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TMI Blog2014 (2) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the provision of services of technical/professional personnel to Booz & Company (India) Private Limited ("Booz India") is chargeable to tax in India as "Fees for Technical Services"(in short "FTS") /Royalty under the provisions of Article 12 and its sub articles of the relevant India - and the country concerned Double Taxation Avoidance Agreement ("the Tax Treaty") in the absence of Permanent Establishment("PE") in India?(expression supplied) (2) Whether, on the facts and circumstances of the case, the payments received/receivable by the Applicant in connection with the provision of services of technical/professional personnel to Booz India is chargeable to tax in India as FTS under section 9(1)(vii) read with section 115A as well as Section 44DA of the Act in the absence of fixed place PE in India? (3) Whether, on the facts and circumstance of the case, the payments received/receivable by the Applicant towards reimbursement of actual 'out of pocket' expenses incurred by the Applicant for and on behalf of Booz India (as explained in Para B.4 of Annexure I) during the course of provision of services of technical/professional personnel to Booz India is chargeable to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account of reimbursement of expenses like air ticket cost, freight charges, courier charges, travel expenses, communication expenses, etc. on the personnel deputed to India and borne by the applicant are part of service provisioning and thus do not have any element of income embedded therein iv) Payment by Booz India to the applicant is subject to withholding tax @ 10% as per Article 12 4. M/s Booz & Co. B.V. NETHERLNDS India - NETHERLNDS i) Amount to be treated as FTS under Article 12 (5) read with 12 (7) ii) The amount payable would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account of reimbursement of expenses like air ticket cost, freight charges, courier charges, travel expenses, communication expenses, etc. on the personnel deputed to India and borne by the applicant are part of service provisioning and thus do not have any eleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g tax @ 10% as per Article 12 8. M/s. Booz & Co. SAS France India-France i) Amount to be treated as FTS under Article 13 (4) read with 13 (6) ii) The amount payable would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account of reimbursement of expenses like air ticket cost, freight charges, courier charges, travel expenses, communication expenses, etc. on the personnel deputed to India and borne by the applicant are part of service provisioning and thus do not have any element of income embedded therein. iv) Payment by Booz India to the applicant is subject to withholding tax @ 10% as per Article 12 9. M/s. Booz & Co. (Shanghai) Ltd. India China i) Amount to be treated as FTS under Article 12 () read with 12 (5) ii) The amount payable would be chargeable to tax as FTS under section 115A read with section 9(1)(vii) of the Act iii) The expenses recovered from Booz India being on account of reimbursement of expenses like air ticket cost, freight charges, courier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and expertise, affiliates of Booz Group provide/avail services from each other. (Para B 1.3 of Annexure 1 of the applications) ii) The entire Booz Group is being catered by a basket of approximately 2200 technically/professionally qualified personnel which is utilized for executing any project won by the group/its affiliates. ((Para A 2.2 of Annexure 1 of the applications) iii) Booz India would execute the client's project using its own employees and to the extent required, procure services of technical/professional/personnel from the applicant/and other affiliates of the group. )Para B 1.5 of Annexure 1 of the applications) This combine of professionals would work together as one team to execute the projects (third bullet of Para B 2.2 of Annexure 1 of the applications. iv) The applicants will have the power to recall its technical / professional/ personnel and replace them with other technical / professional / personnel. (Para B 3.3 of Annexure 1 of the applications) v) The technical/professional/personnel of the applicant will w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appropriate personnel from other entities and job training of these personnel deployed to Booz India. Further, these employees are also under overall control of the applicants. The other group entities are also legally liable in case of third party liabilities. The employees deputed are also contracted by the applicants only. All these inherent and specific dependencies of Booz India make it very clear that it is a dependent agent of the applicants. The assertion of the applicant that no PE exists in the cases is devoid of merit." The Revenue has submitted that even otherwise the number and high level of qualification of personnel deployed by the applicants to Booz India clearly establishes that Booz India is a service PE. It has been further submitted that there can be no doubt that on the facts of the case i.e. the access given by Booz India client/Booz India to the technical and professional personnel deployed to work in a given space also renders that place as a fixed place PE. 5. It needs to be noted that by its letter dated 6th May, 2013 the applicants requested this Authority to grant leave to withdraw the question no. 2 in the case of Booz & Company (ME) Ltd. and Q.No.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of five per cent;] (C) the amount of income-tax calculated on the income in respect of units referred to in sub-clause (iii), if any, included in the total income, at the rate of twenty per cent ; and (D) the amount of income-tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in sub- clause (i), sub-clause (ii) [, sub-clause (iia)] and sub-clause (iii) ; (b) [a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software to a person resident in India], the provisions of sub-section (1) shall apply in relation to such royalty as if the words [the agreement is approved by the Central Government or where it relates to a matter] included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted : Provided that such book is on a subject, the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the period commencing from the 1st day of April, 1977, and ending with the 31st day of March, 1978, to be imported into India under an Open General Licence : [Provided further that such computer software is permitted according to the Import Trade Control Policy of the Government of India for the time being in force to be imported into India under an Open General Licence.] [Explanation 1]. - In this sub-section, "Open General Licence" means an Open General Licence issued by the Central Government in pursuance of the Imports (Control) Order, 1955.] [Explanation 2. - In this sub-section, the expression "computer software" shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act: Provided that no deduction shall be allowed,- (i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or (ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices: [Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly more complex in such cases. In some jurisdictions the 'disposal test' is satisfied by the mere fact of using a place. In some other jurisdictions it is stressed that something more is required than a mere fact of use of place. In the case of Rolls Royce Plc v. DIT (2011)339 ITR 147 the taxpayer (RRPlc) supplied aero engines and spare parts to Indian customers. The taxpayer had a UK incorporated subsidiary. Rolls Royce India Limited (RRIL) having office in India, which provided support services to RRPlc. RRPlc reimbursed RRIL for all of the costs incurred in India in the provision of its support services, including but not limited to the salaries and expenses of its employees, the cost of operating its office premises. RRIL received service fees from RRPlc in the amount of a fixed percentage of the reimbursed expenses. RRPlc's employees visited India frequently and occupied and used RRIL's premises during these visits. It was held on the facts of the case that RRPlc had a fixed place PE in India because RRIL's premises were 'available' to all of RRPlc's employees and RRPlc paid all of RRIL's expenses in maintaining its premises. In the case of Seagate Singapore International He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolve an element of ownership, management and authority over the establishment. In other words the taxpayer must have the element of ownership, management and authority over the establishment. In the case of Western Union Financial Services, Vs. Asstt. DIT (2007) 104 ITD 34 (Delhi) the taxpayer (US parent) engaged in money transfer business, appointed agents in India for liaison and related activities. The agents operated from their premises with the display to demonstrate the agency of Western Union Financial Services. The Delhi Bench of ITAT observed that the taxpayer had a 'business connection' in India. It, however, held that there was no PE of any kind in India because the taxpayer had no right to enter and make use of the agents' offices. In DIT (International Taxation) v. Morgan Stanley and Co. Inc.[2007]292 ITR 0416(SC) inter alia it was held as follows: "Article 5(2)(l) of the DTAA applies in cases where the MNE furnishes services within India and those services are furnished through its employees. In the present case we are concerned with two activities namely stewardship activities and the work to be performe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge. Applying the above tests to the facts of this case we find that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requirement. Generally, occasions do arise when MSAS needs the expertise of the staff of MSCo. In such circumstances, generally, MSAS makes a request to MSCo. A deputationist under such circumstances is expected to be experienced in banking and finance. On completion of his tenure he is repatriated to his parent job. He retains his lien when he comes to India. He lends his experience to MSAS in India as an employee of MSCo as he retains his lien and in that sense there is a service PE (MSAS) under Article 5(2)(l). We find no infirmity in the ruling of the ARR on this aspect. In the above situation, MSCo is rendering services through its employees to MSAS. Therefore, the Department is right in its contention that under the above situation there exists a Service PE in India (MSAS). Accordingly, the civil appeal filed by the Department stands partly allowed. To conclude, we hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary and has an identity under the Companies Act, 1956. As far as "inward business‟ is 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. The fact remains that the business is that of Aramex group and the reputation and appealability is that of the Aramex group. 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. 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. When a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subsidiary must be considered to be a permanent establishment of the group in the concerned country, here, India. (d) in the case of a non-resident, being- (Underlined for emphasis) On the issue of Agency PE the relevant question is "business connection". It would be relevant to quote Section 9(1)(i) of the Act "9. (1) The following incomes shall be deemed to accrue or arise in India : (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, (*) or through the transfer of a capital asset situate in India. Explanation : For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:" It may be seen that Expln. 2 contains an inclusive definition; it brings in the business activities specified in Clauses (a) to (c), referred to above, within the fold of the expression "business connection" which has to be understood in its ordinary meaning. We shall presently advert to the decisions of the Hon'ble Supreme Court wherein the meaning of that expression has been elucidated. We may, with advantage, note here the following decisions of the Hon'ble Supreme Court to comprehend the full import of the expression "business connection" : In CIT v. R.D. Aggarwal & Co. (1965) 56 ITR 20 (SC), the essence of the expression is brought out in the following observation of the Supreme Court : "The expression 'business connection' postulates a real and intimate relation between the trading activity carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, referred to above, are satisfied, the facts of the instant case would also fulfill the aforementioned essential features of business connection. The factual position as highlighted by the Revenue clearly support the stand taken by it that a PE does exist. 8. Having held that the applicants have Permanent Establishment in India, the incomes received by them from the Indian Company are taxable as business profit under Article 7 of the Tax Agreement of India and the respective countries (except M/s.Booz & Co.(ME) Ltd. Cayman Islands (AAR/1026) with which there is no tax treaty by India, and M/s.Booz & Co.(Italia)S.R.L., Italy (AAR/1022), whose income will be taxed as per provisions of the Act). Question No.2 of AAR/1026 / Question No.3 in others; regarding the reimbursement of expenses was withdrawn by the applicants during the course of hearing. Question No.1 of AAR/1026 / Question Nos.1&2 in others; become irrelevant as we hold that the applicants have Permanent Establishment in India and their incomes are taxable as business profits. As regards Question No.3 in AAR/1026 / Question No.4 in others; the income being taxable as business profits, the payments by the Indian compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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