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2022 (10) TMI 762 - AT - Income TaxIncome deemed to accrue or arise in India - attribution made to the alleged PE- existence of Dependent Agent Permanent Establishment (DAPE) - HELD THAT:- When the AE has been remunerated at arm’s length. We find that it is undisputed that this ground is without prejudice to the ground that the AE is not a DAPE as held in all the appeals. It has been brought to our notice that in the assessments made for Ariba Inc. for all the AYs in question either no transfer pricing adjustments was done or they were deleted by the TPO pursuant to the direction of ITAT in this regard. Hence considering the fact that no transfer pricing adjustment has been done/sustained in case of assessments of the AE, it is the assessee’s plea that no further attribution is permissible on the touchstone of Hon’ble Apex Court decision pronounced in the case of DIT vs. Morgan Stanley and Co. Inc. [2006 (2) TMI 77 - AUTHORITY FOR ADVANCE RULINGS] Once a transfer pricing analysis has been undertaken in respect of the Indian AE, nothing further would be left to be attributed to it as the alleged PE of the assessee and that, accordingly, would automatically extinguish the need for attribution of any additional profits to the alleged PE. In all these cases, it has been submitted by the assessee that the transactions have been found to be at Arm's Length by the Transfer Pricing Officer in the Transfer pricing order of the AE or the adjustment stood deleted pursuant to appellate order. This is not disputed by the Revenue. We hold that it is undisputed that in the assessment of the AE, the transfer pricing adjustments do not survive. Hence, attribution of income to the alleged PE is not sustainable. Hence, we decide this ground in favour of the assessee. Whether receipt should be taxed as royalty within the meaning of Article 12(3)(b) of the India USA DTAA and also under Explanation 2(iva) to section 9(1)(vi)? - assessee’s submission in this regard is that this payment was not received by the assessee for any use of commercial or scientific equipment, hence it cannot be in the nature of royalty under Article (12)(3)(b) of the DTAA and Explanation 2 (iva) of section 9(1)(vi) - HELD THAT:- Once it is clear that at no point of time the control of equipment is exclusively granted to AE i.e. Ariba India or its clients, the treatment of the receipt as royalty is not tenable and ld. CIT(A)’s observation that the grant of access through userid and password is giving control of the equipment is an erroneous proposition, which is not sustainable. It is absolutely absurd proposition granting access through userid and passwords for availing the facility would grant control over the equipments involved in the process. We sustain the assessee’s plea that it cannot be said that the receipts of the assessee from Ariba India can come within the purview of "royalty" as defined under Article 12(3) of the DTAA and the assessee has been merely providing services of conducting online auctions to Ariba India and no exclusive right to use the equipment / process has been granted in favour of either Ariba India or its customers in India to qualify as “royalty”. In the case of CIT v. De Beers India Minerals (P.) Ltd. [2012 (5) TMI 191 - KARNATAKA HIGH COURT] wherein it is observed that in order to satisfy the requirement of the “make available clause”, technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like; that the service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. Admittedly, this is not the case here. Hence, we agree with the ld. Counsel of the assessee that ld. CIT (A) has erred in not appreciating that no technical knowledge, know-how and the like were transferred by the assessee to Ariba India or its customers in India while rendering the online auction services. Hence, we agree that the services provided by the assessee cannot be characterized as FTS under the India-US DTAA. Another point which goes to support the case of the assessee is the assessee’s submission that there is no base erosion in this case. It has been submitted that Ariba India has retained majority of the revenues earned from the clients (around 88% to 97% from AY 2004- 05 to AY 2011-12) and offered the same to tax in India in its income tax returns for each of these years, only a miniscule percentage of the revenues (around 3% to 12.50%) have been paid to Ariba Inc. This clearly shows that there has been no base erosion in terms of taxes to be paid in India by the relevant parties. Hence, we agree that there is no base erosion on account of non-taxability of the assessee. Notional income confirmed by the ld. CIT (A) - We note that Revenue has not preferred an appeal against such order of ld. CIT (A), hence ld. CIT (A)’s order in this regard is final. Since the position of law on this point has been accepted by the Revenue in other assessment years, we agree that the notional income cannot be taxed in the hands of the assessee. Reliance has been placed on the decision of ITAT Pune Bench in the case of GKN Holdings Plc. [2014 (12) TMI 128 - ITAT PUNE] for the proposition that unless an agreement is proved beyond doubt to be a colourable device, the Revenue cannot disregard such an agreement. In our considered opinion, it is duly applicable on the facts of the case and supports the case of the assessee. Appeals filed by the assessee stand partly allowed
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