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TMI Blog2015 (10) TMI 2830X X X X Extracts X X X X X X X X Extracts X X X X ..... ithholding tax under section 195 of the Act. In this case we have no option but to hold. that the assessee is liable to interest u/s 234B, as the income being assessed now cannot be held. to be income liable to TDS under Indian provisions. The same is being assessed in the hands of PEs who had not filed their return on the ground that this income was not attributed to Indian Business Connection. Provisions of section 234B are mechanical in nature. In view of the above this ground of appeal of the assessee is dismissed. Taxability on IPLC/link charges - As held payment is not taxable in the hands of the assessee as Royalty - We hold that there is no transfer of the right to use, either to the assessee or to CIS. The assessee has merely procured a service and provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. Therefore, it is held. that the said payments do not constitute Royalty under the provisions of Article 12 of the tax treaty and the ground is allowed in favour of assessee. - ITA Nos. 1756 & 1757/Del./2014, ITA Nos. 2018 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and a notice u/s. 142(1) was also issued requiring the assessee to furnish information and details. The ARs of the assessee filed required information. 4. During the assessment proceedings the AO observed that the assessee is a call centre company and is having a subsidiary in India, i.e., CIS. In the assessment order for A.Y. 2006-07 passed u/s. 143(3) on 29.12.2008, it was held by the AO that the assessee has a fixed place Permanent Establishment (PE) in India under article5(1), 5(2)(a) and 5(2)(c), a Service PE under Article 5(2)(l) as well as a Dependent Agent PE under Articles 5(4)(a) and 5(4)(c) of the India-USA DTAA. The AO s finding regarding existence of assessee s Fixed Place PE in India under Articles 5(1) and 5(2)(a) has also been confirmed by the ld.CIT(A) vide his order dated 24.01.2012 in appeal No.12/11-12. Further in the draft assessment orders for A.Ys. 2007-08 2008-09 also, the finding regarding existence of assessee s PE in India was made by the AO and the same was reviewed and confirmed by the Hon ble DRP and accordingly, the final assessment orders for A.Ys. 2007-08 and 2008-09 were passed u/s. 144C(13). The assessee filed appeals before the ITAT and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii). Whether the procurement of IT enabled services from assessee s Indian Subsidiary for the purpose of export, would accrue income in the hands of the assessee in India or whether the profits are attributable to alleged PE in India. (Ground No. 2). (iii). Whether levy of Interest u/s. 234B of the Act is justified. (Ground No. 3). The issues involved in appeal of the Revenue : (i) Whether the ld. CIT(A) was correct in holding that the assessee is not having dependent agent PE through CIS in India (Ground No. 1). 6. During the course of hearing, the ld. AR of the assessee submitted at the outset that the facts of the present case are identical to the facts of the earlier assessment year 2006-07 and in that year, the Tribunal had held that the assessee had PE in India by rejecting the claim of the assessee. However, he pleaded that the order of the Tribunal has been challenged in appeal before the Hon ble High Court which is pending disposal. On the other hand, the ld. DR submitted that the issue is squarely covered in favour of the Revenue and the against the Revenue by the order of Tribunal dated 10th May, 2013 in ITA Nos. 1443/Del/13 and 1376/Del./12 in assessee s ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above facts, circumstances, case law, CBDT circulars and various articles of India-USA DTAA, following conclusions are arrived at: A. The Ld. CIT (A) accepted the revenue from end-customer with regard to contracts/projects wherein services were procured from CIS of USD 138.9 million submitted by the assessee for assessment year 2006-07. The end customer revenue has been accepted by the AO is the assessment of all the other years on the same basis. B. The methodology adopted by the AO and the ld. CIT(A) cannot be accepted as they have considered revenue of the assessee company (CMG as a multi-national enterprise) as the starting point for arriving at the profits attributable to the PE of assessee in India. The revenue of the assessee company cannot be considered as the revenue of the PE by any stretch of imagination. Furthermore the expenses incurred outside India are linked with the business activities of the assessee undertaken outside India for the functions performed outside India and are not linked to the PE of the assessee in India. C. The attribution of profits to the PE should be made by the transfer pricing principles supported by the CBDT Circular No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets and software cannot be accepted. Further, in the facts and circumstances of the case Profit Split Method is not the correct method for attribution of profits to the PE of the assessee in India. F. In our considered opinion, the correct approach to arrive at the profits attributable to the PE should. be as under: Step 1: Compute Global operating Income percentage of the customer care business as per annual report/10K of the company. Step 2: This percentage should. be applied to the end-customer revenue with regard to contracts/projects where services were procured from CIS. The amount arrived at is the Operating Income from Indian operations. Step 3: The operating income from India operations is to be reduced by the profit before tax of CIS. This residual is now attributable between US and India Step 4: The profit attributable to the PE should be estimated on residual profits as determined under Step 3 above. The attribution of India profit shall be worked out as under, mentioned after the table: 11.18. In the computation based on the above approach for the AY 2006-07, the profits attributable to India comes as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is, accordingly, dismissed. As a result, the appeals of the assessee and the revenue for A.Y. 2002-03 are dismissed. 14. Adverting to the cross appeals for the A.Y. 2009-10, we find that the facts of the case are identical to that of A.Y. 2002-03 barring that in A.Y. 2002-03, the assessee did not procure services in connection with his business from PE and that the margin kept by the assessee over above payments to the CIS was a loss and also that in A.Y. 2002-03, the assessment was made u/s. 143(3)/147 whereas in A.Y. 2009-10, the assessment was made u/s. 143(3) read with section 144C. In the instant case, the revenue earned by customer care segment of the assessee for the subject period has been intimated by the assessee at USD 1995.79 million. Out of this, the revenue from end customers with regard to contracts/wherein services were procured from CIS during the year is stated to be USD 166.99 million and the assessee has paid USD 140,697,002 to CIS for these services (including markup) The net margin of the assessee after considering payment to CIS is USD 26,292,998. The assessee also filed a certificate for expenses incurred outside India aggregating to USD 23.3 mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Royalty. The findings of the Tribunal are reproduced as under : 13. Adverting to the issue of taxability of link charges as Equipment Royalty in terms of Article 12(2) read with Article 12(3)(b) of the DTAA. This issue is common to both assessment year 2006-07 and 2008-09. In this regard, the ld. AR of the assessee submitted that the link charges pertain to leased lines (under sea cables) that allow a dedicated capacity for a private, secure communication link from India to the US which enables CIS to communicate with the customers. The assessee makes payment for such link charges to telecom service providers in the USA and cross charges the portion of the cost incurred by it in connection with the India half link to CIS, which is accordingly reimbursed by CIS to CMG. Ld. counsel also referred to the invoice of raised by the assessee on CIS on Page 349 of paper book volume I and the basis of cross charged at page 828 of paper book volume III and placed reliance on the decision of the Hon ble Delhi High Court in the case of Expeditors International India (P) Ltd. (209 Taxman 18) on reimbursement of common expenses incurred by the parent company. 13.1. AO made an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment, it is specifically mentioned that Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the assessee gets a boost . This observation supports the case of assessee. 13.5. In view of the foregoing observations we hold that there is no transfer of the right to use, either to the assessee or to CIS. The assessee has merely procured a service and provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. Therefore, it is held. that the said payments do not constitute Royalty under the provisions of Article 12 of the tax treaty and the ground is allowed in favour of assessee. 18. Respectfully following these findings of the Tribunal, we decide this issue in favour of the assessee and against the Revenue. Accordingly, ground No. 4 of the Revenue s appeal is dismissed. 19. The issue regarding levy of interest u/s. 234B also stood decided against the assessee vide para No. 14 of the Tribunal Order dated 10.05.2013 reproduced above. Therefore, taking a consistent view, g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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