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2013 (11) TMI 564 - AT - Income TaxPermanent Establishment under Article 5 of the DTAA between India and U.S.A - Whether Appellant has a Permanent Establishment ('PE') in India under Article 5 of the DTAA between India and U.S.A - CIT(A) held that assessee has a fixed place PE in India - Held that:- The employees of the assessee frequently visited the premises of CIS to provide supervision, direction and control over the operations of CIS and such employees had a fixed place of business at their disposal. CIS was practically the projection of assessee's business in India and carried out its business under the control and guidance of the assessee and without assuming any significant risk in relation to such functions. Besides assessee has also provided certain hardware and software assets on free of cost basis to CIS - CIS did not constitute a dependent agent PE of the assessee in India as the conditions provided in paragraph 4 of Article 5 of the DTAA are not satisfied - Thus, the findings of the CIT(A) that assessee has a fixed place PE in India under Article 5(1) of the DTAA is upheld - Decided against assessee. Attribution of profits to the PE - Held that:- The revenue of the assessee company cannot be considered as the revenue of the PE by any stretch of imagination. Furthermore the expenses incurred outside India are linked with the business activities of the assessee undertaken outside India for the functions performed outside India and are not linked to the PE of the assessee in India. - The attribution of profits to the PE should be made by the transfer pricing principles supported by the CBDT Circular No. 5 of 2004 as well as the judgment of the Supreme Court in Morgan Stanley [2007 (7) TMI 201 - SUPREME Court]. - the charge for the employees seconded to CIS and employees visiting India to provide the technical services is subsumed in the transfer pricing analysis of CIS. Therefore, attribution can only be made on account of free of cost assets and software's provided by the assessee to CIS. - The assessee has submitted that it does not prepare India specific accounts, therefore the attribution of profits on the basis as disclosed in the transfer pricing study for assets and software cannot be accepted. Further, in the facts and circumstances of the case Profit Split method is not the correct method for attribution of profits to the PE of the assessee in India. Taxability of PeopleSoft license cost and maintenance charges - Held that:- purchase of software would fall within the category of copyrighted article and not towards acquisition of any copyright in the software and hence the consideration should. not qualify as Royalty. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee - Decided in favour of assessee. Taxability of link charges as 'Equipment Royalty' - Held that:- there is no transfer of the right to use, either to the assessee or to CIS. The assessee has merely procured a service and provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. Therefore, it is held. that the said payments do not constitute Royalty under the provisions of Article 12 of the tax treaty - Decided in favour of assessee. Interest u/s 234B - Held that:- The charging of interest is automatic under the Act if the assessee has defaulted in payment of advance tax. The income of the assessee was not liable for withholding tax under section 195 of the Act - assessee is liable to interest u/s 234B, as the income being assessed now cannot be held. to be income liable to TDS under Indian provisions. The same is being assessed in the hands of PEs who had not filed their return on the ground that this income was not attributed to Indian Business Connection. Provisions of section 234B are mechanical in nature - Decided against Assessee.
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