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TMI Blog2022 (12) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... prise. We are of the considered view that KIPL is only undertaking marketing enterprise and contracts are finalized by the assessee and signed by the assessee outside India. Therefore, KIPL cannot be said to be habitually securing and concluding order on behalf of the assessee. KIPL maintains stock inventory and economically dependent on the assessee - The agreement with KIPL is effective from 2007 and we are in Assessment Year 2011-12 which means that no adverse view has been taken by the Revenue in the past and we have been told by the ld. counsel for the assessee that no adverse view has been taken by the Revenue after the present assessment. Though the AO has heavily relied upon the TP Study Report of KIPL, but has not brought any evidence on record that KIPL has habitually secured orders for the assessee. None of the customers have been examined by the Assessing Officer though the customers from India include renowned organizations like Nestle, Coco Cola, Pepsico etc. Considering all we are of the considered view that the observations made in the TP Study Report of KIPL regarding scope of its business activities do not result in holding KIPL as DAPE of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A read with Protocol thereto. 4.1 That the learned CIT(A) has erred in confirming attribution of profits in relation to offshore supplies to the alleged Dependent Agent PE, by erroneously holding that the receipts from such business activities were effectively connected with the alleged PE in India. 4.2 That without prejudice to the above ground, the cui has erred in confirming 10% rate of profit on offshore supplies as applied by the Assessing Officer as against actual/global rate of profit available on record, for the purpose of attributing the same to the alleged PE of the assessee. 4.3 That, without prejudice to the above grounds, the learned CIT(A) has erred in confirming attribution to the extent of 35% of profit pertaining to offshore supplies to the alleged PE of the assessee in India, on arbitrary basis. 4.4 That, without prejudice to the above grounds, the learned CIT(A) has erred in attributing profits in relation to offshore supplies, over and above the remuneration paid by the assessee to KIPL, not appreciating that KIPL was remunerated on arm's length basis for all the functions performed by it, as also accepted by the TPO. 4.5 That, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly holding the provisions of levy of interest under section 234B of the Act as consequential in nature, without appreciating that the provisions of the same are not applicable on facts and in law to the assessee for the year under consideration, as held by the Hon ble High Court of Delhi in DIT v. GE Packaged Power Inc. [2015] 373 ITR 65 (Delhi). 9. That the learned CIT(A) has erred in directing the AO to compute arm s length price of Bank Guarantee, without appreciating that: a) Bank Guarantee does not constitute income of the assessee in India under the provisions of the Act as well as the DTAA; b) The bank Guarantee was not given in the financial year relevant to the subject assessment year. The direction as made is, as such, without jurisdiction. The appeal is within time as the order was received on December 27, 2016 . 3. Facts, as culled out from the orders of the authorities below show that the assessee is a German company and is a world market leader in beverage filling and packaging technology. It plans, develops and manufactures, supplies and installs machinery and complete systems for filling and packaging and for beverage product from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It was strongly contended that even in a case where an enterprise in not held as independent agent , it will not automatically become dependent agent. 10. It was brought to the notice of the Assessing Officer that KIPL has no authority to conclude the contracts on behalf of the assessee company. KIPL has never acted as the stockist of the assessee company and has never maintained the stock records on behalf of the assessee. It is a separate legal entity which was incorporated in 1997 and is an economically independent entity and the assessee does not have any financial control over KIPL. 11. The contentions of the assessee were dismissed by the Assessing Officer who was of the firm belief that KIPL is financially dependent upon the assessee and is fully depending on the assessee economically and habitually maintains stock inventory of the assessee and markets goods of the assessee in India and gets commission on habitually securing orders of the assessee. 12. The Assessing Officer was of the opinion that KIPL has not been remunerated for many activities performed beyond the mandate for which it has received commission and for such activities, KIPL has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and KIPL is at pages 3 to 8 of the Paper Book which have been duly considered by us. This agreement begins on 0101.2007. 18. A perusal of the agreement shows that KIPL does not carry out any manufacturing or processing activity in India using intangibles of the assessee and therefore, assumption of the Assessing Officer is factually incorrect. It further comes out from the agreement that research and development function and the risk in respect of technical obsolescence is assumed by the assessee only and not by KIPL as assumed by the Assessing Officer. 19. The plant as supplied has to be made to the specifications of each customer. The contracts for supplies are directly negotiated, concluded and signed by the assessee with the Indian customers, based on referrals made by KIPL as per its agreement with the assessee. Supplies are made on CIF basis by the assessee directly to the customers who bore the responsibility with respect to clearing, forwarding, loading and unloading, transportation and insurance. 20. KIPL is only required to coordinate KIPL the delivery and payment with the customer as part of its activities with respect to the order, for which it gets the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 785,121 TOTAL 3,874,437 785,121 SCHEDULE -4 : CURRENT ASSETS, LOANS AND ADVANCES Current Assets 17,818,000 4,821,675 Inventory (Valued at lower of cost and net realisable value) Trading Inventory 17,818,000 4,821,675 28,050,000 Cost of Incomplete Projects Unbilled 139,354,844 21,462,282 Service Charges 6,356,0671 231,671,247 Sundry Debtors (Unsecured, cohsidorod good) Outstanding for more than six months Others 145,710,910 2531133,529 SCHEDULE - 9 : COST OF SALES Opening Stock Add: Purchases Less: Closing Stock 4,821,675 326,948,085 1,043,300 276 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m those usually agreed between independent persons. 27. A conspectus reading of Article 5 brings out the following key points in connection with Agency PE: (i) A person is acting on behalf of an enterprise. (ii) This person is acting in the other contracting state, i.e. India. (iii) This person habitually concludes contracts or habitually play the principal role leading to the conclusion of contracts that are routinely concluded without material modification. (iv) Agency PE would not be triggered if the person is an independent agent and acting in the ordinary course of that business. (v) This person maintain in the other contracting state a stock of gods or merchandise from which that person regularly delivers goods or merchandise on behalf of an enterprise. 28. The agreement shows that entrepreneurial risk is with the assessee and sharing of risk indicates that each party perform non integrated business activities. 29. The co-ordinate bench Mumbai in the case of Airline Rotables 44 SOT 368 describes rationale of DAPE as follows: The rationale for dependent agent permanent establishment is simple. A foreign enterprise may chose betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KIPL as DAPE of the assessee and further, since KIPL has been remunerated by the assessee for commission activities on arm s length basis, no further attribution is required in lieu of law laid down by the Hon'ble Supreme Court in the case of Morgan Stanley 292 ITR 416. 33. We, accordingly, hold that pursuant to the specific exclusion of independent agent under Article 5(5) of the DTAA, the case o the assessee falls outside the scope of PE. We, accordingly, direct the Assessing Officer to delete the impugned addition. 34. Appeal of the assessee is allowed. ITA No. 2617/DEL/2017 [Revenue s appeal] 35. The only grievance is that the ld. CIT(A) erred in hodling that the assessee could not be held liable to pay interest u/s 234 B of the Act. 36. This issue is no more res integra as it has now been settled by the decision of the Hon'ble Supreme Court in the case of DIT Vs. Mitsubishi Corporation 130 Taxmann.com 276 wherein the Hon'ble Apex Court has held as under: 19. The dispute relating to the interpretation of the words would be deductible or collectible in Section 209 (1) (d) of the Act can be resolved by referring to the proviso to Section 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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