9911796707
TMI Blog2019 (12) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act and the Article 5 of Indo-Germany Tax Treaty for taking view that assessee has PE in India. Levy of interest under section 234B 234C - HELD THAT:- Considering the fact that the assessee is a foreign company and tax resident of Germany. The entire income of the Audi AG is subject to tax deducted at source under section 195 of the Act. The assessee has no liability to pay advance tax and the fact that we have already hold that income earned by assessee is not taxable in India, we direct the Assessing Officer to recompute the tax/interest by following the decision of the jurisdictional High Court in case of NGC Network Asia LLC [ 2009 (1) TMI 174 - BOMBAY HIGH COURT] - ITA No. 743/Mum/2015 - - - Dated:- 16-12-2019 - Pramod Kumar And Saktijit Dey, JJ. For the appellant: Rajan Vora and Sapan Choksi For the respondent: V. Sreekar ORDER Pramod Kumar, J. 1. By way of this appeal, the assessee appellant has challenged correctness of DRP s order dated 27.10.2014 in the matter of assessment under section 143(3)(iii) r.w.s. 144C(13) of the Income Tax Act 1961 for the assessment year 2011-12. 2. Grievances raised in the appeal are as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable in India. Attribution of 35% of income in India and adopting operating profit ratio @ 10.30 % 6. without prejudice to the above, erred in attributing income in India for activities of export of cars, accessories and promotional items to India, as operations in connection with such exports viz, manufacture and transfer of property of the goods supplied, are completed outside India. 7. erred in estimating the worldwide profitability rate of AUDI AG at 10.30 percent and attributing 35 percent of the profits from the sale of cars and accessories, sale of sales promotional items, etc in India as attributable to activities carried out by the PE in India. 8. without prejudice to the above, erred in attributing profits to the PE without recording the reason for the same or bring any evidence on record to justify the same. Deduction for warranty, marketing, advertising and promotional expenses reimbursed by the Appellant (Without prejudice to all above objections) 9. without prejudice to the above, the learned AO/ DRP has erred in not allowing deduction of warranty, advertising, marketing and promotional expenses of ₹ 28,05,40,999 incurred by VGSIPL and rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax in India if the activities under taken by them constitute its business connection which constitute permanent establishment. The question is whether the non-resident has business connection in India from or through which income profit or gain can be said to be accrue or arise to them within the meaning of section 9 or Article 5 of India Germany tax treaty, has to be determined on the facts of each case. 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 off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /CKD become property of DCIL, which does not constitute sales outlet or warehouse of the assessee has, that assessee does not carry out any operation in India in respect of sales of part of CKD to DCIL and therefore cannot qualify to have a PE in India accordance with Article 5(1) and 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee does not have a business connection and that MBIL does not constitute a business connection with the assessee in India under section 9 of the Act, therefore, income in respect of sale of CBU Cars 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Volume II) and the Authority for Advance Rulings in case of TVVM Ltd. v. CIT (1999) 237 ITR 230 (Refer page 600 618 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of 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 also material placed on record. First of all, we find that the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act and therefore, under the fact where there is off shore supply of equipments nothing can be held to be taxed in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 clearance by DCIL The payment is received in foreign currency in bank outside India. Delivery of parts/ CBU is outside India. Sale is concluded outside India. The risk of damage and loss is borne by VW group sales Import duty is paid by VW group sales. Custom clearance by VW group sales. The payment is received in foreign currency in bank outside India. Authority to conclude cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 sold to VW Group for further sale in India and VW Group sale is not acting on behalf of Audi AG nor is Audi AG selling cars through VW Group sales. Moreover, the cars are sold on principle to principal basis. Hence, we are of the view that Assessing Officer was not justified in invoking section 9 of the Act and the Article 5 of Indo-Germany Tax Treaty for taking view that assessee has PE in India. In the result, Ground No.1 to 3 of appeal is allowed. 26. Ground No. 4 5 relates to attribution of income and estimation of Gross Profit. The assessee has raised these grounds of appeal in alternative. Considering the fact that we have allowed Ground No.1 to 3 of the appeal, therefore, the discussion on Ground No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
