9911796707
TMI Blog2020 (9) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order dated 29.5.2015 of the Ld. CIT(A) - 43, New Delhi relating to assessment year 2010-11 2. The facts of the case, in brief, are that the assessee is a company incorporated in Japan and is one of biggest trading houses of the world. The assessee is involved in trading from needle to airplane engines. Assessee also undertakes several projects in connection with big industrial installations power projects. 3. It filed its return of income on 15th October, 2010 declaring income of ₹ 2,87,80,329/-. The AO during the course of assessment proceedings noted that the assessee has received consideration for executing two projects, namely, Teesta & Purulia Projects. The assessee has entered into contracts with National Hydroelectric Power Corporation Ltd. (NHPC) on 6.12.2001 for carrying out Electrical and mechanical Works of Teesta H.E. Project [3 X 1 70 MW (Stage-V) Sikkim, India] These agreements are - a) First Contract - For CIF/CIP Supply of all offshore equipments and materials including Mandatory Spares for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V). b) Second Contract - For Ex-works supply of all equipments and materials of Indian or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny person outside India other than the assessee or its AEs. Further, the commission received from Indian parties is very negligible. Therefore, all the conditions listed in Article 5(7) of the DTAA is fulfilled by the assessee. c) MIPL is economically dependent on Mitsui Japan. Reliance is placed in the commentary of Klaus Vogel. d) Reliance is further placed on the decision of the Hon'ble Mumbai Tribunal in the case of DHL Operations B.V. Netherlands. The Hon'ble ITAT has discussed the concept of agency PE in this order. e) Assessee's contention that MIPL is legally and economically independent is not supported by the intentions of the parties in the actual sense. Reliance is placed on the decision of Apex Court in the cases of McDowell and Co. Ltd., and Raman & Co. (67 ITR 11). f) The Hon'ble Supreme Court in the case of Morgan Stanley has very clearly stated that attribution of profits would depend on the functional and factual analysis to be carried out in each case. The above findings are applicable for the present proceedings as well since the facts in both these years are same and this has not been disputed by the assessee with any documentary evidence. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal No. 1 and 5 being general in nature are dismissed. 10. So far as ground of appeal No. 2 is concerned i.e the order of the Ld. CIT(A) in holding that M/s. Mitsui India Pvt. Ltd. has been constituted as a Dependent Agency Permanent Establishment of the assessee company in India, we find the issue stands squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for asstt. Year 2005-06 vide ITA No. 2335/Del/2011 order dated 14.09.2017 wherein it was held that MIPL is not a Dependent Agency PE of the assesse. The relevant observations of the Tribunal from para 4 onwards read as under :- 4. The Second ground is regarding finding of the learned CIT (Appeals) holding that no income is liable to be attributed in India even if MIPL is considered to be Dependent Agent PE in India. On this issue the learned CIT-DR though stated that though in view of the TPO order under Section 92CA(3) holding the transactions between the assessee and the MIPL at arm's length, addition may not be sustainable, yet argued that MIPL be considered as/Dependent Agent PE in India in terms of Article 5(7) of DTAA between India and Japan. It was contended by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (7) a person other than an independent agent is treated as PE if he fulfills any of the three conditions, (a), (b) or (c). It is not the case of the Assessing Officer that MIPL habitually exercised authority to conclude contracts. It is also not the case of the Assessing Officer that MIPL habitually maintains a stock of goods or merchandise. Thus, the condition of (a) and (b) are not fulfilled. The third condition in (c) is habitually securing orders for the assessee. In this regard we note that the Assessing Officer has made this allegation on the basis that commission has been paid by the assessee company to the MIPL. On this basis it has been assumed that MIPL is securing orders. This contention of the Assessing Officer does not appear to be correct. As per the agreement which has been quoted by the Assessing Officer in the assessment order, MIPL is supposed to put best effort to collect information with regard to Instant Noodle project etc. to make the best effort to find the best candidate, to attend/take care of the visitor from Japan, to make the best effort to analyze the feasibility report. None of these clauses can be interpreted to mean that MIPL is securing orders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Article 5(7) are fulfilled. 4.3 The second contention of the learned DR was that MIPL is economically dependent on assessee company as major revenue of MIPL is from assessee company. We are of the view that this per se cannot be ground to hold that MIPL is a Dependent Agent. For invoking this clause, first one of the three conditions needs to be fulfilled. As we have held hereinabove that MIPL does not get covered as PE under Article 5(7), it cannot be considered to be a Dependent Agent. The learned DR also made a reference to Conventions on Double Taxation by Klaus Vogel to support its contention that where a person works only for one principle such person is economically dependent on the principal, in "these circumstances the agent though not legally but will be bound to obey his principal's instructions and be regarded as being Dependent Agent. This contention of the learned CITDR again ignores the basic requirement i.e. fulfilling one of the three conditions. It is also important to note that the DTAA provide for treating a person as Dependent Agent. The DTAA has to be strictly interpreted. The DTAA having prescribed the conditions, no further conditions can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nswer whether the business interest of the principal and the agency have merged. When there is evidence of merging of interest, then power to instruct the agent exceeds a certain level. In such cases the Principal regularly participates in the process of settling current business problems or exercises discretionary power in the said respects. OECD Commentary does not accept dependency based on financial support, supply of patents etc. as itself creating agency PE. Klaus Vogel on Double Taxation Conventions, Third Edition at page 345 in paragraph 170 states that interdependence must exist in both legal and. economic respects but the independence is the main criteria. The expression "independent agent" is used with the words "brokers and general commission 7 agents" in paragraph 5 of Article 5 will, therefore, normally not include agents who have power to conclude contracts. Paragraph 38.1 of the OECD Commentary has been quoted above (see paragraph 15). The commentary elucidates and gives illustrations and tests. 33. Earlier U.N. commentary had deviated in some respect from the OECD commentary and had observed that an agent who was wholly or almost wholly enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business in question. However as per paragraph b of Article 5, an agent is not considered to be an independent agent if his activities are wholly or mostly wholly on behalf of foreign, enterprise and the transactions between the two are not made under arrays' length conditions. The twin conditions have to be satisfied to deny cm agent character of an independent agent. In case the transactions between an agent and the foreign principal are under arm's length conditions the second stipulation in paragraph 5 of Article 5 would not be satisfied, even if the so.id agent is devoted wholly or almost wholly to the foreign enterprise. 36. In Morgan Stanley (supra) Supreme Court rejected the contention of the Revenue that dependent agency was created after recording that Indian subsidiary had no authority to enter into or conclude contracts on behalf of the foreign establishment / agency.The contracts were entered.- into in America arid, were concluded there. Only implementation of those contracts to the extent of back office operations were carried out in India. This legal position is relevant in the present case. 37. In TVM Ltd. vs. Commissioner of Income Tax (1999)237 ITR 230, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly the appeal of the assessee was allowed and the grounds raised by the revenue were dismissed. The relevant observation of the Tribunal at para 53 reads as under :- "53. After hearing both the sides, we find the ground of appeal No.1 by the assessee relates to the order of the CIT(A) holding the assessee a Dependent Agent Permanent Establishment. After hearing both the sides, we find the above-ground raised by the assessee is identical to ground of appeal No.4 raised by the revenue in ITA No.2801/Del/2011. We have already decided the issue and following the decision of the Tribunal in assessee's own case for A.Y. 2005-06 have dismissed the ground raised by the Revenue." 11.1 Since the lower authorities following the orders of the preceding years have held that M/s. Mitsui & Co. Ltd. has been constituted as Dependent Agent PE of the assessee company in India , therefore, following the consistent decisions of the Tribunal in assessee's own case in the preceding assessment years and in absence of any contrary material brought to our notice against the decision of the Tribunal we hold that MIPL is not a Dependent Agency Permanent Establishment of the assessee. Ground No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing analysis is undertaken, there is no further need to attribute profit to a PE." 13. We find following the above decision of the Tribunal in assessee's own case for asstt. Year 2005-06 the Tribunal in assessee's own case for asstt. Years 2006-07 to 2008-09 vide order dated 7.1.2020 has held that the assessee is not a Dependent Agent Permanent Establishment and no income is attributable. 14. The relevant para of the order of the Tribunal reads as under :- 54. In ground of appeal No.2 and 3, the assessee has challenged the order of the CIT(A) in upholding the action of the AO regarding attribution of profit @ 20% of the gross trading profit determined by the CIT(A). 55. After hearing both the sides, we find this issue stands decided in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y. 2005- 06 where it has been held that the assessee is not a Dependent Agent Permanent Establishment and no income is attributable. Respectfully following the decision of the Tribunal in assessee's own case for the preceding assessment year, grounds of appeal No.2 and 3 raised by the assessee are allowed. Thus, in view of the above, issue is squa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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