TMI Blog2012 (6) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... India, that Indian subsidiary must be taken to be a permanent establishment of the group in India. AIPL may have an independent existence as a subsidiary, however, authority over it of the principal, vertical or persuasive, cannot be in doubt. Therefore, there exists a permanent establishment of the applicant in India in connection with its international express business under the DTAC between India and Singapore and receipts by the applicant from outbound and inbound consignments attributable to the permanent establishment in India is taxable in India. Whether the transaction between the applicant and AIPL as per agreement dated 1.4.2010 is on arms-length basis has to be verified to determine whether any income can still be attributed to the permanent establishment in India. Receipts by the applicant from AIPL would be subject to withholding tax under Section 195 of the Income-tax Act. - A.A.R. No. 1061 of 2011 - - - Dated:- 7-6-2012 - Mr Justice P.K. Balasubramanyan, J. Present for the applicant : Mr. P.J. Pardiwala, Sr. Advocate Mr. Ravi Praksh, Advocate Mr. Abhinav Ashwin, Advocate Ms. Karina Haum Present for the Department Mr. Shishir Srivastava, Addl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant, it has appointed AIPL as a non-exclusive service provider with respect to the international express business into India and from India and similarly AIPL has appointed the applicant as a non-exclusive service provider with respect to such business as per the agreement dated 1.4.2010. The key features of the agreement are that the applicant appointed APIL as a non-exclusive service provider and APIL undertakes the international express business of the applicant. The applicant has to assist AIPL in the delivery of the packages outside India. Correspondingly, AIPL has to assist the applicant in the delivery of the packages in India. The contract is entered into by the parties on principal to principal basis. The applicant conducts its international express business of its own account outside India and AIPL conducts its international business of its own account in India. AIPL is entitled to use specific transport and logistical service providers outside the Aramex group upon a request by the customer. AIPL can at its own discretion and expense open offices in India. Neither the applicant nor AIPL is liable to each other for negligence, mis-representation or otherwise for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the applicant for support functions of invoicing and payment performed by the applicant are in the nature of fees for technical services‟ under the India-Singapore tax treaty? 5. Based on the answers to question (1) to (4) above, would the receipts by the applicant from AIPL be subject to withholding tax under section 195 of the Income-tax Act, 1961 ( the Act‟)? 6. While making that order, this Authority also reserved for consideration the question whether the transaction is designed for avoidance of tax in India, while considering the application under section 245R(4) of the Act. 7. According to the Revenue, the agreement put forward by the applicant is a mere camouflage and the questions now raised are really involved in the assessment proceedings which are already pending. Mere inclusion of some services in the agreement dated 1.4.2010 cannot hide the real picture. Aramex group is defined in the agreement as meaning, Aramex PJSC, a public joint stock company duly incorporated and in existence under the laws of United Arab Emirates (UAE). The business of the group is door-to-door delivery of express shipments by air and land and related transport services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Learned Senior counsel for the applicant contended that AIPL was doing business on its own and also does domestic business in India, AIPL gets income from such domestic business. For that business, the network of Aramex is not used. There were separate agreements covering the payment of royalty‟ and payment of fees for technical services‟ for using the same system. Those aspects are not involved in this case. The dispute here is only regarding the amount payable to the applicant by AIPL on the basis of the agreement dated 1.4.2010. It can be seen that the income of AIPL from the business covered by the agreement dated 1.4.2010 is only about one-third of the total income of AIPL. The transaction in question is between independent entities and AIPL is not the exclusive agent of the applicant confined to the business of the network. The income from the business was business income‟ within the meaning of Article 7 of the India-Singapore DTAC and under paragraph 1 thereto, it was not chargeable to tax in India, unless the applicant has a permanent establishment in India. The applicant has no PE in India since it has no fixed place of business in India. It has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, Aramex group companies in various parts of the world contact the customers, take delivery of the articles to be delivered to various cities and towns in India and deliver them at a chosen destination. The business is completed by delivery of the consignments to the concerned addressees in India. For that, the Aramex group has created a subsidiary, in India, AIPL. Without the association of AIPL, the business of Aramex group as regards the articles sent to India, cannot be performed. It is the case of the applicant that the goods are brought to a common destination and delivered to AIPL and AIPL ensures that the articles are delivered to the concerned parties in various parts of India. 13. Aramex group thus cannot successfully conduct its business of transporting and delivering articles from and in India without AIPL performing its role in India. Does AIPL became a permanent establishment of the applicant because of this, is the question. 14. What is a permanent establishment? Is it not something which enables a non-resident company to carry on a part of its whole business in a particular country? Without this entity AIPL, Aramex group cannot complete its business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and Singapore, the subsidiary in India, AIPL, would be considered to be a permanent establishment of the applicant in India. Paragraph 1 of Article 5 provides that for the purpose of the DTAC, the term permanent establishment‟ means a fixed place of business through which the business of an enterprise is wholly or partly carried out. Clearly, AIPL has a fixed place of business and branches. The business of the applicant Aramex group in India is only carried on by AIPL. APIL obtains orders, collects articles, transports them to a specified destination so as to be taken over by the group and then delivered to the addressees in various countries through its entities in those countries. Therefore, it would not be incorrect to say that AIPL is a permanent establishment of Aramex group in India. 17. Paragraph 10 of Article 5 of the DTAC says that the fact that a company which is a resident of a contracting State controls or is controlled by a company which is a resident of the other contracting State or which carries on business in that other contracting State, shall not of itself constitute either company a permanent establishment of the other. In other words, the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deeming provision in paragraph 8. 19. In a Ruling in AAR No.542 of 2001, (274 ITR 501) in a similar situation, this Authority ruled that an independent agent of an American principal would be a permanent establishment of the American company in terms of paragraph 1 of Article 5 of the DTAC between India and USA. I am in respectful agreement with the reasoning and conclusion on this question. The following passage in paragraph 7 of the OECD commentary on Article 5, For a place of business to constitute a permanent establishment, the enterprise using it must carry on its business wholly or partly through it and the following passage in paragraph 41 that However, a subsidiary company will constitute a permanent establishment for its parent company under the same conditions stipulated in paragraph 5 as are valid for any other unrelated company, i.e. if it cannot be regarded as an independent agent in the meaning of paragraph 6, and if it has and habitually exercises an authority to conclude contracts in the name of the parent company. And the effects would be the same as for any other unrelated company to which paragraph 5 applies and the statement in paragraph 42 The same r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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