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TMI Blog2021 (9) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... India, and, in the absence of any such PE in India, the profits, if any, attributable to India operations could not be assessed as business profits under Article-7 of the India US DTAA. - Decided against revenue. - I.T.A. No. 7211/Del/2017 - - - Dated:- 20-9-2021 - N.K. Billaiya, Member (A) And Sudhanshu Srivastava, Member (J) For the Appellant : Tarandeep Singh, Adv. For the Respondents : Sohail Malik, Sr. DR ORDER Per Sudhanshu Srivastava, JM This appeal has been preferred by the Department against order dated 22.09.2017 passed by the Learned Commissioner of Income Tax (Appeals)-43, New Delhi {CIT(A)} for Assessment Year 2013-14. 2. The brief facts of the case are that the assessee is a nonresident company registered in USA. It is engaged in the business of rendering money transfer services. The business of the assessee includes transfer of monies across international borders. For the purpose of carrying out its business in India, the assessee had entered into agreements appointing agents in India. There are four types of agents (i) Department of Posts (ii) commercial banks (iii) non-banking financial companies and (iv) tour operators. 2.1. The ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign country has been held by the AO to be taxable in India. 4.2 The assessing officers consistently over various years have been holding that the appellant has a fixed place PE as per article 5(1) of India USDTAA, and dependent agent PE as per article 5(4) of the India US DTAA. The AOs have also been holding that the appellant has a business connection in India within the meaning of section 9(1) of the Income Tax Act, 1961, and therefore, the income arising or accruing on account of its business connection in India has been held liable to tax under the I.T. Act, 1961. The AOs have been applying global net profit rate of the appellant to determine the profit earned by the appellant on account of commission earned by it during the relevant financial year for the funds remitted to India. 50% of such profit is being attributed to Indian operations. 4.3 My predecessor ld. CIT (Appeals) have been holding that there exists no PE in India and hence no income is taxable in India. In coming to this conclusion the order of Hon'ble ITAT Delhi in AY 2001-02 has been followed. 4.4 In the subject year A Y 2013-14, the order u/s. 143(3) was passed on 26.4.2016, wherein on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome can be brought to tax in India under Article 7 of the treaty. Hence, this ground of appeal has become infructuous and hence not adjudicated. Ground of appeal No. 6 is regarding charging of interest u/s. 234B. As a result of the findings on Ground No. 1, 2 and 3 since the assessee is not held income tax on the income from business connection in India and the issue of interest would not arise, this ground also becomes infructuous. 2.3. Aggrieved, the Department has now approached this Tribunal challenging the order of the Ld. CIT(A) by raising the following grounds of appeal: 1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that the income earned by the assessee from the business of money transfer services in respect of remittances made to individuals in India is not liable to tax in India. 2. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that the assessee does not have a Permanent Establishment ('PE') in India and, therefore, the profits attributable to operations in India are not liable to be taxed in India as business profits in terms of Article 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is no agency PE of the assessee in India. Under similar circumstances, the Co-ordinate Bench of the Tribunal held that though the assessee had business connection, it did not have any fixed placed PE nor agency placed PE in India, and, in the absence of any such PE in India, the profits, if any, attributable to India operations could not be assessed as business profits under Article-7 of the India US DTAA. The relevant paragraphs of the order of the ITAT are being reproduced herein under for a ready reference:- (c) Is the software VOYAGER the PE of the assessee? 26. The department has made out a case that the software, which affords access to the agents to the assessee's mainframe, computers in USA for the purpose of finding out the matching of the MTCN numbers, has been installed in the premises of the agents and hence taken together with the premises constitutes the PE. The premises of the agents are either owned or hired by them. There is no evidence to show that the assessee can as a matter of right enter and make use of the premises for the purpose of its business. The software is the property of the assessee and it has not parted with its copyrigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of earning profits is a business activity. That way, the activity engaged in by the agents of paying the monies to the beneficiaries or claimants in India, after satisfying them- selves about their identity and after accessing the MTCN number to verify the genuineness of the claim, amounts to carrying on of the business of money transfer. The agreement of agency is initially for a period of 5 years and to be renewed for successive periods of one year each. The agents could appoint sub-agents for carrying out the activity. They have to maintain records and measure up to the standards set by the assessee. They have received training from the assessee in the use of the software and in the communication systems. All these are activities which are carried on systematically and continuously with a set purpose and hence amount to business. 32. But then Mr. Rajnish Kumar contended that this was not an activity in the ordinary course of the business of the agents, as their ordinary business is in local money transfer in the case of the Department of Posts and banks and not in trans-border money transfer and that in the case of nonbanking financial companies and tour operators appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functions under the aegis of the concerned Ministry of the Government of India. Its main activity is to serve the public in India in the matter of sending/receiving letters, parcels, packets etc. within or to/from outside India, money orders within India, maintaining small savings account in several forms such as savings certificates, time-deposit accounts, postal life insurance etc. They have a vast network throughout the country. They are a service organization for the benefit of the general public and it would be a misnomer to say that their activities are wholly or almost wholly devoted to the Western Union Financial Services Inc., of the USA. The income-tax authorities have not brought out any data, as they ought to have, to show that the activities undertaken by the Department of Posts on behalf of the assessee herein constitute such a large part of their activities that it can be said that the Department of Posts are dependent on the assessee for their revenues. The position is the same in the case of commercial banks, non-banking financial companies and tour operators appointed as the agents of the assessee. There is no evidence to show that the extent of their activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's activities constitute an autonomous business conducted by him in which he bears risk and receives reward through the use of his entrepreneurial skills and knowledge. Where an agent acts for a number of principals in the ordinary course of his business and none of these is predominant in terms of the business carried on by the agent legal dependence may exist if the principals act in concert to control the acts of the agent in the course of his business on their behalf. What we thus understand from the language used in article 5.5 is that the agent's activities for the foreign enterprise must constitute a large chunk of all his activities taken together so that it can be said that he is economically dependent largely on the activity. Nothing has been brought on record to suggest this. Even if you take the risk factor, the to send specimen form which was filed before us in the course of the hearing while explaining the transaction makes it clear on the reverse that the assessee will be liable to refund the principal amount of a money transfer (at the applicable rate of exchange at the time the refund is made) upon the written request of the sender if payment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it does not automatically follow that they are dependent agents under the DTAA and that the question has to further examined under article 5.4 of the DTAA. In other words, even if the agent is shown to be not an independent agent, it has to be further shown that he is a dependent agent within article 5.4 and that it must be shown that he has and habitually exercises an authority in India to conclude contracts in the name of the foreign enterprise. In TVM Ltd. v. CIT [1999] 237 TTR 230, a decision rendered by the AAR, it has been accepted that when an agent failed to come up to the standard of independence referred to in article 5.5, the issue regarding PE is not closed but has to be resolved in terms of article 5.4. It was further held that the presence of the words unless his activities are limited to the purchase of goods or merchandise for the enterprise in clauses (i) and (ii) may suggest a narrower interpretation restricting the article to agents involved in such activity and as saying that mere purchase or sporadic sale of goods through an agent will not be sufficient to merit such an agent being considered a PE, but that this is not the correct view as it would ignore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commentary on the OECD Model of Double Tax Conventions as well as the views of text book writers like Klaus Vogel and Baker. 39. In line with the above, we have to examine the facts of the case to find out first whether the agents have the authority to conclude contracts (on behalf of the assessee). There is no express authority given to them in the agreement and our attention was not drawn to any clause therein to that effect. All that the income-tax authorities have stated is that (a) that the agents carry out in India the commitment given by the assessee to the remitter of the money abroad and (b) that the agents have the power to appoint sub-agents to do their work. From these facts, taken singly or together, it cannot be inferred that the agents either have the authority to conclude the contracts or have habitually exercise the authority without any protest from the assessee. In paragraph 33 of the commentary referred to in the preceding paragraph, under the heading Authority to conclude contracts , it has been stated: the authority to conclude contracts must cover contracts relating to operations which constitute the business proper of the enterprise. It would be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is merely to facilitate the work of the agent. That apart, what is considered to be a duty cannot be considered to be an authority . By making payment to the beneficiary, the agent in India is only performing his duty under the agreement of agency, for which he is remunerated; he is not exercising any authority , certainly not an authority to conclude contracts on behalf of the assessee. The words duty and authority are incompatible with each other. The dictionary meaning of the word duty is assignment/burden/commitment that one is obliged to do by law or by calling of one's business . It connotes an obligation, which a person is bound to perform. Per contra, authority in law belongs to the province of power (Page 124 of K.J. Aiyar's Judicial Dictionary, 13th edition, Butterworths). According to Salmond (Jurisprudence, 10th ed., page 243), the ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations, either of himself or of other persons must be present ab extra to make a person an 'authority '. Judged by these tests, the fact that the agents in India pay out th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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