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2016 (3) TMI 370 - AT - Income TaxBusiness connection in India - Existence of Fixed PE In India and service PE In India - Whether assessee has a dependent agent PE is India? - Held that:- In this case assessee company secures orders on behalf of the Indian company and outsources the job to Indian company. There is a continuous relationship between the assessee company and its affiliates and subsidiary company in India. The contract entered by the assessee company and its affiliates outside India are carried out in India. The responsibility of the assessee company vis a vis its customer is concluded in India. The responsibility of the assessee company cannot be segregated and will not complete unless the Indian company provides services to the customers. Based on these facts Ld CIT (A) has held that appellant has continuous revenue generating business activities with Vertex India and there is real and intimate relationship between activities of non-resident outside India and those inside India. In view of this we are of the view that the assesse has a business connection in India u/s 9 (1) (i) of the Act.On this score we confirm the order of CIT (A). In view of the decision of Honourable supreme court in case of DIT V Morgan Stanely inc CO (2007 (7) TMI 201 - SUPREME Court ) we do not have any difficulty in holding that there is no Fixed Place PE in India of the assessee. In view of this even if assumed that there is a PE in India of the assessee no profit can be attributed to it as FAR (Functions performed, Assets deployed and Risk Assumed) such PE has already been compensated at arm's length price and therefore nothing more should be attributed to it. Furthermore when in the case of Assessee for AY 2006-07 Ld AO has made no addition and assessment is made at returned income it is apparent that the contention the assessee is accepted by the AO in subsequent year. In view of this we confirm the order of CIT (A) on this count that if there is a PE in India of the assessee, when PE is remunerated at arm‟s length no further attribution of profit can be made. Reimbursement of Royalty as per Indo UK DTAA - whether chargeable to tax despite there being no income element? - Held that:- As on the basis of assets employed and salary and wages paid, the service fee payable to the Indian company comes out to be 78151587- and service fee actually paid was 7170443/-. Therefore if the reimbursement of expenses is reduced from the services fee actually received by the Indian company, then profit from Indian operation will enhance from the same value i.e. the reimbursement of expenses paid by Indian company to other. In the same logic the royalty and fee for technical services received by the assessee company and its affiliates will have effect of reducing the fee actually paid to Indian company. Therefore without prejudice to the assessee's disclosure, the receipt as royalty and fee for technical services, the same is taxable as business profit. Therefore the profit margin of assessee company and its affiliate for Indian operations will further enhance by reimbursement of expenses and royalty and FTS paid by Indian co. The payment in respect of access circuit , networks, bandwidth and call charges amounting to ₹ 24511059/- is taxable as royalty as per Article 13.3(b) of the Indo UK DTAA.
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