9911796707
TMI Blog2016 (5) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... "Logistic Freight and Other Services" provided by such entities overseas and wholly outside India. 2. That the learned Commissioner of Income Tax (Appeals)-VI, Kolkata erred in arbitrarily and wrongly holding and/or confirming that the overseas entities had appointed the Appellant Company as its 'Exclusive Agent' in respect of import from their respective Countries on a long term basis. 3. That the learned Commissioner of Income Tax (Appeals)-VI, Kolkata erred in arbitrarily and wrongly holding and/or confirming that the Appellant Company acted as a "Dependent Agent"- "Permanent Establishment" in India of different Non-Resident Entities, in terms of the various Double Taxation Avoidance Agreements (DTAA). 4. That the learned Commissioner of Income Tax (Appeals)-VI, Kolkata erred in arbitrarily and wrongly holding and/or confirming that though income is received by the Overseas Entities outside India, it accrued or arose in India, and is, therefore, chargeable to tax in India, as per section 5(2)(b) of the said Act. 5. That the learned Commissioner of Income Tax (Appeals)VI, Kolkata erred in arbitrarily and wrongly upholding the application, in the instant case, of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas Entities, are against the facts and evidences on record, illegal, invalid, unreasonable and/or otherwise perverse." There is a single and common issue in all the grounds of appeal, so all the grounds are clubbed together for the sake of convenience. The solitary issue raised by the assessee in all the grounds of appeal is that the assessee failed to deduct the TDS on the payment made to overseas entities for logistic services. 2. The facts in brief as culled out from the records are that the assessee in the present case is a Government company and inter alia engaged in the business of providing the logistic services worldwide. The only issue in this case relates to non deduction of TDS on the payment to its overseas agents towards the logistic services. The assessee has business arrangement from the various commercial organizations which are in the same line of business all the world. As and when the assessee receives the contract from its client based in India for the logistic services for a country outside India then the assessee approaches to his overseas agent of that country for such services. The major role of the overseas agents is to coordinate with the shipping com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th local regulations and notify promptly the individual consignee about the arrival of their consignments. (b) The parties shall undertake delivery of the individual shipment on the other party's consolidations if so required by the individual consignee. All such clearance and delivery charges will be recoverable from the consignee. (c) If the consignor want the parties to perform customs clearance, the parties shall render all possible help to the consignor or consignor's representative with reasonable service charges plus the normal charges required for the issue of delivery orders. (d) Upon effecting final delivery to the consignee or consignee's representative, the parties shall obtain a signed delivery receipt for each shipment in token of having delivered the consignment in good order and condition. (e) Where the consignee of a consignment is at a place beyond the deconsolidation point and sector carriage by air or land is effected by either party, such sector charges (Actual Sector Freight + Transhipment Charges) will be invoiced at 50% by the receiving party to the other after the transactions, in respect of consolidations from Austria, Bosnia, Czech Republic, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces to be notified promptly, on arrival of shipments, to the origin agent and will be replied to within 7/15 days by both sides. The origin agent to raise a credit not if the query is accepted. (e) The origin agent will invoice the Agent with the total collect charges for all HAWB/HBL where origin agent prepays the MAWB/MBL. When the origin agent sends MAWB/MBL on a charges collect basis to the destination agent, a credit note will be given to the agent for the amount of the collect charges for freight, and any applicable airline disbursements." At this juncture the AO has also highlighted the provision of Permanent Establishment (for short PE) in the light of Double Taxation Avoidance Agreement (for short DTAA) with various countries. Accordingly for the sake of clarity the provisions of PE in relation to DTAA with UAE - United Arab Emirates is reproduced below:- "UAE: Article 5- Permanent establishment- 1. For the purposes of this Agreement, the term "permanent establishment" mans a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) A place of manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of independent status within the meaning of this paragraph." 2.2 For the year under consideration the assessee has made the payment to its overseas agents towards the logistic services for an amount of Rs. 9785.36 lacs. The breakup of such services stands as under : i) Remittances towards Air Logistic Services from Kolkata 8724.53 ii) Remittance towards Sea Logistic Services from Kolkata 641.38 iii) Remittance towards Logistic Services from Mumbai 415.03 iv) Remittance towards Logistic Services from Bangalore 4.42 9785.36 The further breakup of the amount paid towards logistic services in the form of reimbursement and profit stands as under : S.No. Particulars Reimbursement exp. Profit Total 1. Air Logistic services 8250.00 474.00 8724.00 2. Sea Logistic Services 636.75 4.62 641.38 3. Logistic services (Mum) 408.62 6.38 415.03 4. Logistic s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an appeal to Ld CIT(A). Before the ld. CIT(A) the assessee submitted that the payment made to the overseas agents is not liable to tax by virtue of the provisions of the Double Taxation Avoidance Agreement. Therefore the question of TDS in accordance with the provisions of section 195 of the act does not arise. None of the overseas agents has any permanent establishment in India so the instant transaction is out of the purview of the provisions of section 9 of the income tax Act. It is well settled law that the reimbursement of expenses paid to non-residents is not chargeable to tax, therefore there is no requirement to deduct any tax. The assessee was dealing with the overseas agents on principal to principal basis and none of them is agent to the assessee and vice versa. The mere fact that the agreements executed between the assessee and the overseas agents used the nomenclature "Reciprocal Appointments as agents" does not make the assessee as the agent of the non-resident entities. The Operations and activities carried out by the assessee and each of the overseas agents clearly show that none of them are agents of each other and that each of them are operating in their respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though an agent. The agent should be authorized to conclude contracts on behalf of the principal in such a manner that agent's action would bind the enterprise. Agents who are dependent upon the principal may constitute a PE and the authority to bind should be for the purposes which are essential and significant to the principal's business. Such provisions regarding agency PE are present in practically all the DTAAs signed by India with several counties. The ITO has, in his order extensively quoted such provisions in some of the DTAAs, such as those with UAE, Germany, Singapore, as well as UN model. If one analyses the relationship between the overseas entities and the appellant, it fulfils all of the tests mentioned therein. As discussed earlier, the appellant is acting s exclusive agent for overseas entity on a long term basis, negotiating contracts having a direct bearing on its business sand is acting in a manner which binds overseas entity in relation to profit of its business. Though the appellant is having agreements with a number of entities, for a single country there is only one overseas entity involved, on whom it was depending for providing logistical services. Moreover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court that where the sum paid was chargeable to tax, tax should be deducted on the entire sum at the prescribed rate. In other words, the payer was not supposed to go into as to what would be income imbedded in such a sum and that aspect could only be seen by the AO if an application u/s. 195(2), 195(3) or u/s. 197 of the Act was made to him. However, Hon'ble Supreme Court was, in that case, not concerned with a situation where the amount under consideration was not chargeable to tax at all and hence, in such a situation, ratio of the said decision shall not apply. Hon'ble Delhi High Court has also taken such view in its decision the case of Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del), after analysing the ratio given by Supreme Court in the case of Transmission Corporation of AP. Ltd (supra). The position is somewhat peculiar in the appellant's case. Here, the appellant is making payments towards reimbursement of cost as well as share in profit. It is in fact paying two sums of entirely different nature - the first one being reimbursement of cost and the second one being share of profit. Though for the sake of convenience the two sums ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication u/s 195(2), 195(3) or u/s. 197 of the Act, the entire sum paid to the overseas entities towards share in profit was liable to be TDS in view of the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd. (supra). 12. In the light of the above discussion it is held, that while the reimbursement of cost incurred by non-resident entity shall not be liable to TDS, remittance of their share in profit was liable to TDS u/s 195 of the Income tax Act, 1961. According to the appellant, the figures stated in his order by the ITO in this regard are not correct. The appellant is directed to produce break up of remittance between the reimbursements of cost and share in profit before the ITO. He shall verify the same and rework liability towards tax and interest u/s. 201(1)/1A of the Act accordingly." Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 4. Before us Ld. AR submitted that the Appellant Company is inter alia engaged in the business of providing logistic services. It has entered into Agreements with several independent Overseas Concerns, each of whom are similarly engaged in the business of providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n v. CIT (2009) 314 ITR 309, 313 (SC), which decision was followed and reiterated in GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456, 463-465 (SC). In Vijay Ship Breaking's case, the Hon'ble Supreme Court clearly held and observed at page 313 of the Reports that liability to deduct TDS arises 'only if the tax is assessable in India'. Since tax was not assessable in India, there was no question of TDS being deducted by the assessee. In GE India Technology's case, the Hon'ble Supreme Court following its earlier decision in Vijay Ship Breaking, held and observed at pages 463-465 of the Reports inter alia as under : 'If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words "chargeable under the provisions of the Act" in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. (See : Vijay Ship Breaking Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT v. Eli Lilly and Co. (India) (P.) Ltd. [2009] 312 ITR 225 the provisions for deduction of TAS which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income-tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are "chargeable to tax" under the Income-tax Act. It is true that the judgment in Eli Lilly [2009] 312 ITR 225 was confined to section 192 of the Income-tax Act. However, there is some similarity between the two. If one looks at section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, section 195 imposes a statutory obligation on any person responsible for paying to a nonresident any sum "chargeable under the provisions of the Act", which expression, as stated above, do not find place in other sections of Chapter XVII. It is in this sense that we hold that the Income-tax Act constitutes one single integral inseparable code. Hence, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contained in section 9 of the 1961 Act corresponding to section 42 of the 1922 Act, it must be shown by the Department that the non-resident carried out some operations or rendered some services in India, in respect of which the income is sought to be assessed to tax in India on deemed accrual basis. Reliance in this connection is placed on the decisions of the Hon'ble Supreme Court in Carborandum Co. v. CIT (1977) 108 ITR 335 (SC), CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC) and in Ishikawajima-harima Heavy Industries Ltd. v. Director of Income Tax (2007) 288 ITR 408 (SC). 7. The aforesaid view was followed and reiterated by the Hon'ble Karnataka High Court in Jindal Thermal Power Co. Ltd. v. DCIT (2010) 321 ITR 31 (Kar), by the Hon'ble Rajasthan High Court in CIT v. Modern Insulators Ltd. (2014) 369 ITR 138 (Raj), by the Hon'ble Madras High Court in CIT v. Fluidtherm Technology Pvt. Ltd. (2015) 231 Taxman 259 (Mad) and by the Bangalore Bench of the learned Tribunal in Zanav Home Collection v. JCIT (2015) 68 SOT 184 (Bang). 8. Therefore, the law is by now well settled that there is no requirement to deduct any tax at source if the amount paid to non-resident is not chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out in the taxable territories, the profits and gains of the business deemed under this section to accrue or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories." xxxx xxxx xxxx "On a plain reading of sub-sections (1) and (3) of section 42 it would appear that income accruing or arising from any business connection in the taxable territories-even though the income may accrue or arise outside the taxable territories-will be deemed to be income accruing or arising in such territory provided operations in connection with such business, either all or a part, are carried out in the taxable territories. If all such operations are carried out in the taxable territories, subsection (1) would apply and the entire income accruing or arising outside the taxable territories but as a result of the operations in connection with the business giving rise to the income would be deemed to accrue or arise in the taxable territories. If, however, all the operations are not carried out in the taxable territories the profits and gains of the business deemed to accrue or ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery provision enacted in section 40(2). Income not taxable under section 4 of the Act of a non-resident becomes taxable under section 42(1) if there subsists a connection between the activity in the taxable territories and the business of the nonresident, and if through or from that connection income directly or indirectly arises." The High Court was wrong in its view that activities of the foreign personnel lent or deputed by the American company amounted to a business activity carried on by that company in the taxable territory. The finding of the Tribunal in that regard was specific and clear and was unassailable in the reference in question. The American company had made the services of the foreign personnel available to the Indian company outside the taxable territory. The latter took them as their employees, paid their salary and they worked under the direct control of the Indian company. The service rendered by the American company in that connection was wholly and Solely rendered in the foreign territory. Even assuming however, that there was any business connection between the earning of the income in the shape of the technical fee by the American company and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and thus there is no business connection. xxx xxx xxx For attracting the taxing statute there has to be some activities through the permanent establishment. If income arises without any activity of the permanent establishment, even under the DTAA the taxation liability in respect of overseas services would not arise in India. Section 9 spells out the extent to which the income of non-resident would be liable to tax in India. Section 9 has a direct territorial nexus. Relief under a Double Taxation Treaty having regard to the provisions contained in section 90(2) of the Income-tax Act would arise only in the event a taxable income of the assessee arises in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. Thus, if the appellant had income that accrued in India and is liable to tax because in its State all residents it was entitled to relief from such double taxation payable in terms of the Double Taxation Treaty (sic). However, so far as accrual of income in India is concerned, taxability must be read in terms of section 4(2) read with section 9, whereupon the question of seeking assessment of such income in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d prevail. In the absence of a permanent establishment, the industrial or commercial profits derived by a non-resident are not assessable to tax in India, particularly when all activities are carried by the independent Overseas Agents only outside India. Reliance in this connection is placed on the decision of the Hon'ble Supreme Court in Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC). The said view was also stated by the Central Board of Direct Taxes in its Circular No.333 dated 2nd April, 1982 reported in (1982) 137 ITR(St.) 1 as well as by the Hon'ble Calcutta High Court in CIT v. Davi Ashmore India Ltd. (1991) 190 ITR 626 (Cal). The Hon'ble Bombay High Court in CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom), and the Hon'ble Delhi High Court in Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del), the Authority for Advance Rulings in HMS Real Estate Pvt. Ltd., In re (2010) 325 ITR 71 (AAR) and Ernst & Young Pvt. Ltd., In re (2010) 323 ITR 184 (AAR), as well as the Special Bench of the Income Tax Tribunal, Mumbai in Mahindra and Mahindra Ltd. v. DCIT (2009) 313 ITR(AT) 263 (Mum)(SB). 13. The learned JCIT and Senior DR (ITAT), Kolkata, in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had substantial interest of enduring nature in India attributable to the Appellant Company. There was, thus, a virtual projection of each such overseas entity into the territory of India through the Appellant Company....kindly see para 5, at page 7 of the said Written Submissions; f. As per paragraph 1 of Article 5 of the DTAAs, 'permanent establishment' means a fixed place of business through which the business of the foreign enterprise is wholly or partly carried on. Since, in the instant case, each of the overseas entities was established to have carried on a part of its business through a fixed place of business, viz. through the Appellant Company, each overseas entity fell within the definition of PE under paragraph 1 of Article 5....kindly see para 5, at page 7 of the said Written Submissions; g. In essence, in the instant case, there existed both a fixed place PE in India within the meaning of paragraph 1 of Article 5, and that such PE was in the form of warehouse within the meaning of paragraph 2 of Article 5....kindly see para 5.1, at pages 7-8 of the said Written Submissions; h. Paragraph 5 of Article 5 provides that where a person other than an independent agent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency PE in India under paragraph 5 of Article 5 will get further support from the fact that the Appellant Company maintained the stock of inbound parcels / consignments in 'warehouse(s)' from which the delivery was made on regular basis....kindly see para 5.2, at page 9 of the said Written Submissions; o. Therefore, considering the provisions under paragraph 5 of Article 5 of DTAAs between India and the foreign Countries, it is now amply clear that the Appellant Company constituted an agency PE in India for each of the nonresident overseas entities, in the instant case....kindly see para 5.2, at page 9 of the said Written Submissions; p. In view of the above analysis, it followed that each of the non-resident overseas entity had carried on a part of its business activities in India through its PE, namely, the Appellant Company within the meaning of paragraph 1, paragraph 2 as well as paragraph 5 of Article 5 of the relevant DTAA. Therefore, each of the non-resident overseas entity was liable to tax in India, by virtue of Article 5(1) or 5(2) or 5(5) or all of them....kindly see para 5.3, at page 9 of the said Written Submissions. 15. Further, the learned Joint Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y attributable to the operations carried out in India....kindly see para 4.1, at page 6 of the said Written Submissions; viii. As per the terms and conditions of the Agreement between the respective overseas entities and the Appellant Company, the later was responsible to perform various services as stipulated in the Agreements and deliver the parcels of the overseas entities in India for which the charges to be collected and shared were distinctly stipulated in those Agreements....kindly see para 4.1, at page 6 of the said Written Submissions; ix. Normally, it was the obligation of the overseas entities to deliver the parcels / consignments in India. The activity of such delivery in India through the Appellant Company amounted to their operations carried out in India in respect of which a reasonable estimate of income attributable to such operations was assessable to tax in India under section 9(1)(i) ....kindly see para 4.1, at page 6 of the said Written Submissions; x. Therefore, the profit earned by the abovementioned nonresident entities from the business operations carried out in India through the Appellant Company was assessable to tax in India, even without bothering to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice in India, communicates with the entities overseas, who are independently engaged for rendering such logistic services overseas. It may be appreciated that the materials ordered by the Indian customers are to be imported from overseas to India; v. As such, the logistic services viz. engaging Carrier overseas, arranging, if required, stuffing / lashing / packing and transportation of materials from the overseas manufacturers / suppliers / consignors to the Carrier overseas, arranging customs clearance in the overseas Ports, and thereafter, handing over all relevant documents to the Carrier Overseas, with an additional copy thereof to the Appellant Company in confirmation of their having completed the execution of the concerned assignment, are all required to be rendered only outside India; and these services are rendered by the overseas entities directly on behalf of the Appellant Company, in pursuant to the logistic services contracts entered into between the Appellant Company and the overseas entities, and not on behalf of the Indian importers; w. The job assigned by the Appellant Company to the overseas entity is completed, as soon as the relevant consignment to be impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Overseas Importer(s), all in pursuant to specific agreements entered into between the Indian Exporter(s) and the Appellant Company. The privity of contract in all such cases is in between the Indian Exporter(s) and the Appellant Company herein; ii. The Appellant Company, based upon tenders floated by the Indian customers / exporters, and/or on specific nomination basis, enters into contracts for a fixed rate for logistic services, with reference to the weight / volume / unit of the consignment (either on CIF / FOB / Ex-works basis etc.) to be exported from India to overseas countries; iii. The logistic charges for arranging exports from India to overseas countries are receivable only by the Appellant Company, in India, from the Indian exporter(s), in pursuant to specific agreements entered into in between the Appellant Company and the Indian exporter(s); iv. There is no contract or arrangement in between the overseas associate, on the one hand, and the overseas importer(s) and/or the Indian exporter(s); on the other hand, at any time whatsoever. The overseas entities are engaged by the Appellant Company only for rendering logistic services overseas; v. The appellant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by the Appellant Company to the overseas entity; xiii. The overseas entity in such cases does not render any service in India; xiv. The Appellant Company, while making remittances to the overseas entity, does not deduct any tax at source, since all services by the overseas entity are rendered by it wholly outside India; and no income in relation thereto accrues or arises in India; xv. At no stage of operations, the Appellant Company act as "Agents" of the overseas entities. The Appellant Company engages the Airlines companies and/or the Shipping Lines and/or the local transporters etc., in India, on Principal to Principal basis, and not as agent of the overseas entities; xvi. None of the overseas entities have any permanent establishment in India. 18. In reply to the Written Submissions dated 1st / 14th September, 2015 filed on behalf of the Department by the learned JCIT(IT), Range - 2, Kolkata / Sr. DR (ITAT), Kolkata, the Appellant Company respectfully submits as under :In respect of Countries with which India has DTAA dd. It is wholly incorrect on the part of the learned Sr. DR to arbitrarily and wrongly allege that the consignment sent by the overseas exporter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge that they are existed a fixed place of PE in India within the meaning of paragraph 1 of Article 5 of the DTAA and/or that such PE was in the form of warehouse within the meaning of paragraph 2 of Article 5, as arbitrarily and wrongly alleged by the learned Sr. DR and/or otherwise or at all; jj. It was wholly incorrect on the part of the learned CIT(A) that the Appellant Company acted as a dependent agent on behalf of each of the overseas entities. This finding is wholly baseless, against the facts and evidences on record, unreasonable and/or otherwise perverse; kk. It is also wholly incorrect on the part of the learned Sr. DR to allege that the Appellant Company had carried on the activities of each of the non-resident entities either wholly or partly in India. The Appellant Company repeats and reiterates that in respect of import consignments, the non-resident entities had no role to play in India; ll. It is therefore, incorrect to say the applicability of paragraph 6 of Article 5 of DTAA is excluded and/or that the agency PE in India vis-a-vis each of the non-resident entities is inevitable, as alleged or otherwise or at all; mm. The Appellant Company also states and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of treating the relationship between the Appellant Company and the overseas entities as a business connection within the meaning of section 9(1)(i) of the Income Tax Act, 1961; vv. It is wholly incorrect on the part of the learned Sr. DR to allege that the overseas entities, in the facts and circumstances of the instant case carried on any activity of business in India, as wrongly and arbitrarily alleged by the Revenue or otherwise or at all; ww. Since there is no business connection within the meaning of section 9(1)(i) of the said Act between the Appellant Company and the overseas entities, the overseas entities are not chargeable to tax in India on their profits, which wholly accrued and arose outside India and through rendering of services by them wholly outside India. 19. The Appellant Company states and submits that it filed detailed submissions before the Income Tax Officer (International Taxation), Ward - 1(1), Kolkata through its two letters dated 11th September, 2013 and 20th December, 2013 in response to the show cause notice dated 18th July, 2013 issued by him; and through those two replies, the Appellant Company explained in particular as to why no po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Establishment of any of the non-resident entities; eee. in the circumstances mentioned hereinabove, the Appellant Company was not required to deduct any tax at source either under section 195 and/or section 195A of the said Act; fff. the decision of the Hon'ble Supreme Court in Transmission Corporation of Andhra Pradesh Ltd. v. CIT (1999) 239 ITR 587 (SC) = (1999) 105 Taxman 742 (SC) referred to by the learned Income Tax Officer (International Taxation) at pages 21 & 22 of the said impugned Order dated 28th January, 2014 has no application in the facts and circumstances of the instant case. 20. The Appellant Company states and respectfully submits that it was not liable to deduct any tax at source in respect of any payments made and/or remitted to the non-resident entities at any time whatsoever. Discussions with reference to the eight (8) Case Decisions filed on 28th May, 2015 by the learned DR appearing for the Revenue in the form of Spiral Bound Paper Book containing 67 pages: 21. The first decision of the Hon'ble Telangana and Andhra Pradesh High Court in Shakti LPG Ltd. v. ITO, Hyderabad (2015) 54 taxmann.com 18 (T&AP) = (2014) 369 ITR 167 (T&AP), cited by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving a PE in India as per Article 5 of DTAA. This decision has no application to the instant case. 24. The fourth decision of the Hon'ble Supreme Court in GVK Industries Ltd. v. ITO (2015) 54 taxmann.com 347 (SC), cited by the Revenue is also distinguishable in facts. In paragraph 37 of the said Judgment, it was clearly recorded by the Hon'ble Apex Court that NRC had acted as a consultant and the services rendered by NRC came within the purview of consultancy service. In these circumstances it was held that fee for technical services being rendered and used in India were rightly liable to be taxed in India and therefore there was need to deduct tax at source. This decision has no application in the facts and circumstances of the instant case. 25. The fifth decision of Delhi Bench of the learned Tribunal in Van Oord ACZ India Pvt. Ltd. v. ACIT (2008) 112 ITD 79 (Del), cited by the Revenue is again distinguishable on facts. There, the assessee an Indian Company was a wholly owned subsidiary of VOAMC, a foreign company. The Indian Company was to execute a dredging contract at certain port in Gujarat. As it did not have the technical competence and infrastructure to execute the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and circumstances of the instant case. 29. On the other hand the ld. DR has submitted that M/s Balmer Lawrie & Co. Ltd. ('the appellant company') is an Indian company, engaged in the business of providing logistic services. It had entered into agreements with several non-resident (overseas) concerns to act as an agency for each such non-resident concern as per the terms & conditions as set out in the respective agreements. All the agreements are almost identically worded. It has been unequivocally stated in each such agreement that the appellant company agrees to appoint the overseas concern and in turn, the overseas concern agrees to appoint the appellant company as its agent covering air and ocean import and export transportation between India and all the establishments of the other entity abroad, both ways. Going further through the terms & conditions of various agreements, the following salient features can be culled out :- (a) There is reciprocal appointment of agents by the appellant company and the overseas entities. (b) In those agreements, it has been specifically mentioned that the appellant company shall be exclusive agent of overseas entity in India in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty shall send disposal instructions to the second party after obtaining same from the shipper. (i) The parties shall reply promptly to all tracers and communications which one party may receive from the other. (j) All expenses for telephone, fax or other communication sent in connection with or pursuant to the agreement shall be to the account of the sender. 29.1. As per accounting arrangement, it has been specifically agreed between the parties (the appellant company and the non-resident overseas party) that profit sharing shall be on a 50:50 basis. 29.2. In terms of the above arrangement, during the financial year 2011-12, the appellant company paid to the overseas entities under the agreement of various sums as under : Remittance towards Air Logistic Services from Kolkata Rs.8724.53 lakh Remittance towards Air Logistic Services from Kolkata Rs. 641.38 lakh Remittance towards Logistic Services from Mumbai Rs.415.03 lakh Remittance towards Logistic Services from Bangalore Rs. 4.42 lakh 29.3 In course of section 201-proceedings, the ITO found that the above remittances were inclusive of profit element of Rs. 4,89,20,587/- which was paid in terms of the 50:50 profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clients. Thus, the appellant was, on a regular basis, negotiating the rates and other terms with the clients in India, which generated business for the overseas entity and determined, even if indirectly, the consideration being received by the overseas entity. The rate negotiated by the appellant with its clients in India is binding on the overseas entity and determined the profit received by the overseas entity. Viewed in this light, it can be said that the appellant was regularly generating business for the overseas entities from India, was acting exclusively on behalf of entity in India, was negotiating and concluding contracts including rates on behalf of the overseas entity and represented its interest in India on long term basis. It is well known that concept of permanent establishment includes agency PE. The UN model convention contains Article 5(5) dealing with agency PE. It has been mentioned therein that where an enterprise does not have its own establishment, it could have a PE through an agent. The agent should be authorized to conclude contracts on behalf of the principal in such a manner that agent's action would bind the enterprise. Agents who are dependent upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities carried out in India. The Ld. CIT(A) held that the cost of logistic services without profit element constituted mere reimbursement of cost of services provided by the overseas entities and was hence, not taxable in India. On the other hand, it was also held that the amount remitted in the form of profit arising out of activities in India (though PE in India as discussed above) constituted 'income' in the hands of the respective overseas entities in India and was, hence, taxable in India. 30.2 In view of the above discussion, it is humbly submitted that the decision rendered by the Ld. CIT (A) is most reasonable, based on correct delineation and appreciation of facts of the case and the provisions of law has been correctly applied thereto. 30.3 Now adverting to the list of non-resident overseas entities on whose behalf the appellant had carried out activities in India under the respective agency agreements (vide page-140, Volume-II of the appellant's Paper Book), it is easily discernible that during the relevant period of time, India did not have a DTAA with the following countries: Countries with whom India had to no DTAA at the relevant time: Sl. No. Countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements. Normally it was the obligation of the overseas entities to deliver the parcels/ consignments in India. The activity of such delivery in India through the appellant company amounted to their operations carried out in India in respect of which a reasonable estimate of income attributable to such operations was assessable to tax in India under section 9(1)(i) of the Act. Therefore, besides the order of the Ld. CIT(A) being unassailable, the profits earned by the above mentioned non-resident overseas entities from the business operations carried out in India through the appellant company was assessable to tax in India, even without bothering to look for a PE coming into existence in India. 30.5 But for the above mentioned entities, all other overseas entities under consideration belonged to and were resident of countries with whom India had, at the relevant time, DTAAs in operation. The appellant company has rightly contended that in order to tax the business profits in India of such entities, there must be in existence of a PE in India through which there business operations were carried on in India. This aspect was duly considered and elaborately discussed in para 9 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in the definition of 'eminent establishment; and one such place is 'warehouse'. Paragraph 2 of Article 5 gives inclusive definition of 'permanent establishment' and it does not, by necessary implication, follow that what is not included in paragraph 2 is automatically excluded. Therefore, the finding that a part of the activities of the business of the foreign enterprise in India was carried on through a fixed place fell within the meaning of paragraph 1 of Article 5 and was not affected. In essence, in the instant case, there existed both a fixed place PE in India within the meaning of paragraph 1 of Article 5 and a PE in the form of 'warehouse' within the meaning of paragraph 2. 30.7 Paragraph 5 of Article 5 provides that where are person other than an independent agent to whom paragraph 6 applies is acting in one State on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first State. Paragraph 6 excludes such agents from the operation of paragraph 5 who are of independent status acting in ordinary course of their business. However, paragraph 6 is not applicable in such cases wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained the stock of inbound parcels/consignments in 'warehouse(s)' from which the delivery was made on regular basis. Therefore, considering the provisions under paragraph 5 of Article 5 of the DTAAs between India and the foreign countries, it is now amply clear that the appellant company constituted an agency PE in India for each of the non-resident overseas entities in the instant case. 30.8 In view of the above analysis, it follows that each of the non-resident overseas entity had carried on a part of its business activities in India through its PE, namely, the appellant company within the meaning of paragraph 1, paragraph 2 as well as paragraph 5 of Article 5 of the relevant DTAA. Therefore, each of non-resident overseas entities was liable to tax in India, by virtue of Article 5(1) or 5(2) or 5(5) or all of them. 30.9 Since the existence or non-existence of a PE is to be examined on the basis of given set of facts available in a case and in the instant case it has been proved that the PE was in existence on the strength of facts of the case, the various case laws relied upon by the appellant company, which had turned on their peculiar facts, will have no direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective Countries on a long term basis. 4. Whether the assessee acted as a "Dependent Agent"- "Permanent Establishment" in India of different Non-Resident Entities in terms of various DTAA with various countries. At this juncture we find important to highlight the provisions of section 195 of the Act and the relevant extract is reproduced as under:- "195. [(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest [(not being interest referred to in section 194LB or section 194LC)] [or section 194LD] [***] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries"[***] shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force." 32.1 From the plain reading of the section it is clear for the applicability of section 195 of the Income Tax Act, 1961 with regard to the deduction of tax at source by any person responsible for making any payment to a non-resident is that the amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out some operations or rendered some services in India, in respect of which the income is sought to be assessed to tax in India on deemed accrual basis. The relevant provisions of Section 9 of the Act are as under:- "9. (1) The following incomes shall be deemed to accrue or arise in India:- (j) 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 I].- For the purposes of this clause- (a) In the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) In the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export; [***] (c) In the case of a non-resident, being a person engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 3.- Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India.] [Explanation 4.- For the removal of doubts, it is hereby clarified that the expression "through" shall mean and include and shall be deemed to have always meant and included "by means of", "in consequence of" or "by reason of". Explanation 5.- For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India;] 32.2 We are placing our reliance in this connection on the decisions of the Hon'ble Supreme Court in Carborandum Co. v. CIT (1977) 108 ITR 335 (SC), CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC) and in Ishikawajima-harima Heavy Industries Ltd. v. Director of Income Tax (2007) 288 ITR 408 (SC). The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arising from any business connection in the taxable territories-even though the income may accrue or arise outside the taxable territories-will be deemed to be income accruing or arising in such territory provided operations in connection with such business, either all or a part, are carried out in the taxable territories. If all such operations are carried out in the taxable territories, sub-section (1) would apply and the entire income accruing or arising outside the taxable territories but as a result of the operations in connection with the business giving rise to the income would be deemed to accrue or arise in the taxable territories. If, however, all the operations are not carried out in the taxable territories the profits and gains of the business deemed to accrue or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. Thus comes in the question of apportionment under subsection (3) of section 42. In Commissioner of Income-tax v. R. D. Aggarwal and Co. [1965] 56 ITR 20 (SC), Shah J., as he then was, speaking for this court, said at page 24: " A busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign personnel lent or deputed by the American company amounted to a business activity carried on by that company in the taxable territory. The finding of the Tribunal in that regard was specific and clear and was unassailable in the reference in question. The American company had made the services of the foreign personnel available to the Indian company outside the taxable territory. The latter took them as their employees, paid their salary and they worked under the direct control of the Indian company. The service rendered by the American company in that connection was wholly and Solely rendered in the foreign territory. Even assuming however, that there was any business connection between the earning of the income in the shape of the technical fee by the American company and the affairs of the Indian company, yet no part of the activity or operation could be said to have been carried on by the American company in India. And in the absence of such a sustainable finding by the High Court the provisions of section 42, either of sub-section (1) or of sub-section (3), were not attracted at all. The judgment of the High Court under appeal in Commissioner of Income-tax v. Carborandu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of nonresident would be liable to tax in India. Section 9 has a direct territorial nexus. Relief under a Double Taxation Treaty having regard to the provisions contained in section 90(2) of the Incometax Act would arise only in the event a taxable income of the assessee arises in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. Thus, if the appellant had income that accrued in India and is liable to tax because in its State all residents it was entitled to relief from such double taxation payable in terms of the Double Taxation Treaty (sic). However, so far as accrual of income in India is concerned, taxability must be read in terms of section 4(2) read with section 9, whereupon the question of seeking assessment of such income in India on the basis of the Double Taxation Treaty would arise. In cases such as this, where different severable parts of the composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction can tax that particular part of the transaction. This principle helps determine, where the territorial jurisdiction of a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 706 (SC). The said view was also stated by the Central Board of Direct Taxes in its Circular No.333 dated 2nd April, 1982 reported in (1982) 137 ITR(St.) 1 as well as by the Hon'ble Calcutta High Court in CIT v. Davi Ashmore India Ltd. (1991) 190 ITR 626 (Cal). The Hon'ble Bombay High Court in CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom), and the Hon'ble Delhi High Court in Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del), the Authority for Advance Rulings in HMS Real Estate Pvt. Ltd., In re (2010) 325 ITR 71 (AAR) and Ernst & Young Pvt. Ltd., In re (2010) 323 ITR 184 (AAR), as well as the Special Bench of the Income Tax Tribunal, Mumbai in Mahindra and Mahindra Ltd. v. DCIT (2009) 313 ITR(AT) 263 (Mum)(SB). With regard to the issue of agency relationship we find that both the parties are acting on principal to principal basis. In case of exports the Indian companies engage the assessee with the necessary information of the overseas importers for the delivery of the goods to outside India. This agreement is limited to Indian exporter and the assessee in relation to the logistic services and at no point of time the overseas entity or the Indian exporter h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the goods to the consignee in accordance with the instruction of the consignor. Therefore the place of the business of the assessee should be treated as the PE of the overseas entities in terms of the provisions contained in paragraph 1 of article 5 of DTAA. However the ld. AR denied to accept the above allegation and submitted that no such services are rendered. With regard to countries in respect of which India has no DTAA, we find that It is an undisputed fact and law that the taxability of business profits earned by overseas countries in India would wholly depend upon the fact whether such non-resident overseas entities rendered any services in India or not. Only if the services are rendered in India, the deeming provisions contained in Section 9(1) of the Act would apply so as to tax the income deemed to accrue or arise in India. Since the nonresident overseas entities did not carry any activity or business operation in India, and they did not render any service in India, no portion of their business profits earned by them exclusively for services rendered outside India can be brought to tax in India, either under Section 9(1) or otherwise or at all. Therefore, there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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