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TMI Blog2017 (12) TMI 1337X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of appeals, the Revenue is in appeal against the order of Dispute Resolution Panel (in short 'the DRP') in assessment year 2011-12 and the assessee is in appeal against the orders of Assessing Officer relating to assessment years 2012-13 & 2013-14. The issue raised in all the three appeals is identical and hence, all the appeals were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The Revenue in ITA No.496/PUN/2016, relating to assessment year 2011-12 has raised the following grounds of appeal:- I. Whether on the facts and in the circumstances of the case, the Hon. DRP, Mumbai, erred in holding that assessee does not have a PE in India dehors the finding of the A.O. that the functions of EPCOS AG are performed through the Indian Subsidiaries by issuance of directions through emails etc. and the entire spectrum of activities of the Indian Subsidiaries are monitored by the assessee thus having control and management of Indian Subsidiaries and thereby constituting a PE in India. II. Whether on the facts and in the circumstances of the case, the Hon.DRP, Mumbai erred in law by concluding that a Double Taxation Avoidance Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of Fees for Technical Services and Interest at 10% on gross basis under Articles 11 and 12 of the Tax Treaty as offered in the Return of Income. Ground No.2 - No attribution of income deemed to accrue / arise in India possible to the alleged PE of the Appellant in India 2.1 Without prejudice to the above and on the facts and in the circumstances of the case, the AO erred in proposing and the DRP further erred in not interfering with the AO's conclusion that the Appellant's India source income taxable on deemed accrual basis is attributable to the alleged PE in India under Article 7 of the Tax Treaty. 2.2 The AO and the DRP failed to appreciate that since the Appellant operates entirely from outside India (Germany) and carries out no operations in India, no income can be attributed to the alleged PE in India under Article 7 of the Tax Treaty, and even otherwise pursuant to Article 7(3) of the Tax Treaty, the taxation on gross basis at higher rates of 20% on gross basis under Section 115A / 44D of the Act is unwarranted and the taxation ought to be at 10% on gross basis under Articles 11 and 12 of the Tax Treaty as offered in the Return of Income and the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the Tribunal in assessee's own case starting from assessment year 2000-01 to 2010-11. Our attention was drawn to the latest order in assessment year 2010-11, wherein the Tribunal has decided the issue in favour of assessee in turn, relying on earlier orders of the Tribunal in assessee's own case. Explaining the facts of the case, the learned Authorized Representative for the assessee pointed out that the assessee was a Non-resident entity of Germany and was rendering services to the Indian entities. The assessee had received support service charges against services rendered and as per provisions of Indo-German Treaty offered the receipts to tax @ 10%. The assessee had also offered interest income similarly. The Assessing Officer on the other hand, applying provisions of section 115A r.w.s. 44DA of the Act had taxed the income attributable to Permanent Establishment (in short 'PE') @ 20%. The learned Authorized Representative for the assessee pointed out that the Tribunal has held that in the absence of PE, the provisions of Indo-German Treaty would apply and consequently, receipts were subject to tax @ 10%. The said decision has been followed in the other years, which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2010-11 in ITA No.249/PN/2015, vide order dated 14.12.2016 are as under:- "9. We have considered the rival arguments made by both the sides, perused the order of the Assessing Officer/DRP and the paper book filed on behalf of the assessee. We find the issue raised by the revenue in the grounds of appeal has already been decided by the Tribunal in assessee's own case for A.Y. 2009-10. The Tribunal after considering the order of the Tribunal in assessee's own case for A.Y. 2003-04 which has subsequently been followed in the other assessment years has decided the issue and the grounds raised by the revenue have been dismissed. The relevant observation of the order of the Tribunal from para 5 onwards read as under : 5. Both sides heard. We have perused the orders of authorities below and have also considered the decision of the Tribunal in the case of the assessee in earlier assessment years. We find that the issue raised in the present appeal has been already adjudicated by the Coordinate Bench of the Tribunal in assessee's own case. The relevant extract of the order of Tribunal for the assessment year 2003-04 which has been subsequently followed in the other assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 'royalties and fees for technical services' have a live economic nexus, reflected by effective connection with 'rights', 'properties' and "contracts', in respect of which such royalties and fees for technical services are paid, with PE, and, on the other hand, the scheme of taxability under art. 7, which is complementary to this approach, is also such that the taxability under art. 7 is attracted only in respect of such 'royalties' and 'fees for technical servicer' as are so attributable to the PE. Unless an amount is such that it is taxable under art. 7, even if it is in the nature of 'royalties' or 'fees for technical services', the exclusion clause under art. 12(5) will not come into play. At the same time, unless an amount representing 'royalties' or 'fees for technical services' is such that it triggers exclusion clause under art. 12(5), it would not be taxable under art. 7. 44. Art. 7(1) restricts the scope of taxability of business profits of an enterprise in the source country to only such profits as are attributable to the PE. Therefore, to bring any income to taxability under art. 7 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ductions in accordance with the domestic law, as laid down by art. 7(3), can come to play when there is an income attributable to the PE in the first place. When there are no receipts which can be attributed, to the PE, there is no question of allowing deductions there from. That aspect of the matter is entirely infructuous. The limitation under s. 44D is, therefore, not relevant in the present case. The same is the position with regard to the lower rate prescribed under s. 115A of the Act. There is no warrant for application of s. 44D and s. 115A unless there is a positive income from 'royalties and fees for technical services' which can be brought to tax under art. 7. Conclusion on the second issue i.e., taxability @ 20 per cent in terns s. 44D r/w S.115A in case PE is found to be in existence : 47. In our considered view, in terms of the indo German tax treaty provisions, it will have to be demonstrated that such royalties and fees for technical services have a live economic nexus with the PE and only then exclusion clause under art. 12(5) as also taxability under arts. 7(1) and 7(2), will come into play. It is only after these royalties and fees for technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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