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TMI Blog2025 (3) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has a Permanent Establishment ("PE") in the form and DAPE in M/s. Rajalakshmi International Corporation (Proprietor Anand Mathur) 3. That on the facts and circumstances of the case & in law, the Ld AO/CIT(A) grossly erred in treating the services in relation to preparation of design as FTS without appreciating that the same is inextricably linked with the supply of equipment and cannot be termed as FTS in view of Article 12(5) of the DTAA. 4. Prepaid Taxes, Interest u/s 234A, 234B& 234C a) The Ld AO has applied interest under 234B& 234C without giving credit of the prepaid taxes and credit of tax deducted at source. b) That in the facts and circumstances of the case & in law, the Ld AO erred in levying interest u/s 234B of the Act. 5. General a) The above grounds of objections are independent and without prejudice to each other. b) The above grounds of appeals are without prejudice to each other. That the appellant craves leave to add, alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing of these objections." 3. The representatives of both the sides were heard at lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 115A. 10. The assessee has denied having a PE in India. The Assessing Officer however, from a study of the Service Agreement between the assessee and Rajalaxmi International Corporation [RIC] dated 01.02.2005, has held that Rajalaxmi International Corporation [RIC], a proprietorship of Anand Mathur, in India, had acted as dependent agent of the assessee for supply of equipment and drawing design for SAIL and RINL. The crux of the dispute between the Revenue and the assessee therefore is, whether RIC is a dependent agent permanent establishment in order to tax the business income of the assessee in India and that the receipts for design and drawing is taxable as FTS u/s 9(1)(vii) of the Act. 11. The assessee agitated by the additions, approached the CIT(A), who confirmed the action of AO except he deleted the Training Service fee as FTS and directed to include the same as part of sales proceeds of equipment as it is integrated to the sale of equipment. 12. Aggrieved the assessee is before us. 13. The ld AR of the assessee at the outset stated that the additions made by the AO flows from the assessment made for the AY 2011-12 which has been decided in favour of the assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Rolls Royce Vs DDIT, the Assessing Officer attributed Rs. 21,15,642/- to the income of the assessee. 11. Further, following the directions of the DRP, the Assessing Officer treated the amount received from RINL and SAIl as taxable as FTS u/s 9(1)(vii) of the Act. 12. We have given thoughtful consideration to the orders of the authorities below. The whole controversy revolves around whether RIC is DAPE. It would be pertinent to refer to the relevant article of the India - USA DTAA, which is Article 5 and the same reads as under: "5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arms length conditions, he shall not be considered an agent of independent status within the meaning of this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, express or implied, on the other parties behalf unless authorized to do so in writing by such other party." 16. A perusal of the entire contract with RIC shows that RIC is an independent consultant having no rights to conclude contract on behalf of the assessee so as to construe as a permanent establishment in India. Since, in its independent professional capacity it provides similar services to other clients as mentioned elsewhere. 17. Further probe of facts show that one Shri Anand Mathur runsa consultancy business in the name and style of M/s Rajlaxmi International Corporation and the assessee seeks his service to represent it in India for its project in India. The assessee executes projects i.e supply, erection and commission of desulphurization plant on turnkey basis through international competitive bidding process. 18. The role of the RIC Shri Anand Mathur, representative, was by and large to find a project partner for the assessee to undertake the supply and erection of indigenous components. Besides, RIC is engaged for the liasoning service of the project on behalf of the assessee who neither intended nor empowered to conclude a project on behalf of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gineering a) Imported (CIF) (Refer Appendix - 15-1) 592,826 - b) Indigenous (Refer Appendix - 15 - - 1,500,000 2 Supply of Plant & Equipment a) Imported (CIF) (Refer Appendix - 15-3) 1082135 b) Indigenous (FOR site) (Refer Appendix - 15-4) 251640000 3 Supply of Refractories (At NA - a) Imported (CIF) (Refer Appendix - 15-5) Included b) Indigenous (FOR site) (Refer Appendix - 15 - 6) 4(a) Supply of Commissioning a) Imported (CIF) (Refer Appendix - 15 - 7a) 14300 - b) Indigenous (FOR site) (Refer Appendix - 15 - 8a) - Included 4(b) Supply of Insurance Spares i) Imported (CIF) (Refer Appendix- 15-7b) NA - ii) Indigenous (FOR site) (Refer Appendix-15-8b) - NA 5 Civil Engineering Work including Supplies (Refer " NA 6 Supply of Fabricated Building Steel NA Structures at site including Sheeting, Glazing and Shop 7 Erection of Building Steel Structures including Sheeting, Gla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meaning of Article 5 of the India-USA DTAA, there is no question of any attribution to the assessee. In light of the afore-mentioned discussion, the appeal of the assessee is allowed and that of the Revenue is dismissed". 17. We find that the ITAT has decided the issue of whether RIC is DAPE in terms of contract dated 01.02.2005 in favour of the assessee. We find that for the instant year, the same contract with RIC exist, hence the facts as available in AY 2011-12 remains the same in AY 2008-09. Respectfully following the decision of the coordinate bench of ITAT as above, we are of the considered view that RIC is not DAPE within the meaning of Article 5 of the USA-India DTAA and hence no business income can be attributed to the assessee for taxation in India. The grounds of appeal no 1 and 2 are allowed. 18. We also find that there is no dispute that the Drawing and design has been supplied from outside India and the payment for the same has been received outside India. We find force in assessee's argument that supply of Drawings and Designs are an integral part of Imports and are highly integrated to the supply of the Plant, Machinery and equipment. Without the Drawings, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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