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TMI Blog2022 (2) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has a PE in India. Accordingly, the ground No.2 raised by the assessee is allowed. Taxability of royalty - HELD THAT:- Since there is no PE in India, there will be no occasion to royalty being effectively connected with the PE or taxability of royalty u/s.44DA Chargeability of interest u/s.234C - HELD THAT:- This ground would be consequential in nature as we have directed the ld. AO to re-determine the income in terms of the aforesaid directions. In any event, we hold that interest u/s.234C of the Act shall be charged only on the returned income and not on the assessed income. The law is very well settled in this regard. - ITA No.975/Mum/2021 - - - Dated:- 17-1-2022 - Shri Vikas Awasthy, Judicial Member And Shri M.Balaganesh, Accountant Member For the Assessee : Shri J.D. Mistry, Senior Advocate And Shri Niraj Sheth, Advocate For the Revenue : Shri Milind S. Chavan , Senior AR ORDER PER M. BALAGANESH (A.M): This appeal in ITA Nos.975/Mum/2021 for A.Y.2017-18 preferred by the order against the final assessment order passed by the Assessing Officer dated 20/04/2021 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. 12 September 2011 is 88 : 12 (88 for the assessee and 12 for the consolidator). It is important to appreciate that after GIA India Lab was set up, this agreement also requires that the cost to the consumer would remain the same whether diamonds were graded by GIA India Lab or through the consolidator. 4.2. During the year under consideration, GIA India Lab graded diamonds, stones or pearls weighing from 0.15 carats to 3.99 carats. However, due to technical limitations, the diamonds or stones weighing larger than 3.99 carats or colored stones are referred to the assessee for grading which includes testing, analyzing, examining and inscribing and issuing reports. Further, in the case of capacity constraints, normal grading process are also referred to associated enterprises. 4.3 The assessee has entered into GIA Gem Grading Services Agreement and the subsequent Amendment Agreement with GIA India Lab (amongst other entities) for providing gem grading services vis-a-vis diamonds/stones to other group entities. 4.4 In terms of the aforesaid agreement, the entities follow a uniform pricing mechanism of 90:10 ratio for grading services i.e. as per the arrangement, GIA India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us primarily revolves around as to whether or not the subsidiary of the assessee company i.e., GIA India Lab can be construed as its PE in India. The income-tax authorities have invoked section 9 of the Act and/or Article 5 of the India-US Treaty in order to say that the assessee company has a PE in India. On the contrary, as per the assessee, the impugned receipts are in the nature of business profits, and in the absence of any PE in India, the same are not taxable in India. Factually speaking, it is evident that the on perusal of the agreements, the transaction of grading services between assessee company and GIA India Lab cannot be considered to be in the nature of a joint venture, since GIA India Lab has its own independent expertise but only due to its technology/capacity constraints, it forwards the stones to the assessee company for grading purposes; it is not an arrangement between two parties where each party contributes its share in order to undertake an economic activity which is subjected to joint control; in fact, the arrangement is akin to an assignment or sub-contracting of grading services to the assessee company, wherever GIA India Lab does not have the requis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid argument of the Revenue was repelled since the conditions under Article 5 of the DTAA were not met and it has been held that PE cannot be established merely because of transactions between associated enterprises or the principal sub-contracting or assigning the contract to the subsidiary. 11. Factually, in the case of the assessee company, there is no joint venture arrangement between the assessee company and GIA India Lab vis- -vis gem grading services rendered by the assessee company to GIA India Lab since it is GIA India Lab who enters into agreement with the client and bears all the risks including credit risks, client facing risks, etc. Also, in terms of the agreement, GIA India Lab bears the risk of loss or damage to articles while in transit to and from the assessee company and also during the time when the articles are at or in the assessee company's facilities. Therefore, the economic risks of the gem grading services rendered by the assessee company vis- -vis stones/diamonds of customers of GIA India Lab shipped to it are borne by GIA India Lab and hence, there is no joint venture arrangement whatsoever between the assessee company and GIA India Lab. In te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d habitually exercises in India an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) he has no such authority but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise ; or (c) he habitually secures orders in India wholly or almost wholly for the enterprise. 2. The definition excludes from the ambit of a PE any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status acts in the ordinary course of its business. The OECD Commentary deals with the concept of 'Independent Agent' in paragraphs 36 to 39. In terms of paragraph 37 of the OECD Commentary, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oever was made, which is evident from the Assessment Order (AY 2009-10) dated 26 March 2013. Thus, in this background it was all the more incumbent upon the Revenue in this year to discharge its onus as to why a different stand is being adopted, especially in the face of the fact that the nature and source of income in question remains the same. Therefore, on this aspect also, we are not inclined to uphold the stand of the assessing authority. 17. Before parting, we may also refer to the reliance placed by the Ld. DR on the judgment in the case of Formula One World Championship Ltd. (supra). In that case, the assessee was a U.K tax resident who obtained licence over all commercial rights in FIA Formula One World Championship. For this purpose, the assessee (foreign tax payer) entered into a contract with J.P. Sports (an Indian concern) by way of which it granted to J.P. Sports the right to host, stage and promote Formula One Grand Prix of India event at Motor racing Circuit owned by J.P. Sports. After examining all the relevant agreements, the case of the Revenue was that the Circuit located in India constituted a PE of assessee (i.e. the foreign tax payer) in India. The Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mic. 6. With regard to ground No.6 raised by the assessee in respect of taxability of royalty received during the year under consideration u/s.44DA of the Act, we find that this Tribunal in assessee s own case for A.Yrs. 2011-12 to 2016-17 vide order referred to supra dated 30/04/2021 had indeed examined the same and had come to the conclusion that since there is no PE in India, there will be no occasion to royalty being effectively connected with the PE or taxability of royalty u/s.44DA of the Act. Accordingly this ground also becomes academic and infructuous. 7. The ground No.7 raised by the assessee is only for seeking credit for tax deducted at source of ₹ 65,50,70,081/-. We find that assessee had filed a rectification petition u/s.154 of the Act before the ld. AO on 20/05/2021 which is pending disposal. The ld. AO is hereby directed to dispose of the said rectification petition and grant credit for TDS in accordance with law at the earliest. Accordingly, the ground No.7 is allowed for statistical purposes. 8. The ground No.8 raised by the assessee is with regard to chargeability of interest u/s.234C of the Act. This ground would be consequential in nature as we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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