TMI Blog2010 (2) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... not very material in considering the applicability of Art.5.1. The business of the applicant at a fixed place is being carried on through the media of the warehouse provider who can also be characterized as service provider. Having regard to these facts and features, we have to accept the contention of the Revenue that the demarcated space in the warehouse of ISP constitutes the fixed place of business within the meaning of Art.5.1 of DTAA. - For the purpose of computation of profits of the PE in relation to the sales activity in India, it should be treated as a separate and distinct enterprise wholly independent of the enterprise of which it is a PE. The amounts paid to ISP/YCH and other expenses, if any, incurred should be deducted. - 831/2009 - - - Dated:- 25-2-2010 - Mr. Justice P.V. Reddi and Mr. J. Khosla, JJ. Present for the Applicant: Mr. Mukesh Butani, Mr. A. Jain, Mr. Abhay Sharma, Mr. Mohit Agarwal, Mr. Ankita Rungta, JJ. Present for the Department: Ms. Nandita Kanchan. RULING This application for advance ruling under Section 245Q(1) of the Income- tax Act, 1961 (hereafter referred to as IT Act) has been filed by a non-resident Company incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t holds 20 shares (equivalent to 0.01%) of the shareholding of an Indian Group Company which has no role to play in the delivery of Disks under the VMI Model. 3. The applicant then states the details of similar arrangement proposed to be put in place by entering into an Agreement with YCH, a private Company incorporated in India. The said company would stock goods in India on behalf of the applicant and deliveries will be effected to Dell India (Pvt.) Ltd. The features of the proposed Agreement (which bears the nomenclature "third Party Hub Agreement") and the typical steps that are involved in connection with the Agreement are detailed below: * Dell would raise a purchase order on the Applicant pursuant to which the Applicant would ship the goods to YCH in India; * YCH would clear the goods from the customs port as the Importer on Record and would, thereafter, store the same in a bonded warehouse. YCH would also furnish the bond with the customs authorities of India for clearing the goods without payment of customs duty. The ownership of the goods would remain with the Applicant; * Whenever Dell would place a 'pull request' for the goods on YCH, it would deliver the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant in India in terms of article 7 of the India- Singapore DTA." Questions (a) and (c): 6. Section 5(2) of the IT Act lays down that a non-resident is liable to be taxed in India on income which accrues or arises in India or on income which is deemed to accrue or arise in India and on the income received in India. Section 90(2) of the Act provides that the provisions of the I.T.Act or of the DTAA whichever are more beneficial to the assessee shall apply. The applicant therefore seeks to invoke the provision in Art.7(1) of the India-Singapore DTAA according to which the business enterprise being a tax-resident of Singapore would be liable to be taxed in India in respect of its business profits only if the enterprise has a Permanent Establishment (PE) in India. Art.5 of the Treaty contains the definition of PE. Para (1) of Art.5 defines the term PE as a fixed place of business through which the business of the enterprise is wholly or partly carried on. A place of management, a branch, an office, a factory, a workshop and a warehouse in relation to a person providing storage facilities for others etc. are especially included in the definition of PE (vide Art.5.2). Paras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2. In the Third Party Hub Agreement between the applicant and YCH, YCH is described as 'warehouse provider'. The YCH will provide warehouse space for Seagate at the locations specified in Ext.A (para 1.1). YCH will perform warehousing services as listed in Ext.B (para 1.2). YCH will have to comply with Seagate's minimum security requirements (para 1.3). The fee payable by Seagate to YCH is as per Ext.A (vide para 2). Para 3 bears the heading 'third party products and claims'. Para 3.1 says that YCH shall segregate the Seagate products from the other products in its warehouse management system and also ensure that the Seagate products are not subject to encumbrance, seizure or possession of any third party. Para 6.2 provides that YCH will be liable to make good the loss or damage to Seagate products arising out of neglect or default committed by the agents or employees of YCH to the extent of 'full release value' of the product upto a maximum of 100,000 dollars per occurrence. 'Full release value' is defined. Para 7 deals with 'insurance'. YCH will obtain and maintain sufficient insurance for Seagate products while they are in company's possession in an amount suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stated that the Agreement or arrangement will be on similar lines as the Agreement entered into with YCH. 10. The core question in the instant case is whether the applicant which operates through ISPs such as YCH in India can be said to have a Permanent Establishment in India as defined in Art.5 of India-Singapore DTAA. The profits derived by the applicant from its business in India will be taxable in India under the I.T. Act only if it carries on business through a PE located in India but not otherwise. If it has a PE, the next question will arise as to how the attribution of income has to be done. Therefore, we have to consider whether the applicant carries its business through a PE. That takes us to Art.5 which defines PE, which we have already referred to. Art.7 of the India-Singapore DTAA inter alia lays down: 5.1 ARTICLE 7: BUSINESS PROFITS 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicant does have a fixed place of business which is the focal point of its business operations in India. The fact that the fixed place of business is owned or possessed by the logistics service provider does not detract from the position that the applicant has a distinct, earmarked and identified place which caters to its business. In one sense, it is the business place of warehouse/service provider and in another sense, it is also the fixed place of business of the applicant from where the sales activities are carried on. It is seen from the Agreement that YCH will have to provide warehouse space at a specified location. The obligation to make adequate space available to store the applicant's products is cast on YCH. Further, YCH is under an obligation to install racks to increase the storage capacity or efficiency of operations. As per para 3.1 of Ext.B, YCH is required to provide the necessary systems to facilitate electronic data interchange so that the products can be pulled from the warehouse promptly and the necessary business informations are exchanged. There are enough indications in the Agreement that there should be earmarked space in the warehouse with racks and el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. In any case where the correct amount of profits attributable to a permanent establishment is incapable of determination or the determination thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis. 3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State." 15. For the purpose of computation of profits of the PE in re ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
