TMI Blog2012 (6) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... g profits taxable in the hands of the principal. There should be some definite activity of the PE to which profits can he attributed, merely calling a person as agent acting on behalf of foreign non-resident would not by itself render him to be considered as an agency PE and pro tanto part of the profits of the non-resident is liable to be taxed in India – against revenue Deletion of income in respect of rights of SAP system – assessee submitted that there is no basis for the estimate made by the AO regarding royalties/ FTS income in respect of rights for software to be an ad-hoc amount of EURO 1,00,000 - Held that:- As the confirmation filed by the assessee that no payment by DCIPL in connection with right to use any software licensed by the assessee during the financial year was made before the CIT(A) was not confronted to the AO he should be afforded opportunity for examining the claim made by DCIPL before the CIT(A ) - set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in the light of the additional evidence filed – in favour of revenue for statistical purpose. Applicability of levy of Interest u/s 234B - duty is cast on the payer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28/11/1997 offering to tax an income of Rs. 2,15,285/-. This included royalty income earned from Bajaj Tempo Limited (BTL). The same was offered to tax on a gross basis at 30% under section 115A of the IT Act. In 1994, the assessee entered into a joint venture with TELCO and set up Mercedes-Benz India Private Limited (MBIL) (formerly known as Daimler Chryser India Private Limited) for the manufacture/ assembly and sale of cars in India. At the time of formation of the joint venture, the assessee held 51% of the shareholding in MBIL and the balance 49% stake was held by TELCO. The assessee made direct sales of completely built up (CBU) cars the value of Rs. 46,650,895/- to the customers in India, for which MBIL rendered certain assistance services. The assessee claimed to have no office or place of business in India and hence, in the absence of a PE in India, sale of CBU cars of Rs. 46,650,895/- directly to customers in India was not offered to tax in the above return. 4. The AO passed the assessment order dated March 28, 2005 under section 143(3) of the Act holding that he assessee is in the business of manufacture and sale of automobiles and that it has also been selling its C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT v. Hyundai Industries Ltd. (29 1 ITR 482) has held that in the case of an agreement with a South Korean Company for fabrication and installation of Oil exploration platform, the PE attributable to installation and commissioning came into existence only after the supply of the equipment. Therefore, profits from supply of the platform did not accrue in India. Similarly in the case of Ishikawajima Harima Heavy Ind. Ltd v. DIT (288 ITR 408), the Apex court held that profit will not accrue in India in respect of offshore supply of equipment. (The subsequent amendment to sec 9(1)(i) will not affect the decision on profit arising from sale of equipment offshore.) Mere sale of raw materials/ components will not result in business connection and even if it does as per the terms and conditions of the contract between the Assessee and DCIL no income accrues to the Assessee on the basis of any activities carried out, on behalf of the Assessee in India. Therefore in our opinion DCIL does not constitute the Assessee's business connection in India and thus the Assessee's income from sale of raw material/CKD units to DCIL would not be liable to tax in India under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities of preparatory or auxiliary in nature. The prices offered to the clients are as per the list price notified by the Assessee. DCIL has no authority to conclude any deal. Thus the mere acting as post office between the Assessee and the client will not render DCIL as a dependent agent. DCIL cannot be considered as habitually procuring orders for the Assessee. In fact DCIL themselves are manufacturing and selling the cars aid procurement of orders for direct shipment of cars by the assessee would in fact he contrary to and against the interest of the DCIL in its manufacturing activity. DCIL by passing on communication from Assessee to the client and vice versa, are merely rendering a very insignificant auxiliary/preparatory service in the sale of CBUs by the Assessee to Indian clients. Therefore DCIL does not constitute a dependent agent of the Assessee. The prices offered to the Indian clients arc as per list price notified and so whether DCIL is involved or not the price charged to the customer would be the same. No profits can be attributed to the services of DCTL in India. In fact by engaging the services of DCIL, the profit of the Assessee is reduced to the extent of he com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of PE in article 5 of the DTAA" 32. From the above it can be seen that merely acting for a non resident principal wou1d not by itself render an agent to be considered as PE for the purpose of allocating profits taxable in the hands of the principal. There should be some definite activity of the PE to which profits can he attributed. Unless it is so established, merely calling a person as agent acting on behalf of foreign non-resident would not by itself render him to be considered as an agency PE and pro tanto part of the profits of the non-resident is liable to be taxed in India. We find that the Revenue has not established that DCIL had carried out any activity to which any profit can he attributed. DCIL was merely carrying out the work of a post office transferring communication from one to another. Therefore, we are not. convinced that the department had established that the activity of DCIL, even if it is to be considered as PE has resulted in any profits to the Assessee and in view of the specific provisions of the Article 7 of the Double Taxation Avoidance Agreement between Indian and Germany no part of the profit of the non-resident. Assessee can be attributed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irecting to delete the addition of EURO 1,00,000/- made on account of income in respect of rights of SAP system ignoring the facts that the actual addition is of EURO 30,000 only and EURO 70,000 has been offered on adhoc basis by the assessee itself." 14. Briefly the facts are that the assessee had been using the SAP-System application for recording its transactions pertaining to the AY 2000-01. However the assessee did not use this application anymore due to several up-dates. During the assessment proceedings the assessee contended before the AO that due to the change in the application it was not possible for the assessee to undertake an automatic research to verify whether it had provided DCIPL with license for the right to use any of their softwares for the subject A.Y. Given the above, the assessee undertook a manual research which required the assistance of several departments. Based on the manual research the assessee determined certain potential transactions on a very conservative basis and submitted before the AO vide letter dated 17-12-2007 that the assessee was of the belief that some of these transactions amounting to approx EURO 70,000 might turn out relating to li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have heard the rival submissions. Admittedly confirmation filed by the assessee before the CIT(A) was not confronted to the AO. We are of the view that the AO should be afforded opportunity for examining the claim made by DCIPL before the CIT(A). We, therefore, set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in the light of the additional evidence filed before the CIT(A) by the assessee. We also make it clear that the assessee would be at liberty to establish its case by such other evidence as may be necessary. The AO will afford opportunity of being heard to the assessee and decide the issue afresh in accordance with law. 18. Ground No.4 raised by the revenue reads as follows: "4. On the facts and circumstances of the case and in law whether the ld. CIT(A) was correct in holding that when duty is cast on the payer to pay tax at source, no interest u/s. 234B can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax on the amount which had not been deducted at source under section 195 of the Income Tax Act, 1961." 19. It is not in dispute before us that identical issue was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 718/M/06 dated 31/3/2010, whereby the addition made by the AO was deleted. In view of the above the CIT(A) cancelled the order of the AO imposing penalty on the assessee. Aggrieved by the order of the CIT(A) the revenue has preferred the present appeal before the Tribunal. 23. We have heard the rival submissions. In our view since the addition in respect of which penalty was imposed by the AO has already been deleted by the Tribunal by confirming the order of CIT(A) in the quantum appeal, the very basis of imposing penalty on the assessee no longer survives. Consequently, we are of the view that the CIT(A) was fully justified in canceling the order of the AO imposing penalty on the assessee under section 271(1)(c) of the Act. Consequently the appeal by the revenue is dismissed. 24. In the result, the appeal by the revenue is dismissed. ITA 6072/M/2010 (A.Y.2005-06): 25. This is an appeal by the revenue against the order dated 14/5/2010 of CIT(A)-10, Mumbai relating to A.Y 2005-06. The revenue has raised the following grounds in this appeal: "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that in respect of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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