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TMI Blog2024 (9) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... Panel-Mumbai [DRP] dated 28.12.2023 for Assessment Year [A.Y.] 2018-19. 2. The assessee has raised following grounds of appeal: 1:0 Re.: General: 1:1 The Assessing Officer/the Dispute Resolution Panel have erred in assessing the total income of the Appellant at Rs. 4,04,30,43,830/- against the returned income of Rs. 3,54,29,79,350/- thereby determining the tax liability of Rs. 2,32,26,29,816/- against the refund claimed of Rs. 59,91,540/- while returning the income for the year. 1:2 The Appellant craves leave to add, alter, amend and/or substitute all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2:0 Re: Validity of re-assessment proceedings: 2:1 The Assessing Officer/the Dispute Resolution Panel has erred in re-opening the Appellants assessment u/s. 148 of the Income-tax Act, 1961. 2:2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject the re-opening u/s. 148 of the Income-tax Act, 1961 was in excess of jurisdiction and is also otherwise bad in law. 2:3 The Appellant submits that the proceedings u/s. 148 of the Income-tax Act, 1961 were not in accordance with law and consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to the alleged PE of the Appellant in India. 5:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject no part whatsoever of its receipts are attributable to the alleged PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is incorrect, illegal, arbitrary, baseless, not in accordance with law and hence ought to be struck down. Without prejudice to the foregoing: 6:0 Re.: Estimation of gross profit: 6: 1 The Assessing Officer/the Dispute Resolution Panel have erred in holding that the 20.31% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE taxable in India. 6:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, even if it is held that the Appellant has a PE in India no further income can be taxed in India as the alleged PE has been remunerated at an arm's length and hence the stand taken by the Assessing Officer/the Dispute Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the amount in accordance with the APA, if any, entered into by GIA India Laboratory Private Limited with the CBDT. 9:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty, if held to be connected to the alleged PE, should be restricted to the amount in accordance with the APA. 9:3 The Appellant submits that the Assessing Officer be directed to consider the royalty income, if any, connected to the alleged PE, to be restricted to the amount determined in accordance with the APA and to re-compute its total income and tax there on accordingly. 10: 0 Re.: Excess levy of interest u/s. 234B of the Income-tax Act, 1961: 10:1 The Assessing Officer has erred in levying excess interest u/s. 2348 of the Income-tax Act, 1961 on the Appellant. 10:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject interest u/s. 234B is leviable as per the provisions of Income-tax Act, 1961 and the stand taken by the Assessing Officer in this regard is misconceived, incorrect, erroneous and illegal. 10: 3 The Appellant submits that the Assessing Officer be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not have a Permanent Establishment in India. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 1138/Mum/2015 dated 21.06.2019 held as under: - 9. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, the Department had contended that the foreign company had a joint venture or partnership with Indian subsidiary as the businesses of the assessee company and the Indian subsidiary were inter-linked and closely connected (which is also contended in the case of the assessee before us) and therefore the Indian subsidiary was regarded as PE of foreign company in India. The aforesaid of the instant case, since the said services are rendered outside India and none of the employees/ personnel of the assessee company has visited India and therefore, service PE is not triggered in the case of the assessee company. 13. In terms of Article 5(4) of the India - US/DTAA, an agency PE is created where a person-other than an agent of an independent status to whom paragraph 5 applies is acting in India on behalf of an enterprise of the USA, that enterprise shall be deemed to have a permanent establishment in India, if: (a) he has and 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 permanen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing Study Report). Hence, GIA India Lab is not acting in India on behalf of the assessee company. Further, GIA India Lab is not having any authority to conclude contracts and has neither concluded any contracts on behalf of the assessee company nor has it secured any orders for the assessee company in India. Thus, GIA India Lab cannot be regarded as 'agency PE' of the assessee company in India. 16. Before parting, we may also note the reference made by the Ld. Representative to the assessment concluded by the Assessing Officer for assessment year 2009-10. It was explained that during the assessment proceedings for assessment year 2009-10, a similar query i.e. why GIA India Lab should not be construed as PE of the assessee company in India was raised, but after considering the detailed response furnished by assessee vide reply letter dated 02 November 2012, no addition whatsoever 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard rival submissions and perused the materials available on record. The assessee is a company incorporated in USA and also a tax resident of USA. It is engaged in the business of diamond grading and preparation of diamond dossiers. The assessee filed its return of income for the A.Y. 2017-18 on 30/11/2017 declaring total income of Rs. 597,75,36,450/-. Later a revised return was filed on 30/11/2018 declaring total income at Rs. 348,35,96,480/-. The assessee is one of the companies of GIA group, a trusted name of gems and diamond grading and gemstone identification industry and is regarded as an authority in Gemology. During the year under consideration, the assessee has rendered diamond grading services to its associated enterprises in India i.e. GIA India Laboratory Pvt. Ltd., and to third parties. The assessee pleaded that it does not have any PE in India in terms of Article 5 of the Double Taxation Avoidance Agreement (DTAA) entered into and subsisting between India and USA. The Indian Company i.e. GIA India Laboratory Pvt. Ltd., which was set up on 26/09/2007, is a subsidiary of the assessee company. This subsidiary company set up a laboratory in India and since then engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Lab through which it carries on its business in India. Accordingly, 50% of gem grading fees received by the assessee from GIA India Lab has been held to be attributable to the Indian PE and a profit percentage of 20.31% was applied thereon to determine the total income of the assessee. The total receipts of the assessee company was determined at Rs. 789,00,91,734/- which Rs. 348,35,96,482/-. Hence, includes the income royalty remaining receipts of Rs. 440,64,95,252/- represents business receipts of the assessee. The Id. AO applied the profit ratio of 20.31% of 50% of such business receipts (Rs. 440,64,95,252/-). Accordingly, the Id. AO determined the profit attributable to PE at Rs. 44,74,79,593/- in the final assessment order pursuant to the directions of the Id. DRP. We find that the Id. DRP had given a categorical finding in 5.1 of its order that the contentions raised by the assessee during the year under consideration are identical to those raised by it in earlier assessment years and there is no change of facts involved in the year under consideration vis a vis earlier year. In fact, the Id. DRP while dismissing the contentions of the assessee, had merely placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 5(1) of the Indo-USA DTAA, a fixed place PE arises when the foreign entity has a fixed place in India through which its business is wholly or partly carried on. In this context, the learned Counsel pointed out that a similar situation has been considered by the Hon'ble High Court of Delhi in the case of E- Funds IT Solutions (supra), which has been upheld by the Hon'ble Supreme Court. In that case, it has been held that a subsidiary cannot be regarded as a 'fixed place PE' of the parent company on the ground of a close association between the Indian subsidiary and the foreign taxpayer. In that case, it was noted that because various services were being provided by E- Fund India (Indian subsidiary) to the taxpayer or that the foreign tax payer was dependent upon Indian subsidiary (e- Fund India) for its earnings or assignment or sub-contract of contracts to e-Fund India or e-Fund India being reimbursed on a certain cost- plus basis or saving/reduction in cost by transferring business or back office operations to the Indian subsidiary or the manner and mode of the payment of royalty transactions or eFund India providing support for carrying on core activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed within India for a related enterprise. Hence, a service PE is triggered if the services (other than included services as defined in Article 12 'Royalties and Fees for Included Services') are rendered by the assessee company through employees or other personnel and activities of that nature continue in India for a period or periods aggregating to more than 90 days within any twelve-month period; or the services are performed within India for a related enterprise. The assessee company renders 'grading services' and 'management services to GIA India Lab'. In fact, 2 graders who were earlier employed with the assessee company are now employed with GIA India Lab and are on the payrolls of GIA India Lab and are working under control and supervisions of GIA India Lab and therefore, no service PE is created in India in terms of India- US DTAA. The Supreme Court has affirmed the decision of the Delhi High Court in E- Funds (supra) wherein it has been held that two employees deputed to e-Fund India fund India did not create a service PE as the entire salary cost was borne by e-fund India and they were working under control and supervision of e-fund India. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almost wholly on behalf of the foreign enterprise for whom he is acting as agent. 15. GIA India Lab is an independent/separate legal entity in India which is engaged in rendering of grading services. Further, considering the functions and the risks assumed by GIA India Lab vis- -vis its business activities in India (as has been recorded in the transfer pricing study report which functional and risk analysis has been accepted by the Transfer Pricing Officer both in the case of GIA India Lab and in the case of the assessee company), GIA India Lab is an independent entity which is rendering grading services to its clients in India. GIA India Lab also bears service risk and all client facing risks vis- -vis the stones sent to the assessee company for grading purposes (as has been recorded in the Transfer Pricing Study Report). Hence, GIA India Lab is not acting in India on behalf of the assessee company. Further, GIA India Lab is not having any authority to conclude contracts and has neither concluded any contracts on behalf of the assessee company nor has it secured any orders for the assessee company in India. Thus, GIA India Lab cannot be regarded as agency PE of the assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier that the Indian subsidiary is operating in an independent manner and there is nothing to show that factually speaking the Indian subsidiary constitutes a PE of the assessee in India. Thus, on account of difference in fact-situation, the reliance placed by the Ld. DR in the case of Formula One World Championship Ltd. (supra) is misplaced. 18. In view of the aforesaid discussion, in our considered view, the Assessing Officer has erred in invoking section 9 of the Act and/or Article 5 of the India-USA DTAA in order to say that the assessee company has a PE in India. Thus, assessee succeeds on this issue. 4.6. Similar view was expressed by this Tribunal in assessee's own case for A. Yrs. 2011-12 to 2016-17 in ITA Nos.386/Mum/2016, 1836 and 7174/Mum/2017, 53,7739 and 7740/Mum/2019 dated 30/04/2021. 4.7. In view of the fact that there is no change in the facts and circumstances of the case, during the year under consideration vis- -vis earlier years which has been admitted both by the Id. AO as well as Id. DRP, respectfully following the aforesaid decisions of the Tribunal, we hold that the Id. AO erred in invoking section 9 of the Act and/or Article 5 of the India USA DTAA in or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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