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TMI Blog2019 (8) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India through its employees or other personnel for which a sum of ₹ 20.18 crore was received. It is, therefore, amply clear that no service PE of the assessee is established in India qua the transaction under consideration of receipt of ₹ 20.18 crore from KPIT-GBS. Even though the receipt of ₹ 20.18 crore is in the nature of a revenue receipt and otherwise chargeable to tax, but the same cannot be so included u/s 9(1)(i) of the Act in the facts and circumstances of the instant case for the absence of any business operations carried out in India or the existence of any PE of the assessee in India under the DTAA. We, therefore, overturn the impugned order on this score and direct to delete the addition Royalty income or fees for technical services - assessee s claim of the same being not chargeable to tax - assessee has filed an application seeking withdrawal of Form no. 8 filed u/s 158A - HELD THAT:- The assessee provided off-the-shelf software and related support services to its associates in India. The said amount was claimed as exempt being reimbursement of expenses. The AO as well as the DRP decided this issue against the assessee holding the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection was established in relation to such income in India. Applying Explanation 2(a) and (c) to section 9(1)(i) of the Act, the AO held that KPIT-GBS has been bound by the assessee to provide BPO services to Cummins group entities worldwide out of its facility in Pune. This, in his opinion, had the effect of securing orders from Cummins group entities worldwide by KPIT-GBS so as to render them the services which were earlier provided by the assessee. The AO in the draft order held that KPIT-GBS carried out work that was a responsibility of the assessee company, which indirectly proved that KPIT-GBS was acting wholly for the assessee company in respect of the contracts signed by it with local Cummins group. The AO also inferred business connection from the agreement dated on 17-07- 2007 between the assessee, KPIT-GBS and KPIT Cummins Infosystems Ltd. After holding that the income accrued to the nonresident assessee in India u/s 9(1)(i) of the Act, he went on to examine the position under the Double Taxation Avoidance Agreement between India and USA (DTAA). He held that the assessee was having an agency PE in India in terms of KPIT-GBS, who was rendering BPO services to other Cum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mins Business Services, an internal division of the assessee company, was rendering BPO services to worldwide Cummins entities including some other divisions of the assessee itself. On 17.7.2007, the assessee entered into the Grant Agreement with KPIT-GBS in India, a wholly owned subsidiary of KPITCummins: `to undertake outsourcing of the Cummins worldwide accounting and finance functions and other processes . Preamble of this Agreement, a copy of which has been placed at page 220 onwards of the paper book. Provides that : `Whereas, Cummins and KPIT GBS are entering into one Master Services Agreement dated as of the same date herewith (the `BPO MSA ) for KPIT GBS to perform a portion of the business processing activity currently performed by Cummins Business Services (referred to as `CBS , it is the shared services division of Cummins); and Whereas, for entering into the BPO MSA and giving a right to KPIT GBS to render business process outsourcing services to the Cummins Group entities globally, KPIT GBS has agreed to remit to Cummins the cash consideration set forth herein . Clause 1 of the Grant Agreement spells out the `Purpose of the Agreement and states that: `Cummins is gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious Services Addendum, as amended from time to time . A Service Addendum (No. 1) Finance and Accounting BPO Services (hereinafter called `the Addendum ) was executed on the same date, namely, 17-07-2007, whose copy is available on page 196 onwards of the paper book. This is again between `Cummins Inc., an Indiana corporation with its principal offices at 500 Jackson Street, Columbus, Indiana USA 47202-3005 and its divisions and affiliates including without limitation joint ventures, partnerships, limited partnerships, distributors and subsidiaries (`CUMMINS , which expression shall unless repugnant to the context thereof be deemed to include its successors and permitted assigns) and KPIT- GBS. It provides for performing Finance and accounting services to the Cummins. We find that, in fact, the Addendum is an extension and part and parcel of the BPO MSA. It is in pursuance of the BPO MSA read with the Addendum that KPIT GBS rendered BPO services to various entities of Cummins collectively referred to as Cummins including the assessee itself and raised separate bills on the concerned Cummins entity. To cite an example, KPIT-GBS rendered services to Cummins India Ltd. through a P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived or is deemed to be received in India or accrues or arises or is deemed to accrue to arise in India during the year. Section 9 deals with incomes deemed to accrue or arise in India. Section 9(1)(i) states that all income accruing or arising, whether directly or indirectly through or from any business connection in India or source of income in India etc. shall be deemed to accrue or arise in India. Clause (a) of Explanation 1 to section 9(1)(i) provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. The term business connection has been defined in Explanation 2 as including any business activity carried out through a person who, acting on behalf of the nonresident has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident. etc. 7. On going through the above provisions, it transpires that all income accruing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is not in dispute. Pertinently, the assessee also treated it as a business receipt as is coming out from the Notes to the return, reproduced in para 13 of the assessment order, wherein the assessee admitted that : `The payment is in the nature of business income in the hands of Cummins Inc. and then claimed as not taxable due to absence of any Permanent establishment in India. To the same effect, there is a copy of the Certificate placed at page 29 of the Paper book, in which the assessee certified that : `In accordance with the accounting treatment prescribed under Generally Accepted Accounting Principles (`GAAP ), Cummins Inc. in its books of accounts has recognized the consideration received for grant of rights to render BPO service as business income over the term of the contract with KPIT GBS . 9. Having found that the business connection subsisted with the receipt of ₹ 20.18 crore, now it needs to be considered whether or not it is chargeable to tax under the Act and the DTAA? We have noted above Explanation 1 to section 9(1)(i) of the Act, which states that only such part of the income as is attributable to the operations carried out in India shall be deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State for a related enterprise within the meaning of paragraph 1 of Article 9 (Associated Enterprises). 12. The DRP in reaching its conclusion of the service PE of the assessee in India noted in para 2.1.2.6 of its direction that : `The assessee company received annual payment towards consideration for granting right to render business process outsourcing services . The position stated by the DRP is not correct because the amount received by the assessee was a one-time payment in terms of clause 2(a) of the Grant of Right to render BPO Services Agreement. Then the DRP noted in para 2.1.2.9 of its direction that : `KPIT GBS has provided business process outsourcing services to the assessee company. This position is again not correct. We have noted above from the BPO MSA and the Addendum that KPIT GBS was to render BPO services to CUMMINS, which expression has been collectively explained in both the Agreements as the assessee and its divisions and affiliates (an entity that now or hereafter directly or indirectly controls, is controlled by, or is under common control with such person or entity) including joint ventures, partnerships, limited partnerships, distributors and subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered BPO MSA and the Addendum under which the assessee paid for availing BPO services, for inferring the existence of service PE of the assessee in India qua the transaction of receipt for granting Right to render BPO Services. 14. A service PE is ordinarily constituted when the foreign enterprise renders services in India to its customers and such services are rendered through its own employees or other personnel. In the present case, there are no services whatsoever, which have been provided by the assessee in India through its employees or other personnel for which a sum of ₹ 20.18 crore was received. It is, therefore, amply clear that no service PE of the assessee is established in India qua the transaction under consideration of receipt of ₹ 20.18 crore from KPIT-GBS. 15. Even though the receipt of ₹ 20.18 crore is in the nature of a revenue receipt and otherwise chargeable to tax, but the same cannot be so included u/s 9(1)(i) of the Act in the facts and circumstances of the instant case for the absence of any business operations carried out in India or the existence of any PE of the assessee in India under the DTAA. We, therefore, overturn the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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