TMI Blog2012 (1) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ttribution in the case of PEs. With respect to relief under Article 9 in respect of freight earnings it is held that the issue is covered against the assessee by a coordinate bench's decision in assessee's own case for the assessment year 2001-02 therefore, the assessee may take up the issue before Hon'ble Courts. Levy of interest under section 234 B A.O. is directed to grant necessary relief. - Decided partly in favor of assessee. - IT Appeal No. 9001/Mum/2010 - - - Dated:- 11-1-2012 - B.R. Mittal, Pramod Kumar, JJ. ORDER Pramod Kumar, Accountant Member By way of this appeal, the assessee-appellant has called into question correctness of the order dated 27th October 2010, in the matter of assessment under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2006-07. 2. The core issue that we are really required to adjudicate in this appeal is whether or not, on the facts and circumstances of this case, the assessee can be said to have a permanent establishment (PE)1 in India, and, if it is held that the assessee indeed has a permanent establishment in India how much profits can be taxed as being attributable to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a fixed place through an agent in India wherein the agent was to maintain the, for the principal i.e. the assessee". A reference was made to Hon'ble Andhra Pradesh High Court's judgment in the case of CIT v. Vishakhapatnam Port Trust 144 ITR 146 wherein it was held that PE connotes a virtual projection of the foreign enterprise itself into the territory of taxing state in a substantial and enduring form. A reference was made to paragraph 38 of the OECD Model Convention Commentary. It was in this light that the Assessing Officer gave the following finding of fact: "Delmas had Barwil as its agents which are doing the agency work in most of the Indian ports. The agents are responsible for concluding contracts on behalf of the assessee in the form of all the clearances from the Government departments. They are doing all the functions such as brokering and contracting with the parties for loading of cargo, dealing with labour for loading, unloading, collecting the freight on behalf of the assessee and maintaining and operating bank account for the assessee" 4. The Assessing Officer further added that "the above stated factual position brings out that the assessee's case falls u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al except in a situation in which agent is not paid an arm's length remuneration for services rendered, and since it is nobody's case that agent has not been paid arm's remuneration, nothing turns on existence of PE because, even if there is a PE, no further profits can be attributed to the DAPE. While learned representatives did not dispute this legal position, both the parties objected to the matter being decided on this short ground. While learned counsel for the assessee was of the view that since Hon'ble Supreme Court is right now hearing revenue's appeal against the said jurisdictional High Court decision, and assessee's interest can be adversely affected in the eventuality of the said judgment being reversed, learned Departmental Representative was of the view that since Circular No. 23 dated 23rd July 1969 issued by the Central Board of Direct Taxes, which was foundation of Set Satellite judgment (supra) by Hon'ble Supreme Court, now stands withdrawn, the said judgment ceases to hold good in law. She also submitted that if DAPE profit neutrality theory is to be accepted as such, the very existence of DAPE is meaningless. We were thus urged to adjudicate the matter on merits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other Contracting State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's length conditions. (7 .. not relevant for our purposes) 8. A plain reading of the above provisions indicates that the provisions of Article 5(5) read with article 5(6), which deal with the agency situations, are concerned, these provisions specifically override the provisions of Article 5(1) and 5(2), inasmuch as if a foreign enterprise is carrying on business in the other contracting state through an agent, the provisions of Article 5(1) and 5(2) do not come into play. That is, however, an academic aspect, because, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 95 ITD SB 269 upheld this school of thought, and has, inter alia, observed as follows: " The OECD Commentary on Double Taxation Conventions refers to a fixed place as a link between the place of business and a specific geographical point. It has to have certain degree of permanence. It is emphasized that to constitute a 'fixed place of business', the foreign enterprise must have at its disposal certain premises or part thereof. Philip Baker, in his commentary on Double Taxation Conventions (Third Edition), states that the fixed place is very much that of a physical location, i.e., one must be able to pinpoint to a physical location at the disposal of the enterprise through which the business is carried on. On the other hand, possession of a mailing address in a State without an office, telephone listing or bank account-has been held not to constitute a PE. Further, the fixed place of business need not be owned or leased by the enterprise provided it is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purpose of project undertaken on behalf of the owner of the premises...." 9. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked. It is also important to bear in mind that since provisions of Article 5(5) override the provisions of Article 5(1) and 5(2), no permanent establishment under article 5(1) and (2) can be said to come into existence, so far agency situations are concerned, until the conditions of Article 5(5) are also satisfied. Learned Departmental Representative fairly does not dispute, and rightly so, that the permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6). Learned Departmental Representative's only objection is that since an important aspect, i.e. aspect relating to the transactions having been done in arm's length conditions, has not been examined by the Assessing Officer, the matter should be restored to the file of the Assessing Officer for specific adjudication on the transactions between principal and agent having been done in arm's length conditions. We are unable to see any merits in this plea. As held by a coordinate bench of this Tribunal, in the case of Airlines Rotables Ltd v. DDIT 44 SOT 368, "It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. 95 ITD SB 269, that the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uliar provision in Article 5(5) read with Article 5(6), which is not part of OECD or UN Model Convention, and which provides that "However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's length conditions.". We have also noted that the DRP has held that there is a PE on the short ground that assessee's claim for applicability of Article 9 presupposes existence of a PE, but it is difficult to comprehend as to how existence of a PE can be inferred merely because the assessee has made a particular claim, which is rejected anyway. The onus of establishing that there is a PE, as we have noted earlier in the discussions, is on the revenue authorities and there is no room for inferences being drawn up in this respect merely because the assessee has made a particular claim. Similarly, reference to agent's authority to conclude contracts, as has been made by the DRP, is not decisive test either because even when agent has the authority to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se even as DAPE inherently assumes the entrepreneurship risk, an agent cannot assume that entrepreneurship risk. To this extent, there may clearly be a subtle line of demarcation between the dependent agent and the dependent agency permanent establishment. The tax neutrality theory, on account of existence of DAPE, may not indeed be wholly unqualified- at least on a conceptual note. However, given the findings in the present case, we need not deal with this matter on merits or give any judicial findings in respect of the same. We leave it at that. 11. Ground Nos. 3 and 4 are thus allowed in the terms indicated above. 12. Let us now deal with the other grounds of appeal. 13. It is a case of reopened assessment. While the assessee has, in the first ground of appeal, taken up a specific grievance against reopening of the assessment, learned counsel for the assessee did not press this ground of appeal. We, accordingly, dismiss the first ground of appeal as not pressed. 14. Ground No. 1 is dismissed as not pressed. 15. In ground nos. 2, the assessee has raised the following grievance: Relief under Article 9 of the Double Taxation Avoidance Agreement between India and France ..... X X X X Extracts X X X X X X X X Extracts X X X X
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