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TMI Blog2017 (2) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 147 read with section 143(3) of the Income-tax Act, 1961 (hereinafter also called `the Act') ; and the last issue of interest u/s 234B is in relation to some of the appeals for the A.Ys. 2007-08 and 2008-09.Submissions were made by both the sides on all the four issues in this lead case and it was candidly admitted that the other appeals involve mutatis mutandis similar issues. In fact, the same arguments were adopted by both the sides and no separate submissions were made for the remaining 138 appeals. As such, we are espousing the instant appeal for consideration and ex consequenti, the decision taken on all the four issues will apply to the remaining 138 appeals to the relevant extent. A. CHALLENGE TO REASSESSMENT 3. The first assail is to the initiation of re-assessment proceedings. Succinctly, the factual matrix of the case is that the assessee is a company incorporated in the United States of America and is also a tax resident of the USA. The assessee is a part of the GE Group, which makes equipments to the customers in India relating to oil and gas business, energy business, transportation business and aviation business. No return of income was filed by the assessee pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the initiation of re-assessment. 5. We have heard the rival submissions and perused the relevant material on record. Before delving into the legality or otherwise of the initiation of the reassessment proceedings, it is sine qua non to note the reasons recorded by the AO before issuing the notice u/s 148, which are as under :- "A survey u/s 133A of the Income Tax Act, 1961 ("Act") was carried out at the office premises of General Electric International Operation Company Inc., India liaison office ("GEIOC"), located at AIFACS, 1 Rafi Marg, New Delhi-l 10001 on 02.03.2007. The liaison office ('LO") of GEIOC, USA was started in India from July 01, 1987. The office was set up to undertake the liaison activities. From the information available it is seen that GEIOC has employed various persons and is sending these employees on assignments to GE entities located worldwide. From this premises, other entities, incorporated in India as well as non-resident entities of the GE group are also operating. 2. During the course of survey statement of Shri Rupak Shah, who is employed with GE Capital Services, India as Tax Manager, but having extended responsibilities of tax matters rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. (vii) GE Strategic India Investment - A NBFC having portfolio equity investment in Indian companies. (viii) SBI Cards & Processed Services Pvt. Ltd. - Deals with SBI credit cards and GE owns 40% equity of the company. (ix) GE Business Process Services Management Pvt. Ltd. - GE owns 60% equity of the company while balance is held by SBI and processes the SBI transactions in India only. B. INDUSTRIAL GROUP (i) Wipro GE Ltd. - GE owns 51% equity whereas balance is owned by Wipro and is engaged in manufacturing and local distribution of medical diagnostic equipments. (ii) GE-BEL Ltd. - The joint venture company of GE (74%) and Bharat Electronics Ltd. (26%) and is engaged in the manufactured and exports of medical equipments. (iii) GE Medical Services Pvt. Ltd. - It manufactures products/ engine design and software for export and is also in healthcare business operates in EOU/STEP. C. POWER SYSTEM (i) GE Power Services India Ltd. - Engaged in the business of repair and maintenance of steam turbines and 80% equity owned by GE. (ii) BHEL-GE Gas Turbine Services Ltd. - GE is holding 51% equity, whereas the balance is held by BHEL and is engaged in the repair and services of ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business heads are generally expats, who are appointed to head Indian operations, with the support staff provided by GE India Industrial Pvt. Ltd. and also by various third parties. These expats are on the payroll of GE International Inc(hereinafter: GEII)but working for various businesses of GE Group. After these brief comments, the contents of various documents are discussed hereunder: ANNEXURE 'A' This consists of 125 pages and mostly deals with GE infra division particularly oil & gas. * Page 1 to 16 is a copy of Memorandum of Understanding ("MoU") for technology transfer agreement between Bharat Heavy Electricals Ltd. and Nuovo Pignone S.P.A. for centrifugal compressors. The agreement provides that BHEL and NP had entered into a license agreement, for the transfer of know-how on CCs in 1971 for the licensed territories. The MoU would be effective in 2006 and the same is a draft with various corrections. It is unsigned and various price figures are crossed and new figures are inserted. The presence of this document in the Indian office shows that Mr. Ricardo, head of oil & gas business of GE in India has the role in deciding the prices and negotiating the agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 72 to 100 is the documents (technical proposal) with regard to Bina Refinery India to BHEL made on 27.02.2007. The contact name shown as Araniti. Danila. * Page 101 to 122 is a copy of commercial proposal (proposal No. 06.DW, 1056/F/O) with regard to Bina Refinery Ltd. for BHEL. This is given by Nuovo Pignone S.p.A. It provides the scope of supply and price. * Page 123 is a forwarding letter to the BHEL regarding the commercial proposal, which mentions that "please note that the present proposal is valid only under the collaboration agreement between Nuovo Pignone S.p.A. and BHEL under finalization between parties. * Page 124 and 125 also deals with the commercial/ technical proposal only, for which copies are given to Vivek Venkatachalam and Procacci Riccardo of GE Infra Oil & Gas, who are located in India. ANNEXURE 'B' This has 107 pages. * Page 1 & 2 is a copy of e-mail from Sunni Krishnan to Nalin Jain of GE Transport regarding emerging Indian aircraft/ engine maintenance, repair and overhaul (MRO market). This indicates that Mr. Nalin Jain is looking after the GE's aviation business in India. * Page 3 to 7 is the commercial notes relating to RIL order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oU for compressors sent by GE Infra Oil & Gas vide e-mail dated 22.09.2006 (and counter comments from NP, October 16, 2006). * Page 64 to 72 is a power point presentation relating to EWPL gas pipeline project of Reliance Gas Pipelines Ltd. This also provides the delivery summary. * Page 73 to 83 is the commercial proposal relating to Bina Oman Refinery. * Page 84 and 85 is with regard to GE Infrastructure message from John Rice. * Page 86 is a list of 16 employees of GE Global Sourcing India Pvt. Ltd. This also shows the list of persons who are involved in oil & gas, aviation, rail and power & systems business. The oil & gas business is headed by Riccardo of GEII with two people from GE India International, aviation business is headed Bill Blair and aircraft engines business is looked after by Nalin Jain, an employee of GE India Industrial, Delhi and aircraft business is looked after by Ashish Sonawala. The rail business is looked after Ashfaq Nainar and Ken Pearson, working with GEII and the power systems business is looked after by local Indian employees. * Page 87 is having the list of GE businesses. In the infrastructure, commercial finance, industrial, healthcare and cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, job description, reporting manager, incentive compensation, appraisal report and employment letter. In respect of some employees, the information is as below: * Partha Ranjan Dey is working as Site Leader and reporting to Riccardo Procacci and the job description is sourcing. * Amit Verma is a Junior Buyer and is engaged in sourcing and reporting to Riccardo Procacci. * Jagdish Lal is the Secretary and reporting to Riccardo Procacci. * Pravinna Yagnam Bhat is Executive Assistant and reporting to Prat Kumar. * Udit Gaurav Kachru is reporting to Ashfaq Nainar and his job description is "manager in country sales for all locomotive products including new locomotives, modernization parts and services and his incentive is based on sales targets". * Ashok Singh, working as Project Manager and reports to Ashfaq Nainar and his job description is 'proposals for locomotive parts systems and sales'. * Yashdeep Sule is responsible for sales and marketing for signalling and locomotive. * Pritam Kumar is reporting to Pierre Camte and his job description is "as market strategy manager for GE Transportation, look for opportunities for products like locomotives, signalling an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Electric International Co. Inc. at monthly rent of Rs. 6,250/- * Page 10 is a copy of letter dated 22.08.2003 from RBI, New Delhi for extension of time of the permission u/s 6(6) of the Foreign Exchange Management Act, 1999 to M/s General Electric International Operation Co. Inc. * Page 11 & 12 is a letter from PricewaterhouseCoopers Pvt. Ltd. relating to change of nodal office from Mumbai to New Delhi with regard to GEIOC liaison office. * Page 13 is a list of employees of GEIOC, showing names, department, gross salary and constituents thereof. The most of the employees are in the CAS Auditor Department. *Page 14 mentions the names of three companies i.e. GE International Operation Co. Inc., GE International Inc. and GE India Industrial Pvt. Ltd. * Page 15 is a letter from RBI regarding extension of time for permission under section 6(6) of FEMA, 1999, for the liaison office of General Electric International Operations Co. Inc., by which the permission is extended up to 31.08.2009. * Page 16 to 32 is a copy of bank statement of GE International Operations Co. Inc. with Citi Bank for the period 31.12.2006 to 31.01.2007 and shows various withdrawals. Page 33 .& 34 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mail from Riccardo Procacci, in which he is introducing himself as the newly appointed GE Oil & Gas. India Country Leader based in Delhi. *Page 9 & 10 is a copy of mail from Senior Manager of Bharat Pumps and Compressors Ltd., addressed to Rajesh Gupta of GE Infra Oil & Gas with a copy to Vivek Vekatachalam and has details regarding draft of MoU. Rajesh Gupta has forwarded this mail to Riccardo Procacci fix his attention. * Page 12 to 17 are e-mails containing the draft MoU and the various terms and conditions relating to Bharat Pumps and Compressors Ltd. requirements and evidences the involvement of Mr. Procacci, Rajesh Gupta and Vivek Venkataehalam in the business of GE Infra Oil & Gas in India. * Page 18 to 20 is a copy of mails relating to MoU for Pumps Fort IOCL, Mundra - Panipat pipeline and again shows the involvement of GE Infra Oil & Gas team in India consisting of Riccardo Procacci, Vivek Venkatachalam and Rajesh Gupta. The mail from Rajesh Gupta of GE Infra Oil & Gas on page 20 is very important, which evidences the involvement of the Indian team in deciding the payment terms. * Page 21 is a copy of mail from Ashish Sethi of GE Infra Energy to Riccardo Procacci. * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... want you to make Vittorio understand that we cannot change the payment terms completely.....". * Page 88 to 98 pertains to WHRU proposal of Reliance regarding total base scope price and the value of contract is Euro 5,849,293 and mentions the scope of supply, deliveries, various clarifications and the mails are evidence of involvement of Vivek and Riccardo in the deal. Particularly a mail from R. Balaji of Reliance Industries Ltd. (page 93) is important and this reads as below: " is moving away from various commitments and are talking in different voices. This is not the essence of our agreement. I want GE representatives to come over and discuss the matter and sign-off. Unless that is done GE will do shifting of stances, as they have done now. This has to happen fast, before we issue the Change Order. I can see a lot of changes from what we discussed recently with Mr. Riccardo and Mr. Vivek at DAKC .' * Page 99 is a attachment 1 (Unit prices for products to LOA) relating to Reliance proposal. * Page 100 to 104 is a letter of award for waste heat recovery units from Reliance Industries Ltd. dated December 2006 to M/s Nuovo Pignone Spa, Italy. * Page 105 to 125 deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he copy of mail is also given to Rajesh Gupta of GE Infra Oil & Gas. * Page 15 & 16 is a mail from/to Nalin Jain, GE Transportation, aircraft engines, sales Director South Asia Pacific. * Page 17 is a mail from Nalin Jain to William Blair of GE Infra, Aviation, USA regarding Jet-LH partnership. Nalin Jain has address of AIFACS, 1 Rafi Marg, New Delhi, India. * Page 18 & 19 is a mail from S.N. Chinhara, SAWO, for DGCA to John Calvin regarding renewal of approval of GE Aircraft Engine Services Ltd. Mr. Calvin John of GE Infra Aviation writes that the renewal fee will be paid locally by General Electric representative in India Mr. Nalin Jain. Later on, Mr. Calvin John writes that unfortunately the GE rap in India will not be able to pay the fee. * Page 20 to 23 regarding the engine for Air India Express. * Page 24 to 26 is regarding engine No. 874582 and shows the involvement of Nalin Jain of GE Infra Aviation in India. * Page 27 is the list of employees of GE International Operations Co. Inc., GE International Inc., GE India Industrial Pvt. Ltd. (Training Division), GE India Industrial Pvt. Ltd. (Marketing & Support Division), GE India Industrial Pvt. Ltd. (Transportation Divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral Electric Company. Page 25 is a mail from Amar Navin of GE Corporate to Badal Bagri and Chandan Jain of GE Corporate and relates to authority to sign HR related documents for oil & gas. This shows that Anjali Sinha has the authority to sign the HR related documents and she is supporting the HR of GE Oil & Gas. She is also signing the HR documents for GE Transportation - Rail, Aviation and Signalling, Training Division (including corporate growth services and global business solutions). * Page 26 is blank. * Page 27 is a mail from Harshita Sabharwal of GE Corporate dated 17.02.2007 to Chandan Jain regarding repatriation of surplus funds in GEIBS. The mail reads as: "There are surplus funds in GEIBS which need to be repatriated to US .. out of the various options available buy back is the most appropriate from a tax perspective ... Rupak has engaged RSM for this ... first trance of the transaction needs to be executed by 31st March'07 ... I am working on this .. wanted to keep you informed." Another mail is from Harshita Sabharwal dated 09.01.2007 to Rupak Shah, Bhalla Manoj of GE Corporate regarding repatriation of surplus fund and reads as below: "Please refer to ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee as Annexure-l0 of letter dated 16.03.2007), is given below: INFRASTRUCTURE * Oil & Gas * Energy * Rail * Aircraft Engines * Aviation Financial Services INDUSTRIAL * Equipment Services HEALTHCARE * Diagnostic Imaging * Information Technology * Services * Bio Science The assessee in Annexure-l2 of the letter dated 16.03.2007 has submitted a list of third party agents of the group in India for carrying out the business and this reads as below: 3rd Party Liaison Agents in India Products/Services Covered Brief description of allowed activities Clarke Energy India Private Limited Jen bacher units and aftermarket parts Intermediary with customer (deliver proposals to customer etc.). Has no legal authority to bind GE. Quantum Consultants. Private Limited Wind Generation equipment Intermediary with customer (deliver proposals to customer etc.). Has no legal authority to bind GE. General Sales Co. Ltd Optimization Services -Bently Nevada Intermediary with customer (deliver proposals to customer etc.). Has no legal authority to bind GE. PCL Limited NRPS-IED Products-M&D. Portable Test Intermediary with customer (deliver proposals to customer etc.). H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payroll of GE International Inc. The same is replied vide para 3.4 of the letter dated 16.03.2007 and self appraisal of Kenneth Peirson was submitted as Annexure-16 of the letter. 6. On the basis of various facts/information collected during the survey and afterwards, it is clear that various GE group entities are carrying out the business in India. The details of such businesses and the sales made by various entities during the period 01.04.2000 to 31.03.2006 (financial year wise) are submitted by the assessee vide letter dated 24.03.2008. Further information is furnished on 26.03.2008. The group has made sales in the energy, transportation, aviation, oil & gas sectors during all these years. The names of various companies making the sales are available in these letters dated 27.02.2008, 24.03.2008 and 26.03.2008 and are annexed as Exhibit 'A', 'B' and 'C'. Such companies and the line of business relevant to India are summarized as under: S. No. Name of the Company Country Businesses ENERGY BUSINESS 1 GE Japan Limited Japan Power Generation 2 GE Power Systems Inc. USA ...do... 3 GE Jenbachet GmbH Austria ...do... 4 GE Company USA . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f undertaking the permitted activities is employing various persons and providing the services of such persons to the GE group entities worldwide. The company performs all the functions relating to such employees, including their employment, payroll administration, the activities relating to deputation etc. and such activities constitutes business activities being carried out in India. The expenses incurred by such office are reimbursed by the head office without any margin. Independent third parties providing such services will certainly earn profits on the activities. The activities indicate that the GEIOC is carrying out business in India through a Permanent Establishment (PE) and the income attributable to such PE is taxable in India. The company has not filed return of income for any year. 7. The business of various GE group non-resident companies in India is being conducted by the expatriate employees of GE Group (who are employed by GE group company and deputed to India as India Head of the specific business like oil & gas, energy, aviation, transportation etc.), with the support and help of employees drawn from GE Indian entities. Such expatriates are responsible and look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees have also participated in the price negotiations. The various documents in the form of agreements/purchase orders/copies of contracts also proves the active involvement of the employees of Indian company and expats in the conclusion of contracts on behalf of such nonresident GE group entities, therefore, GE India Industrial Pvt. Ltd. also constitutes the agent other than an agent of independent status of the nonresident GE group entities. This results into the creation of the dependent agent PE as per the provisions of the tax treaties and business connection as per the provisions of Explanation 2 to Section 9(l)(i) of the Income Tax Act, 1961. The activities of the third parties working for the GE group as mentioned above also may constitute agency PE/ business connection of the GE group entities. It is possible that in respect of various projects relating to rendering of services/supervisory services, such GE group entities will be considered to have the PE as per the other paragraphs of the Article relating to the PE of the respective tax treaties. 7.1 After having established that various GE group entities were making sales in India with the active involvement of the PE o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India as per the provisions of Article 5 of the tax treaty between both the countries and the income attributable to the PE/ business connection is taxable in India. Since the assessee has not filed return of income in India to that extent the income chargeable to tax has escaped assessment. On the basis of material collected during or after survey operations and discussed above, I have reason to believe that income chargeable to tax has escaped assessment for A. Y. 2001-02. This belief is formed on the basis of fact that assessee has not furnished return of income although its income earned in India during the previous year was chargeable to income tax. Considering the quantum of sales made, I have reason to believe that income chargeable to tax, which has escaped assessment amounts to or is likely to amount to more than Rs. 1 lakh for the year. In this case, not more than 6 years have elapsed from the end of relevant assessment year (i.e. A.Y. 200-0) and income of more than Rs. 1 lakh has escaped, assessment, therefore, the Notice u/s 148 r.w.s. 147 of the Income Tax Act, 1961 satisfies the time limit for issue of notice as provided in Section 149 of the Income Tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of `Energy business'. In fact, name of the assessee appears not less than six times in the reasons (including two times in the Exhibits, which are part of the reasons). 8.3. Be that as it may, we find that the seven expatriates from GEII, repeatedly referred to in the reasons, were positioned in India to head the business operations of the GE overseas (referring to all the GE Overseas entities collectively, as described by the assessee itself before the AO).They were not deputed for the business of a specific GE group company, but, for the worldwide GE group companies in one of the three sectors, that is, Infrastructure (oil & gas, energy, rail, aircraft engines and aviation financial services); Industrial (equipment services); and Healthcare (Diagnostic imaging, information technology, services and bio sciences). On a pointed query, it was candidly admitted on behalf of the assessee that all the business interests of GE overseas entities involved in the instant batch of 139 appeals were looked after by any of such seven expats and there was no business of GE overseas entities in India left out which was headed by some person other than the above seven. This fact is further corro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an earlier year. For this proposition, he relied on certain judgments including CIT vs. Gupta Abhushan (P) Ltd. (2009) 312 ITR 166 (Del) and SGS India Pvt. Ltd. vs. ACIT & Anr. (2007) 292 ITR 93 (Bom). The ld. AR also placed a great deal of emphasis on the fact that seven expats were not positioned in India during all the years under consideration and hence there was lack of sufficiency of reasons for such years in which they were not in India. It was urged that in the absence of any other material evidencing presence of the GE overseas entities in India, it could not be said that any business was carried out in India at least for such years. This was countered by the ld. DR, who took us through some material to decipher that this contention is not correct. 8.6. Having gone through the above referred two judgments, it is patent that there must be some material to indicate that income chargeable to tax has escaped assessment for a particular year. If material in the possession of the AO divulges escapement of income for year 'A', no inference can be drawn, de hors some other relevant material, that similar income escaped assessment for year 'B' as well. In the case of Gupta Abhusha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the period 1.4.2000 to 31.3.2003 in addition to the information as required in writing for the period 1.4.2003 onwards, which was orally demanded during such post survey meetings. The ld. DR submitted that the information about the expats working in India prior to the seven expats was also orally demanded as was apparent from the reasons recorded by the AO. 8.9. The moot question which looms large before us is to decide if any information about the employees of GE in India prior to the present seven expats was called for. If the answer is in affirmative and the same was not given, it will lead to an inference that other expats were working in India for the GE overseas entities during the period starting from 1.4.2000 onwards, thereby, prima facie constituting PE of such GE entities in India and vice versa. In this regard, it is relevant to note that the AO categorically recorded in para 7 of the reasons dated 26.3.2008 that such information was demanded, but, not given by the GE group, which demonstrated that there were other expats working/making sales of GE Overseas throughout the period 1.4.2000 onwards. The assessee raised objections to the reasons recorded by the AO vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, challenging the issuance of notice of reassessment u/s 148, contended that the alleged loan transaction in the reasons was reflected in its financial statements as margin money which it had received from its directors and their family members which was reflected in Schedule 'A' to the balance sheet. The Hon'ble High Court refused to accept this submission as the same was not taken in the objections to the reasons for reopening. In view of this new stand not taken in the objections, but, taken for the first time in writ petition, the Hon'ble High Court held that the assessee cannot take up fresh objections which the AO had no occasion to deal with by laying down that : `Just as the revenue cannot improve upon its case for reopening before the Court and but must stand or fall by the reasons recorded for reopening the assessment, the same test would be applicable in case of an assessee i.e. it must stand or fall by its objection to the grounds for reopening of assessment. It is not open to the assessee to urge fresh objections before the Court which the Assessing Officer had no occasion to deal with, unless of course the notice to reopen is ex facie without jurisdiction not requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the Department. 8.14. Above discussion boils down that the seven expats worked in India for a period of 2-5 years covering some of the years and for the prior period covered in this batch of appeals, some other expats were working in India for the GE overseas entities in a similar manner. 8.15. To sum up, we jettison the contention of the ld. AR that the reasons for reopening do not refer to the name of the assessee or its business activities for the year under consideration. ii. No assertion in reasons that any person in India entered into contract on behalf of assessee. 9.1. The ld. AR then contended that there is no assertion in the reasons that any person in India entered into contract on behalf of the assessee and hence the reassessment be set aside on this score. Au contraire, the ld. DR took us through the relevant parts of the reasons to falsify the claim of the assessee. 9.2. We do not concur with the submissions put forth on behalf of the assessee in this regard. Some documents found during the course of survey zeroed in the possibility of the GE overseas entities conducting full-fledged business in India, which got fortified from post-survey enquiries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no assertion in the reasons that income chargeable to tax escaped assessment because of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Reliance was placed on certain decisions to bring home the point that the reassessment needs to be quashed in the absence of a specific allegation in the reasons about the failure of the assessee to disclose fully and truly all material facts necessary for his assessment. This was strongly rebutted on behalf of the Revenue. 10.2. We are again not persuaded to concur with the argument of the assessee on this issue. It is significant to note at this stage that the assessee did not file its return of income for any of the years under consideration prior to notice u/s 148 of the Act. Para 6.1 of reasons records that the assessee company had not filed return of income for any year. Para 8 further records that the Authorised Representative confirmed that the non-resident entities had not filed returns of income in India except in the case of Nuovo Pignone Spa, Italy, which filed return of income with Income Tax Officer, Ward 1(3), Ahmedabad. 10.3. The decisions referred to by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to disclose fully and truly all material facts, does not hold water. 11. Foregoing discussion reveals that the following broader points emerge from the reasons recorded by the AO along with the Annexures to such reasons. i. Neither the assessee nor any other GE overseas entity, except Nuovo Pignone Spa, Italy, had filed returns of income in India for any of the years under consideration. ii. Survey u/s 133A of the Act carried out at AIFACS premises of the LO of GEIOC in Delhi set up to undertake only the liaison activities divulged that other GE overseas entities were carrying on full-fledged business from there. iii. The GE overseas entities in the lines of Infrastructure (oil & gas, energy, rail, aircraft engines and aviation financial services); Industrial (equipment services); and Healthcare (Diagnostic imaging, information technology, services and bio sciences) had presence in India. iv. The GE overseas entities were engaged in various sales activities in India, through expats from GEII with the support staff provided by GEIIPL and also third parties during all the years under consideration and further there was information about entity-wise and year-wise sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view has been reiterated again by the Hon'ble Summit court in ACIT vs. Rajesh Jhaveri Stock Broker (P) Ltd. (2007) 291 ITR 500 (SC). The Hon'ble Apex Court held in this later case that: "If the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion.........at that stage the final outcome of the proceedings is not relevant." It further went on to hold that: "At the initiation stage, what is required is 'reason to believe', but, not the establishment of fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. "Whether the materials would conclusively prove the escapement is not the concern at that stage." The Hon'ble jurisdictional High Court has also laid down similar proposition in several judgments including Areva T & D, SA vs. Asstt. DIT (2012) 349 ITR 127. In this case also, no return of income was filed by the petitioner, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment. 15. Adverting to the facts of the instant case, we find that the survey and post-survey enquiries conducted by the AO before issue of notice u/s 148 gave sufficient material for the formation of a prima facie belief that the income of the assessee had escaped assessment. 16. The ld. AR, contended that the AO did not prima facie prove in reasons the existence of PE of the assessee in India and hence reassessment be set aside. To buttress such argument, he simply focused on some of the e-mails etc. found in survey, which in themselves did not establish that some revenue generating activity was carried out from India. It is true that such e-mails do not establish the existence of PE in India, but the other e-mails along with the remaining material collected during the course of survey and post-survey enquires, which we will elaborately discuss later, prima facie, compel a person, reasonably instructed in law, to form a view about the existence of PE of the assessee and other GE overseas entities in India. As such, we are disinclined to accept the contention of the assessee that the AO was not justified in initiating the reassessment proceedings. 17. It is apt to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding. For the A.Y. 2007-08, no TP adjustment was stated to have been made in the hands of GEIIPL and the TP adjustment made for the AY 2008-09 was pending consideration before the Tribunal. Copies of the orders passed by the TPO for such earlier years were placed on record. Relying on the judgment of the Hon'ble Supreme Court in the case of DIT (I.T.) vs. Morgan Stanley & Co. Inc. (2007) 292 ITR 416 (SC), the ld. AR contended that once a transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. It was contended that similar view has been taken by the Hon'ble Delhi High Court in Adobe Systems Inc. vs. Asstt. DIT (2010) 240 Taxman 353 (Del) and in DIT vs. BBC Worldwide Ltd. (2011) 203 Taxman 554 (Del.) For this proposition, the ld. AR also relied on another judgment of the Hon'ble Bombay High Court in Set Satellite (Singapore) Pte Ltd. vs. DDIT (International Taxation) (2008) 307 ITR 205 (Bom). It was thus contended that due to acceptance of the ALP of the international transaction of rendering Marketing services in the hands of GEIIPL, no further income could be attributed due to the PE. This argument, in the opinion of the ld. AR, prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective link between GEIOC/its affiliate entities and various regulatory authorities from time to time on all business matters." 18.5. Nature of support services to be provided by GEIIPL as per this Agreement is inclusive of the services permitted by the Reserve Bank of India to GEIOC at the time of setting up of its LO in India. The permission was granted by the RBI for the purpose of undertaking purely liaison activities, viz., to act as a communication channel between head office and its customers in India. This permission was granted subject to the conditions that except the proposed liaison work, the LO will not undertake any other activity of a trading, commercial or industrial nature or it shall not enter into any business contracts in its own name without prior permission of the RBI. It was further directed by the RBI that the Liaison Office will not charge any commission/fees for liaison activities and the entire expenses of the LO will be met exclusively out of the funds received from abroad through normal banking channels. It was also directed that the LO shall not borrow or lend any money from/to any person in India without prior permission and it shall not acquire, hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on an order passed by the Delhi Bench of the Tribunal in Metal One Corporation vs. Dy.DIT (2012) 52 SOT 304 (Del)in which it has been held that since no violation of RBI condition was shown, the LO was to be presumed to be engaged in the activity as permitted. For the same proposition, he relied on another decision of the Tribunal. This was opposed by the ld. DR 18.8. It is found as an admitted position that the RBI did not revoke the permission to carry on LO nor any adverse action was taken against the GEIOC who was allowed to open an LO in India. Under such circumstances, a question arises if non-action by the RBI should lead to a presumption that only the designated activities sanctioned to the LO were carried on? In normal circumstances, when permission is granted for setting up of an LO, and then renewed by the Reserve Bank of India from time to time, the presumption is that only the sanctioned activities were carried out. If, however, some direct evidence surfaces which shows the actual carrying on of activities at much higher degree in qualitative terms than those sanctioned, then the RBI's sanction/continuation for an LO loses the character of conclusiveness in this regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Summit Court found that in such cases nothing further would be left to be attributed to the PE. It, however, held that: "the situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to the PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the tax payer has to be examined as to whether the transfer pricing analysis placed by the tax payer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case." From the above observations of the Hon'ble Supreme Court in Morgan Stanley (supra) itself, it is unambiguously beyond any shadow of doubt that if the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed, there would be a need to attribute profits to the PE for those functions/risks which have not been considered. The Hon'ble Allahabad High Court in the case of LG Electronics Inc. (supra) rejected contention similar to the one made before us after duly noting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an earlier occasion, the assessee raised an additional ground before the tribunal, reading as under:- "That on the facts and circumstances of the case and in law, the proceedings initiated under Sections 147/148 of the Act are without jurisdiction because the mandatory sanction required under section 151(2) of the Act has been granted by the Addl. DIT in a mechanical manner and without application of mind." 19.2. The Bench, vide its separate order dated 10.06.2015, admitted the additional ground. As such, we are now taking up this ground for adjudication on merits. 19.3. The ld. AR contended that the sanction granted by the Addl. DIT u/s 151(2) was without application of mind and, hence, the proceedings flowing from such illegal sanction given in a mechanical manner, be set aside. To buttress this submission, the ld. AR relied on the judgment of the Hon'ble Delhi High Court in United Electrical Company P. Ltd. vs. CIT and Ors (2002) 258 ITR 317 in which notice issued u/s 148 was quashed, inter alia, on the ground that the Addl. CIT accorded his approval mechanically and without application of mind. He also relied on the judgment of the Hon'ble MP High Court in Arjun Singh and Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6. The facts in United Electrical Company (supra) are that the 'reasons' were de hors the facts available on record, and there was no information which could provide foundation for the AO's belief that the assessee's transactions with a disputed company were not genuine and its income had escaped assessment. The Hon'ble High Court held that the action of the AO was not sustainable. It was in this background that the Hon'ble High Court found: "Even the Addl.CIT has accorded the approval for action u/s 147 mechanically. If the Addl. CIT had cared to go through the statement of V.K. perhaps he would not have granted his approval which was mandatory in terms of proviso to sub-section (1) of section 151 as the action u/s 147 was being initiated after the expiry of four years from the end of the relevant assessment year." It is manifest that the facts of that case lie in an entirely different compass vis-à-vis the instant case. We are confronted with a situation in which the AO has given detailed reasons running into more than 24 pages which prima facie show escapement of income. It is in this background of the reasons and the knowledge of the Addl.CIT of the issue in his officia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of income of GE Overseas under the Act as well as the Double Taxation Avoidance Agreement. He did not accept the contention of the assessee that the sale consideration was not taxable in India as the title in respect of the equipments was transferred outside India and the payments were also received outside India. He held that a lot of activities relating to marketing and sales took place in India. Expatriates from GEII along with the employees of GEIIPL constituting the Indian team (GE India) were always involved and participated in the negotiation of prices. Such negotiations of prices took place in India. The Indian customers discussed MOU terms with the Indian team. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. He further found that GE Overseas, by remotely sitting in foreign countries, could not make any sales, without the active involvement of GE India. This was held to be a business connection of GE Overseas in India in terms of section 9 of the Act. The AO, therefore, held that all the profits did not accrue or arise to the assessee in the foreign soil, but part of such profits arising in India, corresp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace 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 management; (c) an office; (d) to (l) 3. Notwithstanding the preceding provisions of this Article, the term 'permanent establishment' shall be deemed not to include any one or more of the following : (a) to (d) (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise. 23. Para 1 of Article 5 provides that the term 'Permanent Establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Para 2 gives certain illustrations of the fixed place of business, such as, a place of management, an office, a factory or a workshop etc. Para 3 starts with a non obstante clause qua paras 1 and 2 and provides that the term 'permanent establishment' shall be deemed not to include five instances, including clause (e), being, activities which have a preparatory or auxiliary character. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of permanence. In a nutshell, if a place is used by a foreign enterprise for carrying on its business in India with some sort of regularity or permanence, it satisfies the first condition of a fixed place PE. 26.2. Adverting to the facts of the instant case, we find that GE India also comprising of the expatriates from GEII were permanently using the LO premises of GEIOC at AIFACS building. It was found during the course of survey, that the expatriates were having specific chambers/rooms allotted to them with their name plates affixed and they were occupying the same. Secretarial assistance and staff was also provided to them by GEIIPL/GEIOC. Their laptops, computers and business related documents were in such specifically allotted rooms. The rooms were at the constant disposal of these expats. Though the AIFACS premises was taken on lease by GEIOC, but, the same was also being constantly occupied by these expats, who, though on the pay roll of GEII, were working in India for the GE Overseas entities. Not only that, AIFACS building was also occupied by the employees of GEIIPL who were working under the direct control and supervision of the expats, who, in turn, were workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available at page 190 onwards of the paper book. Under the head 'Accomplishments', he claimed to have maintained a constant focus on organic growth in emerging market. He: `Led the GS team through key activities - Sales, Cross-approval, Partnership approvals, Marketing and Resourcing.' Page 192 of the paper book is 'Manager assessment' of the Self appraisal of Kenneth M. Pierson. It has been mentioned that: 'Ken is committed to growing the India signaling business. Although he missed the orders target for the year, 2006 was a significant year as his team closed $6M in orders and has positioned the business to winning major deal in 2007.' This shows that Kenneth M. Pierson was working as 'Sales and Marketing Manager' of GE Transportation. Albeit he got a good number of orders, but, missed the sales order target given to him for the year. His job description has been given on page 209 of the Paper book, which shows that he was to : `Build India Global Signalling team including sales, marketing, engineering and project management; Facilitate the sales of Products and systems through the permanent Indian staff; and Manage relationships with various customers and stakeholders includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including sales and marketing, matching with his designation. iii. Riccardo Procacci - A copy of the Assignment letter of Riccardo Procacci has been placed at page 97 of the Paper book, which shows his position as `Oil & Gas, India Country Leader' of GE Energy with the anticipated start date of assignment as 1.8.2006 and the term of assignment as five years. Despite specific request by the AO, the GE group neither supplied Self appraisal report nor the Manager's assessment report of Riccardo Procacci. As against the requirement of the DDIT for tendering the Appraisal reports and Manager Assessment of the seven expats and the employees of GEIIPL, the assessee furnished such reports in respect of only two employees, namely, Kenneth Pierson and Ashfaq Nainar, which we have discussed above. For the remaining five expats, the assessee submitted that either the appraisal reports were not due or were not completed. This intimation was given by the assessee vide its letter dated 16.3.2007. The AO issued notice after a gap of more than one year from the assessee's above letter on 26.3.2008 and till then such details were not furnished. As no difference in the business model in India has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op consistent T&Cs." This shows that Shri Pratyush Kumar was looking after GE Infrastructure business in India at the apex level, inter alia, developing business strategy in India and also finalizing consistent business terms and conditions. Despite a specific request by the AO, the GE group neither supplied Self appraisal report nor the Manager's assessment report of Pratyush Kumar. 27.3. The above facts indicate two broader things. First is that these expats of GEII, who are highly qualified and some have even double qualifications, worked in India for different business interests of GE group and their activities were not confined to the business of a particular entity. Second is that they were heading the operations of GE overseas entities in India. From the Job descriptions and Appraisal reports with the Manager assessment, wherever given, it is crystal clear that the expats were India Country heads or working at the top positions, managing the business, securing orders and doing everything possible that could be done here qua the Indian operations of GE overseas entities in India. It has nowhere been denied, and rightly so, that the business model and role of the expats of GE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collectively and GE India has been referred to as `expatriate employees of GE International Inc. located in India and employees of GE India Industrial Private Limited i.e. GEIIPL engaged in providing marketing support services for offshore sales into India'. Use of the expression GE India prima facie shows that firstly, the expats of GEII worked for GE Overseas in India, and secondly, the role played by the employees of GEIIPL is more than what has been set out in the Agreement. 27.6. Page 127 of the Survey documents PB-I is an e-mail from La Moita of GE overseas entity to P. Riccardo (GE India) and others which has been styled as 'Confidential.' This e-mail reads : "now the case of BHEL as we have discussed it what is reported in the MOU reflects the content of conversation we had (me, you and Riccardo) in the 2nd half of August, when we were in India negotiating the deal." This e-mail indicates that Riccardo (GE India) was fully involved in negotiating the deal and was not merely acting as a communication channel. Page 195 of Survey Documents PB - I is a communication from BHEL to P. Riccardo (GE India) with a "Request to revise your offer for present job in line with enclosed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ardo, Vivek Venkatachalam (GE India) and Dino Catastine (GE Overseas). P. Riccardo writes to Dino Catastine that: "The credibility of the team is compromised. Why changes have been made to what we agreed during the last two meetings and conference calls with RIL without prior consultation with the local team? .......... All communication to RIL must be passed through Vivek. If there is no agreement on the subject let us discuss." Then, Dino Catastine writes to Riccardo saying: `We didn't change our position with respect to the conference calls we have partecipated'. Once again he writes to Ricardo and Vivek saying: "Following our phone call, I confirm that, if necessary to close the deal without any other change to our proposal, we can withdraw our request for a 2% price increase for different payment terms and forward exchange rate instead of spot." The above e-mails show that Ricardo did not take it charitably when Dino Catastine made some changes qua contract with RIL without prior consultation with the GE India and he expressed his anguish by writing that the credibility of the team was compromised. This leaves nothing to doubt that GE India was in full command of the sales act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roach must be as light as possible in order to match the current business strategies and priorities.' This shows GE India (Procacci) advising GE Overseas of the way in which a case is to be put up before the Indian client. Then La Motta (GE Overseas) replies to P. Riccardo, Vivek Venkatachalam (GE India) and others referring to 'Sales Team (Vivek and Riccardo)'. This again discloses that GE India (Riccardo and Vivek) were Sales team and not merely a communication channel as contended. 27.7. Now let us examine the statement of Shri Chander Jain recorded at the time of survey, whose copy is available on pages 1-14 of Survey documents PB. He admitted in response to question No.10 that "GEIOC is a representative office and all such represents of a corporate office of GE in India." In an answer to question no. 30 as to whether the employees of GEIIPL work for GE group entities in its sale servicing business in India, he said that: "there are certain number of people who are engaged by GEIIPL towards marketing and sales. If any other person are providing the above services I will provide the information." 27.8. Shri Rupak Saha, whose statement was also recorded during the course of sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entre Ltd. vs. Union of India and Ors. (2009) 313 ITR 94 (Del) considered a case in which the activity to be done through the Liaison Office in India was of downloading the data; preparation of cheques for remitting the amount; and dispatching the same through courier by Liaison Office. The Hon'ble High Court designated it as auxiliary to the main activity of the petitioner. The Hon'ble jurisdictional High Court in a more recent decision in National Petroleum Construction Company vs. DIT (IT) (2016) 383 ITR 648 (Del), considering the earlier decisions in Morgan Stanley (supra) and UAE Exchange Centre (supra), has held that activity of preparatory or auxiliary character is remote from actual realization of profits and is simply in aid or support of the main activity. In that case, the activities of the liaison office in India were held not to contribute directly or indirectly to the earning of profits by the assessee and the same being of preparatory or auxiliary nature, did not constitute PE in terms of Article 5(3)(e) of the DTAA. The Hon'ble Supreme Court in Morgan Stanley (supra) held that back office functions performed in India are the activities of preparatory or auxiliary ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctioned by the RBI, being of preparatory or auxiliary character, would not constitute any PE in India. However, it has been noticed above that the actual activities carried on from the fixed place of AIFCAS building did not remain confined only to those of a communication channel as was allowed by the RBI to GEIOC at the time of setting up its LO in India. 28.5. The ld. AR harped on the assessee's reply to the AO's letter dated 14.11.2008 submitting four stages of sales to contend that the activities carried out in India by GE India were merely preparatory or auxiliary. He further relied on the roles and responsibilities of employees of GEIIPL etc. supplied by the assessee to Department, pursuant to the judgment of the Hon'ble High Court. Based on such submissions, it was argued that all the activities carried out in India were of preparatory or auxiliary nature and the core activity of earning income was done by GE Overseas outside India. 28.6. We have gone through the aforesaid reply given by the assessee which has been incorporated on page 45 onwards of the assessment order and also the role and responsibilities of the employees of GEIIPL etc. working in India, which we wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to identify customer's requirements/ which are passed on to GE Overseas as inputs in the proposal development process. As part of the proposal development process, GE Overseas may seek inputs from GE India in respect of various aspects such as pricing, preparation of bidding package and other supplementary information. 28.8.2. It is noticed that the assessee has admitted a small role played by GE India. Claim of independent decision taken by GE overseas has been rightly held by the AO as erroneous. Various survey documents, as discussed above, abundantly show GE India playing an important and proactive role in the finalization of the deal and the terms and conditions with customers in India. In reality, the major activities about sourcing of customers and finalizing the deals with them were done by GE India in consultation, wherever required, with GE Overseas. The assessee frankly admitted in the same para that: `In some instances, the proposal development is jointly run by the GE Overseas and GE India teams.' This is also borne out from page 104 of the Survey documents PB-II, as discussed above, which is an e-mail from Pump Design Department to GE India and copy to other mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike manner, pages 2 and 3 of Survey Documents PB-II show that the draft agreement by Reliance Industries Ltd. to GE Overseas was sent back to GE India to get it reviewed from aftermarket colleagues in India. Pages 32 and 33 of Survey documents PB-II show that when GE Overseas tried to contact directly with RIL, GE India objected to the same and wanted the entire consultations only through the Indian team, which was positively responded by GE Overseas. Page 39 of the Survey documents PB-II again shows that it is GE India which was negotiating with Indian customers and not allowing GE Overseas even to change the terms and conditions. 28.10. At this juncture, it is significant to note that the assessee is not dealing in off the shelf goods. Sales are made on the basis of a prior contract. In such cases, customer's requirements are first properly understood and thoroughly examined; then commercial and technical discussion meetings take place; then proposals are prepared after negotiations on technical and commercial aspects taking Indian laws and regulations in consideration. These are all significant and essential parts of sales activity, which have to be necessarily done in India by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment collected LinkedIn profiles of some employees of GE group, who in its opinion were carrying on the operations of GE overseas in India. Such details were filed before the Tribunal on an earlier occasion as additional evidence. The tribunal passed a separate order admitting such evidence. On a writ petition, the Hon'ble High Court vide its order dated 21.11.2014 set aside the tribunal order but required the assessee to furnish the details of :`Names, designations, roles and responsibilities of the employees of G.E. Group Companies, who were working in India during the relevant period along with their educational qualifications'. The assessee filed the information, whose copy has been placed before us. Thus, it is clear that this information was given by the assessee after the passing of the assessment order and no Income-tax authority had any occasion to verify its veracity. This information is about the persons engaged in Indian activities of GE overseas companies. 28.14. Now let us see the status of role and responsibilities of some members of GE India team as given by the assessee following the Hon'ble High Court judgment and what transpired from the documents found duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiating deals, terms and conditions and pricing for or on behalf of any GE overseas entity. He was more involved in overall management of client and government relationships including smooth functioning of GE businesses in India'. In contrast, when we see his designation in the Assignment letter as `Leader, GE Infrastructure, Ops- India' of GE Transportation reporting directly to the Global CEO of GE Infrastructure and the `job description' given by him in the earlier referred documents of having a specific role to: `Help GE infrastructure business develop their strategy in India; Align GE solutions with customer need; Help shape policy to realize opportunities; and Facilitate business development discussions', it becomes manifest that the assessee intentionally trimmed his role to justify its stand, which, being contrary to the primary and source documents, cannot be accepted. iii. Nalin Ashfaq Annexure 18 to the assessee's letter pursuant to the Hon'ble High Court's order explains his roles and responsibilities. It has been written that, inter alia,: `Ashfaq was responsible for providing support to the Transportation Division ....He was not involved in any parts sales to custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovals, Marketing and Resourcing.' Then there is 'Manager assessment' of the self appraisal of Kenneth M. Pierson. It has been mentioned that: 'Ken is committed to growing the India signaling business, but missed the orders target for the year'. This shows that Kenneth Pierson was given sales target, which he could not achieve. Here, it is relevant to note the judgment of the Hon'ble Allahabad High Court in Brown and Sharpe Inc. vs. CIT & Anr. (2014) 369 ITR 704 (All) in which the Tribunal, while affirming the order of the CIT (A), relied upon relevant documentary material in arriving at the conclusion that the activities of the liaison office established that it was promoting the sales of the assessee in India and the Assessing Officer was justified in holding that the income attributable to the liaison office was taxable in India. Upholding such a view, the Hon'ble High Court held that: `the Tribunal has correctly noted that in the present case, the liaison office was promoting the sales of the goods of the assessee company through its employees, to whom a sales incentive plan was provided for achieving a sales target and the performance of the employees was being judged by the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to finalize any deal. He was just acting as a communication channel...All the pricing and terms and condition decisions were taken by GE overseas entity and he had no role in such decision making'. Here again, we find that the assessee did not come out clean. Survey documents show his designation in India as 'Sales Director' of GE Transportation, Aircrat engines. 'Job description' has been given as 'Market Intelligence and Support to Headquarters.' He has indicated his 'Reporting Manager' as William Blair, who is one of the seven expats from GEII working in India for GE overseas entities. 28.15. On a holistic consideration of the entire material before us, por una parte, there is primary, specific and original substantiated material relied by the ld. DR in the form of survey documents, Self appraisals, Manager assessment and Job descriptions given under the signature of such persons, showing the doing of core sale activity by GE India, and por otra parte, there is somewhat contrary, generalized and unsubstantiated material relied by the ld. AR in the form of the downplayed role of GE India in four stages of sales and job responsibilities stated by the assessee (not by the concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents.' Bullet point 5 also provides that :`From 2007 onwards, Anand was supporting BGGTS (Joint venture of GE and BHEL), and was responsible to providing after sale and maintenance support.' iii. Sharmila Barathan - She is MA in Economics and also did her Masters in International Business. She is an employee of GEIIPL. Her designation is `Government Affairs'. Annexure 3 discussing her roles and responsibilities provides through the second bullet point that : `She supports the team of Market Development and assist them through shaping government policies. Her role was to provide recommendations on the integrated energy policies and also to prepare enabling policies to encourage investments in the Energy sector on behalf of GE.' iv. Scott Bayman - He did his masters in Management and Bachelors in Marketing. His designation is `President and CEO'. Annexure 4 discussing his roles and responsibilities provides through the first bullet point that his: `primary role was to help set-up local support teams in India.' The second bullet point provides that he: `would ask for headcount from HQ to create local teams. He was responsible for growth of GE's businesses in the Indian market. He wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he was signing or negotiating with customers in India, but with the approval of the GE overseas. It has been specifically provided in the eighth bullet point that: `Although Sanjeev and other people sitting in India were part of the negotiating team with customers, however, at no point of time could they commit to any negotiation with respect to terms and conditions or discount without prior approval from the overseas people listed on the R Table.' vii. Alpana Khera - She did her Engineering in Instrumentation and Diploma in Marketing. Her designation is `Sales Manager'. She is an employee of GEIIPL working since 2001. Annexure 11 discussing her roles and responsibilities again refers to R Table process, which implies that signing or negotiating with customers in India was allowed but with the approval of the GE overseas. viii. Ashish Malhotra - He did his Electrical Engineering and PG Diploma in Marketing. His designation is `Sales Manager'. He is an employee of GEIIPL working since 2001. ix. Jaimin Shah - He did his Mechanical Engineering. His designation is `Account Executive'. He is an employee of GEIIPL working since 2002. Annexure 21 discussing his roles and responsibil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the permission to set up LO at AIFACS building was given by the RBI to GEIOC and not to the assessee including all GE overseas entities covered in this batch of appeals. Thus, none of the instant assesses had any LO in India. Be that as it may, even the LO of GEIOC has been treated as its fixed place PE and the exclusion claimed on the ground of preparatory or auxiliary activities, has been denied up to the tribunal level. Not only that, even penalty u/s 271(1)(c) on this score has been confirmed by the tribunal on GEIOC and no material has been placed on record to demonstrate that such penalty order has been reversed or modified by the Hon'ble High Court in any manner. In view of the foregoing discussion, it is manifest that the activities carried on by GE India from AIFCAS building were of substantial and core and not merely preparatory or auxiliary. 29. We, therefore, sum up that all the three conditions for constituting a fixed place PE in terms of paras 1, 2 and 3 of the Article 5 are fully satisfied as AIFCAS building is a fixed place from which business of GE Overseas is partly carried on in India and the activities carried out from such fixed place are not of preparatory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PE was constituted, is misplaced. We do not find any relevance of this case to the issue under consideration. In that case, the question was of supervisory PE, in which the tribunal held that assessee had no PE in India and that supervisory services were not connected through any of its other PE in India and that since supervision fee was earned in India, it was taxable under Article 12(2) of DTAA at 20%. The Hon'ble Court approved the view of the tribunal that FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. It is thus clear that this case does not involve the issue as is under consideration in the extant appeals. 32. The ld. AR further contended that para 33 of the OECD Commentary mandating that a person attending or even participating in negotiations does not constitute PE and further unless a person is authorized to negotiate all the elements of a contract (not some of them), he does not constitute PE, applies to preparatory or auxiliary services in the context of Fixed place PE. We are not in agreement with this proposition as has been elaborately discussed infra while dealing with Agency PE. It is therefore, held that AIFACS building constituted fixed place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that there is no need of a fixed place when agency PE is under consideration. Even if an agent, referred to in para 4, operates from a non-fixed place, he will still constitute PE of the enterprise, if other relevant conditions are satisfied. 36. Next part of para 4 of Article 5 specifies a person who, acting in a Contracting State on behalf of an enterprise of other Contracting State, constitutes PE. Relevant part of para 4 in this context states : "where a person - other than an agent of an independent status to whom paragraph 5 applies -" This shows that the `person' to constitute a PE, subject to the fulfillment of other conditions, must be 'other than' an agent of an independent status to whom para 5 applies. 37. At this stage, let us note down the prescription of para 5 of Article 5, which reads as under : - 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one enterprise, such an agent will cease to be an agent constituting PE of the US enterprise in India. He submitted that the Revenue has admittedly made out a case that these expats from GEII and other employees of GEIIPL, etc., were rendering services to multiple entities in one line of business and such activities were not confined to a particular entity. It was, therefore, contended that representation by such individual persons to multiple entities took the case out of the purview of agency PE. 40. This was countered by the ld. DR who submitted that the contention that an agent cannot constitute agency PE of multiple enterprises is fallacious because the other ingredient of part 2 of para 5 clearly provides that the transactions between the agent and enterprise must be at ALP. He submitted that if the transactions between an agent and the enterprise are not at ALP, then, such agent gets covered within the ambit of para 4 of Article 5. In a nutshell, his contention was that if one of the conditions, namely, multiple enterprises or the transactions not at ALP, is satisfied, the person becomes dependent agent constituting PE of the USA enterprise in India. This argument was fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expats and employees of GEIIPL etc.) on behalf of GE Overseas were not disclosed and, as such, question of deeming such transactions at ALP does not arise. The ld. DR is right to this extent. However, we find that the second part of para 5 clearly provides that a person shall not be considered an agent of independent status only if he satisfies both the conditions simultaneously. In other words, when the activities of such an agent are devoted wholly or almost wholly on behalf of an enterprise and the transactions between the agent and the enterprise are not at ALP, then, he shall not be considered an agent of independent status. Use of the word 'and' between the two conditions makes it amply clear that the concurrent satisfaction of both of them is a prerequisite for not considering such a person an agent of independent status. If only one condition is satisfied and the other is not, the person is considered as an agent of independent status. In the facts and circumstances of the instant case, although the transactions were not at ALP, but, since GE India worked for multiple entities, it fails to fall within the exception carved out in part 2 of para 5. 43. In spite of turning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent status because of the conditions set out in this paragraph. 44. A foreign company may appoint or set up a person as an agent in India for its exclusive purpose, who obviously will be called as an agent of dependent status. The position will remain so, even if there are more than one related companies of the same group. Such a person will now be dependent on such more number of related companies of the same group. He will not lose his character of an agent of dependent status simply because he is looking after more than one related companies. Such more than one related companies will be considered as one unit. This position needs to be seen in contrast to an agent of an independent status, whose normal course of business extends to multiple independent customers. The fact that transactions between such an agent of dependent status and multiple related enterprises are or are not at ALP, is not relevant at the stage of establishment of a dependent agent PE in India, which is created solely due to the nature of activities of such an agent for the overseas entity(ies). This aspect assumes significance at the later stage of attribution of income. If the transactions between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of GE overseas entities looked after by each of them is more than one, but the fact that such entities were in one of the three broader lines of businesses of GE group, makes them agents of dependent status per se. 47. Facts of Varian (supra), relied by the ld. AR, are distinguishable inasmuch as Varian India had provided services to five AEs for which there were separate agreements and different payments. The Tribunal recorded that the commission income was quite normal and the transactions were at ALP. These facts are absent in the instant case. It is found that the Hon'ble Supreme Court of Italy in Phillip Morris vs. Amninistrazione Finanziaria (the tax authorities) (copy given at page 37 of Departmental PB-7) has held that: "a company having its seat in Italy may take on the role of a multiple permanent establishment of foreign companies belonging to the same group and pursuing a company strategy; in such a case, the assessment of the activity carried on by the Italian .......... must be done on a unitary basis and with reference to the programme of the group considered as a whole." In this case, the view of an agent having multiple permanent establishments of foreign com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CD commentary for driving home the contention that no agency PE of GE overseas was constituted in India. First sentence is that "a person who is authorized to negotiate all elements and details of a contract in a way binding on the enterprise can be said to have exercised this authority" and the second is that "the mere fact, however, that a person has attended or even participated in negotiations........ will not be sufficient, by itself, to conclude that the person has exercised in that State an authority to conclude contracts in the name of the enterprise." Relying on these two sentences, it was contended that even if some of the elements of a contract were presumed to have been negotiated by GE India, it would fall short of 'all elements of a contract' and even participation in negotiations between GE Overseas and customers in India will not lead to the establishment of an agency PE in India. This argument was strongly refuted by the ld. DR who submitted that India has clarified its position in 2008 on para 33 of the OECD commentary by making it clear that it does not agree with both these sentences from para 33 of the OECD commentary as in its view the mere fact that a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the commentary. This, again, clearly decodes that the OECD Commentary is not conclusive in itself. If some member country has reservations on any part of the commentary, it can express so. In such a situation, the interpretation given in the Commentary bows down in favour of the observations given by such country in so far as the Conventions of such a country are concerned. 52.2. Due to the growing influence of non-member countries, the OECD invited some non-member countries to give their position on the OECD Commentary. It is pursuant to this invitation extended by the OECD in 2006 that India gave its position in 2008 on para 33 disagreeing with the observations given in the two sentences. Such a contrary position has a binding effect on all the Conventions which India enters into after that date. It cannot retrospectively apply to the Conventions in existence on that date, unless Convention(s) is/are specifically modified. As a Convention is an agreement between two countries, the same cannot be unilaterally modified by one country declaring its suo motu position. It is so because when India entered into a Convention with an OECD member country, it was implied that the OEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to conclude contract' in the name of the enterprise. This position given in para 32.1 is running contrary to the position contained in para 33 on which the ld. AR has heavily relied to the effect that 'all elements and details of a contract' must be negotiated to constitute an authority to conclude contract in the name of enterprise. Further, the immediately next line following the line on which the ld. AR has relied, reads : 'the fact that a person has attended or even participated in such negotiations could, however, be a relevant factor in determining the exact functions performed by that person on behalf of the enterprise.' Thus, it is evident that the paras containing commentary on the expression 'authority to conclude contracts in the name of the enterprise' do not have uniformity in the approach. There is some sort of contradiction between them. The essence of the matter is that selective reference to the OECD commentary is impermissible. One should understand and follow the spirit rather than individual lines divorced from the context. As the ld. DR cannot be allowed to solely rely on the lines forwarding the case of the Department, in the same manner, the assessee can als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate its authority to conclude contracts on behalf of GE Overseas. It is, consequently, held that GE India constituted agency PE of all the GE Overseas entities in India. 53.1. Now, we take up the contention of the ld. AR that if the activities carried out from the fixed place do not lead to conclusion of contracts in India, then no fixed place PE is constituted. This was stated by referring to the line from para 33, reading: "Since, by virtue of paragraph 4, the maintenance of a fixed place of business solely for purposes listed in that paragraph is deemed not to constitute a permanent establishment, a person whose activities are restricted to such purposes does not create a permanent establishment either." He correlated this contention with two sentences from para 33 of the OECD commentary supporting his case and submitted that no PE is constituted even under Article 5(1) read with 5(3) of Indo-US DTAA if all elements and details of a contract are not negotiated from the fixed place in India. Au contraire, the ld. DR submitted that the requirement to conclude contracts as set out in clause (a) of Article 5(4) of the DTAA is relevant only for the issue of dependent agent PE and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion has incorporated them by making a reference to paragraph 4(4) in it. Nothing more than that should be read from it. Similar is the position qua the USA - DTAA. Be that as it may, we have already repelled the contention of the ld. AR on applicability of the two sentences from para 33 of the Commentary as the only necessary conditions to constitute Agency PE. Ex consequenti, such a reference in the context of a fixed place PE also fails. C. ATTRIBUTION OF INCOME 54. Having held that various GE overseas entities were making sales with the active involvement of their respective PEs in India, the next question is attribution of income to such PEs, which is chargeable to tax in India. 55. The AO required the assessee to make available year-wise India specific accounts of GE Overseas. Financial statements of all the entities for all the years were not submitted. An inability was expressed on the ground that in some countries the accounts were not maintained and they were covered in the group schemes. In the absence of such information of entity level profits, the AO opined that working of actual entity-wise and year-wise profit was not possible. It was observed qua the three ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection with the business of exploration, etc. of mineral oils/operation of aircraft in the case of non-residents. In our considered opinion, the approach of the AO in estimating income at 10% of sales made in India, in the given circumstances, is perfectly in order and does not require any interference. 57. As regards the second component of the share of marketing activities in the total profit, the AO applied 35% by taking assistance from the decision taken by the Delhi Bench of the Tribunal in the case of Rolls Royce (supra). The said order of the Tribunal stands affirmed by the Hon'ble Delhi High Court in Rolls Royce PLC vs. DIT(IT) (2011) 339 ITR 147 (Del). Delhi Bench of the Tribunal in ZTE Corporation vs. Addl. DIT (2016) 159 ITD 696 (Del) has also attributed 35% of the profits attributable to marketing activities in India. We find force in the arguments advanced by the ld. AR that there can be no hard and fast rule of attribution of profit to marketing activities carried out in India at a particular level. In fact, attribution of profits to PE in India is fact based, depending upon the role played by the PE in the overall generation of income. Such activities carried out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e routed through the CIT (A), who deleted such levy of interest. The deletion of interest was confirmed by the Tribunal. In further appeals by the Revenue, the Hon'ble High Court in the aforecited case also upheld the deletion of interest u/s 234B. This was opposed by the ld. DR who referred to an earlier judgment of the Hon'ble Delhi High Court in DIT (IT) vs. Alcatel Lucent USA Inc. (2014) 264 CTR 240 (Del) in which levy of interest was approved. The ld. DR submitted that the facts of the instant case are similar to Alcatel Lucent USA Inc. (supra). 60. We are not inclined to accept the contention advanced on behalf of the Revenue in this regard. The Hon'ble Delhi High Court in assessee's own group cases involving identical facts has approved the cancellation of the levy of interest u/s 234B for the assessment years 2001-02 to 2006-07. Facts relating to the A.Ys. 2007-08 and 2008-09 instantly before us, are, admittedly, similar to such facts considered and decided by the Hon'ble Delhi High Court. When there is a judgment of the Hon'ble jurisdictional High Court directly in assessee's own case and the facts and circumstances for the later years are similar, there can be no questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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