TMI Blog2012 (6) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... ablished that it had offered services to the subsidiary company on cost to cost basis at best reasonable and competent prices available at that point of time. Therefore, it is established that assessee had rendered technical services to its subsidiary in India and the payments were in the nature of fee for technical services - Decided in favor of Revenue. Existence of Permanent establishment - Held that:- If we pierce the veil of assignment contract and go to the root of the case, we find that there is interlacing of activities and interlocking of funds between the assessee and its Indian subsidiary in executing the dredging contract. Hence, relationship of agency is there and the existence of permanent establishment is also there. Validity of reassessment proceedings - original return processed u/s 143(1) - Held that:- When the facts of the case are so complicated and cumbersome and when the return was only processed u/s 143(1), the materials available on record along-with the return filed by the assessee themselves constituted sufficient materials in the hands of the AO to hold a reason that income had escaped assessment. Where the return was processed u/s 143(1), there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant. 2.1. That the assessing officer erred on facts and in law in holding the appellant as liable to tax in India in respect of sum of Rs. 11,53,52,883/-, being expenses incurred by the appellant which were reimbursed by Van Oord ACZ India Pvt. Ltd., considering the same to be income in the nature of fees for technical services under section 9(1)(vii) of the Act and the Article 12(5)(b) of the provisions of the India-Netherlands DTAA. 2.2. That the assessing officer erred on facts and in law in holding the aforesaid amount reimbursed by Van Oord ACZ India Pvt. Ltd., to be income in the nature of fees for technical services , without appreciating that no technical knowledge, experience, skill, know-how or processes was made available by the appellant to Van Oord ACZ India Pvt. Ltd. in lieu of such reimbursement. 2.3. That the assessing officer erred on facts and in law in erroneously allowing that the aforesaid amounts reimbursed were towards allocation of costs for services rendered by the appellant to Van Oord ACZ India Pvt. Ltd., under the Cost Allocation Agreement , not appreciating that the same were specific expenses directly incurred in connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices of its subsidiary and such other logistic and coordinating support to its Indian subsidiary. 8. The assessee-company had received a total sum of Rs. 11,53,52,883/- from its Indian subsidiary as follows:- Mobilisation and Demobilisation Rs. 8,42,62,240/- Freight Hire Charges Rs. 2,48,18,171/- Meals and accommodation char Rs. 17,62,726/- Travelling Rs. 45,09,746/- Total Rs. 11,53,52,883/- 9. According to the assessee-company, the above stated amounts were paid by its Indian subsidiary as reimbursement of expenditure incurred by the assessee company in providing the various facilities to its subsidiary. But, the Assessing Officer treated the above payments as fee for technical services rendered in India and proposed to levy tax in the light of the fact that the assessee had filed its return with Nil income. The proposal was taken up before DRP at Chennai and the DRP confirmed the proposal made by the Assessing Officer and thereafter the assessment was completed accordingly. 10. In the above facts and circumstances of the case, we may consider the different grounds raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew materials have come to the knowledge of the Assessing Officer. We are afraid that this cannot be a universal proposition applicable to all cases. It depends upon facts of each case. In the present case, the contract was initially awarded to the assessee company and the assessee company had later on assigned the contract to its Indian subsidiary and as per the assignment agreement, still the assessee had to play a role by coordinating technical services for the Indian subsidiary and in addition to the above, there is also an agreement for allocation of cost between the assessee and the subsidiary, etc. When the facts of the case are so complicated and cumbersome and when the return was only processed under section 143(1), the materials available on record alongwith the return filed by the assessee themselves constituted sufficient materials in the hands of the Assessing Officer to hold a reason that income had escaped assessment. The legal validity of section 143(1) intimation has to be considered in the light of the surrounding facts of a case. It is the argument of the assessee that the reassessment was done only on the basis of suspicion. It is not correct. Where the return wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the assessee and its Indian subsidiary. The cost allocation agreement lays down the role of the assessee described as service group in connection with the project. The learned Commissioner of Income-tax held that in view of the cost allocation agreement, the assessee had in fact provided considerable knowhow and facilities within its command in the field of production, technology, marketing, finance, business administration, data processing and the like. The agreement between the assessee and its Indian subsidiary showed that the subsidiary did not have at its disposal adequate material and human resource expertise to execute the project on its own. The Commissioner of Income-tax, therefore, argued that the Assessing Officer has rightly treated the payments as fee for technical services and brought the same to tax in India. 19. The learned counsel appearing for the assessee has relied on the following decisions to support his arguments on the issue of fee for technical services:- 1. Diamond Services International P. Ltd. v. Union of India and Others, 304 ITR 201 (Bom.) 2. Raymond Ltd. vs. DCIT, 86 ITD 791 (Mum.) 3. Anapharm Inc., 305 ITR 394 (AAR). 4. Intertek Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered not only in the light of the contract assignment agreement, but also in the light of the cost allocation agreement entered into between the assessee company and its Indian subsidiary. The cost allocation agreement entered into between the assessee company and its Indian subsidiary has unequivocally declared that the Indian company does not have any sort of technical expertise or resources and ability to carry out the dredging contract assigned to it. It is in the light of the above declaration that the assessee company has undertaken to provide all sorts of services to its Indian subsidiary, wherever necessary, to execute the dredging contract. Such services include not only arranging the dredgers from abroad, but also application of technical mind to select and choose appropriate parties to execute the work entrusted to its Indian subsidiary. The argument of the assessee company that the payments were made by the Indian subsidiary only as reimbursement of expenses cannot be accepted at its face value. The facilities arranged and coordinated or obtained by the assessee to support the operations of its Indian subsidiary are not layman s activities. Even to choose the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, in fact, the assessee company itself had, to a great extent, execute the contract work for and on behalf of its subsidiary. 25. Therefore, in the facts and circumstances of the case, it is an inevitable conclusion on the part of the Assessing Officer that the assessee had rendered technical services to its subsidiary in India and the payments were in the nature of fee for technical services. Therefore, we hold that the Assessing Officer is justified in bringing the sum of Rs. 11,53,52,883/- to tax in the hands of the assessee company. 26. The issue of fee for technical services is also decided against the assessee. 27. The third issue raised by the assessee is regarding the finding of the Assessing Officer that the Indian subsidiary would constitute a dependent agent of the assessee company and thereby the assessee company has permanent establishment in India. This ground is almost academic in view of our finding that what the assessee received from its subsidiary was fee for technical services. On merits also the Assessing Officer is justified in holding that the assessee had a permanent establishment in India. This is because of the reason that we have already stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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