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2021 (6) TMI 254 - AT - Income TaxSalary reimbursed by the AE to the assessee - attribution of salary to the supervisory PE - assessee in the present case is a foreign company, based in USA with one associated enterprises (AE) namely M/s LZAM India in Vadodara Gujarat India - whether the employees namely Mr. Tim and Mr. Matt are the employees of the assessee Viz a viz rendering services in connection with the supervisory PE or these are the employees of the AE namely M/s LZAM India in India? - HELD THAT:- On perusal of agreement for reimbursement of employee cost between assessee and M/s LZAM India we find the assessee is the ultimate parent company of the M/s LZAM India which is engaged in the business of manufacturing and selling of natural product. The assessee required personnel having high skilled and expertise in connection with its business in India. Accordingly personnel were deputed in India. As agreed upon by the parties that the deputed personnel will be the employee of the M/s LZAM India and will work under the supervision and guidance of M/s LZAM India. LZAM India will pay salary to those personnel and bear the cost of all the benefit provided to them. It was also agreed upon that the part of the salary will be paid in foreign currency to those personnel for the purpose of convenience but the quantum of same would be decided by the M/s LZAM India as per rules and regulation applicable in India. The primary evidences have not been disputed by the authorities below. Thus, no adverse inference can be drawn against the assessee merely on the informations displayed on the website. Furthermore, the informations displayed on the website cannot precede the documents which are available on record for deciding the issue on hand. Likewise, the documents in the form of passport and bank statement which were not filed by the assessee, cannot help the Revenue. In view of the above, we are not convinced with the finding of the learned DRP. Accordingly, we direct the AO to delete the addition made by him. DRP treating Mr. Tim and Mr. Matt as agent of the assessee as per clause 4 of Article 5 of India-US DTTA and accordingly treating the offshore sale as part of the income taxable in India - HELD THAT:- As we have already given a finding that the individuals namely Mr. Tim and Mr. Matt are not the employees of the assessee. Rather these are the employees of the AE of the assessee namely M/s LZAM India. Therefore, the purchase agreement signed by them was entered on behalf of the AE in the capacity of authorized signatory being the directors. Accordingly, it can be concluded that there was no connection in the employees and the assessee which can establish the agency PE in India. Thus the whole basis for treating the transaction of impugned sale and purchase as attributable to the agency PE is not sustainable. Furthermore, the agency PE can be attracted as per the relevant provisions of article 5 and 7 but we note that the conditions as specified therein have not been complied with. Accordingly, we are not convinced with the finding of the learned DRP and direct the AO to delete the addition made by him.
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