TMI Blog2009 (1) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2007 (7) TMI 201 - SUPREME COURT] as relied upon by the Hon'ble Bombay High Court in the case of SET Satellite (Singapore) Pte Ltd [ 2008 (8) TMI 96 - BOMBAY HIGH COURT] However, the conclusion as arrived at by the Hon'ble Supreme Court itself revealed that whether the assessment will extinguish or not is a factual matter. From the above cases, it can be held that the assessment of non-resident will extinguish only where profit attributable to the PE is equal to the remuneration payable to the agent in India. However, the agent in India is remunerated only on the basis of cost plus 6 per cent for the services that were to be rendered in terms of the agreement. But in the present case the remuneration to the agent does not take into account all the risk taking functions of the non-resident enterprise. For the functions performed by the assessee directly and also the risk assumed by the non-resident in India, no remuneration is payable to the agent in India. The services rendered by agent in India is much more than expected of it in terms of the agreement and obviously for which the agent is not remunerated. Therefore, even in terms of Hon'ble Supreme Court' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. - DEEPAK R. SHAH, A.M. AND GEORGE MATHAN, J.M. ORDER DEEPAK R. SHAH, A.M. 1. By these miscellaneous applications the applicant seeks rectification of the order of this Tribunal in ITA Nos. 1496 to 1501 /Del/2007, dt. 26th Oct., 2007. 2. In the miscellaneous applications it is averred that the primary issue involved in the appeals was as to whether or not the assessee namely M/s Rolls Royce Plc. has a business connection/permanent establishment (PE) in India. It was held that the appellant has a business connection in India. It was also held that the assessee has a PE in India in the form of-(1) Fixed place through which business or enterprises wholly or partly carried on in terms of Article 5(1) of DTAA between India and UK; (2) Premises used as sales outlet or for receiving or soliciting orders within the meaning of Article 5(2)(f) of DTAA between India and UK; (3) A person other than agent of independent status within the meaning of Article 5(4) of DTAA between India and UK. It is also held that since the appellant has a business connection/PE in India in the form of liaison office and hence profit is attributable to the PE. In this regard the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Morgan Stanley Co. Inc. (supra) have held that where the remuneration to the agent was justified by transfer pricing analysis and therefore, no further income could be attributed to the PE. In the present case also the profit has been attributed to RRIL by TPO. Though certain adjustments are made, yet the income of the agent has already been brought to tax and hence no further income can be assessed in the hands of the assessee. Similar view has been adopted by the Hon'ble Bombay High Court in the case of SET Satellite (Singapore) Pte Ltd. v. Dy. Director of IT (International Taxation) and Anr. (2008) 218 CTR (Bom) 452. He accordingly pleaded that in view of the aforesaid decision the income attributed to the assessee be excluded. 3.1 The learned Counsel for the assessee further submitted that though the Tribunal has held that the profit has to be attributed to the PE yet which profit should be considered for this purpose is not spelt out. The assessee does not maintain separate account in respect of its Indian operations, In respect of global profits some profit is attributable to the extent of activities carried out in India yet the starting point about which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken. RRIL does not undertake any risk in respect of business carried on by the assessee in India. RRIL is remunerated only for the services rendered in terms of agreement with it i.e., cost plus 6 per cent and hence not remunerated for activities of the assessee in India or for risk undertaken in India. Therefore, even if the question posed by the Tribunal in para 16 of its order is not specifically answered, yet the effect thereof is that since the income of the assessee is not strictly to the extent of remuneration paid to the agent but for its own activity, the obvious answer is in negative and hence in terms of answer to question No. 5 posed by the Tribunal, the income has been computed. 4.1 Shri Shankar also submitted that the Hon'ble Supreme Court itself in the case of Morgan Stanley Co. Inc. (supra) have answered the question where it is shown that on the basis of transfer pricing analysis does not adequately reflect functions performed and the risk assumed by the enterprises. In such a case there would be need to attribute profits to the PE for those functions/risks that have not been considered. Therefore, even in terms of the decision of Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the same can be held as paid by the appellant to RRIL and no further income is attributable to the PE in India ? (5) If the answer to question No. 4 above is in negative, to what extent the income arises in India which can be charged to tax in India. We find that though there is no specific reference to question Nos. 4 and 5, yet effect of the order is that these questions are answered and the income is held to be taxable in the hands of non-resident assessee as chargeable to tax in India and even the extent thereof has also been stated. As noted in para 19 of the order, the activities of the assessee in India were not strictly as per its agreement with RRIL. The assessee carried on marketing activities in India and for which purpose its own employees as well as the employees of RRIL were employed. The agreement with RRIL as noted in para 19 of the order was to render only support services but in fact the activities carried on by the assessee and with the assistance of RRIL were much more than that as per material found during survey and as noted in para 19 of the order. This factual finding has not been challenged as perverse or otherwise not carved out from the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted by the AO in his order dt. 29th Dec, 2006 (after the impugned ruling) and also by the TPO vide order dt. 22nd Sept., 2006. As regards attribution of further profits to the PE of MSCo where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk taking functions of the multinational enterprise. In such a case, nothing further would be left to attribute to the PE. The situation would be different if the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represent the value of the profit attributable to his service. In this connection, the Department has also to examine whether the PE has obtained services from the multinational enterprise at lower than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat confusion does not arise while giving effect to the order of the Tribunal. The Tribunal in para 24.1 held that out of the total profit of the assessee on global basis, 50 per cent of the profit is to be attributed to the manufacturing activity and 15 per cent of the profit is to be attributable to R D activities. Balance is the profit attributable to marketing activities and since the marketing activities are carried out in India, to the extent of sales in India proportionate profit is to be attributed to the global profits. The AO has adopted the global profit being trading profit which represents gross profit less commercial marketing product support cost and general administration cost, but before net of the R D expenses and exceptional items. The contention of the learned Counsel for the assessee is that net R D expenses should also be reduced while computing operating profit. We are unable to accept such contention. It is an admitted fact that no part of the R D activities are carried out in India. The R D do contribute to the profit and in respect of which Tribunal have apportioned 15 per cent thereof and directed to exclude the same while computing global profits. While ..... X X X X Extracts X X X X X X X X Extracts X X X X
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