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2013 (6) TMI 333 - AT - Income TaxAttribution of income - India - German DTTA - Addition being difference of amount remitted by the HO to its Branch in India - amount remitted to the HO for an addition made u/s 40A(2)(b)held to be related party remittance - Held that:- It is an undisputed fact that India Branch Offices are under the Korean Registry wherein the India BO undertakes inspection and validation of ocean fairing vessels by physically examining the vessels. After physical examination, the reports are sent to HO located in Germany, who issues validation certificate, regarding the fitness of the vessel. The business model followed by the assessee and its parent in Germany are, ships and vessels, in order to operate in sea are required to be classified by a classification society approved by an authority. The classification is done at the insistence of the ship owner on behalf of the respective government. In certain instances, classification is done as per report coming directly from the ship owner. In either case, the post examination approval reports are submitted to the respective government, which is then hands it over to the ship, whose flag it is carrying. The Indian Operations were started from 06.11.1989 as a branch of its German parent, who in turn is a member of International Association of Classification Societies, who decides the scope of monitoring activities of its members. The scope of Indian Branch would include Classification and certification of ships, Certification of marine related materials and components & Certification relating to International safety management Co. These activities are carried out with the technical assistance and cooperation of its HO in Germany, who, as submitted are available 24X7. On computation of its classification, invoice is raised by the Indian BO or the German HO, as the case may be, and the receipts are assigned as per the agreed standard module herein followed globally, whereby, the HO retains 30% and the BO retain 70% as per fee splitting arrangement. Thus as per Article 7 of the India Germany DTAA, the business profits of the permanent establishment in India, only are offered to tax. Treading strictly on the DTAA route, the issue becomes clear, that the split of fee which is attributed to its German parent HO, become non taxable under the Indian tax regime. This would become applicable on all the three figures that are impugned before us, because the share of Rs. 22,55,981/- is also of the similar nature & character, as that of fee attributed towards HO by the Indian BO at Rs. 58,13,506/- and the expenses incurred by the HO on behalf of India BO at Rs. 3,00,754/- u/s 40A(2)(b). As in agreement with the decision of Intergrafia Print & Pack GMBH (2007 (10) TMI 415 - ITAT DELHI) following the India German DTAA treaty fee split arrangement has been approved. Also in agreement to the decision of the assessee own case in penalty proceedings, wherein, the CIT(A) came to a factual finding that, "following a well defined system, the revenue earned from the activities of the HO cannot be taxed in India", which ultimately has been attributed to the HO and fully backed by the India German DTAA and Para1(b) of the Protocol, as was recited by the AR and reproduced by us earlier. Thus reversing the decision taken by the DRP and direct the AO to delete the three impugned amounts of Rs. 58,13,506/-, Rs. 22,55,981/- and Rs. 3,00,754/- from the income of the assessee - appeal filed by the assessee allowed.
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