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TMI Blog2016 (12) TMI 1670X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order dated 27-11-2014 passed by the DRP, Pune for the Assessment Year 2010-11. 2. Facts of the case, in brief, are that the assessee is a Foreign Company having its head office at Munich, St. Martin Street 53, Germany. It is a tax resident of Germany. It is engaged in the business of Development, Manufacture and marketing of Electronic Components and Modules. It is well known for its superior products in the segment of capacitors, Ceramic components, Capacitors and Inductors. 3. During the course of assessment proceedings the Assessing Officer noted that the assessee is in receipt of income of ₹ 16,72,75,797/-, the breakup of which is as under : Sr.No. Description of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of any expenditure or allowance under any of the sections from section 28 to 44C. 5. The assessee objected to the said addition made in the draft order and appealed to the DRP, Pune. The DRP, Pune relying on the decision of the Tribunal in assessee s own case for A.Y. 2007-08 directed the Assessing Officer to delete the demand. 6. Aggrieved with such direction of the DRP the revenue is in appeal before us with the following grounds : 1. Whether on the facts and in the circumstances of the case, the DRP, Pune erred in holding that assessee does not have a PE in India dehors the finding of the AO that the functions of EPCOS, AG are performed through the Indian Subsidiaries by issuance of directions through emails etc. and the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble High Court. Therefore, to keep the matter alive, the revenue has filed this appeal. 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. Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y @ 20 per cent in terms of s. 44D r/w s. 115A in case PE is found to be in existence: 42. While dealing with the interplay between existence of a PE and taxability as 'royalties and fees for technical services', we had taken note of the proposition advanced by the Revenue authorities that once art. 12(5) is invoked, all the receipts as 'royalties and fees for technical services' are taxable in India on gross basis under s. 44D, though, as per the provisions of s. 115A, at a lower rate of 20 per cent. 43. This proposition proceeds on the fallacy that once the first conditions under art. 12(5) are satisfied, i.e. once the assessee company has a PE in India, the 'royalties and fees for technical services' are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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 source country, the first thing to be satisfied under art. 7(1) is that the income being sought to be taxed is only such as is attributable to the PE. In other words, unless the Revenue authorities can demonstrate that the 'royalties and fees for technical services' earned by the foreign company constitutes profit attributable to the PE, it cannot be brought to tax in India. Just because there is a PE in the source country, one cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (1953) 24 ITR 506 (SC), Betts Hartley Huett Co. Ltd. vs. CIT (1979) 116 ITR 425 (Cal) and ABN Amro Bank NV vs. Asstt. Director of IT (2005) 98 TTJ (Kol)(SB) 295 : (2005) 97 ITD 89 (Kol)(SB), It is thus clear that an income of the Indian subsidiaries, on account of having rendered services to themselves, cannot be taxed. There cannot be any income in the hands of this PE, even if that be so, which can be brought to tax. 46. The limitation on deductions 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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