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TMI Blog2018 (3) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in India, as spoken by the expatriate employees has nothing to do with the business of the Indian subsidiary and it is solely for the benefit of the assessee. We therefore find that the activities spoken by the expatriate employees in their statements are in the nature of reporting required in the course of discharge of the functions of the subsidiary company towards the holding company, and such activities do not constitute a PE under Article 5(4)(d), (e) and (f) of the DTAA. What the expat employees are doing is only the discharge of the functions of subsidiary towards the holding company, which is for the benefit of the business of the subsidiary to make the GBM understand the priorities and preferences of the Indian customers by providing India specific information to GBM’s which in turn then carry out research and development to develop India specific products. By no stretch of imagination could it be said that it is in furtherance of the business of the assessee de hors the business of the subsidiary. In the absence of proof as to any management activity of the assessee being conducted in India or that it is established that the decisions relating to the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 - SHRI G.D. AGRAWAL, PRESIDENT AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Assessee : Sh. Himanshu Sinha, Adv. And Ms. Vrinda Tulshan, Adv. For The Revenue : Sh. T.M. Shivakumar, CIT DR (Int. Taxation) ORDER PER BENCH: ITA Nos 65 to 70/Del/2013, 315/Del/2016, and 4705 and 4706/ Del/2017 are filed by the assessee in respect of AY 2004-05 to 2009-10, 2011-12, 2012-13, and 2014-15 respectively. ITA No. 982/Del/2016 is preferred by the Revenue. Since parties and the issues involved in all these appeals are similar, we deem it just and convenient to dispose of these appeals by way of a common order. 2. Relevant facts, in brief, are that the Samsung Electronics Co. Ltd (SEC) i.e. assessee is a company established in Republic of Korea on 01.12.1969 and is a tax resident of South Korea and the principal activity of the company is manufacturing and sales of various categories of televisions, home appliances, telecommunication terminals, semi-conductors as well as other state of the art IT products for global markets. It has two wholly owned subsidiaries in India i.e. Samsung India Electronics Private Limited ( SIEL ) and Samsung India Software Op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, Sri Lanka, Nepal, Bhutan and Maldives. He is not paid anything extra to perform his duties in the capacity of South West Asia Head. In addition to statement of Mr. Jung Soo Shin, the statements of the following employees of Samsung India Electronics Ltd were recorded. i. B D Park, Director Mobile Biz IT Biz ii. Sachin Baweja, Company Secretary iii. C S Choi, Vice President, Corporate Marketing iv. Y H Cho, Vice President, Sales, North Region v. HK Seo, Vice President, CE Sales Marketing vi. J H Kyung, Director, CEO A close analysis of these statements further reveals that: ( i) There is no evidence in the minutes of the board meetings showing any . important policy decisions being taken by the board members in India. ( ii) The Indian company has to regularly update the reasons for ageing stock to the parent company. The parent company regularly overviews the performance of the Indian company. ( iii) The team at Indian company collects information from Indian consumers and sends that information to the parent company so as to develop Indianised Product e.g. two vegetable boxes in refrigerators, sound focused LC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st reason for issue of notice is not valid, and since South-west Asia operations were not carried out through SIEL during the period under consideration, question of PE does not arise. Assessee further asserted that, based on analysis of employee statements it is not a case of Dependent Agent PE also. By way of communication dated 18.11.2011, Ld. AO disposed the objections raised by the assessee, rejecting the contentions except in respect of payment of brand royalty. Ld. AO passed draft Assessment order in respect of the AY 2004-05 to 2009-10 holding that the seconded expatriate employees are rendering services to SIEL on behalf of the assessee and, therefore, created a PE of SEC in India under Articles 5 of the India-Korea DTAA. Ld. AO passed draft assessment order dated 30.12.2011, holding that expatriates employees create a PE of the assessee in India by rendering services to SIEL through its employees basis, and added an estimated income of 10% on the remuneration paid to such expatriate employees during the years under consideration to determine the profits attributable to tax in India by applying Clause (iii) of Rule 10 of the Income Tax Rules, 1962. 5. In respect of AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2014-15 6,210,353,870 167,753,195 6,378,107,065 7. Against the Draft Assessment Order, Assessee filed its objections before the Hon ble DRP, and during the course of proceedings before Ld. DRP, the Ld. AO was asked to submit a remand report. 8. The Ld. Assessing Officer on an analysis of the statements that were recorded during the survey, found that there was continuity of business between the Indian company and the non-resident, the non-resident is doing business in India through its employees who are heading various divisions in the Indian company and also through employees visiting India regularly, that there is a close business connection in terms of the dependence of the Indian company on the non-resident s for all imports because the Indian entity does not have the authority to make imports from any other conference other than Samsung affiliates, that the whole transaction is so intermixed that supply of equipment cannot be segregated from the supply of technology and marketing of products, the foreign parent and the Indian subsidiary work as partners in business, that the transactions between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lds that the income for which he had forwarded a reason to believe in respect of escapement of income. From assessment, no roving enquiry in the garb on section 148 is impermissible. Lastly he submits that the Ld. AO travelled beyond his jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated especially when the reasons for the latter ceased to exist. In support of his contentions he placed reliance on the decisions of the Hon ble jurisdictional High Court and other high courts. 12. Per contra, Ld. DR contended that the assessee cannot take any objection to the legality of the reopening proceedings, having not disputed them before the 1st appellate authority. Placing reliance on the decision of the Hon ble Bombay High Court in Vodafone India services Private Limited versus UOI (2013) 37 taxmann.com 250 (Bombay) he submits that the Ld. DRP had jurisdiction to entertain the issues relating to the legality or otherwise of the proceedings under section 147 of the Act. 13. Now we shall proceed to deal with the objection of the assessee to the reopening proceedings. First of all, from the reasons recorded, we understand that this is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No return filed (Branch was closed) 727,560,470 80,918,894 808,479,364 AY 2011-12 1,480,742,857 N.A. 84,758,114 1,565,500,971 AY 2012-13 1,976,164,087 N.A. 111,836,425 2,088,000,512 AY 2014-15 6,210,353,870 N.A. 167,753,195 6,378,107,065 15. A perusal of the figures in the statement furnished in respect of the income as reported in the original return of income and the return furnished u/s 148 of the Act leaves no doubt that there is huge difference and in this context it cannot be said that the notice u/s 148 of the Act is not supported by any valid reason or reasons proposing to re-open the assessment for the assessment years between 2004-05 and 2009-10. It is only after re-opening the matter and verification of the re-conciliation of royalty and FTS income as declared in the return u/s 147 of the Act with the TDS details of SIEL, the AO recorded that the Roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permanent establishment also encompasses: ( a) a building site or construction, installation or assembly project or supervisory activities in connection therewith, only if such site, project or activities last more than 183 days; ( b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or connected project) within the country for a period or periods aggregating more than 183 days within any 12- month period. 4. Notwithstanding the preceding provisions of this Article, the term permanent establishment shall be deemed not to include: ( a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; ( b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; ( c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; ( d) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the Mobile business IT Business. Q2. Since when have you been with M/s SIEL? Ans. Since middle of the year200 Q5. What is your present Salary approximately? Ans. Approximately US 200 K a year. Q6. You are working in India, why is it convenient for you to remember your salary in US currency especially when you are getting your salary in INR? Ans. I am more comfortable in calculating in US Dollars. Q9. For how much time have you been posted in India? Ans. It is not fixed. Normally I expect to stay for three to four years. Q10. Can you be replaced back to Samsung Korea, at your wish or would it be the decision of the head quarters to when to get you back? Ans. In two way agreement. Q16. What is the mode of communication with Samsung Korea? Ans. Over the phone email (intranet) . Q17. You have the intranet systems installed with the corporation, where is the server of the intranet situated? Ans. I have no idea. Maybe, in Korea, or in Singapore. Ql8. How often do you communicate with the head quarter in Samsung Korea? Ans. Normally daily. Q19. You communicate directly or through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s remitted outside India is of the individual expatriate and if it has to beremitted for their conveyance then it should be in their respective South Korea Bank A/cs and not in the Bank a/c of Samsung Electronics Corporation. Please give reason for this. Ans. For Administered conveyance the salaries paid to Samsung Electronics Corporation Korea. Q4. What is the Administration conveyance in remitting the salary to the A/c of the parent company that is Samsung Electronics Corporation. Ans. The expatriate employees have personal obligations in Korea. To avoid any inconvenience for their personal obligation in Korea the salaries paid by Samsung Electronics Korea to expatriate Bank A/c and same is reimbursed by Samsung India Electronics Pvt. Ltd. Q5. Does this reply in Q4 mean that the salaries of the employees of Samsung India Electronics Pvt. Ltd is paid by SEC South Korea and the same is reimbursed by SIEL. Ans. No. Samsung Electronics is only a conduit for the payments in expatriate Bank a/cs in Korea. Salary expenses are incurred in SIEL India and proper income tax on the salaries deducted from individual of expatriate employees salary and deposited. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and sometime explain to our otential client. The requestfor such expat experts can be sent either by me or my direct reporties. 10) Please refer to question @ Sr. No. 7 and your reply. Do you have any such expat experts working for you at present: We have few expat came few days back. Normally they are here in 2-3 months as perrequirement. There are 5 persons here: 1. Mr. Mahesh - for tech support. 2. Mr: Jiho Song - for tech marketing 3. Mr. Shin-for tech support. 4. Ms. Cha - for tech support. 5. Mr. Jaewoo Park-Marketing support. Are working to support my local unit as technical experts. They normally come to impart technical expertise to local engineers. They have come here on local unit's request for training some tech support. This request is made to the R D or Technical support Group bases out of South Korea. 11) How are these expats compensated for their services? I do not know. 12) For how long these expats would be in India? There is no fixed tenure but generally they come for 3-4 days go back by weekend. 13) Please refer to the question @ Sr. No. 10 and your subsequent reply to that. You ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... internet and mobile phones. Q10. With whom do you generally communicate in headquarters at Korea for official purposes? Ans. Global support team and global Biz management. Q1 1. Please clarify what is global biz management. Manage all functions of specific product all over the world. Q12. Are there different GBMS for different products? Ans. Yes, Mobile-Mobile phones Video Display-TV, monitor. Q13. Do you regularly send reports to GBMS? How often are the report sent? Ans. No, 1-2 times by-yearly. Q14. Then how do the GBMS manage the functioning of different divisions in India, as stated by you in answer to question 11? Ans. GBM is more common sales they touch more sale teams then me Q15. Who takes the policy decision regarding the financing of various business divisions of SIEL? Ans. MD CFO Q16. How are such policy decisions taken? Are they through the board meetings or your independent decisions? Ans. Both Q17. But none of the minutes of board meetings show any such policy decisions being taken in board meetings? Ans. I am not sure because I have joined less than 6 month but major iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntres? Ans. Basically Samsung's philosophy is to make localized for operation (Sales Marketing) and production. When local environment is not ready, Samsung HQ support to develop. And when all local functions are ready, whole development Material purchase occurs locally. In the meantime, localization rate is increasing year by year. Q10. What is the role of GBM (Global Business Management) at HQ in deciding which products to manufacture or Trade? Ans. It is not GBM's decision to decide a specific models. On SIEL's requirement they develop and also SIEL select the models of local market's demand. GBM has more product and strategy function from global market perspective they discuss with global subsidiaries for products, price trend, and market development, marketing function. But, as they are more globally dedicated functional organization, SIEL is communicating with HQ to develop the product and support marketing practice by collecting best practice of Samsung Global operation. Q11. What is gathered from your replies is that after market research of Indian Market coordination with GBM, a new product is developed in Korea. Later on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch company and what is the amount of salary? Ans. Samsung Electronics Corp. Suwon South Korea, my salary is being paid by Samsung Electronics approx 3200000-3500000 Won (net in my salary account) in Won. Q3. What is your scope of work in Samsung Electronics South Korea? Ans. Incharge for interoperational testing between base station and mobile devices, Also take care of trail test with operators for mobile wimax. Q4. Since when have you been in India and what is your scope of work in India? Ans. Arrived at Bombay on 18th June, Scope of work is to plan POC/proof of concept trial test with RIL and assist states assets. Q7. Who instructed you to proceed to India and help Samsung Electronics India Ltd for wimax? Ans. Usually on request from Indian team and local HQ representatives, we get instructions through emails/telephone etc. Q8. Who pays you for the work done in India for Samsung India Electronics ltd? Ans. I am paid my monthly salary in Korea, I collect bills for money that I spread during Stay and get reimbursements in Korea. Q9. Why is Samsung Electronics Corporation, South Korea paying you for the work you are doing in India for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian subsidiary in the decision-making process with regard to product and pricing, marketing, strategizing etc one taken in respect of the business of the Indian subsidiary and not for the business of the assessee. According to the ld. counsel for the assessee, all the communication between the employees of the assessee in Korea and the seconded employees in India relate only to the business of the Indian subsidiary and the seconded employees were discharging the duties of the subsidiary towards the holding company. He submits that no business of assessee is carried out by the seconded employees according to the statements recorded by the Ld. assessing officer. He, therefore, submitted that there is no basis for the authorities below to conclude that the seconded employees were acting in furtherance of the business of the assessee by sitting in the premises of the Indian subsidiary, thereby they constitute a fix replace permanent Establishment. 23. Per contra, it is argument of the Ld. DR that it is evident from the statements of the expatriate employees well corroborated by the material that the amount was paid to the foreign parent but not to the account of the employees and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cription does not fit in the description of preparatory or auxiliary in nature as such there is no employer to employer relationship between the Korean parent and Indian subsidiary. 27. It is pertinent to note that having gone through the statements and also some other material relating to the aspects as to who pays the salary, whom the senior employees reported to, frequency of communication with headquarters in Korea etc, ld. DRP dealt with almost all the aspects argued by the ld. DR before us. They found that the assessee is not exercising that kind of absolute control over posting of employees to the Indian subsidiary, but the assessee has been posting the employees only pursuant to the Triparte agreements between the assessee, Indian subsidiary and the concerned employee. Ld. DRP further held that the Indian subsidiary is a company incorporated under the laws governing the companies in India and is confirming to all the rules and regulations that govern the operations of a corporate body in the country, by filing its returns and paying the taxes under the income tax at and other statutes. It was further observed by the library DRP that the international transactions have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me control of the SEC for certain activities like research and development of products for the Indian market, development of marketing strategy, decisions relating to pricing of product, exploration and development of new markets in the neighboring countries. These are the functions that would normally have been performed by SEC through its own employees, or such functions would have been outsourced by it to some third party, in which case the third party would be entitled to some remuneration for these services. However in the present case it is the seconded employees of SEC are performing these functions jn addition to their own duties performed by them for SIEL. For performing the above functions of SEC these employees have a 'fixed place of business' i.e the premises of SEiL available to them. Moreover, it is an admitted fact that apart from these 'seconded employees' who are in the payroll of SIEL, other employees of SEC also come from time to time to India and use the premises of SIEL for the functions performed by them for SEC. This is quite evident from the statement of Sh. Mahesh Sutagatti and Sh. Anshuman Sah, VP (Sales Marketing). Sh. Suttagati is himse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of discharge of the functions of the subsidiary company towards the holding company, and such activities do not constitute a PE under Article 5(4)(d), (e) and (f) of the DTAA. 35. As rightly pointed out by the Ld. AR, even if the impugned activities of seconded employees amount to rendering of services to subsidiary by the assessee, in view of the fact that there is no provision for a service PE in India-South Korea DTAA, no question of Service PE arises in this matter. As a matter of fact, Ld. DRP vide paragraph No 5.4.4.6 of their Order observed the same. 36. From a reading of Art.5 of the DTAA, we understand that in order to constitute a PE, there must be a fixed place of business available to the assessee, through which the business of assessee is wholly or partly carried on. In the preceding paragraphs we held that what the expat employees are doing is only the discharge of the functions of subsidiary towards the holding company, which is for the benefit of the business of the subsidiary to make the GBM understand the priorities and preferences of the Indian customers by providing India specific information to GBM s which in turn then carry out research and developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the preceding paragraphs that there is no business activity that is conducted by the assessee through the expatriate employees, the question of estimated income does not arise and consequently the liability of the assessee to deduct TDS or interest liability under section 234 A and B does not arise. This issue is, therefore, answered in favour of the assessee in all the assessment years, and against the revenue in ITA No 982 of 2016. SHORT CREDIT OF TAXES 42. Short credit of taxes withheld by SIEL as against the credit of taxes claimed by assessee in its return of income is challenged in the assessee s appeal for AY 2011-12 43. In respect of the assessment year 2011-12, it is submitted on behalf of the assessee that a sum of ₹ 18,15,99,203/-was withheld by the SIEL and it is lying to their credit. It is further submitted that the Ld. AO allowed credit of taxes only to the extent of ₹ 17, 79, 07, 391/-, thereby there is an offence of short credit of taxes to a tune of ₹ 36, 91, 812/-. Assessee is aggrieved by this alliance of short credit. In the circumstances, we direct the Ld. AO to grant credit of the TDS to the assessee if they fulfilled the requi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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