Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2018 (7) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (7) TMI 2304 - AT - Income TaxService PE in India - Article 5 of the India UK Double Taxation Avoidance Agreement [DTAA] - receipts on account of central costs recharges and structural tests - bilateral agreement in force between the assessee and JCB India - HELD THAT:- As mentioned elsewhere, except for routing the royalty payment through JCB Investments, the assessee has received everything as per bilateral agreement existing in earlier years minus 0.05%. Therefore, we do not find any distinguishing fact as contended by the ld. AR. Respectfully following the findings of the coordinate bench [2015 (5) TMI 607 - ITAT DELHI] we hold that JCB India a Service PE of the assessee. Ground No. 1 with its sub-grounds is dismissed. Whether royalty is not effectively connected to the alleged Service PE of the assessee? - As mentioned elsewhere in the earlier years, this issue arose when JCB India [Service PE] used to make payment directly to assessee and the Tribunal vide its order [2014 (4) TMI 887 - ITAT DELHI] has held that amount of royalty received by the assessee arises out of IP Rights which are in the nature of right or property but the same cannot be considered under para 6 of Article 13 because it is not effectively connected with the service PE of the assessee in India. Since there is no difference in the facts and circumstances of the royalty payment, we do not find any reason to differ from what has been held by the Coordinate Bench [supra]. Respectfully following the same, we hold that royalty received by the assessee cannot be considered under Para 6 of Article 13 because it is not effectively connected with Service PE of the assessee in India. Receipts on account of central costs recharges and structural tests - A perusal of the bilateral agreement and tripartite agreement shows that royalty shall be equal to the royalty received by JCB Investments from JCB India under the licence and from any other permitted sub-licencee of JCB Investments less 0.5%. It can be seen that the entire royalty amount is passed on to JCBE through JCB Investments less 0.5%. We have no hesitation to hold that JCB Investments is nothing but a pass through entity. A perusal of the agreements clearly and explicitly lead out that the delivery of technical documentation and making available of technical personnel as set out in clause (iii) and (iv) of the TTA shall remain unaffected by this agreement and shall continue as rights and obligations between JCBE and JCB India. Since the impugned receipts are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the royalty payments were received by the assessee, in our considered opinion such receipts would fall under sub-clause (a) and Article 13(4) and would be taxable as FTS - we further find that sub-clause (c) of Article 13(4) which entails ‘make available’ clause would, therefore, not be applicable. The disputed receipts are in relation to the payment received by the assessee as royalty from JCB Investments which has received it from JCB India - substance shall get precedence over the form. In our considered view, the impugned receipts are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the royalty payment were received by the assessee through such receipts would fall under clause (a) of Article 13(4) and would be taxable as FTS and the services provided by the assessee are to be considered as having been made available to the recipient of the services. Substance will rule over form. The common meaning of the word ‘make available’ is merely offering or made accessible to the other party and it never meant that the other party should be trained or made expert in such technical knowledge. If such is the case, it would be absurd for a person to make other person expert of its core competency and a situation will arise that the recipient of services would not look again to the service provider when these services are needed in future. In the context of bilateral vis a vis tripartite agreement, the service provider by the assessee have to be considered as having been ‘made available’ to the recipient of service and we hold accordingly. Ground No. 3 is dismissed. Reimbursement towards salary costs and other expenses of seconded employees - As we find that in the case of JCB Investments also, JCB India has been treated as service PE on account of employees seconded by the assessee to JCB India. In order to determine the income of service PE on account of employees seconded by the assessee to JCB India, the Tribunal has restored back the matter to the file of the Assessing Officer for correct assessment of the profits to be attributed to the Service PE and the AO, while giving effect to the directions of the Tribunal has framed the order u/s 254/143(3) of the Act. AO is directed to decide this issue in accordance with the directions given by the co-ordinate bench in the case of JCB Investments [2015 (5) TMI 607 - ITAT DELHI]. The AO is further directed to see that the same income is not doubly taxed in the hands of the appellant. This issue is, accordingly, treated as allowed for statistical purposes. Attribution of income in India - Assessee contended that in the hands of JCB Investments, the Assessing Officer has already made necessary attribution on account of alleged Service PE in India, therefore, question of attribution will not survive in the hands of the assessee - HELD THAT:- We have already mentioned elsewhere that during the year under consideration, the assessee has received everything from JCB India minus 0.05% which was retained by JCB Investments through which entire payments have been received. We have already held that substance will prevail over form. In our understanding of the facts of the case in hand, we are of the considered opinion that the amount received by the assessee after deduction of 0.05% has to be considered separately for the purposes of attribution of income in India - direct the AO to do the attribution as done in the case of JCB Investments after giving opportunity of being heard to the assessee. The AO is further directed to reduce the income already taxed in the hands of JCB Investments to avoid double taxation of the same income. This issue is also allowed for statistical purposes. Charging of interest u/s 234B - We find that an identical issue was considered by the Tribunal in assessee’s own case [2014 (4) TMI 887 - ITAT DELHI] - We direct the Assessing Officer to relieve the assessee from any interest liability u/s 234B of the Act.
|