9911796707
TMI Blog2024 (9) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... currently in progress and the agreement is yet to be signed finally. We, accordingly, restore this matter to the file of the AO with the directions to adopt the royalty ultimately quantified in the APA which is pending to be executed between GIA India lab and the CBDT. Accordingly, these grounds are allowed for statistical purposes. Levy interest u/s 234A - AR has submitted that the return filed on 10.03.2022 was within the due date as due date had been extended till 15.03.2022 vide circular No. 01/2022 dated 11.01.2022 issued by the CBDT. The AO is directed to verify this fact and allow relief admissible in this regard. - MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER AND SMT. RENU JAUHRI, ACCOUNTANT MEMBER For the Appellant : Shri J. D. Mistri For the Respondent : Smt. Shaileja Rai ORDER PER RENU JAUHRI [A.M.] :- This appeal is against the final assessment order u/s 143(3) r.w.s. 144C (13) of the Income-tax Act, 1961 [hereinafter referred to as Act ] dated 31.10.2023 passed by the Assistant Commissioner of Income-tax (International Tax) Circle 2(3)(2), Mumbai [AO] in pursuance to the directions of the Dispute Resolution Panel, Mumbai-1 [DRP] dated 26.09.2023 for Assessment Year [A.Y.] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business connection in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 3:4 The Appellant submits that the Assessing Officer/the Dispute Resolution Panel's stand that the Appellant has a business connection in India be struck down. Without prejudice to the foregoing 4:0 Re.: Attribution: 4:1 The Assessing Officer / the Dispute Resolution Panel have erred in holding that 50% of its receipts are attributable to the alleged PE of the Appellant in India. 4:2 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: 5:1 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. 5:2 The Appellant submits that co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmits that the Assessing Officer be directed to consider the royalty income worked out in terms of the APA and to recompute its total income and tax thereon accordingly. 8:0 Re: Restricting the taxation of royalty income effectively connected to the PE: 8:1 The Appellant submits that in case it is held that any part of royalty income is effectively connected to the alleged PE of the Appellant then such amount should be restricted to the amount in accordance with the APA, if any, entered into by GIA India Laboratory Private Limited with the CBDT. 8:2 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 A . 8:3 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 thereon accordingly. 9:0 Re.: Levy of interest u/s. 234A of the Income-tax Act, 1961: 9:1 The Assessing Officer has erred in levying interest u/s. 234A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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, it forwards the stones to the assessee company for grading purposes; it is not an arrangement between two parties where each party contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 permanent establishment under the provisions of that paragraph; (b) he has no such authority but habitually maintains in India a stock of goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 source of income in question remains the same. Therefore, on this aspect also, we are not inclined to uphold the stand of the assessing autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 in the activity of gem grading in India. 4.1. Prior to setting up of the subsidiary, the assessee contracted with a third party consolidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 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 years. Infact, the Id. DRP while dismissing the contentions of the assessee, had merely placed reliance on the earlier year orders of the Id. DRP. We find that this Tribunal in assessee's own case for A.Y.2010-11 in ITA No.1138/Mum/2015 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holly 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 activities being performed by the taxpayer or associated transactions, cannot be the basis to construe the Indian subsidiary as PE of the foreign tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 twelvemonth 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 facts of the instant case, since the said services are rendered outside India and none of the employees/ personnel of the assessee company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company in India. 16. Before parting, we may also note the reference made by the Ld. Representative to the assessment concluded by the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitutes a PE of the assessee in India. Thus, on account of difference in factsituation, 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 order to say that assessee has a PE in India. Accordingly, the ground No.2 raised by the assessee is allowed. 15. Since the issue is exactly simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer for verifications of factual aspects with respect of these claims, l.e., with respect to verifications and quantum of actual refunds of royalties by the assessee, which have not been examined at any stage. We, therefore, deem it fit and proper to accept the claim of the assessee, in principle, but remit it back to the Assessing Officer for verification of factual elements embedded in the claim of the assessee. Ordered, accordingly. As for second additional ground of appeal, I.e. ground no. 9, this is rendered infructuous in the light of the findings earlier in the order that no part of the royalty income is to be treated as attributable to the PE, and taxed under section 44AD as such, as it has been held that there is no PE on the facts of this case. 22. Considering the submissions and merits on the issue, we are inclined to remit this issue back to the file of Assessing Officer with a direction to verify the records submitted by the assessee on merit and as per law. Assessing Officer is further directed to determine the royalty as per the direction of APA. It is needless to say that assessee may be given a proper opportunity of being heard. Accordingly, grounds raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
