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TMI Blog2020 (6) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... goods to the assessee company through its subsidiary/group company BIPL, Bangalore business connection is established and therefore Section 9 of the Act dealing with Income deemed to accrue or arise in India comes into operation and thus the transaction needs to pass through Section 195 - Decided against assessee. - ITA No.743 And 744/Ind/2018 - - - Dated:- 3-6-2020 - Shri Kul Bharat, Judicial Member And Shri Manish Borad, Accountant Member For the Appellant : S/Shri S.N. Agrawal And Pankaj Mogra, CAs For the Revenue : Shri K.G. Goyal, Sr. DR ORDER PER MANISH BORAD, AM. The above captioned appeals filed at the instance of assessee pertaining to Assessment Year 2015-16 and 2016-17 are directed against the orders of Ld. Commissioner of Income Tax (Appeals)13 (in short Ld.CIT ], Ahmedabad dated 27.06.2018 which is arising out of the order u/s 201(1A) of the Income Tax Act 1961(In short the Act ) dated 28.03.2017 framed by ITO (Intl. Taxn.), Bhopal. 2. Assessee has raised following grounds of appeal; ITA No.743/Ind/2018 A.Y.2015-16 01. That on the facts and in the circumstances of the case the Learned CIT( A) erred in confirming the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to M/s Buhler AG Switzerland 2015-16 2,83,438 Total 3,21,531 That a show cause notice was issued by the ITO (IT and TP) wherein it was asked from the assessee as to why the Assessee be not treated as Assessee in Default for making the above payments to NRI without deducting tax at Source u/s 195 of the Act. 4. In reply to show cause notice assessee contended that the alleged purchase is a capital goods in the form of spare parts for old machines and flour milling machine. Purchases have been made directly from the non resident suppliers. It was also submitted that the purchase of capital goods is not subject to deduction of tax at source. Ld. A.O after considering the submissions also called for information from a Bangalore based company namely Buhler India Pvt. Ltd. ( In Short `BIPL ) which is a wholly owned subsidiary of Buhler AG Holding, Switzerland. Ld.A.O on the basis of information received from BIPL, Bangalore came to a conclusion that the Bangalore based company is working on behalf of the Buhler AG, Switzerland and apart from selling goods in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our Milling Machine from a Non- Resident Supplier for which payments were made by it in F.Y. 2014- 15 and 2015-16. The year wise details of the same is as under:- S.No. Particulars Financial Year Amount Paid 01. Payment to M/s Buhler AG Switzerland 2014-15 38,093 02. Payment to M/s Buhler AG Switzerland 2015-16 2,83,438 Total 3,21,531 3.1] That a show cause notice was issued by the ITO (IT and TP) wherein it was asked from the assessee as to why the Assessee be not treated as Assessee in Default for making the above payments to NRI without TDS u/s 195 of the Act. 3.2]. In the show cause notice it was also mentioned that payments to Non-Resident parties for purchase of various items (Flour Milling Machines and its spare parts) were made and said transactions were made through Indian Parties which were agents/ brokers in India of these non-Resident namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,83,438 47,240 19,463 3,892 Total 22079 4546 05] That on perusal of the Purchase Order and Invoices Your Honours will appreciate that Assessee company has basically purchased Spare parts for Old Machines and Flour Milling Machine from the above Non-Resident parties. That to purchase the said items the company floats enquiries to various foreign suppliers and obtains technical specification and rates of same from them. Subsequently it placed the Purchase Order to the respective party who meet out the Quality specification which is also competitive in terms of price. It is also notable that payment to said party was towards purchase of Capital Goods being Spare parts for Old Machines and Flour Milling Machine. 06] The Ld . ITO prior to treating the assessee company as a assessee in default referred the provision of section 195 and Section 5 of the Act. For the sake of convenience, provision of all these sections are reproduced hereunder:- 195. (1) 91 Any person responsible for payin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub- section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non- resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of same from them. Subsequently it places the Purchase Order to the respective party who meet out the Quality specification which is also competitive in terms of price. 8.4] That the payment to said party was towards purchase of Capital Goods being Spare parts for Old Machines and Flour Milling Machine and the assesse has placed order to the Non Resident supplier directly. 8.5] That as per Expl. 2 to Sec. 9(1)(a) M/s Buhler India Pvt. Ltd. has not acted as an agent for its Non Resident Principal Company M/s Buhler AG Switzerland. The Assessee company has purchased the Material on Principal to Principal Basis. Thus no liability of TDS u/s 195 is attracted on said payment made to non-residents. In reply to notice issued by the 1T'0 TDS u/s 133(6) to the said party, it was categorically mentioned that customers enquiry received by it is forwarded to Buhler AG (Principal) and Quotation from Buhler AG (Principal) to prospective customers. The Indian counterpart has no Authority to conclude the contract on its own and therefore the Bulher AG has no business connection in India so as to consider income deemed or accrue arise in India as per provisions of Sec. 9(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter was taken by the Ld. A.O, necessary details were called and it was revealed that M/s Buhler AG, Switzerland is having group company s office in Bangalore working in the name of Buhler India Pvt. Ltd (In short BIPL ) wherein 99.99% equity share is held with M/s Buhler AG, Switzerland. Ld. A.O also came across the correspondences through e-mail between the assessee company and BIPL, Bangalore showing that the orders for supply of spare parts were finalised between these two companies based in India and finally the orders were placed to M/s Buhler AG, Switzerland who had issued the invoice. On the basis of these information Ld. A.O was of the view that as per provisions of Section 9(1) of the Act since the non resident company is having a business connection in India through BIPL through the communication attributable to these transaction for spare parts is subject to withholding tax u/s 195 of the Act. 11. When the matter came before the Ld. CIT(A) who after considering the reply of the assessee which summarised that transactions has been directly carried out with the non resident company which has issued the invoice/supply the goods and payment have been made directly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith attached quotation for the part required by you kindly go throuqh. the same and send your confirmation; for our further process, Looking forward for your valuable order. Thanks and regards . ............... . 8.1 There is apparent contradiction in the claim made by the appellant and the facts of the case. On one side, appellant is contending that it is not aware that non-resident BAGS has any Indian Counterpart and on another side appellant itself has carried continuous mail correspondences with the Indian subsidiary BIPL of the non-resident. BAGS. Further, in entire submission placed before this office there is no rebuttal to the observations raised by the Ld. AO on said mail correspondences. On perusal of the first mail correspondence, it is very much apparent that the appellant company is placing order with RTPL only on reference to quotation received horn BIPL. On perusal of second mail correspondence, it clearly transpires that BIPL is authorized to negotiate, raise quotation, revise quotation and also confirm an order. On perusal of the third mail correspondence- it is very apparent that appellant company sought a combined quotation only from BJPL and also confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation and handling their inquiries, and thereafter forwarding enquiries to its AE Le. Buhler AG. However on perusal of the fact s as well correspondences between appellant and B1PL, I am not inclined to agree with the reply received by the Assessing Officer pursuant to notice u/s 133(6), It clearly emanates that SIPL is actually providing very vital services till the confirmation of order and it is not merely restricted to marketing of the product. 8,3 In light of the above facts it now needs to be analyzed whether BIPL constitutes business connection / PE in India for BAGS as per the provisions of Income Tax Act / DTAA. It is a settled position in law that the tax treaty over rides the provision of the Act in so far as they are beneficial to the appellant. 8.4 It is also a settled position pursuant to Section 5)0(4) that the benefit of the DT.AA would be available only if the Tax residency certificate J Form 10 is filed by the appellant. Considering this the appellant was asked both by the AO as 'well as the undersigned to file Tax Residency Certificate. However, the appellant has submitted that there was no requirement to file TRC or Form 10 as the income of BACS w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny business activity carried out through a broker, general commission agent or any other agent having un independent status, if such broker, general commission u{lent or arty other agent hawing all independent status is acting in the ordinary course of his business:: Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of (1 non resident (hereafter in this proviso referred to as the principal non resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident at have a. controlling interest in the principal non-resident or are subject to tile same com/non control as the principal non-resident, he shot! not be deemed to be a broker, general commission agent or can agent of an independent status ........... Section 5(1) r.w.s 9(l) determines the taxability in case of Non- Resident. The Indian Income-tax Act provides for levy of Income-tax on the income of foreign companies and non-residents, but only to the extent of their income source from India. As per Section 5[2} of the Act, a foreign company - nonresident person is liable to tax for income dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co (Bombay) Ltd 5 ITR 177 (PC), which is summarized below: An American company formed a subsidiary company in Bombay for carrying on in Bombay the American company's business of selling its products. Although no contractual obligation existed with the Bombay company, the flow of business between the two companies was secured by the; fact that the ultimate and complete control of the Bombay company was vested in the American company which owned all its shares. Held, a BC existed between the American company and the Bombay company and that the estimated profit must be deemed to have accrued to the American company in India. When an enterprise of a contracting state carries On business in another contracting state, it needs to be: examined whether a PE is hidden behind a subsidiary/ dependent agent, i.e. if the agent in addition to its own business also carries on the business of the non-resident company. Substance of a transaction is more important than the mere legal form of the transaction. The OECD commentary on the identification of the elements of a PE gave relevance to the substance rather than to the mere legal form of the transactions. Without prejudice BA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itzerland. Provision of marketing support services to Buhler AG Switzerland, inter alia, covers the following activity: a. Identifying customers interested in the products b. Liaison with customers on their requirement and product specification as well as handling customer enquiries relating to the product. c. Forwarding customer enquiries to Buhler AG and quotation from Buhler AG to the prospective customers 14. The above reply of BIPL leaves no confusion that BIPL being subsidiary/group company of Buhler AG, Switzerland is having regular business activity in India and apart from the trading business it also regularly providing marketing services to Buhler AG, Switzerland. Whether the activity carried out by BIPL falls under the definition of business connection provided in explanation 2 to Section 9(1) of the Act which deals with the Income accrued and derived in India needs to be examined. 15. We find that the definition of business connection is provided in Explanation 2 to Section 9(1) of the Act. Section 9 of the Act deals with Incomes deemed to accrue or arise in India . Section 5 of the Act deals with the scope of total income and sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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