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TMI Blog2021 (6) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... pay salary to those personnel and bear the cost of all the benefit provided to them. It was also agreed upon that the part of the salary will be paid in foreign currency to those personnel for the purpose of convenience but the quantum of same would be decided by the M/s LZAM India as per rules and regulation applicable in India. The primary evidences have not been disputed by the authorities below. Thus, no adverse inference can be drawn against the assessee merely on the informations displayed on the website. Furthermore, the informations displayed on the website cannot precede the documents which are available on record for deciding the issue on hand. Likewise, the documents in the form of passport and bank statement which were not filed by the assessee, cannot help the Revenue. In view of the above, we are not convinced with the finding of the learned DRP. Accordingly, we direct the AO to delete the addition made by him. DRP treating Mr. Tim and Mr. Matt as agent of the assessee as per clause 4 of Article 5 of India-US DTTA and accordingly treating the offshore sale as part of the income taxable in India - HELD THAT:- As we have already given a finding that the individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as business profits under Article 7 of the India-USA DTAA, without appreciating the fact that these are recovered on cost to cost basis (i.e without any mark-up) and hence does not represent income. 4. Without prejudice to the above, assuming without admitting, if reimbursement of salary is considered as business profits, the Ld.AO and Hon ble DRO erred in not allowing a corresponding deduction in computing alleged PE s income for amount disbursed by the Appellant to Tim and Matt under the provisions of Article 7(3) of India-USA DTAA. 5. On the facts and in the circumstances of the case and in law, the Ld.AO and Hon ble DRP erred in computing the attribution to alleged Service PE based on total salary of Tim and matt amounting to ₹ 5,12,19,548/- and not based on the actual reimbursement of salary to the Appellant of ₹ 2,54,71,345. 6. On the facts and in the circumstances of the case in law, the Ld.AO and Hon ble DRP erred in concluding that Tim and Matt are dependent agents of the Appellant and hence the Appellant constitutes and Agency PE in India under Article 5(4) of India-USA DTAA. 7. On the facts and in the circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visory PE. 4. The facts in brief are that the assessee in the present case is a foreign company, based in USA. The assessee has one associated enterprises (AE) namely M/s LZAM India in Vadodara Gujarat India. The associated enterprise of the assessee was in the process of establishing a new manufacturing plant at Dahej in India. For this purpose, the AE M/s LZAM entered into intercompany Services agreement vide dated 21-04-2010 with the assessee for providing engineering, technology, design and project supervisory services. As per the agreement, the AE was to pay actual cost plus markup @ 10% to the assessee. Accordingly the assessee sent its personnel to India for supervisory of the project. 4.1 As per clause 5(2)(k) of the DTAA, the assessee was treated as supervisory PE and accordingly filed its return of income declaring income of ₹ 1,89,21,572/- only. 4.2 However, the AO found that there were two more employees of the assessee namely Mr. Mr. Timothy Earl Madden (Tim) and Mr. Mathew Scott Timmons (Matt) who were involved with the supervisory services provided in connection with the establishment of plant of the associated enterprises in India. But their salary am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank statements were not furnished. 4.7 Similarly, the AO found that the assessee in the earlier assessment year has itself admitted that the employees namely Mr. Tim and Mr. Matt are visiting India for supervisory purposes in connection with the manufacturing plant at Dahej in India. 4.8 In view of the above, the AO disregarded the contention of the assessee and added salary of above mentioned individual (Managing Directors) including the amount reimbursed by the AE M/s LZAM India to assessee amounting for ₹ 2,54.95,912/- to the income of the supervisory PE of the assessee. 5. Aggrieved assessee preferred an appeal to the learned DRP. 5.1 The assessee before the learned DRP besides reiterating the submissions as made before the AO contended that the individuals namely Mr. Tim and MATT are not its employee and was nowhere shown in their profile on website that they are employee of the assessee and working as global business head of South Asia. Rather they are the managing director and employee of Indian AE M/s LZAM India. 5.2 The assessee has never admitted that these employees were visiting in India in supervising the project on behalf of the assessee. As such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO is directed to delete the balance addition. 7. Being aggrieved by the order of the learned DRP the assessee is in appeal before us. 8. The learned AR before us filed a paper book running from pages 1 to 100 and contended that the persons namely Mr. Tim and Mr. Matt are not the employee of the assessee. As such these are the persons who are working exclusively for the PE of the assessee in India as the managing directors. They are getting their salary after the requisite payment of tax in India. The learned AR in support of his contention drew our attention on the employment contract which are placed on pages 92 to 100 of the paper book. 8.1 The learned AR also drew our attention on the reimbursement contract between the assessee and its PE dated 1-1-2010, placed on pages 49 to 59 of the paper book. 9. On the contrary, the learned DR submitted that the persons namely Mr. Tim and Mr. Matt are the employees of the assessee who were working for the project of the AE in India. Furthermore, there is no information available on record whether these persons have filed their income tax return in India. The learned DR vehemently supported the order of the authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eputed employee shall be working for LZAM India and will be under the supervision control and management of LZAM India as an employee of LZAM India only. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2.0 DISBURSEMENT OF PAY AND REMUNERATION TO EMPLOYEES 2.1 It is expressly provided and agreed between the Parties that for administrative conveneience and to meet employee requirements, LZAM India has requested and LZAM has agreed to disburse on behalf of LZAM Inida, the pay and remuneration of the employee deputed by LZAM to the employment of LZAM India. 2.2 The delivery of the pay and remuneration by LZAM will be made from outside India only. 2.3 LZAM India shall from time to time provide the details of remuneration paid in India and need to pay outside India of the employee to LZAM. 2.4 LZAM shall from time to time raise debit notes on LZAM India with the details of remuneration disbursed on behalf of LZAM India to the employee of LZAM India outside India. 2.5 LZAM India shall reimburse LZAM the actual amount disbursed to LZAM India employee on its behalf. 2.6 All benefits to be provided to the employee in India shall be prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be employed by the Company in the position of Managing Director (for Lubrizol Advanced Materials activities in India) for a period of three years ( each such each being hereinafter referred to as a contract year at our Mumbai office. Your employment shall be subject to your transfer to another location within India if required by the company. You will work solely under the control, direction and supervision of the Company and in accordance with the policies, rules and guidelines of the Company. You will perform the duties and exercise the powers that the Company may assign to you from time to time. 10.3 The above facts which represent the primary evidences have not been disputed by the authorities below. Thus, no adverse inference can be drawn against the assessee merely on the informations displayed on the website. Furthermore, the informations displayed on the website cannot precede the documents which are available on record for deciding the issue on hand. Likewise, the documents in the form of passport and bank statement which were not filed by the assessee, cannot help the Revenue. In view of the above, we are not convinced with the finding of the learned DRP. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods were transferred outside India and payment was also made outside India. As such the offshore sale is not taxable in India as per the provision of section 5 and 9 of the Act. The assessee in this regard also relied on judgment of Hon ble SC in case of Ishikawajima-Harima Heavy Industries Limited vs. DIT reported in 288 ITR 408. 12.4 However, the AO disregarded the contention of the assessee by holding that these 2 employees namely Mr. Tim and Mr. Matt are working on your behalf with the AE (assesse) in India which establishes the agency PE in India. Therefore, such transaction should be brought to tax in India. Further assessee failed to substantiate its claim based on documentary evidence that the sale of goods was not part of the project operation in India in connection with the intercompany service agreement. Accordingly the AO worked the amount of profit attributable to India as per the provision of rule 10 of the Income tax rule to the tune of ₹ 7,74,861/- and added the same to the total income of the assessee. 13. Aggrieved assessee preferred an appeal to the learned DRP who confirmed the order of the AO in part by observing as under: 10.1 We have gone t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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