TMI Blog2012 (9) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... aging certain affairs, a quid pro quo for which will be described as fees for technical services. Assessee becomes entitled to the user fee when there is a successful completion of sale between the buyer and seller through its website. The assessee's websites are analogous to a market place where the buyers and sellers assemble to transact. By providing a platform for doing business, the assessee can, by no standard, be considered as having rendered any managerial services either to the buyer or to the seller, for which it received fee from the seller, hence it is in nature of 'Business profits'. There is no dispute about the fact that eBay India and eBay Motors are providing their exclusive services to the assessee. It has been fairly admitted that these two entities have no other source of income except that from the assessee in lieu of the provision of service as set out above. In view of the fact that eBay India and eBay Motors are exclusively assisting the assessee in carrying on business in India, they definitely become dependent agents of the assessee. The next question, however, is whether or not these dependent agents constitute permanent establishments of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase and sale of goods and services to users based in India. eBay AG entered into a Marketing Support Agreement with eBay India Private Limited (hereinafter referred to as 'eBay India') and eBay Motors India Private Limited (hereinafter referred to as 'eBay Motors') which are eBay group companies, for availing certain support services in connection with its Indian specific websites. The assessee, eBay AG earned revenue amounting to Rs. 4,94,27,530/- from the operations of its websites in India. It was claimed that such revenue is taxable as business profits in India as per the provisions of Article 7 of the Double Taxation Avoidance Agreement between India and Switzerland (hereinafter referred to as 'the DTA') only if it has a Permanent Establishment (hereinafter also referred to as 'the PE') in India as per the provision of Article 5 of the DTA. It was claimed that eBay AG did not have any PE in India and as such no amount was taxable. During the course of assessment proceedings, the Assessing Officer (hereinafter also referred to as 'the AO') observed that the assessee signed agreements with eBay India and eBay Motors for providing certain services to it in respect of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so submitted that the revenue earned by it from its users in India was not in the nature of Fee for technical services in terms of section 9(1)(vii) of the Act. As the Assessing Officer had not considered the provisions of the DTA, the learned CIT(A) required the Assessing Officer to submit a remand report in this regard. The Assessing Officer, vide remand report dated 4.2.2010, held that the assessee was eligible to claim the benefit of the DTAA. In the second remand report dated 28.4.2010, the Assessing Officer held that the assessee had dependent agent PE in India in the form of eBay India and eBay Motors. After considering the submissions advanced on behalf of the assessee, the assessment order and the remand reports, the learned CIT(A) came to hold that the Assessing Officer was not justified in considering the amount of Rs. 4.94 crore as 'Fee for technical services'. He, however, upheld the stand of the AO in remand proceedings that the assessee had permanent establishment in India within the meaning of Articles 5(5) and 5(6) of the DTA and accordingly the revenue earned by it was taxable in India under Article 7 of the DTAA. Thereafter, the ld. CIT(A) proceeded to compute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide various details regarding the product that is wished to be sold through the website, such as, photograph, description and price of the product. Any buyer can also register himself for buying of the goods through the assessee's website. While registering, the buyers are required to provide information, such as, their name, age and address. When the buyer accesses the website, he goes through various products listed by the sellers. Depending on his requirements, he chooses the product which he wants to purchase online, out of the variety of products available on website with all the necessary details available. The buyer is required to choose any of the payment methods for making payment of the product directly to the seller. Once the buyer clicks 'Buy It Now' button after registering itself with the website and agreeing to the terms and conditions of sale as displayed by the seller on the website, an email is sent by the assessee to the seller confirming the sale of his product listed on the website. The seller then delivers the product to the buyer and settles the payment in respect of sale. The sellers registered on the assessee's website are its source of income who are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has certain positives, making the consideration as fees for technical services and certain negatives, not making the consideration as fees for technical services. The positives, talk of any consideration for rendering of any managerial, technical or consultancy services and also the provision of services of technical or other personnel. The negatives exclude any consideration for construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries", from the scope of 'fees for technical services. It is nobody's case that the assessee's revenue is akin to any of the negatives in the definition. 8. We will focus on the positive list to ascertain whether the revenue received by the assessee is consideration for rendering managerial or technical or consultancy services. The term 'managerial services' refers to managing certain affairs, a quid pro quo for which will be described as fees for technical services. We have noticed above that the assessee becomes entitled to the user fee when there is a successful completion of sale between the buyer and seller through its website. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be purchased or sold. It is neither open nor possible for the buyers to consult the assessee before making any decision as regards the product to be purchased by them. The whole varieties of goods are displayed on the website. Any buyer, finding a particular product displayed on the website as fulfilling his requirement, clicks the 'Buy It Now' button. With the pressing of this button, the transaction between the buyer and seller is concluded and the assessee becomes entitled to its user fee. There is no consultancy whatsoever, which is provided by the assessee at any stage, either to the buyer or the seller. 11. The last of the positives of the definition of 'fees for technical services', is consideration for the provision of services of technical or other personnel. It is axiomatic that there is nothing of the sort of provision of technical or other personnel in the entire process, for which the sellers pay user fees to the assessee. This fees accrues to the assessee on successful completion of transaction between buyer and seller. 12. Thus, it can be seen that apart from making its websites available in India on which various products of the sellers are displayed, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment." 18. From the above business profit Article, it is palpable that the business profits of an enterprise of a Contracting State shall be taxable in the other Contracting State only if the enterprise carries on its business in such other State through a permanent establishment. When the business is carried on by the enterprise in the other state through a permanent establishment, then only so much of the profits can be taxed which are directly or indirectly attributable to that permanent establishment. This shows that in order to tax the business profits of an enterprise of one state in the other, it is sine qua non that such an enterprise must have its permanent establishment in the other state. If there is no permanent establishment of the enterprise of the one Contracting State in the other state and there are certain business profits arising to the enterprise from such other state, those profits will escape t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in India on the ground that eBay India and eBay Motors are its dependent agent PEs. The learned CIT(A) has accordingly held that the assessee has permanent establishment within the meaning of Articles 5(5) and 5(6) of the DTAA. We will therefore, proceed to test the facts of the case on the touchstone of the command of Article 5(5) and 5(6) of the DTA. 20. It was stated by the ld. AR that the ld. CIT(A) erred in concluding that eBay India and eBay Motors were the assessee's PEs in India. Thoroughly elaborating the manner in which the assessee conducts its business, as discussed above, it was stated that the assessee did not have any PE in India, which could trigger the taxability of its business profits earned from the operations in India as per the provisions of the DTA. 21. Sounding a contra note, the ld. DR vehemently argued that the eBay India and eBay Motors are assessee's permanent establishments in India. To fortify his view, he took us through the Agreement entered into between the assessee and eBay India. Both the sides are in agreement that the terms and conditions of agreement between the assessee and eBay Motors are similar to those of with eBay India. In parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating in carrying on various activities relating to choosing of quality material, conveying of requisite design, picking out of competitive sellers, ensuring adherence to the policy of the applicant in the matter of procurement and employment, ensuring payments to the suppliers, is actually doing the work of the applicant in the matter of manufacturing the products as per design and quality and hence, its income is covered under the Act and would also constitute permanent establishment within the meaning of Article-5.1 of India-US DTAA. 23. The ld. DR also took assistance from the language of Article 5(2)(a) of the DTA to contend that eBay India and eBay Motors can also be treated as PEs of the assessee in India as its 'Place of management'. He argued that all the costs incurred by eBay India were reimbursed by the assessee with 8% mark-up. It was stated that eBay India incurred expenses in the nature of rent, traveling expenses, marketing expenses etc. Since, the assessee was required to reimburse the entire amount of expenses to eBay India, this, in effect meant that the premises for which rent was paid by eBay India etc., belonged to the assessee and all other expenses, thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is involved in making awareness in India about the websites of the assessee and also in the collection of payments from the Indian sellers on behalf of the assessee and thereafter, remitting the same. All the expenses incurred by eBay India and the nature of activities as provided in the agreement evidently point out that the website of the assessee, through which the actual business operations are carried on, are not directly or indirectly controlled by eBay India in any manner. Though, eBay India makes advertisement in India so as to create awareness amongst the sellers to get attracted towards assessee's websites, it has no role in directly introducing any specific customer to the assessee. The agreements between the sellers of the products and the assessee, which result into user fee, being the source of the assessee's income from Indian operations, are entered online through the assessee's websites directly, without any interference or involvement of eBay India. The transactions between the buyers and sellers of the products are finalized through the assessee's websites operated from outside India. On the successful completion of sale, it is the assessee who raises invoices on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of such a broker or agent are carried on wholly or principally on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, or controlled by or subject to the same common control as, that enterprise, the person will not be considered a broker or agent of an independent status within the meaning of this paragraph. 28. The first sentence of para 6 of Article 5 talks of PE vis-a-vis an Independent Agent. It provides that where business is carried on in another state through Independent agent, it shall not constitute PE. However the second sentence provides that when such activities are done wholly or mainly on behalf of that enterprise itself or on behalf of that enterprise and also other enterprises controlling, or controlled by that enterprise, the person will not be considered as an independent agent. In such a later situation, the person will assume the character of a dependent agent. 29. There is no dispute about the fact that eBay India and eBay Motors are providing their exclusive services to the assessee. It has been fairly admitted that these two entities have no other source of income except that from the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the purchase of goods or merchandize for the enterprise, then it shall not be considered as the PE. Obviously this exception clause is not applicable in our case as eBay India does not purchase any goods or merchandize for the assessee. It brings us to considering as to whether eBay India and eBay Motors do or habitually exercise 'an authority to negotiate and enter into contracts for or on behalf of' the assessee.' If it turns out that they were exercising any such authority, they will be deemed to be the PEs of the assessee, otherwise not. The learned Departmental Representative has referred to various clauses of the agreement to emphasize that eBay India was carrying on the operation on behalf of the assessee in the nature of marketing services and collection of payment etc. He also adverted to certain clauses of the agreement to accentuate that if certain research work done by eBay India results bring into existence an intellectual property, then rights in such intellectual property shall vest in the assessee. We are unable to see from such activities done by eBay India or the functions performed or undertaken to be performed as per the terms of the agreement, as to how they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. None of the functions done by eBay India and eBay Motors for the assessee as per clause 3.1 of the agreement answer to the description given in para 5 of Article 5 of the DTA. As such, eBay India and eBay Motors, though dependent agents, fall short of the being categorized as dependent agent PEs of the assessee as per para 5 read with para 6 of Article 5 of the DTA. Since the assessee has no PE in India, the provisions of Article 7 of the DTA, which aims at taxing the business profits of the enterprise in the other State as are directly or indirectly attributable to that PE, shall cease to operate. The case law relied by the ld. DR in Jebon Corporation India Liaison Office (supra) and Columbia Sportswear Company (supra) are confined to their own facts and the relevant clauses of the governing treaties. They bear no resemblance to the facts obtaining before us and the terms of the DTA. Thus we hold that the assessee has no PE in India as per paras 5 and 6 of Article 5 of the DTA. 34. Now we espouse the contention raised by the ld. DR about considering the case in terms of para 2(a) of Article 5 the DTA. Firstly, we shall deal with the objection raised by the ld. AR to the ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tribunal. We, therefore, jettison this objection taken by the ld. AR. 36. Now we proceed to examine this argument of the ld. DR on merits. It has been contended that eBay India and eBay Motors constitute PEs of the assessee under para 2(a) of Article 5 of the DTA, as the assessee's 'Place of management'. Primarily, we find that there is no definition of the term 'Place of management' in the DTA. The same has not been shown to have been defined under the Act as well. Consequently we need to approach this concept as understood in common parlance. A 'place of management' ordinarily refers to a place where overall managerial decisions of the enterprise are taken. When we see the facts of the case as prevailing before us, it is palpable that eBay India and eBay Motors are not taking any managerial decision. They are simply rendering marketing services to the assessee in the form of collection of amount from the customers and remitting the same to the assessee, apart from creating awareness amongst the Indian sellers about the availability of the assessee's websites in India. All the business decisions and deals are settled through the assessee's websites. eBay India and eBay Motors ..... X X X X Extracts X X X X X X X X Extracts X X X X
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