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2010 (5) TMI 683 - AT - Income TaxIncome deemed to accrue or arise in India - agency PE - nature of the business activities carried out by the assessee - whether assessee had a fixed place of business through which he was carrying out his business? - HELD THAT:- Undoubtedly, the consignment stock of the assessee was stored at specific physical locations but this storage was under control of the airlines and the assessee did not have any place at his disposal in the sense that he could carry out his business from that place. The existence of PE in a country cannot warrant or justify taxation of all the profits arising to a foreign enterprise in that country. The business with regard to that consignment is over when that consignment is given for standby purposes to the airline. It is thus clear that not only that the assessee did not have any right to use the location of consignment stock, such a location was also not used for the purposes of assessee’s business. There is also no projection of the assessee at this physical location in the sense that the business of the assessee is not carried out, or sought to be carried out or even projected, from these locations. When the physical locations at which consignment stock is kept do not project the assessee, it cannot be said that these locations constitute PE of the assessee. As a matter of fact, there is no sale involved in this transaction, and as such, there is no question of delivery for sale. In view of these discussions, it is clear that the revenue authorities have not been able to establish that the assessee had a PE in India. It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. [2005 (6) TMI 226 - ITAT DELHI-A], that the onus is on the revenue to demonstrate that a PE of the foreign enterprise exists in India. That onus is not discharged. Having said that, we may also add that, in our considered view, the business model of the assessee-company is such that in the above arrangements, a PE in the source location does not come into existence. We are of the considered opinion that the assessee-company did not have any PE in India, and, accordingly, the entire income attributable to the India operations could not have been taxed in India. The grievances raised against quantification of income attributable to the PE, under article 7(1), are thus rendered infructuous. To that extent, we uphold the grievance of the assessee and vacate the orders of the authorities below. In the case before us, as evident from a plain reading of the consideration clause in the agreement between the parties, consideration for use of replacement components is distinct and separate and the same can perhaps be neatly segregated from the overall receipts. In this view of the matter, non-taxability under article 7 will still mean that application of article 13 is to be considered and adjudicated upon. However, since this aspect of the matter has not been heard by any the authorities below, we deem it fit and proper to remit the matter to file of the CIT(A) for limited adjudication on this aspect of the matter. We are not inclined to uphold the orders of the authorities below on the issue of existence of the PE and for quantification of taxable income. The matter is, however, remitted to the file of the CIT(A) for adjudication on the question of taxability, if any, of consideration for use, or right to use, of industrial, scientific or commercial equipment contained in the payments made by the airlines to the assessee-company. We make it clear that our above observations should not influence the decision of the CIT(A) on merits of this issue, and that the CIT(A) will decide the matter in accordance with the law, by way of a speaking order and after giving due and fair opportunity of hearing to the parties. We direct so. In the result, the appeal is allowed for statistical purposes in the manner and in the terms indicated above.
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