TMI Blog2014 (2) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Article 5 of the DTA - these concerns cannot be treated as the PEs of the assessee in terms of Article 5(2)(a) of the DTA - Since the assessee has no PE as per Article 5 of the DTA, there can be no question of computing business profits of the assessee as per Article 7 of the DTA in relation to the revenue generated from India – the business profit of the assessee which has been held to be business profit of the assessee but it cannot be taxed in India as the assessee has no PEs' as per Article 5 of the DTA – Decided in favour of Assessee. Non granting of credit for taxes deducted at source – Availability of credit of taxes u/s 199 of the Act – Held that:- The decision in Escorts Ltd. v. Dy. CIT [2007 (5) TMI 362 - ITAT DELHI] followed – Decided in favour of Assessee. Levy of interest u/s 234B of the Act – Held that:- The decision in DIT (International Taxation) Vs. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] followed - when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee – thus, the assessee is not liable for payment of any advance tax and hence no interest u/s. 234B of the Act is attrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,00,39,045/- from the operations of these websites. It was claimed that these revenues are taxable as business profits in India as per the provisions of Article 7 of the Treaty only if the assessee has a permanent establishment ('PE') in India as per provisions of Article 5 of the Treaty i.e. DTAA. It was claimed that the assessee did not have any PE in India and as such no amount would be taxable in respect of the consideration received from the operations of the above mentioned websites. During the course of assessment proceedings, the Assessing Officer observed that the assessee has signed an agreement with eBay India and eBay Motors for providing certain services in its Indian specific operations, which have been reproduced by the Assessing Officer at page No. 4 of the assessment order as under : (i) Giving inputs and facilitating marketing penetration strategies for eBay AG. (ii) Giving inputs and facilitating advertising and promotion activities within India for eBay AG. (iii) Forwarding appropriate contracts for review and conclusion to eBay AG to effectuate those strategies and activities. (iv) In addition to the above activities, eBay India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it is pertinent to note that eBay India was earlier called Bazee.com India Private Limited. The said Bazee.com was acquired by eBay AG in the financial Year 2004-2005. eBay Motors came into existence for the first time in the previous year relevant to assessment year under consideration. Prior to acquisition of Bazee.com, the assessee did not have any presence in India. It was only thereafter that it operated its Indian specific websites www.ebay.in and www.b2bmotors.ebay.in for providing an online platform to facilitate the purchase and sale of goods and services to users based in India. It would be relevant to consider the modus operandi of the transactions undertaken through the aforenoted websites operated by the assessee. Any seller is entitled to list its products for sale on the website. At the time of listing, the seller is required to provide 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales. The fee received by the assessee from the sellers, in our considered opinion, cannot be designated as a consideration for rendering managerial, technical or consultancy service within the meaning of Explanation 2 to section 9(1)(vii). 13. The ld. CIT(A) has also referred to High Powered Committee (HPC) on "Electronic Commerce Taxation" constituted by the Central Board of Direct Taxes, which has stated in its report that such amount would be in the nature of payment for business activities. He also referred to The Technical Advisory Group (TAG) formed by OECD, which, vide its report on Tax Treaty Characterized Issues Arising From E-Commerce issued in February, 2001, has also opined that revenue earned by operating online facility are in the nature of business profits falling under Article 7 of the Treaty. These findings recorded by the ld. CIT(A) have remained un-controverted by the ld. DR. 14. In view of the above discussion, there remains no doubt whatsoever that the fee received by the assessee can't be described as 'Fee for technical services', but is in the nature of 'Business profits'. In our considered opinion the ld. CIT(A) was fully justified in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business profits under Article 7 of the Treaty. 13. At the time of hearing learned AR submitted that the above issue on identical facts has been considered by the Tribunal in A.Y. 2006-07 and the Tribunal has held vide para 37 that eBay India and eBay Motors are dependent agent but do not constitute 'dependent agent PEs' of the assessee in terms of Article 5 of the DTA. That these concerns cannot be treated as the PEs of the assessee in terms of Article 5(2)(a)of the DTA. Since the assessee has no PE as per Article 5 of the DTA, there can be no question of computing business profits of the assessee as per Article 7 of the DTA in relation to the revenue generated in India. Learned AR submitted that the Tribunal decided the said issue in favour of the assessee by reversing the order of learned CIT(A) on this ground. Learned Departmental Representative has not disputed the above contention of learned AR. 14. We have carefully considered the orders of the authorities below and submissions of the representatives of the parties as well as earlier order of the Tribunal in assessee's own case dated 21.9.2012 (supra). 15. We also observe that the Tribunal has examined this issue as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any services other than those enumerated in clause 3.1 of the agreement. We have also perused the details of expenses incurred by eBay India, which are in the nature of administrative expenses, marketing expenses and technology expenses. Marketing expenses include advertisement expenses, public relation expenses and market research expenses. On a careful perusal of the responsibilities of eBay India along with the actual expenses incurred by it which have been reimbursed at a mark-up by the assessee, it becomes clear that eBay India 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 introdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PE or not. 27. Let us first examine para 6 of Article 5 of the DTA to find out as to whether eBay India constitutes dependent agent or not. As per this para, an enterprise 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 State through a broker, general commission agent or any other agent of an independent status, where that person is acting in the ordinary course of its business as such a broker or agent. However, when 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 activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or or on behalf of the enterprise, unless his activities are limited to purchase or goods or merchandize for the enterprise". As per this clause, a dependent agent will be treated as a permanent establishment of the enterprise if he has and habitually exercises authority to negotiate and to enter into contract for or on behalf of the enterprise. The exception contained in clause (i) starting after the word 'unless', thereby ousting dependent agent from the purview of the permanent establishment, provides that where the activities of such dependent agent are limited 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be covered within the relevant provisions governing that subject. As eBay India and eBay Motors, albeit the dependent agents as per para 6 of Article 5, did not perform any of the functions enumerated in clauses (i) to (iii) of para 5 of Article 5 of the DTA, they cannot be described as a 'Dependent agent Permanent Establishments' of the assessee. If eBay India and eBay Motors, being dependent agents, had carried out any of the activities as given in clauses (i) to (iii) of para 5 of Article 5 of the DTA, they would have definitely become 'Dependent agents PEs' of the assessee. 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee should be considered as chargeable to tax as dividend income under Article 10 or interest income under Article 11 instead of business profit under Article 7, as has been held by the AO. In that situation, it would have amounted to setting up an altogether different case by the ld. DR, not permissible as per law in the light of the precedents cited by the ld. AR. As the extant contention of the ld. DR is merely in support of the AO's point of view, it is only a different plea of the same issue, which in our considered opinion can be validly taken by any party before the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes shall be available to the appellant u/s. 199 of the Income Tax Act, 1961 only if the appellant accepts that its income is liable to be taxed in India. 18. The assessee has claimed credit of Rs. 57,03,876/- for the taxes withheld by its users/eBay India. The Assessing Officer has not granted credit for the taxes withheld on the ground that the assessee is entitled to get tax credit in terms of section 199 of the Act only if the assessee accepts income to be liable to tax in India. 19. The above issue is covered in favour of the assessee by the decision of ITAT Delhi Bench Escorts Ltd. v. Dy. CIT [2007] 15 SOT 368. In view of the above, ground No. 6 of the appeal taken up by the assessee is allowed. 20. Ground No. 7 of the appeal is as under : Levy of interest under section 234B of the Act. (7) On the facts and circumstances of the case and in law, learned AO/DRP has erred in levying interest of Rs. 39,61,289/- under section 234B of the Act on the appellant. 21. There is no dispute to the fact that the assessee is non-resident and the entire income of the assessee is liable to deduct at source. Similar issue has been considered by Hon'ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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