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TMI Blog2023 (8) TMI 1587X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT DELHI] wherein under similar facts and circumstances, the Tribunal concluded that the Indian company engaged in providing marketing support services with no authority to conclude contracts, did not constitute a permanent establishment of the foreign entity. Assessee appeal allowed. - Shri George George K, Vice President And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri. Ajay Rotti, CA. For the Revenue : Shri. Sunil Kumar Singh, CIT-2(DR), ITAT, Bengaluru. ORDER PER BENCH : These appeals at the instance of the assessee are directed against six Final Assessment Orders passed under section 143(3) r.w.s. 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter called the Act ) (all orders are dated 08.07.2022). The relevant Assessment Years are 2012-13 to 2017-18. 2. Common issues are raised in these appeals; hence, they were heard together and are being disposed off by this consolidated order. 3. Identical grounds are raised for all these Assessment Years except for Assessment Year 2017-18. For the Assessment Year 2017-18, assessee has raised one additional issue vide ground No. 2. The issue raised in ground No. 2 for Assessment Year 2017-18 is that reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds. that the Appellant does not have a PE in India, the Ld. AO erred in law and on facts in disregarding the fact once the marketing support services transaction of SanDisk India is at arm's length, then no further attribution could be made as a PE 3. Margin to be attributed 4.1. Without prejudice to all other grounds raised, the Hon'ble Panel erred upholding the action of the Ld. AO by not considering the contentions of the Appellant with respect to attribution. 4.2. Without prejudice all other grounds raised, the Ld. AO erred in not considering that an Indian agent being remunerated at an arms' length extinguishes any further profits to be attributed to the agency PE and hence. no amount should have been brought to tax in the hands of the Appellant. 4.3. Without prejudice to all other grounds raised, the Ld. AO erred in not providing the basis of arriving at distribution and administrative costs. 4.4. Without prejudice to all other grounds raised, the Ld. AO erred in deducting administrative costs incorrectly while computing the taxable income of the Appellant. 4. The facts pertaining to Assessment Year 2017-18 are as follows: The assessee is a company incorporated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee has filed the present appeal before the Tribunal. The learned authorized representative highlighted that SanDisk India is prohibited from negotiating, concluding a contract as mentioned in clause 1.2 of the agreement with the assessee. It was submitted that SanDisk India merely provides marketing support services and once a potential customer is interested in SanDisk products, the assessee would get involved in terms of price negotiations, contract negotiation and contract conclusions. It was thus submitted that activities of SanDisk India do not create an agency PE of the assessee in India. The process of procuring orders was explained whereby SanDisk India communicates with potential customers in order to educate them of SanDisk products, via presentations, brochures, etc., once a user opts to purchase a product, the third-party distributors place order with the assessee. It was submitted that all sales of SanDisk products in India are undertaken through third-party distributors. The copies of sample purchaser orders placed by distributors on the assessee were brought on record. With regard to the statements recorded of employees of SanDisk India, the learned AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the nonresident or for that nonresident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident: 10. The definition of permanent establishment under Article 6 of the IndiaIreland Treaty is similar to the above extracted definition under the Act. The agreement between SanDisk India and the assessee prohibits the former entity from negotiating, concluding, signing, executing or in any other manner, accepting sales or other contracts in the name of or on behalf of the latter entity. SanDisk India does not or more particularly, cannot engage in securing, negotiating or concluding contracts on behalf of the assessee. It is also evident from the agreement and the statements recorded from employee of SanDisk India (which we shall discuss subsequently) that the orders are secured by the independent distributors and not by the SanDisk India. Therefore, clauses (a) and (c) of Explanation 2 above are not attracted thereby. The Assessing Officer in the final assessment order, at page 47, has recorded that SanDisk India does not procure good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer Target price to US business unit, who then sent the price cleared which was then communicated to our Distributor to send quote and close the business with Flipkart. Shri Khalid Wani, Director Business Development, SanDisk India Excerpt from Answer to Q8.- The marketing team attend the conferences and give representation of the SanDisk/Western Digital products. Excerpt from Answer to Q10.- 100% of our retail market product sales in Indian market is executed via our distributors and the agreement with these distributors is executed by WDT Inc. Excerpt from Answer to Q14.- If a potential reseller or a channel partner shows interest in our product, the sales team works on engaging them with our national distributors. Smt Veena Venkatesh, Sales-Operation Account Management, SanDisk India Excerpt from Answer to Q14.- For SanDisk orders, distributors will address it to the Sales and account Management Team for the new orders copying HCL team. Mr. Leo Jose, Staff Engineer, Field Application Engineer, SanDisk The Assessing Officer highlights that the role of the aforementioned person is to interact with potential customers thereby helping the sales team achieve their targets. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at authority to conclude contracts on behalf of appellant. According to us, Revenue has failed to establish with credible evidence that such authority is vested in Indian company and Indian company habitually exercises that authority. The contract placed before us emphatically denies any such authority with the agent and further in absence of any evidence placed before us by revenue, this argument of revenue does not find support from us. Therefore we are of the opinion that according to article 5(5) of double taxation avoidance agreement, assessee does not have permanent establishment in India. For an agent to be of an independent status, (1) the agent must be legally independent of the principal, (2) the agent must be economically independent of the principal; and (3) the agent must represent the principal in the ordinary course of business. Legal Independence of the agent must be tested on the line of agent's obligation. In the present case, the appellant has not brought it on record that the activities of the agents are subject to detailed instructions or comprehensive control. The only reason is that the company is managed by common directors. Further mere persuasive contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended clause (a) to Explanation (2) to section 9(1)(i) of the Act reads as under: (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are (i) . (ii) (iii) .. 17. Vide the above amendment, the following actions / authority could constitute agency business connection (a) has and habitually exercises in India an authority to conclude contract on behalf of non-resident or (b) Habitually concludes contracts or (c) Habitually play the principal role leading to conclusion of contracts by that non-resident (emphasis supplied) 18. Similar amendments are also proposed to DTAA through MLI, which is not effective for the years under consideration. Even otherwise, it is settled principle that amendment to Act cannot be directly imported to the treaty, unless treaty itself is modified through protocol or MLI. 19. In the result, appeals filed by the assessee for Assessment Years 2012-13 to 2016-17 are allowed and appeal filed for Assessment Year 2017-18 is partly allowed. Pronounced in the open co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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