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TMI Blog2018 (6) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... tity viz. Aramco Asia India Private Limited (Aramco India), as listed in the Statement of relevant facts (Annexure III) Aramco India would not create a Permanent Establishment (PE) for the Applicant in India under Article 5 of Double Taxation Avoidance Agreement between India and Kingdom of Saudi Arabia, where such activities of Aramco India are duly compensated on an Arm’s Length basis in accordance with the Indian transfer pricing laws and regulations. - A.A.R. No 25 of 2016 - - - Dated:- 31-5-2018 - Mr. R S Shukla, In-Charge Chairman And Mr. Ashutosh Chandra, Member ( Revenue ) For the Applicant : Mr. S. Ganesh, Sr. Advocate Mr. Shatanik Chakraborty, Advocate Mr. Akhil Sambhar, CA Mr. Vinay Aggarwal, CA For the Department : Ms. Kavita Pandey, CIT (DR) Mr. Sanjay Pandey, Addl.CIT Ms. Mamta Singh, ACIT. RULING ( By Ashutosh Chandra ) Saudi Arabian Oil Company (Saudi Aramco or the Applicant) has filed an application under section 245Q(1) of the Income tax Act, 1961 (the Act), in Form 34C, on 12.05.2016 and the same was admitted on16.08.2016. 2. As per the Applicant, it is a state owned oil company of the Kingdom of Saudi Arabia and a fully integrated glo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration of major Indian oil and gas equipment manufactures and engineering procurement and construction (EPC) contractors, performing engineering and inspection evaluations, and plant audits for identified manufacturers and suppliers. It will also be supporting Saudi Aramco and other group companies with any additional material supply support. 3. On the above facts, the Applicant has sought a Ruling on the following question: Based on the nature of business support/ marketing support activities proposed to be undertaken by the Indian affiliate entity viz. Aramco Asia India Private Limited (hereinafter Aramco India ), as listed in the Statement of relevant facts (Annexure III), would Aramco India create a Permanent Establishment ( PE ) for the Applicant in India under Article 5 of Double Taxation Avoidance Agreement between India and Kingdom of Saudi Arabia (hereinafter India-Saudi Arabia DTAA ), where such activities of Aramco India are duly compensated on an Arm s Length basis in accordance with the Indian transfer pricing laws and regulations? 3.1 The Applicant contends that the above functions of Aramco India will not result in Saudi Aramco having a PE in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Applicant, Mr S Ganesh has strongly argued against the view taken by the Revenue, as regards maintainability. He stated that the Revenue s stand runs against the intent of Chapter XIX B which consists of sections 245N to 245V, with the objective of avoiding litigation and promoting better taxpayer relations, as is clearly evidenced from the budget speech for 1992-93 as well as 1993-94, delivered by the then Hon ble Union Finance Minister. It was clarified that through this Authority the government would be providing certainty about the tax liability in respect of intended transactions, that is proposed transactions, or future transactions for non-resident applicants. Reference has been made to our Handbook to say that we are concerned with the treatment and consequences of contemplated future actions or transactions. Further, in the FAQs it has been clarified that a non-resident can apply for advance ruling even before taking up a transaction in India. Similar provisions exist in many countries, including Canada and Mauritius. 5.1 Attention has been drawn to Section 245S(2) to say that Advance Ruling is based on the statement of facts given by the Applicant in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises LLC is also not applicable as in case of the Applicant, the agreement with Aramco India is not merely in existence but has recorded operations as well for the preceding Financial Year and is not fictional. 5.4 It is stated that it has itself filed a copy of the original Services Agreement dated 01 August 2016 and also a copy of the Proposed Addendum. Further, the Proposed Addendum itself specifically states that it is in pursuance of clause 1(c) of the Original Service Agreement. There is no suppression of facts. Regarding non furnishing of documents, returns etc. it is stated that the time limits for the compliances cited by the Ld. DR in her arguments have not yet expired. In any event, the same has no relevance to the question on which the Advance ruling is being sought by the Applicant. 5.5 It is submitted that the quantum of remuneration allowed to the PE has no bearing on the issue as to whether a PE exists or not. In Morgan Stanley Judgment (292 ITR 416) at pages 442 443 (paras 32 33) it has been laid down that where a PE is found to have been remunerated on Arm s Length Price ( ALP ) basis, then there is no further scope for attribution of income to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions at the time of inserting this Chapter and subsequent clarifications in our Hand Book are clearly indicative of this position, as mentioned by the Applicant. 6.1 The Services Agreement and the Proposed Addendum form the basis on which the activities of the Applicant are being/will be conducted. The Applicant has submitted that while the activities of procurement have started just about a year back, support services as per the Proposed Addendum will be started after getting clarity through this ruling. This explains why many of the reports, returns, details etc. as mentioned by the Revenue are not made available before us. 6.2 The Services Agreement gives full and precise details of the services regarding procurement which are already being provided, and Clause 2 of the Proposed Addenda (Scope of Services) gives details of the proposed services to be provided to the Applicant by Aramco India. It is clear that the services will be provided by a support team in Aramco India, as they mainly relate to market research and collection of data, with which the local employees of Aramco India would be familiar. As and when the full fledged activities start this can always be ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009, reiterated on 08-07-2010, is unsustainable and so declared. Thus, where an application for Advance Ruling was allowed by the AAR under Section 245R(2) recording a clear finding that the application is not triggered by any of the three provisos envisaged therein, and this Authority found no reasons to revoke the application of the Applicant and posted the same for hearing on merits, we are not inclined to revisit our earlier order dated 16 August 2016 to admit the application. Therefore, contentions of the Revenue as regards maintainability of the present application are not accepted. 7. As proceedings on the questions raised before us started, the Revenue insisted that we should not consider the Proposed Addendum alone, as mentioned in the question posed to us, since the same was an integral part of the Services Agreement, and all the services, whether related to the Services Agreement or to the Proposed Addendum, should be considered together to determine as to whether the applicant has a PE in India. 7.1 We agree with this plea made by the Revenue. The powers of the Authority in dealing with the questions posed before it are contained in Rule 12 of the Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was also the Chief Executive of its trading arm. In November 2014 Saudi Aramco named him head of Saudi Aramco s Asian operations and before that he was in charge of Saudi Aramco s global energy investments, as Head of Transaction Development. He was also CEO of its Energy ventures. When he is allowed to hold Board meetings through video conferencing as per para 12.6 of Articles of Association and he is a part of higher management of Aramco Saudi, he controls the functions of Aramco India. Revenue refers to Para 12.1 also which stipulates that the control of the company vests in the Board of Directors or the committee of Directors. 12.1. Subject to the provisions of the Act and these articles, the powers and the control of the Company shall vest in the Board, who may delegate such powers or any part thereof to any Director or a committee of Directors. Further, para12.16 of the Articles of Association reads as under: Para 12.16: Subject to the provisions of the Act and upon the necessary disclosure being made by the concerned Director(s), the Board may enter into contracts on behalf of the Company in which the Company s Director(s) may be interested. 8.3 Refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en furnished, though considered necessary in the decision of Hon ble Supreme Court in the case of Morgan Stanley wherein the issue of lien of the Deputationist / Employee over the parent company was considered material for determination of Service PE. 9. The Applicant has vehemently opposed and denied the picture presented by the Revenue during the course of these proceedings and in its written submissions. 9.1 As regards the issue of Directors raised by the Revenue, which according to it cuts across all the three types of PEs, it is stated during the course of hearing, that the above mentioned personnel are no longer employees of Saudi Aramco and solely discharge services for Aramco India only. Hence it is incorrect to say that they control Aramco India on behalf of Saudi Aramco and that these Directors are its agents. As regards one of the Directors, Mr Ibrahim Qassim K. Albuainain being a resident of Beijing, China and that the management of Aramco India is controlled from outside India, it is submitted that this fact is irrelevant for determining the existence of a Service PE under Article 5(3)(b) of the DTAA. As explained clearly in the E-Funds judgment, 86 taxmann.com 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried on to render services envisaged in the original Service Agreement. Also, the Indian affiliate enjoys exclusive control over such premises. These premises have not been put at the disposal of the Applicant. 9.2.3 It is submitted that even a conjoint reading of the Proposed Addendum with the original Services Agreement, as insisted upon by the Revenue, will not in any event result in a Fixed Place PE coming into existence. The fact that Aramco India is, under the original Services Agreement rendering Procurement, Sourcing and Logistics Support; and Quality Inspection Support services to the Applicant in connection with the equipment and goods purchased by the Applicant from various Indian suppliers, is completely irrelevant in the context of whether a Fixed Place PE exists, in the absence of the fulfillment of the fundamental requirements of this kind of PE, as spelled out in Article 5(1) of the DTAA. In respect of services under the original Services Agreement, the premises of the Indian affiliate are being used by itself for conducting its own business and these premises are at the disposal of Aramco India only. 9.2.4 It is stated that, without prejudice, and in any even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 5(5) (a), (b) and (c) of the DTAA. The Revenue has referred to clause (c) of Article 5(5). The ingredients of an Agency PE under Article 5(5)(c) are that firstly, the Indian entity must be acting as the agent of the foreign enterprise, that is to say, the Indian entity must be acting for and on behalf of the foreign enterprise and must represent the foreign enterprise in dealings with third parties; and secondly, the Indian entity must be habitually obtaining orders for the foreign enterprise. On this issue also the Applicant has taken support from the decisions in Morgan Stanley (SC) (supra) and E-Funds (SC) (supra) case. It is stated that none of these features are present in the instant case, and that Article 3 specifically precludes Aramco India to act as an agent or even enter into negotiations with any person or accept orders on behalf of the Applicant. 9.4.1 In view of the above there is no possibility of the existence of an Agency PE under Article 5(5). It is stated that the services embodied in the Proposed Addendum require the Indian Affiliate to create awareness about the Applicant through various channels and essentially partake of the nature of image projection an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices proposed to be rendered by Aramco India under the Proposed Addendum. Both the domestic law as well as India-Saudi Arabia DTAA, specifically give exception for purchase activities. Hence, even where such activities are carried on by a branch office / liaison office of a foreign company, such a branch office / liaison office cannot become a PE. In the instant case, the Applicant does not even have an office in India, it is procuring such services from its subsidiary (and is remunerating the subsidiary for it) and there is legally no basis on how the subsidiary can constitute a PE by virtue of providing such services. Further, Aramco India does not have the power or the authority to conclude contracts. But for the sake of argument, even if it were to be assumed that Aramco India does have such a power, it still cannot constitute an Agency PE under Article 5(5) as the orders referred therein are for sales of the company and not for purchases. 10. We now come to the specific observations of the Revenue to the different clauses (services) in the Agreements, and the response of the Applicant. 10.1 I. Procurement Sourcing Logistic support: (Services Agreement of 1.8.2016). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eption provided in para 3 of Article 5 of Indo-Saudi DTAA. However, the Applicant states that Article 5(3) is in relation to constitution of Construction / Supervision / Service PE of the non-resident. As per Article 5(4) of the DTAA, it is essential that a non-resident first constitutes a PE under Article 5(1) or 5(2) or 5(3) of the DTAA. Without establishing that there is a PE, the Revenue is contending that the activities are not covered. (x) Controlling and inspecting quality for direct purchased orders ( POs ): The Revenue states that one of the activities mentioned here is controlling the quality of goods and services. This can happen only if the Indian Subsidiary has authority on behalf of the foreign AE. As per the Applicant, this is an assumption that Aramco India is having authority on behalf of foreign AE . The clause merely suggests that Aramco India is responsible for controlling and inspecting quality for goods purchased from India as part of Quality inspection support. (xi) Monitoring quality inspection activities conducted by third party inspectors for POs placed by contractors; (xii) Evaluating and monitoring inspection agencies performance and qual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terates that for the benefit of exceptions contained in Article 5(4) of the DTAA, it is essential that a non-resident first constitutes a PE under Article 5(1) or 5(2) or 5(3) of the DTAA. Without prejudice to above, considering the profile of the Applicant company which is extraction and sale of crude oil and natural gas which is the core business activity, performing market research activity would be preparatory and auxiliary in nature. B Ensuring competitiveness of Saudi crude and LPG in India by providing monthly price recommendations, in addition to customers pricing feedback and desired nominations: The Revenue states Ensuring Competitiveness and further through desired nominations , can happen only if the Indian Subsidiary has authority on behalf of the foreign AE. According to the Applicant, this is only an assumption that Aramco India is having authority to control the contract . The clause merely suggests that Aramco India is entrusted with the responsibility of providing these services. It nowhere suggests that Aramco India has any authority to act on behalf of Applicant in any manner. C. Receiving communications from customers in India with respect to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose mentioned in this Agreement constitutes PE in India. The Applicant responds by saying that the activity related to business support / marketing support services has not yet been started. In fact, the Applicant wishes to start the function only after receiving the ruling from AAR. Hence, question of the details of personnel would not be available. With regard to the clauses F to J in the proposed Addenda, no comments have been made by the Revenue. K. Supporting SAO s Crude Oil Sales and Marking Department (COSMD) with crude and LPG operational matters such as nominations / allocations, scheduling and claims issues. L. Providing customer support, namely communicating concerns of Indian customers to SAO and thus assisting in adequate communication flow between SAO and its Indian customers: On the above two services, Revenue says that it shows the involvement the Indian Subsidiary in main business operational matters. The Applicant opposes this view. Aramco India would only support the Applicant with certain operational matters and provide customer support through communication of concerns of Indian customers. M. Protecting SAO s market share by maintaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowed to the PE has no bearing at all on the issue as to whether a PE exists or not. It is relevant only for the purpose of determining the amount of profit and gains that would be attributable to the PE, if a PE is first found to exist. The legal position in this connection has been clearly explained in the Morgan Stanley Judgment (292 ITR 416) at pages 442 443 (paras 32 33) where it has been laid down that where a PE is found to have been remunerated on Arm s Length Price ( ALP ) basis, then there is no further scope for attribution of income to the PE. In the present case, the Applicant is only concerned with the existence of a PE and not with the quantum of income attributable thereto. However it is stated that the case of Morgan Stanley has been cited only to point out, firstly, the ingredients of a Service PE and an Agency P.E. and also for the principle laid down in that judgement, since Aramco India is to be remunerated on ALP basis. Reliance on this case on any other aspect is completely out of context. 12. The Revenue has cited various paras from the decision in the case of Morgan Stanley to say that as per that decision, with regard to Fixed place PE, emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprise. None of these fundamental requirements are even alleged by the Revenue to exist in the present case. 12.3 Again referring to the issue of Agency PE, the Revenue states that all the major activities pertaining to the conclusion of orders / contracts were carried out either in India by the Subsidiary or outside India by the Directors of the Indian Subsidiary thereby implying the existence of agency PE. The Applicant, however submitted that it is seeking an Advance Ruling for the transaction envisaged in the Proposed Addendum. But even under the original Services Agreement, Aramco India is not permitted to negotiate or conclude contracts on behalf of the Applicant. A perusal of the services stated in the agreement (as discussed above) makes it abundantly clear that Aramco India primarily assists in identifying vendors in India, coordinating with them and undertaking quality checks etc. of materials being exported from India. Hence, the primary condition laid down by Article 5(5) will still not be satisfied. For the sake of argument even where such purchase contracts were to be negotiated and concluded by Aramco India, it will still not result in creation of a PE as the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, in the matter of corporate taxation, is founded on the principle of the independence of companies and other entities subject to income-tax. Companies and other entities are viewed as economic entities with legal independence vis-a-vis their shareholders/participants. It is fairly well accepted that a subsidiary and its parent are totally distinct tax payers. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/ participants .Now a days, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct tax payers. 67. It is generally accepted that the group parent company is involved in giving principal guidance to group companies by providing general policy guidelines to group subsidiaries. However, the fact that a parent company exercises shareholder's influence on its subsidiaries does not generally imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titutes an independent legal entity. Even the fact that the trade or business carried on by the subsidiary company is managed by the parent company does not constitute the subsidiary company a permanent establishment of the parent company . 13.7 Hence, unless a case is made out that the Applicant proposes to carry out its main business itself from an establishment in India, or through its employees and personnel, or the Indian subsidiary can act as an agent of the holding company, ie. it proposes to do acts that are specifically mentioned in the DTAA, it cannot automatically be concluded that Aramco India would constitute a PE of the Applicant. We shall see more specifics a little later. 13.8 The Applicant has contended in its application that its activities of support to procurement activities of the Applicant under the Services Agreement have commenced, and those under the Proposed Addendum would commence after the ruling is pronounced. The agreements are dated 01.08.2016. Hence, since Aramco India is in a nascent stage, absence of too many details in a proposed transaction is understandable. We consider it appropriate to mention here that as under our consideration is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... American companies is carried on through a fixed business place in India which has been put at their disposal. It is clear from the above that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place PE and the High Court judgment is, therefore, correct on this score. 15.3 The Revenue has, by referring to the case of Morgan Stanley (supra), further added to clarify the definition, by stating that the guideline of the Hon ble Supreme Court was that the facts must be analysed to conclude as to who s business is being carried out, and that in this case it is the business of Saudi Aramco which is being carried on from the premises of the Indian subsidiary. 15.4 Thus we find that the term permanent establishment , though clear enough by its definition, has been somewhat amplified, to infuse more clarity, when we look at the above cited cases. When these are read together, along with the definition provided by Article 5(1) of the DTAA, the requirements for a fixed place PE appear to be as follows: (i) There should be a fixed place; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the said premises has been placed by Aramco India at the disposal of the Applicant, Saudi Aramco. 15.8 We may add here that the services carried on / to be carried on by Aramco India, as envisioned by Saudi Aramco in the Prposed Addendum appear to be in the nature of support services only, and do not appear to constitute the main business of the Applicant, which is production and sale of oil, and which is done from Saudi Arabia. As for the services rendered by Aramco India to Saudi Aramco from its premises, for which it will be compensated on arm s length basis, this in itself has no bearing on whether a Fixed place PE exists or not. 15.9 We conclude the discussion on fixed place PE by saying that on the facts of case, the Applicant cannot be said to be carrying on its main business from the premises of its subsidiary, Aramco India, or even that such a premises had been placed at its disposal for conducting its business. Therefore, the Applicant cannot be said to have a Fixed place PE in India, within the meaning of para 1 of Article 5 of the India Saudi Arabia DTAA. 16. Service PE 16.1 Para 3 of Article 5 of the India Saudi Arabia DTAA deals with Service PE, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We entirely agree with the approach of the High Court in this regard. Article 42.31 of the OECD Commentary does not mean that services need not be rendered by the foreign assessees in India. If any customer is rendered a service in India, whether resident in India or outside India, a service PE would be established in India ..Only auxiliary operations that facilitate such services are carried out in India. 16.3.1 The Revenue s contention in respect of Service PE is that the activities of Aramco India are carried out for the purpose of the business of the Applicant, influenced by the services, control and management of the non- resident Directors of Aramco India. 16.4 In Article 5(3) of the DTAA, the emphasis is on rendering of services by the foreign entity through its employees or other personnel. For this reason perhaps, the Revenue has chosen to highlight the aspect of the Directors of Aramco India in great detail. Following up this argument, it has referred to the case of Morgan Stanley, to argue that the visits and activities of the employees of the Applicant are required to be properly examined to establish the existence of a Service PE. 16.4.1 On the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences to his earlier positions as CEO of Aramco group companies are noticed in the Revenue s submissions which pertain to the years 2011 and 2012. 16.5.2 Similarly, reference to another Director, Mr Khalaf Al Awwad, and a letter with the subject Plant Evaluation where an approval is granted, shows the date as April 2, 2015, and is on the letter of an earlier entity Aramco Overseas Company BV. A similar mention has been made about the third Director. This is wholly irrelevant, since as per the Revenue s own earlier contention that after a re-organisation, the present Aramco India was incorporated. We are concerned with the present entity, Aramco India, and no credence can be given to the earlier or other entities, their activities or the role of their Directors / high officials / employees at that time, or even if they were working side by side in other concerns of the group, which is usual with the large MNCs. When it has been denied that they are employees of Saudi Aramco, information from the internet or news paper reports cannot be considered reliable or be placed above such denial, and the conditions spelt out in Article 5(3)(b) would not be met. 16.6 Besides, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person: (a) has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph, or (b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; (c) habitually obtains orders in the first-mentioned State, wholly or almost wholly for the enterprise itself. 17.2 This Article starts with a non obstante clause to say that irrespective of whether a fixed place PE exists or not, if the person undertakes any of the activities mentioned therein, and acts as an agent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned as under (para 21, Pg. 52): 21. However, for the sake of completeness, it is only necessary to agree with the High Court, that it has never been the case of Revenue that e-Funds India was authorized to or exercised any authority to conclude contracts on behalf of the US company, nor was any factual foundation laid to attract any of the said clauses contained in Article 5(4) of the DTAA. This aspect of the case, therefore, need not detain us any further. 17.3 Let us examine the services contained in the Agreements with reference to the above provisions and cases, and whether they indicate the formation of a PE. Firstly, on facts it will have to be established that Aramco India was authorized and was habitually exercising the authority to conclude contracts on behalf of the Applicant, or was habitually obtaining orders wholly or almost wholly on behalf of the Applicant. Secondly, as mentioned by Philip Baker, such activities, even if undertaken, should be for the business proper of the Applicant and not related to the day-to-day operations of Aramco India itself. Thirdly, it has to be considered whether there was any clause in the agreements governing the activities/se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny offers that might arise from time to time from customers. The above clause indicates that the Applicant has retained with itself the authority, regarding its main business, to finalise its marketing strategies, finalise terms of the contracts directly with the customers, and to accept or reject offers of customers. Thus, Aramco India would be left only to provide support services rather than act as an Agent of the Applicant. 17.6 Similarly, in the Services Agreement also we find that there is Clause 5, which makes both the parties independent, and the same reads as under: 5. INDEPENDENT CONTRACTOR Each party shall perform all Services required to be performed hereunder as an independent contractor, and not as an agent, joint venture partners, or partners. Each party shall act in its own name. Neither of the parties has any express or implied right under this Agreement to assume or create any obligation on behalf of or in the name of the other, or to bind the other party to any contract, agreement, or undertaking with any third party, and no conduct of the parties shall be deemed to infer such right. 17.7 The above clause is as much applicable to the Propose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only provides support for procurement to the Applicant. Reference to para (4) of article 5, though, looks inappropriate as this para would come into play only if the Applicant has a fixed place PE, in the first place. Since we have not found a fixed place PE to exist, para 4 would not come into the picture at all. In any case, the services under the Services Agreement relating to procurement would be exempted, and take Aramco India out of a fixed place PE, if at all there was one. Similarly, the orders referred to in Article 5(5)(c), as mentioned earlier, relate to obtaining orders for sales and not for procurement, which in any case lose meaning in view of Clauses 3 and 4 referred to above, that prevent Aramco India from entering into any such agreement of a binding nature on behalf of the Applicant. 19. Coming to the clauses, at the repeated insistence of the Revenue, both the Services Agreement as well as the Proposed Addendum are examined. To avoid duplication of arguments of either side, some of the clauses are grouped together. On a consideration of the comments of the Revenue and the response of the Applicant to the same (refer para 10 above), our views are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier that on the facts of the case, no fixed place PE or a Service PE comes into existence in this case. II. Proposed Addendum Clauses A, N, P The Revenue s contention that services like market research, facilitating new opportunities and acting as a communication channel do not fall within the exceptions mentioned in Article 5(4) is not acceptable. As mentioned above the exclusions mentioned in Article 5(4) come into play only when a PE within the meaning of Articles 5(1) to 5(3) is in existence in the first place. We have discussed earlier that on the facts of the case, no fixed place PE or a Service PE comes into existence in this case. Even otherwise, services such as market research and identifying new customers would be preparatory in nature. Services such as communication are also only support services. Further, as none of these are being rendered by the employees/personnel of the Applicant to its customers in India, engaging in these services would not create a service PE. Clauses B C In Clauses B and C, Aramco India is required to ensure competitiveness by studying the market, gathering customer feedback and on that basis suggest /communicate a quality and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vented from entering into any contract on behalf of the Applicant as per Clause 5 of the Services Agreement and Clauses 3 and 4 of the Proposed Addendum. 21. In the question the Applicant has stated that Aramco India would be compensated on an Arm s length basis for the services rendered by it to the Applicant. It has at the same time argued that this issue is wholly irrelevant as far as formation of a PE is concerned under the Indo Saudi Arabia DTAA, and is relevant for attribution of profits to a PE only, if there was one. Since, we have not considered Aramco India to be a PE of the Applicant, no discussion is required on the issue. In the absence of any TP exercise so far, and only an old report for an earlier period available, and also because we do not deal with issues that involve valuation, as these lie in the jurisdiction of the assessing authority, no discussion or opinion is called for. For the present we have confined ourselves to the issue of creation of a PE, as required in the question. As of now, the Applicant has given an undertaking in the question itself that Aramco India would be compensated on an Arm s Length basis as per the Indian Transfer Pricing laws and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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