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TMI Blog2023 (3) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... e directions of the ld. DRP, thereby violating the provisions of section 144C(13) - only the determination of total income as directed by the ld. DRP had been complied with by the ld. AO in the final assessment order. This is a case of ld. AO completing the assessment by determining the total income as directed by the ld. DRP , but did not follow the basis and reasoning of determination of income as directed by the ld. DRP. Hence we are in agreement with the ld. AR that once the basis of determination of total income itself is illegal due to violation of provisions of section 144C(10) and 144C(13) of the Act, the ultimate determination of total income in the final assessment order also becomes bad in law. Moreover, the ld. AO had not even bothered to rectify his order u/s 154 of the Act by conforming to the directions of ld. DRP which forms the basis of determination of total income. We have no hesitation to hold that the final assessment order passed by the ld. AO , which is in appeal before us, is bad in law and accordingly the final assessment order framed is hereby quashed. Appeal of the assessee is allowed. - ITA No.7833/Mum/2019 - - - Dated:- 28-3-2023 - Shri M.Bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of profits 3.1. The DRP/ DCIT erred in treating a sum of Rs. 2,42,94,992 as profit attributable to the PE in India (75% of 7.13% of total receipts of Rs. 3,23,93,323). 3.2. The DRP/DCIT erred in not appreciating that the role of Mr. Rupam Saikia in the activities carried out in India was miniscule/ Insubstantial and he was not at all involved in the repair activities. Accordingly, the profit attribution to the agency PE should have been a very small amount. 3. Others 4.1. The DCIT erred in not granting interest under section 244A to the appellant. 4.2. The DCIT erred in Issuing a notice to the appellant to show cause why penalty should not be levied on the appellant under section 271(1)(c), without appreciating that the DCIT had himself issued a certificate under section 197 stating that the income of the appellant is not taxable in India. 5. Each one of the above grounds of appeal is without prejudice to the other. 6. The appellant reserves the right to amend, alter or add to the grounds of appeal. 3. We have heard the rival submissions and perused the materials available on record. The assessee is a company incorporated in Netherla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person and in view of the agreement with the group company, Mr. Rupam Saskia was supporting the assessee company at well 4. Upon receiving information about the assessee RIL issued Request for Quote [FQI] to the assessee Based on the RFQ the assessee discussed the scope of work and schedule with RIL over calls 5. The employees of the assessee came to India to discuss the proposal of the assessee with RIL The proposal was discussed by Mr. G. Hill, Mr. J. Bates and Mr. R. Matos in their meeting with RIL executives on 12th and 13 the December 2014 at the premises of RIL fir is claimed that the employees were present in the meeting to bridge the gap between two cultures and be a communication channel. The final decision in relation to the proposal was taken by the project team of the assessee in Netherlands.] 6 Pursuant to the discussions between RIL and project team, RIL issued the work order to the assessee. Before the execution of the project started, a two day kick off meeting was held in February 2015 The kick off meeting was attended by Mr. Botes at the premises of RIL 7. The assessee company will use its own specialized equipment for the repair work; this eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agency PE for that matter. On the contrary, the ld. AO held that the contentions of the assessee that the conditions required for the Fixed Place PE are not fulfilled in the present case are incorrect. The ld. AO held that the assessee fulfills all the conditions prescribed in the OECD model commentary relating to Fixed Place PE. The ld. AO mentioned that the assessee has a place of business, such place is fixed, activities have been performed by the assessee through the said fixed place of business and the said fixed place of business was at the disposal of the assessee and its employees. The ld. AO relied upon the copy of the Work Order given to the assessee by RIL for repair of 4 coke drums in this connection. The ld. AO extracted the Para 4 relating to the Owner s Scope in the Work Order to hold that the RIL was bound to provide an office space to the assessee near the job site and also to provide lodging, boarding at or near the job site to the personnel of the assessee. The ld. AO held that the assessee through its employees used the office space in India and these premises can be termed as the Place of business of the assessee thereby meeting the place of business test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany had appointed a consultant Mr Rupam Saikia, to liaise with the Indian customers. The consultant holds a meeting with RIL to inform them about the services provided by assessee. The ld. AO noted that the assessee had not produced the agreement entered by the group company with this consultant and under such circumstances, it cannot be finally determined as to whether Mr Rupam Saikia had the power to conclude contracts. However, the ld. AO based on certain emails produced by the assessee held that these emails show that Mr Rupam Saikia was always in the loop with regard to the negotiations of the contract with RIL e.g. he was also present during the meeting on 12th and 13th December 2014 at RIL premises along with Mr G.Hill, Mr. J. Bates and Mr R Matos. RIL had issued a Request for Quote (RFQ) to the assessee based on the information provided by Mr Rupam Saikia. He was present during other meetings as well when the scope of service and logistics were discussed. The ld. AO accordingly held that the assessee through its employees i.e. Mr. G.Hill, Mr. J.Bates and Mr.R.Matos along with Mr. Rupa Saikia came to India and concluded the contract in India. Accordingly, the assessee earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etting the repair done and does not, in the opinion of the DRP. constitute a fixed place PE from where the assessee was conducting its own business. The fact that KIL had provided lodging/boarding fo the employees of the assessee at or near the job site is of no relevance in the present circumstances. Further, the DRP notes that there was no repetitive nature of activity being done by the assessee which can be said to introduce a degree of permanence in terms of the presence of the assessee in India. The employees of the assessee had only come to repair the Coke drums and there was no certainty of doing the same kind of work in future years though the assessee mentions that its employees had come again during financial year 2017-18 for a different repair work. The contention of the AO that the tools/equipment used by the employees of the assessee were kept in the control of the assessee/its employees does not come out that the same were being used for any business activity except for doing the repair work at the premises of RIL Therefore, the DRP is in agreement with the assessee that the tests of place of business, business activity, permanence and place of disposal do not lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of AZZ WSI These minutes detail the technical requirements of the job. The record also has the Minutes of Meeting dated 13/12/2014 between RIL and AZZ WSL In these Minutes also the name of Mr. Rupam Saikia is mentioned as one of the persons present on behalf of AZZ WSI. These Minutes have details of how the job will be got done, discussions on request of RIL to make the proposal gross of tax hases without any commercial implication, details of shipment request of RIL to provide bifurcated rate of weld wire so that a separate purchase order can be issued to AZZ WSI, payment terms, mobilisation of crew etc. The DRP also notes that Mr. Rupam Saikia had sent a letter to RIL on 16/12/2014 which mentions that subsequent to discussions with the RIL people at the refinery on 12th and 13th December 2014 AZZ WSI is submitting the revised proposal is enclosed. As per another email sent by Mr. Rupam Saikin to RII on 05/01/2015 an updated offer was communicated to RIL whereby certain discount has been offered. This email mentions that AZZ WSI considers RIL as an important strategic and long-term customer and requests RIL to confirm the purchase order so as to enable AZZ WSI to start worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the principal non-resident or have a controlling interest in the principal non- resident or are subject to the same common control as the principal non-resident he shall not be deemed to be a broker, general commission agent or an agent of an independent status. Explanation 3-Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India. 4.3.1 Similarly, the relevant provision of the Indian Netherlands DTAA is as under. Article 5.5-Notwithstanding the provisions of paragraphs 1 and 2, where a person- other than an agent of an independent status to whom paragraph 6 applies- is acting in one of the States, on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if---- (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P notes that in a case decided by Supreme Court of Netherlands (HogeRaad) in case no. 14458 dated 17/5/1961, the UK resident was engaged in marine insurance business. It had appointed an agent in Netherlands who had power to enter in contract in respect of some categories of policies. In respect of other categories, it did not have power to conclude contracts. The Court had still held that it was sufficient if the Agent had power to conclude contract with customers in respect of at least scene categories of policies. The DRP finds that the facts of the present case are similar. It is clear that Mr. Rupam Saikia is not an independent agent as he is referred to as the Business Development Manager of AZZ WSI. He stays in India on a regular basis. The assessee admits that he is on the payroll of another group concem but the assessee has not shared the relevant employment/job contract. The DRP holds that he had sufficient authority to bind the assessee's participation in the job order of RIL as required in order to establish the existence of a Agency PE. The DRP also notes that as per the 'Model Tax Convention on Income and on Capital , condensed version, 2014 issued by OECD, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before the Supreme Court the work had been carried out by a consortium of Independent parties, the equipment supplier having no connection with activities in India. This is not the case with the present assessee who has supplied the weld wire and has also carried out the repair 6.2 The DRP notes that as per the facts available on record there was never any scope or intention to divide the contract in offshore and onshore supply of services. In the present case as per the emails/correspondence exchanged between the agent of the assessee Mr. Rupam Saikia and RIL, it is noted that when the assessee had been invited to do the innovative' welding job which is its specialty and when the assessee has been asked to repair the Coke drums of RIL using its technique and expertise, it is implicit that the tools of the job have to be as per the specification of the assessee. The emails mentioned above mention that the assessee had sought to include the weld wire in its scope of work but it was only on the insistence of RIL that it needs to place a separate purchase order for the weld wire that the assessee agreed to separate the two. The DRP holds that since the job order is for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 144C(13) of the Act on 23.10.2019 again held in para 6.5. of his order that assessee has a fixed place PE in India during the year under consideration. This is totally contradictory to the directions issued by the ld. DRP u/s 144C(5) of the Act, wherein it was specifically held that there was no fixed place PE in India. It is pertinent to note that against the directions of ld. DRP, the revenue is not in appeal before us. Either way, as per the provisions of Section 144C(10) of the Act, the directions of the ld.DRP are binding on the ld. AO. However, we find that the ld. AO in the final assessment order determined the profit attribution of the PE as per the directions of the ld. DRP as under:- (A) Correct figure of contract revenue 6293452 Euro (B) Exchange rate applied - Rs 72.19 per Euro (C) Total Receipts (A) * (B) - Rs 45,43,24,300/- (D) 7.13% of Total Receipts - Rs 3,23,93,323/- (E) 75% of (D) - Rs 2,42,94,992/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses u/s 36(1 )(iii) of the Act. I am satisfied that the assessee company has concealed the income/furnished inaccurate particulars of income. Therefore, penalty proceedings u/s 271 (l)(c) of the Income-tax Act, 1961 for concealed the income/furnishing inaccurate particulars of income are being initiated separately, 7. Assessed at a total income of Rs. Rs. 10,41,53,180/-as above. Issue Tax and Interest u/s 234B and 234C have been charged as per tax calculation sheet which forms part of this order. Demand notice, and necessary forms are being issued along with copy of this Assessment Order. Penalty notice u/s 271 (l)(c) is initiated separately. 11. Income of Rs. 10,41,53,180/- is the same as computed in the draft assessment order dated 21-12-2019. Considering the aforementioned factual matrix, we are of the opinion that as per the provisions of section 144C(5) of the Act, directions given by the DRP are binding on the Assessing Officer and in terms of section 144C(13) of the Act, the Assessing Officer was obliged to pass final order of assessment in accordance with the directions of the DRP. In the present case, final order of assessment does not incorporate the direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessment dated 17-1-2014 u/s. 143(3) r.w.s. 92CA of the Act; which, as contended by the id AR, is identical to the draft order of assessment passed on 14-3-2013 by only incorporating this TPO's proposals and, thereby evidently giving the DRP's mandatory directions issued u/s. 144C(5) of the Act a complete go-by. In our view, it is factually established that the AO in the final order of assessment dated 17-1-2014 has not given effect to or carried out the binding directions of the DRP as required u/s. 144C(10) within the time specified u/s. 144C(13) of the Act; which is a clear violation of the binding provisions of sec. 144C(10) and (13) of the Act. Therefore, in our considered opinion, the conduct of the AO/TPO in passing the impugned final order of assessment dated 17-1-2014 is a clear case of defiance and disregard to the binding directions of the higher authorities, i.e., the DRP in the case on hand. In fact, in the impugned order dated 17-1-2014 there is not even a single reference to the DRP's directions issued u/s. 144C(5) of the Act vide order dated 30-12-2013. 3.3.2 In the factual and legal matrix of the case on hand, as discussed above, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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