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TMI Blog2020 (10) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... ELHI ] and in absence of any contrary material brought to our notice we hold that no further profit could be attributed since assessee is not a Dependent Agency Permanent Establishment. Commission on the total sale - CIT(A) deleted the addition made by the AO observing that TPO has accepted the payment being at arm s length - HELD THAT:- We do not find any infirmity in the order of the Ld. CIT(A) on this issue. First of all this issue becomes academic in nature in view of our finding that MIPL is not dependent agency PE and therefore no income is attributable to the assessee and therefore when there is no income there is no question on any disallowance - such commission claimed by the assessee has been accepted in earlier years by the Ld. CIT(A) and the revenue had not preferred any appeal although they had filed appeal against the order on other issues decided by the Ld. CIT(A) in favour of the assessee. Merit in the arguments advanced by the Ld. Counsel for the assessee that once the department has accepted the view taken by the Ld. CIT(A) in the preceding years the said view cannot be disputed in the current year in view of the principles of rule of consistency. - Shri R.K. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks of Teesta H.E. Project [3 X 1 70 MW (Stage-V) Sikkim, India. These agreements are as under :- 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 origin for Lot-6 Electrical Mechanical works of Teesta HE Project (Stage-V). c) Third Contract - For providing all onshore services in respect of all equipments supplied under First Second Contract and other services for Lot-6 Electrical Mechanical works of Teesta HE Project (Stage-V). (Teesta Project) 4. On being questioned by the AO the assessee submitted that (a) no income has been earned from the execution of three projects namely Teesta, TISCO and Purulia projects. (b) Income from offshore supplies accrued outside India and no operation is carried out in India in respect of offshore supplies. (c) Capital gains income has been earned during the year on sale of shares of Buongiorno Digital Innovation Private Limited. Capital gains on such sale have been duly offered to tax at the rate of 20%. 5. The AO asked the assessee to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He allowed deduction of commission to the permanent establishment of the assessee at ₹ 84,06,07,736/- as against ₹ 35,33,48,865/- determined by the AO. 8. Aggrieved with such order of the Ld. CIT(A) the revenue is in appeal before the Tribunal by raising the following grounds :- 1. On the facts and in the circumstances of the case, whether the Ld. CIT(A) erred holding that only 20% of the gross trading profit out of the operations in India, was attributable to the permanent Establishment of Mitsui Co. Ltd. ( Assessee ) in India as against 50% as was determined by the Assessing Officer. 2. On the facts and in the circumstances of the case, whether the Ld. CIT(A) erred in allowing deduction of commission to the Permanent Establishment of the assesee at ₹ 84,06,07,736/- as against ₹ 35,33,48,865/- which was determined by the Assessing Officer. 3. The appellant craves to add, amend, modify or alter any grounds of appeal at any time or before the hearing of the appeal. 9. Assessee has also filed the cross objection by raising the following grounds :- 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case for asstt. Year 2010-11. We find, the Tribunal vide ITA No. 4377/Del/2016 order dated 22nd September, 2020 for the assessment year 2010-11 has held that MIPL is not a Dependent Agency PE of the assessee. The relevant observation of the Tribunal from para 10 onwards reads as under :- 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 CITDR though stated that though in view of the TPO order under Section 92CA(3) holding the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise) shall not of itself constitute either company a permanent establishment of the other. 4.1 As per above clause (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring order for the assessee company. In view of the above facts we reject the contention of the learned CITDR that MIPL habitually secures order for the assessee company. And accordingly, none of the condition prescribed 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 CIT-DR again ignores the basic requirement i.e. fulfilling one of the three condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy must not be isolated or once in a while transaction but should be of comprehensive nature. 32. The dependency test as per Arvid A. Skaar requires examination and answer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tested by reference to normal customs in the case in issue. It has. reference to normal practice in the line 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Accordingly 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. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alysis of comparable and of the assessee, has been examined. The learned CIT-DR was fair enough to point out that the Assessing Officer made the addition since at the time of passing of the assessment order he was not having benefit of the order passed under Section 92CA(3) by the TPO in the case of MIPL and the learned CIT (Appeals) has deleted the addition after taking into consideration the order passed by the TPO which was available to him by that time. 5.2 It is a fact on record that the TPO has carried out functional and economic analysis of the activities performed by MIPL towards the assessee company. No adverse inference has been drawn in respect of the same. All these facts were before the TPO. This issue is also covered by the judgment of the1Supreme Court in the case of DIT International Taxation Vs. Morgan Stanley and Co. 292 ITR416 (SC), where the court has approved the ruling delivered by the authority for advance holding that once a 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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