TMI Blog2015 (9) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... been specified or there is any mandate that RIPL is habitually exercising its authority to negotiate and to conclude the contracts on behalf of the assessee in the territory of India which binding or can bind the assessee. It envisages simply delivering of Reuter services for a price which can be further distributed by the RIPL for earning of its own revenue. There is no clause that RIPL will act as an agent on behalf of assessee qua the distribution to subscribers. In fact, the RIPL is having independent contract with the subscribers, which is evident from the contract agreement between RIPL and Third party subscribers in India The character of an agent under Article 5(4) which can be said to be dependent is that the commercial activities of the agent for the enterprise are subject to instructions or comprehensive control and it does not bear the entrepreneur risk. The main thrust of an agent being a PE under Indo-UK treaty is that whether the agent has an authority to conclude contracts in the name of the enterprise i.e. the agent has sufficient authority to bind enterprise’s participation in the business activities and the agent’s activities involved the enterprise to a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee against impugned assessment order dated 12.10.2011, passed in pursuance of direction given by the Dispute Resolution Panel-II (DRP) u/s 144C(5) for the assessment year 1997-98. In various grounds of appeal, the assessee has mainly challenged the direction of the DRP that the assessee has a dependent agency Permanent Establishment (PE) in India under Article 5(4) and 5(5) and also has a Service PE under Article 5(2)(k) of Indo-UK DTAA and thereby taxing the Distribution revenues on gross basis u/s 44D. The other grounds are merely reiteration of this issue on many counts. Lastly, the assessee has also challenged the levy of interest u/s 234B 234D. Besides this, the assessee has also raised additional ground stating that : Without prejudice, if the assessee does constitute a PE in India then no further profits can be said/sought to be attributable to the PE as the transaction with the assessee have been found to be at arm s length by the Transfer Pricing Officer (TPO), in subsequent years . 2. The brief facts and background of the case are that, the assessee company, M/s Reuters Limited is incorporated under the laws of the United Kingdom (UK) and is a tax resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from distribution agreement to the assessee is the subject matter of dispute whether the same is to be taxed in India on the ground that the assessee has PE in India either under Article 5(2)(k) or under Article 5(5) or both. 3. In this case, original assessment order was passed, wherein the revenues earned by the assessee under the DA were treated as in the nature of fees for technical services taxable under Article 13 of the DTAA, @ 20% of the gross revenue. It was further held that RIPL constituted dependent agency PE in India under Article 5(5) and accordingly, income was computed in accordance with the section 44D and entire revenue was taxed on the gross basis. In the first appeal, the Ld. CIT(A) vide order dated 08.12.2000 held that the amount received under the distribution fees is not FTS and therefore, cannot be taxed under Article 13. It was further held that RIPL is not an agent of the assessee and, therefore, do not constitute Agency PE for taxing the distribution fee in India. Uptil this stage, there was no issue regarding service PE under Article 5(2)(k). Against this order, second appeal was preferred by the Revenue before the Tribunal. The Tribunal vide or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. Accordingly, the Assessing Officer in the final assessment order passed in pursuance of such directions of the DRP held as under: 7. As per the directions of the honourable ITAT it is to be determined whether a PE under Article 5(5) of the DTAA exists for the Assessee. On the basis of the agreements and after considering the submissions of the assessee, it was concluded during the assessment proceeding the submissions of the assessee, it was concluded during the assessment proceedings that the assessee has an agency PE in India as RIPL has only done the business of the assessee and had all the authority to market the assessee s products in India. Accordingly, considering the submission of the Assessee, it was held that there is an agency PE of the Assessee under Article 5(5) of the DTAA for AY 1997-98. 8. Under Article 5(2)(k), a UK resident will be deemed to have a PE in India if it renders services through employees deputed to India. The Assessee has deputed employees to RIPL and this is indicated by the appointment of Mr. Simon Cameron Moore to RIPL as Bureau Chief of Bombay from 19.08.1996 as per the letter dated 12.06.1996 which was brought out by the DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that by no stretch of imagination it can be held that Bureau Chief was rendering any service qua the DA or any fee under the DA is attributable to Bureau Chief, so as to constitute service PE of assessee in India within the meaning and scope of Article 5(2)(k). 7. Regarding agency PE under Article 5(4) and 5(5), Mr. Pardiwala submitted that RIPL cannot be said to be dependent agent of the assessee, because for being dependent agent, it is essential that all the conditions as mentioned in Article 5(4) are fulfilled, i.e. firstly, the agent habitually exercises an authority to negotiate and enter into contracts for and on behalf of the enterprise; and secondly, he habitually maintains stock of goods or merchandise from which he regularly delivers the goods or merchandise for on behalf the enterprise; and lastly, habitually secures the order wholly for the enterprise. None of these conditions for being dependent agency PE is established qua the distribution agreement in the case of the assessee, because the RIPL is not exercising any authority to negotiate and enter into a contract for and on behalf of the assessee so as to bind the assessee. It is neither maintaining any sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44 SOT 368; (ii) E Funds Corporation vs ADIT[2010] 42 SOT 210(Del); (iv) Nortel Networks India International vs JDIT [2014] 49 Taxman.com 147; (v) Nimbus Sports International Pte. Ltd vs DCIT [2013] 18 Taxman.com 105; (vi) Galileo International Inc. vs DCIT [2008] 19 SOT 257; and (vii) Rolls Royce Singapore Pvt Ltd vs ADIT [2011] 13 taxman.com (Del High Court). Regarding service PE, she submitted that the Bureau Chief has been seconded by the assessee to the RIPL for furnishing of service in India and remuneration is paid to him in London. This shows that he was contractual employer of the assessee who was deputed to perform services in India. Accordingly, the Bureau Chief can be said to constitute a service PE within Article 5(2)(k). 9. In the rejoinder, Mr. Pardiwala, submitted that, firstly, the major revenue of RIPL is from the Indian customers which is evident from the copy of profit and loss account and only part of the revenue i.e. ₹ 4.80 crores have been received as service fee, therefore, it cannot be said that RIPL is doing exclusive work only for the assessee. As regards decisions relied upon by the DR, he submitted that all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and the enterprises controlling, controlled by, or subject to the same common control, as that enterprise . 5. An enterprise of a Contracting State 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 such persons are acting in the ordinary course of their business. However, if the activities of such an agent are carried out wholly or almost wholly for the enterprise (or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it or are subject to same common control) he shall not be considered to be an agent of an independent status for the purposes of this paragraph . It can be seen that an agent is deemed to be P.E., if he is not independent and habitually exercises an authority to conclude contracts on behalf of the enterprise or if he has no such authority, but habitually maintains stock of goods or merchandise from which he regularly deliver good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice or facility as shall be necessary for the proper performance of this Agreement by the Distributor. 3.3 Reuters shall at its cost supply the Distributor with examples of current catalogues and other sales promotion material as developed by Reuters from time to time. Article 4 General Duties of Distributor Supply of News Materials 4.1 General The Distributor shall: (a) use its best endeavours to market promote the sales of and achieve maximum distribution of the Reuter Services in the Territory provided that the Distributor shall harmonise as far as possible its operations in the fields of marketing and publicity of the Reuter Services with those followed by Reuters in other countries of the world. In order to ensure consistency and high standards of sales promotion material in the Reuters Group worldwide, the Distributor shall submit all advertising and promotional material developed by it to Reuters for prior approval. Approval shall be deemed to be given if no action is taken by Reuters within twenty one (21) days from receipt of the said material. (b) in order to maintain the standard of Reuter group contracts and continuity with Reuters multicentre co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uters may notify the Distributor of such fees and in addition to the distribution fee payable pursuant to Article 9.1 the Distributor shall pay the amount of such fees to Reuters or as Reuters may direct. (c) where Reuters is required by a supplier of information under paragraph (a) or (b) above to procure that the ultimate recipient of the information enters into an agreement with such supplier, then Reuters may notify the Distributor of such requirement and the Distributor shall procure Subscribers in the Territory to enter into such agreements and notify Reuters monthly with respect to each such Subscriber of its name the address of its premises and the number of terminals over which the relevant information is being received. 4.6 News Materials The Distributor undertakes to gather edit compile and supply to Reuters a file of news reports pictures and television news video material ( News Materials ) on the news and features of the day within the Territory of a standard suitable for use by Reuters in the Reuter Services such file to be supplied to Reuters by satellite or cassette shipment in London or by such other means as may be agreed or in such other location as Reuter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no income by way of commission income shown by RIPL under the Distribution agreement. Nothing is flowing from the D A or financial accounts that RIPL is acting as an agent of the assessee. The character of an agent under Article 5(4) which can be said to be dependent is that the commercial activities of the agent for the enterprise are subject to instructions or comprehensive control and it does not bear the entrepreneur risk. The main thrust of an agent being a PE under Indo-UK treaty is that whether the agent has an authority to conclude contracts in the name of the enterprise i.e. the agent has sufficient authority to bind enterprise s participation in the business activities and the agent s activities involved the enterprise to a particular extent in the business activities. Thus, the qualified character of the agency is authorization to act on behalf of somebody else so much as to conclude the contracts. Here in this case, there is no such terms which is borne out from the distribution agreement that RIPL is only acting on behalf of Reuters or is in kind of dependent agent. It is completely an independent entity and the relationship between the assessee and RIPL is on princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services within India; (b) Such services are furnished by the enterprise through employees or other personnel; (c) The services are not taxable under Article 13 of the Treaty (i.e. Royalty and FTS ); and (d) The period of the activity of providing services exceeds the prescribed limits . 15. The main thrust of Article 5(2)(k) is furnishing of services through employees or other personnel in the other contracting State. The revenue s case is that one, Mr. Simon Moore who has been deployed by the assessee in India as Bureau Chief of Bombay and was in India during the relevant period therefore, by virtue of his employment, the service PE of the assessee has been constituted. In the present context, we have to examine first, whether the Bureau Chief is providing any services to RIPL under the distribution agreement for which the assessee has received payment of distribution fee. The News Bureau Chief is very senior and experienced reporter or correspondent who is responsible for collecting and analyzing the news and holds a management position in the news centre or news room. He is mainly responsible for co-coordinating the efforts of the reporting staff to investigate a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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