9911796707
TMI Blog2019 (10) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... leted outside India than income arising from sales by no stretch of imagination can be said to be taxed in India. The assessing officer has not brought any material to counter the stand of the assessee that Cars are not sold to Volkswagon Group Sales on principle to principle basis and thereafter, Volkswagon Group Sales it on a principle to principle basis to the dealers. As in case of Daimler AG [ 2012 (6) TMI 479 - ITAT MUMBAI] despite the fact that the AE was performing more activities as narrated in the chart above, it was held that the associated entity not created either fixed place PE nor dependent agent. Further, the income arising on the sales of Car by Volkswagen Group Sales to dealers in India is income accruing or arising in India and is taxed separately in the hands of Volkswagen Group Sales. In our view merely acting for non-resident principal would itself render an agent to be considered PE for the porpose of allocating profit. The assessee is not undertaking any definite activity to which profit can be attributed. We are of the V W Group sales is an independent and separate entity, which is engaged in selling of fully built up cars imported from the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Based on the facts and circumstances of the case, AUDI AG (hereinafter referred to as the 'Appellant') craves leave to prefer an appeal against the order passed by the Additional Director of Income-tax, Range - 1 (1), Mumbai [hereinafter referred to as the 'learned AO'] under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-I, (hereinafter referred to as the 'Hon'ble DRP') on the following grounds, each of which are without prejudice to one another: On the facts and circumstances of the case and in law, the learned AO based on the directions of the Hon'ble DRP: Fixed Place and Dependent Agent Permanent Establishment ('PE') in India 1.1. Erred in holding that Volkswagen Group Sales India Pvt. Ltd ('VGSIPL') constitutes a PE of the Appellant in India under Article 5 (1) and 5 (5) of the India -Germany treaty (Treaty'). 1.2. Failed to appreciate that the Appellant does not have any premises for carrying any bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotional items, etc in India as attributable to activities carried out by the PE in India without assigning any reasons for arriving at such attribution. 5. Taxability of sole distribution fees in India Failed to appreciate that in the absence of PE and business connection in India, sole distribution fees cannot be taxed in India. 6. Deduction for marketing and promotional expenses reimbursed by the Appellant (Without prejudice to all above objections) Without prejudice to the above, erred in not allowing deduction of marketing and promotional expenses incurred by VGSIPL and reimbursed by the appellant relating to brand building campaigns of 'AUDI' brand in India amounting to ₹ 44.82 Crores while computing income from sale of cars as income taxable in India. 7. Levy of Interest under section 2348 and 234C Erred in levying interest of ₹ 31,05,901 and ₹ 2,30,516 under Section 234B and 234C of the Act respectively, though Appellant is non-resident assessee and its entire income is subject to deduction of tax at source. 2. Brief fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales completed each other and Volkswagon Group Sales is functioning as an extended arm and replacement of the assessee in India. As per clause-(1) of Importer agreement, the assessee and Volkswagon Group Sales are jointly established sales targets. Most of the senior officials working that Volkswagon Group Sales have all comes from Audi group abroad. On the above observation, the Assessing Officer held that assessee has business connection in India and has a permanent establishment in India in the form of Volkswagon Group Sales as per Article-5(1) and 5(5) of India-Germany Tax Treaty (Indo-Germany DTAA). Accordingly, it was held that income attributable to permanent establishment is taxable in India. The assessee has shown the following income from Volkswagon Sales India Pvt. Ltd. during Financial Year 2008-09, the following income: Nature of Income Amount (Rs.) Sale of Cars 127,78,57,032 Sale of Fixed Assets (Demo Car) 5,03,96,392 Sale of sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of assessee. In pursuance of direction of DRP, the Assessing Officer passed the final assessment order under section 143(3) rws 144C(13) dated 29.10.2012. Aggrieved by the order of final assessment order, the assessee has filed the present appeal before this Tribunal. 5. We have heard the submission of Sh Rajan Vohra ld. Authorized Representative (AR) of the assessee and Sh. V. Sreekar ld CIT-DR/ ld. Department Representative (DR) for the revenue and gone through the orders of authorities below carefully. We have also perused the importer agreement (IA) between assessee and with VW Sales Group. We have also deliberated on various case law relied by lower authorities and by representative of the parties. 6. Ground No.1 to 3 relates to Permanent Establishment, independent agent and business connection in India. The ld. AR of the assessee submits that offshore sale is not taxable in India. The ld. AR of the assessee submits that Assessing Officer has not appreciated the different nature of activities that have been performed by assessee and Volkswagon Group Sales. The assessee performs the activities of manufacturing, quality control, Research ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of manufacturing and sales of Car is completed by Audi AG outside India and constitute a separate and independent activity. Cars are sold to Volkswagen Group Sales for further sales in India and Volkswagon Group sales is not acting on behalf of Audi AG nor Audi AG is selling Car through Volkswagon Group Sales. The Cars are sold to Volkswagon Group Sales principle to principle basis and thereafter, Volkswagon Group Sales it on a principle to principle basis to the dealers. The sales of goods/Car are completed outside India than income arising from sales by no stretch of imagination can be said to be taxed in India. The income arising on the sales of Car by Volkswagon Group Sales to dealers in India is income accruing or arising in India and is taxed separately in the hands of Volkswagon Group Sales. Further, Volkswagon Group Sales, being on independent company is filing its own tax return and has considered the receipt from sales of Car to dealers as income. Therefore, income in respect of sales of goods/car by assessee to Volkswagon Group Sales outside India cannot be held taxable in India. Therefore, any income which can be further said to be attributed in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -sales services and support, supply of spare parts and accessories, taking part in Auto Expos etc were done by VW Group Sales on behalf of the assessee and were carried out from its fixed place of business maintained in India. 10. The ld. DR further submits that the assessee cannot get business of sale of Audi cars in India without the role being played by VW Group Sales having business at a fixed place in India. Accordingly, considering the business arrangement, the assessee has its subsidiary, it is clear that the premise of VW Group sales is a fixed place PE of the assessee within the meaning of Article 5(1) and (2). The premise of VW Group sales are used by the assessee and the personnel of AUDI AG are following the necessary guidelines/recommendations fixed by the AUDI AG at the premised of VW Group sales. 11. The ld. DR further submits that the VW Group sales also constitutes agency PE in as much as 100% of the business relating to trading of Audi AG Group brand cars on behalf of assessee in India. A subsidiary can also be regarded as PE of the Parent company. The Ld. DR referred to extracts by the renowned jurist, Klaus Vogel: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. 14. During the assessment, the assessing officer on going through the Importer agreement (IA) in para 11 of the draft assessment order observed that: VGSIPL is the exclusive distributors of Audi Product in India whose only source of income is from Audi sales, Business activities of VGSIPL are devoted wholly on behalf of assessee, Activities of the assessee and VGSIPL complement each other and VW Group sales is functioning as an extended arm and replacement of assessee in India, As per clause 1 of Importer agreement, the assessee and VW group sales are jointly establishing the sales targets, Most of the senior officials working with the VW group sales have all come from Audi Group abroad. 15. On the basis of his above observation, the assessing officer took his view that activity of storage, marketing, soliciting with clients and potential customers, after sales services and support services, supply of spare parts and accessories, taking part in Auto Expo are done by VGSIPL on behalf of the assessee and are carried out from fixed place of business maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2) of Indo German tax treaty. The learned AR of the assessee while arguing his case submitted before us the transaction between VW group sales and assessee is on principle to principle basis and the transaction is completed outside India and the title/delivery is made outside India. Therefore, profit on sales does not accrue or arise to assessee in India. For completeness of this order the relevant part of the order is extracted below: 6. --------- the Tribunal had examined the issue in assessee's own case in A.Y. 2001-02. Both the parties agreed that the issue raised by the revenue in this appeal have already been considered and decided by the Tribunal in A.Y. 2001-02. On the issue of accrual of income on sale of CBU Cars in India the Tribunal in assessment year 2001-02 in ITA No. 9211/M/04 held as follows: 11. After hearing both the sides, we find force in assessee's arguments. The Assessee merely sells the raw materials/CKD units to DCIL. It is DCIL which carries out further activity of assembling the same and selling the finished cars. There are no further activities carried out by Appellant in India in India in this connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are not taxable in India. 8. We agree with the order of the CIT(A) on this aspect. On the issue whether MBIL constitute a PE of the assessee in India within the meaning of Article-5 (2) of the India - Germany DTAA the Tribunal in A.Y 2001-02 the CIT(A)held as follows: 30. Now the activity of DCIL are twofold. (1) manufacture of cars using CKD packs and other components. (2) Act as communication exchange in respect of direct sale of CBUs by the Assessee directly to the clients in India. Even though the commission received by DCIL for helping the sale CBUs it is obvious that their main activity is that. of manufacture of cars. Acting as communication conduit is not their main business. Further the dept has not established that DCIL actively canvasses orders for CBUs of Assessee or is actively engaged in negotiating and concluding contracts. If and when clients approach DCIL or their agents evidencing to buy CBUs from the Appellant DCIL passes on communication both sides. Negotiations of price, specifications etc were concluded by the Appellant. The sale to the customer was on principle to principle basis. The risk of diminishing in valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 of Paper Book Volume II). The Hon'ble Delhi Tribunal has in the case of Western Union Financial Services Inc ( 104 ITD 34) (Refer Pg 522 547 of Paper Book Volume II) observed that there is no evidence to show that the extent of their activities for the assessee, compared to oil their activities, is so large that it can be said that they are dependent on the assessee for their earnings or revenues. Accordingly, the agents are not economically dependent upon the assessee. Further, there is no authority with the agents to conclude contracts. The agents are merely performing their duties and not exercising any authority. Based on the above, the Hon'ble Tribunal concluded that there is no agency PE in India. In case of KnoWerX Education (India) P Ltd . ( 301 ITR 207 ) (Refer Pg 619 632 of Paper Book Volume II), the Authority for Advance rulings has observed that since the applicant does not conclude any contract on behalf of the foreign company, does not maintain stock of goods/merchandise belonging to the foreign company and also carries on a variety of activities besides promoting examinations of the foreign company, the applicant enjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal referred to above we hold that income on sale of CBU Cars by the assessee in India does not give rise to a business connection in India and income on such sale is not taxable in India. We also hold that the MBIL does not constitute a PE of the assessee in India under Article 5(2) of the India- Germany DTAA. For the reasons given above both the grounds of appeal raised by the revenue are dismissed. 10. In the result, appeal by the revenue is dismissed. 18. The learned AR for the assessee also vehemently relied upon the decision of Hon ble Supreme Court in case of Ishikawajima-Harima (supra), wherein it has been held that where the entire transaction has been completed offshore the profit on sale should not /could not be taxable in India. 19. The learned AR also relied upon the decision of Special Bench in case of Nokia Networks (supra) and submitted that the ratio of the said decision it is squarely applicable on the facts of case of assessee. the relevant part of decision in Nokia Network (supra) is extracted below; 56. We have heard the rival contentions made by the parties and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of signing of agreement or formula acceptance thereof or overall responsibility of the assessee are relevant circumstances. Since the transaction is relating to the sale of goods, the relevant factor and determinative factor would be as to where the property in good passes and in the present case, the finding is that the property has passed on high seas. In the present case, the goods were manufactured outside India and even the sale has taken place outside India and once this fact is established even in those cases where there is a one composite contract supply has to be segregated from installation and only then would question of apportionment arise having regard to expressed language of Section 9(1)(i) of the Act, which makes the income taxable in India to the extent it arises in India. 58. ----------- Thus, the Hon'ble High Court in Nortel's case has clearly concluded that equipments supplied overseas cannot be taxed under the Act and as per clause (a) of Explanation 1 to Section 9(1)(i) which postulates the principle of apportionment, the only such income that can be reasonably attributed to assessee in India could be chargeable to tax under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transaction with Indian entity Sales of raw material and parts and completely knocked down kit (parts /CKD) to DCIL Direct sales of CBU cars to Indian Customers, for which DCIL rendered certain services. Fee for technical services from DCIL Interest on delayed Payments Export of CBU cars to VW group sales Exports of parts and accessories for assembling of Audi brands cars to Skoda India. Export of sales promotional material to VW group sales. Fee for technical services. Interest on delayed payment Whether any place in India No officer or place of business in India No officer or place of business in India Term of delivery for sale of parts/ CKD/FBU Delivery of parts CKD/CBU is outside India. Sale is concluded outside India. The risk of damage and loss is borne by DCIL Import duty is paid by DCIL. Custom clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, VW Group cannot be regarded as a PE of assessee in India. 24. The case law relied by ld. DR for the revenue in Aramex Logistic Private Limited (supra) is not helpful to the revenue as the said case is based on the different set of facts. In the said case Aramex entered in to the contract with the customer outside India for delivery of parcel, where the delivery of the parcel located in India, further Aramex had an agreement with Aramex India for the delivery of the parcel to the location in India. The privity of contract was between Aramex and customer outside India. The completion of the contract for the delivery of the parcel will only be complete once the parcel is delivered to the location in India. Accordingly, the activity performed in India by Aramex India, viz; delivery of the parcel to the location in India is part of one transaction which cannot be independently performed. Thus, the decision cited by the ld. DR for the revenue is on different set of facts. 25. However, in the case of present assessee the care is manufactured by the Audi AG outside India and constitutes a separate and independent activity. As noted earlier the car is s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
