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TMI Blog2017 (4) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... ll give adequate opportunity of hearing to the assessee for furnishing all detailed submissions and requisite documentary evidences and these shall be taken into account before deciding this issue afresh. The Assessing Officer shall accordingly decide the issue keeping in view the facts of the case and applicable judgments as may be relied upon by the learned counsel before the Assessing Officer to decide whether the Indian branch constitutes a permanent establishment in India of the assessee-company in terms of article 5 of the India-US Double Taxation Avoidance Agreement. This ground may be treated as allowed for statistical purposes. Sale of shrink wrap software - whether did not involve receipt of consideration which could be said to be "royalty" - Held that:- Revenue has contended that the learned Commissioner of Income-tax (Appeals) has erred in taking this decision as the Indian branch office acted as permanent establishment in India of the assessee-company. Thus, this ground is dependent upon the outcome of the issue of determination of permanent establishment. The issue of permanent establishment has been restored to the file of the Assessing Officer for deciding it afr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a that even the income of ₹ 1,14,00,547, though offered in the return of income as FIS, is not taxable since it is not FIS in terms of article 12 of the US Double Taxation Avoidance Agreement. 3. Ground 1 : This ground is general and does not need any adjudication. 4. Ground 2 : In this ground, the assessee has challenged the action of the learned Commissioner of Income-tax (Appeals) in holding that the assessee's branch office in India constituted a permanent establishment (PE) in India in terms of article 5 of the India-US Double Taxation Avoidance Agreement (DTAA, in short). 5. The brief facts as noted by the Assessing Officer in his assessment order are that the assessee is a company registered in USA. The assessee's business during the year was developing software and distributing the software products in India and also provided after sales services. The assessee also had its branch office in India, located in Mumbai. The assessee-company provided software products to the end-users in India under a licence agreement and the use of the software was subject to the agreement. The return of income was filed by the assessee offering the business income earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituted fee for included services (FIS) in terms of article 12 of the Double Taxation Avoidance Agreement and also confirmed the addition of ₹ 1,14,00,547 which was offered by the assessee also in its return as FIS in terms of article 12 of the Double Taxation Avoidance Agreement. Further, the learned Commissioner of Income-tax (Appeals) did not accept the assessee's submission that there was no necessity for further attribution of income to the Indian branch office since the Indian branch office had already been compensated at the arm's length price. However, the learned Commissioner of Income- tax (Appeals) accepted the claim of the assessee and held that sale of shrink wrap software did not involve receipt of consideration which could be said to be royalty . As a result of the order of the learned Commissioner of Income-tax (Appeals), both the parties filed appeal before the Tribunal to challenge the respective part of the order of the learned Commissioner of Income-tax (Appeals) against which they were aggrieved. 8. During the course of hearing before us, the foremost ground taken by the learned counsel of the assessee was with regard to the action of the low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to market and solicit orders for the products within the territory. The contractor will conduct its activities under this agreement in a lawful manner, in accordance with the highest standards of fair trade, fair competition and business ethics. The contractor will occupy and maintain facilities adequate to perform its obligations under this agreement. The contractor will retain and have at its disposal at all times an adequate staff of trained and qualified personnel to perform its obligations under this agreement. It is also seen that the contractor, on the basis of the estimated costs where necessary, will prepare support fee invoices. From time to time, adjustments and allowances will be made in order to reflect differences between the estimated and the actual amounts. In the light of these facts, it is seen that the Interwoven Inc. (India) is maintaining a stock of on behalf of the appellant and is habitually exercising author ity to carry out and enter into contract for and on behalf of the head office, of course subject to the approval of the head office. Therefore the services performed by the Interwoven India would fall under the provisions of article 5(4) of the Double T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, the BO had three employees with a view to demonstrate the limited activity profile of the BO, appointment letters issued to the employees of the BO were also filed by learned counsel before us. The BO derived cost-plus 10 per cent. remuneration for the marketing support services. The arm's length nature of the said remuneration was established through a transfer pricing benchmarking study under taken by the BO. 13. The learned counsel heavily relied upon the recent judgment of the Mumbai Bench of the Tribunal in the case of Varian India Pvt. Ltd. v. Asst. DIT (International Taxation) [2013] 33 taxmann.com 249 (Mumbai-Trib), dated February 27, 2013 wherein various yardsticks were proposed for deciding the issue as to under what circumstances a branch office would constitute a permanent establishment in India of a foreign enterprise. In the said decision, the facts were that VIPL was a company incorporated in the US and it had a branch office (called as VIPL-BO) in India. VIPL-BO was engaged as indenting agent of foreign products. The following features were noted by the Bench in the said case : (i) VIPL BO is not a party to any legal contract with the customer; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interwoven, US); (v) BO does not remit funds to the head office on behalf of the customers; (vi) The right to use the licence in the software passes directly from the head office to the customers; (vii) Credit terms in relation to the issue of the shrink wrap licence are at the discretion of the head office and the BO is not involved in this function; and (viii) Head office provides the software licence directly to the customer. 16. In addition to the above, the learned counsel of the assessee took us through few pages of the paper book to support his arguments and also relied upon various judgments for supporting his stand that the Indian branch office did not constitute assessee's permanent establishment in India. It was also brought to our notice that the branch suspended its operations from January 1, 2007. 17. It was submitted that in view of the aforesaid facts, the well settled legal principles were not correctly applied. It was submitted that as per article 5(1) of the US Double Taxation Avoidance Agreement, where the activity test is not satisfied, irrespective of the nature of the establishment, a fixed place cannot constitute a permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (Mumbai-Trib); and Deputy DIT (International Taxation) v. Daimler Chrysler A. G. [2010] 133 TTJ (Mumbai) 766. 21. It was further submitted that the learned Commissioner of Income-tax (Appeals) wrongly inferred the activities as were mentioned in the agreement. He submitted before us a brief analysis showing contradictions/mistakes as were done in the conclusion by the learned Commissioner of Income-tax (Appeals) as against the factual position, which are reproduced as under : Conclusion of the hon ble Commissioner of Income-tax (Appeals) based on the Factual position The BO is required to distribute software of the HO and maintain professional and training services offered by HO in connection with software. As per the agreement, the BO is required to provide an adequate and competent sales organisation to promote and assist in delivery of HO products. The products are defined to mean software distributed by the HO and maintenance, professional and training services offered by the HO. The BO does not have any authority to conclude contracts. Kindly refer page 115 of the PB submission in this regard. The BO will maintain as representative set of products principally for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual analysis but that was full of mistakes or lacks clarity and precision. Under these circumstances, it is difficult at this stage to apply the correct legal principles on the real facts. Therefore, we find it appropriate to send this issue back to the file of the Assessing Officer who shall take into account. All the facts and circumstances of the case and pleadings and documentary evidences as has been made before us and that may be made by the assessee before the Assessing Officer in support of its claim. The Assessing Officer shall give adequate opportunity of hearing to the assessee for furnishing all detailed submissions and requisite documentary evidences and these shall be taken into account before deciding this issue afresh. The Assessing Officer shall accordingly decide the issue keeping in view the facts of the case and applicable judgments as may be relied upon by the learned counsel before the Assessing Officer to decide whether the Indian branch constitutes a permanent establishment in India of the assessee-company in terms of article 5 of the India-US Double Taxation Avoidance Agreement. This ground may be treated as allowed for statistical purposes. 24. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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