TMI Blog2015 (3) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal as to LTIL constituting service PE of the assessee stood accepted by the Revenue. As such, it has become too late in the day to agitate in the present proceedings that the view taken by the tribunal in the first round should be altered, which, in fact, has attained finality. We, therefore, hold that the ld. CIT(A) was justified in coming to the conclusion that LTIL constituted only service PE of the assessee in India. - Decided against revenue. Attribution of income - profits attributable to the Indian PE of the assessee at the rate of 2.5% of the total turnover for the relevant year - Held that:- The AO, after holding that there was not only service PE, but also fixed place PE etc. in India, finalized the assessment by attributing income to the PE in India at the rate of 2.5% of the sales made by the overseas entities in India. Such attribution of income was accepted by the assessee as well without filing any further appeals on this score. Now, we are confronted with a situation in which there is a profit attribution by the Revenue itself to the PE in India at the rate of 2.5% of the sales made by the overseas entities in India on one hand, and on the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 (hereinafter also called 'the Act') on the basis of material on record. In this assessment order, the AO observed that the assessee entered into contract with Escotel Mobile Communication Ltd. for GSM Cellular and Tata Bell Canada Ltd. for basic services in Andhra Pradesh. In order to do these activities, the assessee sent its employees to India for conducting network survey and undertaking negotiations. The contract for supply of hardware and software was signed in India by Mr. Don Green for and on behalf of the assessee company. The installation contract was signed between the Indian company and customers. The after-sales services were also to be carried out by the Indian company. The AO observed that the assessee earned profit on supply of hardware and software, which was chargeable to tax in India. He held that the profit on supply of hardware was taxable as per Article 7 read with Article 5 of the Double Taxation Avoidance Agreement between India and USA (hereinafter also called 'the DTAA') and the profit on supply of software and Documentation taxable as 'Royalty' as per Article 12 of the DTAA. The AO further held that the assessee has a Permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same income. The assessee appealed before the ld. CIT(A) against this order. Vide the impugned order, the ld. CIT(A) held that the assessee has a service PE in India as was directed by the Tribunal. On the question of attribution of income, the ld. CIT(A) held that 2.5% of the sales made by the overseas entities in India should be considered as assessee's total income. This rate of 2.5% was applied on the basis of Survey proceedings taken up u/s 133A in the year 2007 against certain group entities of the assessee company, in which the AO finally determined net income attributable to the PE in India at 2.5% of the sales made by the overseas entities in India. 4. The Revenue in the present appeal is aggrieved on two issues, namely, i) the direction of the ld. CIT(A) to hold LTIL as service PE of the assessee in India; and ii) attribution of income to the Indian PE @ 2.5% of the total turnover. We will deal with both the issues one by one. I. SERVICE P.E. 5. The ld. DR vehemently argued that the ld. CIT(A) fell in error by holding that LTIL constituted service PE of the assessee in India on the basis of the Tribunal order. It was submitted that the Tribunal nowhere re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscellaneous application gave finality to its view that LTIL constituted service PE of the assessee in India. No miscellaneous application was filed by the Revenue advocating that LTIL be considered not only as a service PE but also fixed place, dependent agent and installation PE. It is interesting to note that the Revenue appealed against this order of the Tribunal passed u/s 254(1) of the Act but only on the point of interest. The question as to whether LTIL constituted only service PE of the assessee in India, was not appealed before the Hon'ble Delhi High Court. This leads us to an irresistible conclusion that the Tribunal held LTIL to be the service PE of the assessee in India. The contention of the Department through the instant appeal that LTIL should be considered as PE on the basis of fixed place, installation and dependent agent as well, does not merit acceptance. If the Revenue was aggrieved against the order passed by the Tribunal holding LTIL to be the service PE of the assessee in India, it ought to have challenged the same before the Hon'ble High Court or have got it modified through miscellaneous application. Having neither filed any MA nor raised this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware is concerned, the same was admittedly carried out by the assessee without the involvement of any service PE in India. It is but natural that service PE would come into play only when the equipment itself is supplied. In that view of the matter, it is totally illogical to hold that entire sale transaction of the assessee in India was attributable to the service permanent establishment in India. The employees of the assessee assisted LTIL in connection with the service of installation, commissioning, testing and bringing of operation of hardware and software sold by the assessee to Escotel. In that view of the matter, only the income attributable to the activities carried out in India by the assessee through its permanent establishment, can be brought within the ambit of 'Business profits'. 11. It can be seen that survey proceedings were taken up against certain group entities of the assessee in 2007. The Department made out a case that these constituted PE in India. The AO, after holding that there was not only service PE, but also fixed place PE etc. in India, finalized the assessment by attributing income to the PE in India at the rate of 2.5% of the sales made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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