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2013 (11) TMI 195 - AT - Income TaxExpenses on Dealer's Commission - Held that:-The argument of the Authorized Representative that such dealer commission was allowed in the past, therefore, for the sake of continuity it may be allowed during the current year, was devoid of any logic - Assessment proceedings for each Assessment Year were different and independent, it does not mean that if by mistake a wrong claim allowed by the Assessing Officer in the earlier year, the same mistake will be repeated year after year –There was no ifirmity in the order of the Assessing Officer wherein he has disallowed a sum of Rs. 9,81,966/- out of the dealer commission which actually pertained to earlier years but was claimed as expenditure by the appellant company during the year - However, the prior period expenses cannot be allowed in the Assessment Year 2002-03. Addition to P.E. - accrual of income - Held that:- In order to treat any agent as P.E. within the meaning of Paras-4 and 5 of Article-5, it was very vital that such agent should fit into the description of "Dependent Agent" and had to perform either of the activities as mentioned in Articles-5(4) and 5(5), otherwise, it cannot be held that agent constitutes a P.E. of the foreign enterprise - VGCs were exercising comprehensive control over the branch of Varian India and that also bears entrepreneur risk in terms of collection of debtors and bad debt and sales return, etc. - in the case of indent sales, the sales made to the Indian customers are in pursuance of orders introduced and liaised by the assessee for which the assessee receives commission income from the VGCs - These indent sale orders produced by the assessee were not binding on the VGCs. They may accept or reject the orders completely at their own discretion and the assessee had no authority to negotiate or conclude contract on behalf of the VGCs - Further, the goods were delivered by the VGCs directly to the customers and all the risk associated with the sale of products lies with the VGCs and not with the assessee - Thus, the entrepreneur risk was not undertaken by the assessee - This also, inter-alia, means that the VGCs does not have any comprehensive control over the assessee = A lot of emphasis had been given by the Commissioner (Appeals) and the Assessing Officer on certain terms of obligation as per the D.R. Agreement - All those obligations which were undertaken by the assessee were only pre-sale and post-sale facilities provided to the customers by the assessee for which it was amply remunerated in the form of commission - There was nothing such obligation which binds the VGCs - In any case, these were mere administrative support functions and not the functions as were envisaged under Article 5(4). Whether the "Force of Attraction Rule" as given in Articles 7(1)(b) and (c) of Indo U.S. DTAA, Article 7(1)(b), Indo Australia, DTAA, Article 7(1)(b) and (c) of India Italy DTAA will apply in case of assessee so as to tax the profits of foreign enterprise, i.e., VGCs in the hands of the assessee in India – Held that:- The assessee, i.e., Varian Indian Branch of VIPL was not a dependent agent of VGCs and, therefore, it does not constitute a P.E. for various VGCs in India - once the assessee was not a P.E. of VGCs, then "Force of Attraction Rule" will not apply in terms of Article 7(1) of various DTAA. The attribution of 10% profit margin on the basis of global accounts of VGCs, as applied by the Assessing Officer, also had no legs to stand in view of the above conclusion and, therefore, the addition made by the Assessing Officer on this score and as confirmed by the Commissioner (Appeals) was deleted.
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