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TMI Blog2018 (12) TMI 2012X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee are allowed and even the attribution part would be allowed in favour of the assessee because once there is no business activity conducted by the assessee through expatriate employees, then there could not be question of any kind of attribution of estimate. Applicability of rate of 15% on all income by the AO held to be in the nature of royalty and fee for technical services - Despite the fact that in the earlier years the rate of tax paid by the assessee was @10%. Accordingly, we remit this issue to the file of the Assessing Officer to examine the assessee s claim that the rate of tax u/s. 115A would be 10% and not 15%. AO will give adequate/proper opportunity to the assessee to substantiate its case. Computing of surcharge and cess - As been pointed out by the learned counsel that no surcharge and cess can be levied because the same is not provided in the DTAA. We are in tandem with such a contention raised by the learned counsel, because the DTAA provides the overall rate which is all inclusive, and therefore, no surcharge or cess has been levied. Accordingly, this issue is allowed in favour of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... o further attribution of profit could have been made to the alleged PE of the Appellant in India. 6. That the AO and DRP erred in attributing 10% of the remuneration cost to the alleged PE in India. 7. That the AO erred in levying a uniform rate of 15% on all income in the nature of royalty and fees for technical services, without appreciating that majority of such income was in respect of agreements made on or after 01.06.2005 and, therefore, the applicable rate was 10% under Section 115A(1)(b) of the Act and not 15%. 8. That the AO erred in levying interest under Section 234A and 234B of the Act and in incorrectly computing the interest under Section 234B of the Act. 9. That the AO erred in incorrectly computing surcharge and cess levied/leviable. 10. That the AO erred in initiating penalty proceedings under Section 271(1)(c) of the Act." 3. At the outset, ld. counsel for the assessee, Mr. Sachit Jolly, submitted that both the Assessing Officer and DRP have followed the assessment orders for the Assessment Years 2004-05 to 2009-10, Assessment Years 2011-12 and 2014- 15. Now these appeals stands decided by the Tribunal vide consolidated order dated 22.03.2018, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for transfer of employees from SEC for the purpose of carrying out day to day business operations of SIEL, the Indian Company. Such expatriate employees worked in the capacity of SIEL's employees. SIEL has entered into a local employment contract with the individual expatriate employees for taking them on employment, wherein key employment terms have been provided such as roles and responsibility, remuneration entitlement, reporting relationship and other legal terms, etc. Sample copy of employment contracts / letter of appointments issued to expatriates by SIEL are enclosed as Annexure 1. It is most respectfully submitted before your goodself that the assessee has seconded certain skilled and talented personnel to SIEL under employment of SIEL in order to enable the latter to carry out the business operations effectively and efficiently in India. The expatriates worked inclusively under the control and supervision of SIEL without any relation or connection with SEC. The concerned expats do not enjoy any privilege or authority to enter into any contract or negotiations or offerings on behalf of SEC or carry out any other activities on behalf of SEC. Post transfer, SEC do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e possible for any company to place optimized purchase orders at a right timing nor to acquire most promising manufacturing technologies. In this case also, as is evident from the statements recorded by the assessing officer, there is a constant exchange of information between the subsidiary and the Global Business Management ("GBM") to perform the product/strategy functions from a global market perspective. 21. Learned AR submitted that it is to be noted that none of the statements of the employees reveal that the key decisions with regard to the products, pricing, launching etc. are taken by the assessee but they are well within the realm of the Indian subsidiary. He submits that none of the statements recorded by the assessing officer would show that any activity of the GBM is done in India. He further submitted that the assessee does not carry out any market survey in India, but whatever the market survey that was spoken by the employees was in relation to the business of the subsidiary to understand the business of the Indian customers and provide India specific information to GBM's which in turn then carry out research and development to develop India specific products. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEC, Korea and then after payment is made from SIL India, which implies the salaries are not paid to the employees of SIL after the payment has been received from India but the salaries are paid as if such expats were their own employees and then a debit note in respect of such salaries is raised by SIL India. Basing on this he argues that the expatriate employees are in fact the employees of the Korean entity and the beneficiary of the payments from SIL is the Korean entity. 25. Ld. DR further drew our attention to Point No. 9 of the letter of appointment of Mr. K W Cho, wherein it is stated that, - "your services may be utilized in any of the offices of the branches of the company or in any department of the company or in any of the associated companies as may be required from time to time. Your services can be transferred to any of the branches of the company located in India, whether in existence at the time of your appointment are set at a later date at the sole discretion of the management without detriment to your status and emoluments." and to point No 12 where it is stated that,- during your appointment with a company, since you are on depredation, you will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of Article 5. Ld. DRP also rejected the view of the AO that SIEL is a place of management for south east operations and held that no PE of the assessee exists under Article 5(2)(a) of the treaty with regard to south east operations. 30. Vide paragraph no. 5.4.4.6, Ld. DRP rejected the suggestion of the Ld. AO that SIEL can be considered as a service PE of the assessee. Lastly Ld. DRP held that the SIEL had nothing to do with the provision for royalty and fee for technical services. 31. Having rejected all the grounds pleaded by the AO, Ld. DRP reached a conclusion that SIEL be treated as a deemed fixed place PE of the assessee, and the relevant observation is to the effect that,- "Although they derive their remuneration from SIEL, their formal contract of employment is with the Parent company. The statements of some of these employees report frequently to SEC. Sh. B. D Park, Director (Mobile and I.T business), who is at number two position in SIEL has acknowledged that he communicates with SEC almost daily. Sh. J. H Kyung, Chief Financial Officer has stated that he is in touch with SEC two to three times a week. Sh. H. K Seo, President Marketing and Sales also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment would go to show that the any activity of the global business management (GBM) has ever been conducted in India or that the market survey that is conducted in India, as spoken by the expatriate employees has nothing to do with the business of the Indian subsidiary and it is solely for the benefit of the assessee. All the activities that are spoken by the expatriate employees related to the specificity of the products, stock verification, they designs according to the preferences of the Indian consumers, the market strategies to be adopted etc. are clearly within the ambit of the business of the Indian subsidiary. Such a communication would primarily benefit the Indian subsidiary, and would help the assessee in its GBM to sustain its supply chain management and to place optimized purchase orders at a right timing or to acquire the most promising manufacturing technologies, as is submitted on behalf of the assessee. 34. At the best, the statements and other material relied upon by the revenue show that by way of the seamless communication between the Indian subsidiary and the assessee, the expatriate employees were only discharging the duties of the subsidiary company towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and seconded employees, the assessee derived any business income in India. 38. For these reasons, we are of the considered opinion that there is neither any business conducted by the assessee in India through the expatriated employees nor any income is derived by them though the activities of the employees. Consequently we hold that there is no fixed place PE of the assessee constituted through the expatriated employees. Issue is, therefore, answered in favour of the assessee. ADDITION OF 10% ESTIMATED INCOME ON THE TOTAL REMUNERATION COST OF EXPATRIATE EMPLOYEES SECONDED TO SIEL IN INDIA, 40. Ld. AO, in the assessment order, proceeded to attribute income in respect of such permanent establishment as per Article 7 of the Indo South Korean treaty. While making recourse to clause (iii) of Rule 10 of the Income Tax Rules, 1962, he took the remuneration cost of the expatriate employees seconded to SIEL as the basis for attributing income and added an estimated income of 10% on the understanding that had such services been rendered by an unrelated entity to SIEL, 10% would be a reasonable markup that would have been earned by it. Ld. DRP confirmed this finding of the Ld. AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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