TMI Blog2011 (8) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... India is to be ignored while computing global profits to be attributed to Indian operations - Decided against the assessee. Tax liability - Prima facie papers itself show the extent of work being handled by RRIL for appellant in India - RRIL is not only 100% subsidiary of the appellant but also maintains a permanent office in India to undertake all such activities - Thus, it can be concluded that the appellant has a business connection in India within the meaning of Section 9(1) (i) of the Act and under the Income-Tax Act, its income is chargeable to tax in India arising out of such business connections - Decided against the assessee. - ITA 493/2008,ITA 743/2006 ITA 494/2008,ITA 495/2008 ITA 496/2008,ITA 497/2008 ITA 498/2008,ITA 584/2008,ITA 647/2008 ITA 648/2008,ITA 649/2008 ITA 650/2008,ITA 663/2008 - - - Dated:- 30-8-2011 - MR. JUSTICE A.K. SIKRI, MR. JUSTICE M.L. MEHTA, JJ. For Appellant: Mr. S. Ganesh, Sr. Advocate with Mr. Mukesh Butani, Mr. H. Raghavendra Rao, Mr. Arjit Prasad, Advocates. For Respondent: Mr. Sanjeev Sabharwal, Sr. Standing Counsel A.K. SIKRI, J. 1. These appeals of the assessee were admitted on the following questions of law vide ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question. Reason is obvious. Mr. Ganesh argued that even if it is so, the payment made by the assessee to RRIL for the services rendered by RRIL on behalf of the assessee constitutes arm s length price (ALP) and, therefore, nothing more was to be taxed at the hands of the assessee. 5. We may capture some material facts needed to answer this question of law no.3. 6. The appellant is a company incorporated under the laws of England and Wales and is a tax resident in the United Kingdom. The appellant is a Non-Resident under the provisions of the Indian Income Tax Act. The appellant supplies certain parts and equipment to Indian customers who are mainly Indian Navy, Indian Air Force and Hindustan Aeronautics Limited (HAL). There is another company namely Ms/ Rolls Royce Indian Limited (RRIL) which is a company incorporated under the Laws of England and Wales and is tax resident in the United Kingdom. RRIL has offices in India which render liaison services. The liaison offices have been established after taking approval from the Reserve Bank of India. RRIL renders liaison services and such services are rendered inter alia by the liaison offices of RRIL in India for which RRIL is rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered and not the trading profit. The assessee had sought clarification by means of aforesaid application, inter alia, on this point as well contending that in the absence of clarity, there may be confusion while giving effect to the order of the Tribunal. The Tribunal disposed of this application vide order dated 30th January, 2009 clarifying that in para 24.1 of the impugned order it had held that out of the total profits on global basis, 50% of the profit is to be attributed to the manufacturing activity, 15% to research and development activities and balance to marketing activities and since marketing activities are carried out in India to the extent of sales in India and proportionate profit is to be attributed to the global profits. 11. It is also remarked that the Assessing Officer had adopted the global profits being trading profit which represents gross profit less commercial marketing product support cost and general administration cost, but before net of the research and development expenses and exceptional items. The contention of the learned counsel for the assessee that net research and development expenses should also be reduced while computing operating profits was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.3 against the assessee. 13. With this, we revert back to the issue of PE on which questions of law no. 2 4 are framed. As already pointed out, there is no serious contest to the findings arrived at by the Tribunal touching various facets of the business relation between RRIL and the assessee on the basis of which RRIL, which is a 100% subsidiary setup in India is held to be as PE of the assessee. Only a limited challenge was laid to the impugned order was predicated on the objections which the assessee had filed to the Remand Report obtained by the CIT (A) from the Assessing Office. It was argued that the assessee had filed its objections which is duly acknowledged by the ITAT in para 19 of the impugned order. Alongwith objections, the assessee had filed various documents which fact is also acknowledged by the ITAT in the impugned order. The grievance is that the objections as well as those documents were not even considered properly. From these documents the assessee only wanted to show that the RRIL does not constitute its PE in India. 14. When we examine the discussion of the CIT (A) as well ITAT on the aspects of PE, we are convinced that for sufficient and adequate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, since the material relates to the entire business activity even for all the years under appeal, there is no case that the same should be ignored only because the same were not found after the conclusion of assessment proceedings but before the conclusion of appellate proceedings. Prima facie these papers itself show the extent of work being handled by RRIL for appellant in India. RRIL is not only 100% subsidiary of the appellant but also maintains a permanent office in India to undertake all such activities. Thus, it can be concluded that the appellant has a business connection in India within the meaning of Section 9(1) (i) of the Act and under the Income-Tax Act, its income is chargeable to tax in India arising out of such business connections. 16. After holding that the assessee had business connection in India, the Tribunal adverted to the question as to whether there was any PE in India within the meaning of Article 5 of the Indo-UK DTAA. The Tribunal extracted the provisions of Article 5 and stated the legal position that emerged therefrom. Thereafter, it referred to various documents in para 22 and narrated its effect in detail. Our purpose would be served by ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit, who has the responsibility to sell the products belonging to the group. (c) RRIL acts almost like a sales office of RR Plc and its group companies. (d) RRIL and its employees work wholly and exclusively for the Rolls Royce Plc and the Group. (e) RRIL and its employees are soliciting and receiving orders wholly and exclusively on behalf of the Rolls Royce Group. (f) Employees of Rolls Royce Group are also present in various locations in India and they report to the Director of RRIL in India. (g) The personnel functioning from the premises of RRIL are in fact employees of Rolls Royce Plc. This has been admitted by the MD Mr. Tim Jones, GM, and can be discerned from statement of Mr. Ajit Thosar and documents like terms of employment of GMS. Thus, the appellant can be said to have a PE in India within the meaning of Article 5 (1), 5(2) and 5(4) of the Indo UK DTAA. Since we have found that the appellant has a business connection in India as well as PE in India, the income arising from its operation in India are chargeable to tax in India. 17. We are thus convinced that there is a detailed discussion after taking into consideration all the relevant aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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