amount of income-tax calculated on the amount of income by way of dividends [other than dividends referred to in section 115-O], if any, included in the total income, at the rate of twenty per cent ; (B) the amount of income-tax calculated on the amount of income by way of interest referred to in sub-clause (ii), if any, included in the total income, at the rate of twenty per cent ; [(BA) the amount of income-tax calculated on the amount of income by way of interest referred to in sub-clause (iia) or sub-clause (iiaa) [or sub-clause (iiab), if any, included in the total income, at the rate of five per cent;] (C) the amount of income-tax calculated on the income in respect of units referred to in sub-clause (iii), if any, included in the total income, at the rate of twenty per cent ; and (D) the amount of income-tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in sub- clause (i), sub-clause (ii) [, sub-clause (iia)] and sub-clause (iii) ; (b) [a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of section 9 ; (b) "foreign currency" shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of clause (15) of section 10 ; (c) "royalty" shall have the same meaning as in Explanation 2 to clause (vi)of sub-section (1) of section 9; (d) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).] [(1A) Where the royalty referred to in clause (b) of sub-section (1) is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern [or in respect of any computer software to a person resident in India], the provisions of sub-section (1) shall apply in relation to such royalty as if the words [the agreement is approved by the Central Government or where it relates to a matter] included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted : Provided that such book is on a subject, the books on which are permitted, according to the Import Trade Control Policy of the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is assessable under this Act during the previous year consisted only of income referred to in clause (a) of sub-section (1); and (b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.] 44DA.Special provision for computing income by way of royalties, etc., in case of non-residents (1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head Profits and gains of business or profession in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e what constitutes the place to be at the disposal of the taxpayer and instead gives examples wherein it may or may not tantamount to right of disposal . Conducting trading operations of the taxpayer which is called the disposal test .generally require a fixed place which the taxpayer uses on a continuous basis. However, taxpayers rendering service usually do not require a place to be at their constant disposal and therefore application of disposal test is generally more complex in such cases. In some jurisdictions the disposal test is satisfied by the mere fact of using a place. In some other jurisdictions it is stressed that something more is required than a mere fact of use of place. In the case of Rolls Royce Plc v. DIT (2011)339 ITR 147 the taxpayer (RRPlc) supplied aero engines and spare parts to Indian customers. The taxpayer had a UK incorporated subsidiary. Rolls Royce India Limited (RRIL) having office in India, which provided support services to RRPlc. RRPlc reimbursed RRIL for all of the costs incurred in India in the provision of its support services, including but not limited to the salaries and expenses of its employees, the cost of operating its office pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsidiary, they must have had the right to enter and use the subsidiary s offices. The three appeals were heard and decided by the Special Bench. The decision is reported in (2005) 147 Taxman 39. In our view various factors have to be taken into account to decide a Fixed place PE which inter alia includes a right of disposal over the premises. No strait jacket formula applicable to all cases can be laid down. Generally the establishment must belong to the Employer and involve an element of ownership, management and authority over the establishment. In other words the taxpayer must have the element of ownership, management and authority over the establishment. In the case of Western Union Financial Services, Vs. Asstt. DIT (2007) 104 ITD 34 (Delhi) the taxpayer (US parent) engaged in money transfer business, appointed agents in India for liaison and related activities. The agents operated from their premises with the display to demonstrate the agency of Western Union Financial Services. The Delhi Bench of ITAT observed that the taxpayer had a business connection in India. It, however, held that there was no PE of any kind in India because the taxpayer had no right to enter and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Convention. It is constituted if the multinational enterprise renders services through its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to note that where the activities of the multinational enterprise entails it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge. Applying the above tests to the facts of this case we find that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requirement. Generally, occasions do arise when MSAS needs the expertise of the staff of MSCo. In such circumstances, generally, MSAS makes a request to MSCo. A deputationist under such circumstances is expected to be experienced in banking and finance. On completion of his tenure he is repatriated to his parent job. He retains his lien when he comes to India. He lends his experience to MSAS in India as an employee of MSCo as he retains his lien and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to decide the applicability of the transfer pricing regulations. (Underlined for emphasis) In Aramex International Logistics Pvt.Ltd., 248 ITR 159 (AAR) Aramex International Pvt.Ltd. (AIPL) is a 100% subsidiary of Aramex International Bermuda. Aramex group has admittedly business in various countries all over the world including India. Its business in India is conducted by it through AIPL. No doubt, AIPL has been formed as a subsidiary and has an identity under the Companies Act, 1956. As far as inward business‟ is concerned, Aramex group companies in various parts of the world contact the customers, take delivery of the articles to be delivered to various cities and towns in India and deliver them at a chosen destination. The business is completed by delivery of the consignments to the concerned addressees in India. For that, the Aramex group has created a subsidiary, in India, AIPL. The fact remains that the business is that of Aramex group and the reputation and appealability is that of the Aramex group. Without the association of AIPL, the business of Aramex group as regards the articles sent to India, cannot be performed. It is the case of the applicant that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part being played by the Indian entity, AIPL, the business of the applicant could be successfully transacted. Thus, AIPL is an essential part of the business of the group now routed through the applicant in India. No doubt, AIPL may have an independent existence as a subsidiary. Clearly, the authority over it of the principal, vertical or persuasive, cannot be in doubt. I am, therefore, satisfied that in a case like the present, the subsidiary must be considered to be a permanent establishment of the group in the concerned country, here, India. (d) in the case of a non-resident, being- (Underlined for emphasis) On the issue of Agency PE the relevant question is business connection . It would be relevant to quote Section 9(1)(i) of the Act "9. (1) The following incomes shall be deemed to accrue or arise in India : (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, (*) or through the transfer of a capital asset situate in India. Explanation : For the purposes of this clause- (a) in the case of a business of which al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus : "Explanation 2 : For the removal of doubts, it is hereby declared that 'business connection' shall include any business activity carried out through a person who, acting on behalf of the non-resident,- (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:" It may be seen that Expln. 2 contains an inclusive definition; it brings in the business activities specified in Clauses (a) to (c), referred to above, within the fold of the expression "business connection" which has to be understood in its ordinary meaning. We shall presently advert to the decisions of the Hon'ble Supreme Court wherein the meaning of that expression has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident in his business; (c) a course of dealing or continuity of relationship and not a mere isolated or stray nexus between the business of the non-resident outside India and the activity in India, would furnish a strong indication of 'business connection' in India. Apart from the fact that requirements of Expln. 2, referred to above, are satisfied, the facts of the instant case would also fulfill the aforementioned essential features of business connection. The factual position as highlighted by the Revenue clearly support the stand taken by it that a PE does exist. 8. Having held that the applicants have Permanent Establishment in India, the incomes received by them from the Indian Company are taxable as business profit under Article 7 of the Tax Agreement of India and the respective countries (except M/s.Booz Co.(ME) Ltd. Cayman Islands (AAR/1026) with which there is no tax treaty by India, and M/s.Booz Co.(Italia)S.R.L., Italy (AAR/1022), whose income will be taxed as per provisions of the Act). Question No.2 of AAR/1026 / Question No.3 in others; regarding the reimbursement of expenses was withdrawn by the applicants during the course of hearing. Question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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