TMI Blog2010 (11) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid permanent establishment would be taxable in India. (2) The ld CIT(A) has failed to appreciate that the appellant had exported/sold CBU on principal to principal basis to DCIL and DCIL had sold and serviced these cars on its own account and therefore DCIL cannot be treated as dependent agent of the appellant. (3) The ld CIT(A) has erred in holding that DCIL is a dependent agent of the appellant in respect of sale of CBU directly to customers in India Grounds of appeal no. 3 4 by the revenue read as under: (3) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in holding that DCIL cannot be treated as an agent of assessee under Article 5(5) r.w. Article 5(6) of the DTAA. ( 4) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in deleting that the addition made by the Assessing Officer in respect of profit computed on sale of raw material and spare parts. 2.1 Facts of the case, in brief, are that the assessee company is incorporated in Germany and is primarily engaged in the business of manufacturing and selling automobiles and automobile parts all across the world. It was state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General agency agreement signed on 9.4.1995 ii) General supply agreement signed on 24.7.1997 iii) Agreement on transfer of technical know-how since 21.12.1999 2.3 The terms and conditions of General Agency Agreement clearly provide that the assessee has conferred upon DCIL the exclusive distribution rights for all motor vehicles in CBU version. Therefore, he was of the opinion that the assessee has income, which accrues and arises in India u/s 5 of the I T Act, 1961. Without prejudice to this, he further noted that the assessee has also a business connection in India u/s 9(1) of the I T Act, 1961. He rejected the submissions of the assessee that business profits of the DCAG are not taxable in India due to the reason that it does not have a Permanent Establishment (PE) in India since it is not covered by any of the clauses of Article 5 of the India-Germany DTAA. 2.4 Rejecting the explanations given by the assessee and relying on a couple of decisions, the Assessing Officer held that DCIL constitutes a PE of DCAG under the various provisions of Article 5 including 5(2)(a) 5(2)(b), 5(2)(c), 5(2)( g), 5(2)(1); 5(5)(a), 5(5)(b) 5(50( c). He estimated the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle to principle basis. The risk of diminishing in value or damages to the cars is to the account of customer s right from the port of shipment at the manufacturing end. The cars were cleared through customs in India for and on behalf of the ultimate customers. Thus, DCIL had no role to play from the sale or in any activity in promoting the sale to the Assessee directly to the customers in India. They are only collection of information and activities of preparatory or auxiliary in nature. The prices offered to the clients are as per the list price notified by the Assessee. DCIL has no authority to conclude any deal. Thus the mere acting as post office between the Assessee and the client will not render DCIL as a dependent agent. DCIL cannot be considered as habitually procuring orders for the Assessee. In fact, DCIL themselves are manufacturing and selling the cars and procurement of orders for direct shipment of cars by the assessee would in fact be contrary to and against the interest of the DCIL in its manufacturing activity. DCIL by passing on communication from Assessee to the client and vice versa, are merely rendering a very insignificant auxiliary/ preparatory service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant cannot be deemed to be a PE of the foreign company in India. Similarly, in case of Specialty Magazines (P) Ltd (274 ITR 310) (Refer Pg 633 644 of Paper Book Volume II), the AAR ruled that since 22% - 25% of the income of the applicant is derived from other clients, it cannot be said that its activities are carried out wholly or almost wholly for the foreign company. Thus the applicant, being an independent agent is not covered by the definition of PE in article 5 of the DTAA. 32. From the above it can be seen that merely acting for a non resident principal would not by itself render an agent to be considered as PE for the purpose of allocating profits taxable in the hands of the principal. There should be some definite activity of the PE to which profits can be attributed. Unless it is so established, merely calling a person as agent acting on behalf of foreign non-resident would not by itself render him to be considered as an agency PE and pro tanto part of the profits of the nonresident is liable to be taxed in India. We find that the Revenue has not established that DCIL had carried out any activity to which any profit can be attributed. DCIL was mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a South Korean Company for fabrication and installation of Oil exploration platform, the PE attributable to installation and commissioning came into existence only after the supply of the equipment. Therefore, profits from supply of the platform did not accrue in India. Similarly in the case of Ishikawajima Harima Heavy Ind. Ltd v DIT (288 ITR 408), the Apex court held that profit will not accrue in India in respect of offshore supply of equipment. (The subsequent amendment to sec 9(1)(i) will not affect the decision on profit arising from sale of equipment offshore). Mere sale of raw materials/ components will not result in business connection and even if it does as per the terms and conditions of the contract between the Assessee and DCIL no income accrues to the Assessee on the basis of any activities carried out on behalf of the Assessee in India. Therefore in our opinion DCIL does not constitute the Assessee s business connection in India and thus, the Assessee s income from sale of raw material/ CKD units to DCIL would not be liable to tax in India under the provisions of the Act. We therefore concur with the decision of the CIT(A) on this issue and dismiss the ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee on sale of CBU cars directly to Indian customers can be attributed to the activities of DCIL, we are not deciding upon the correctness or otherwise of the percentage of profits, estimated by the CIT(A), as attributable to the activities of PE in India. Hence Ground No.3 raised by the assessee is not decided as being infructuous. 12 Since the issue raised in this appeal is identical to that of Assessment Year 2001-02 and 2002-03,w e respectfully follow the decision of ITAT in that years and in the light of that we dismiss this ground as infructuous. 11 In view of the decisions of the Tribunal in assessee s own case from Assessment Years 2001-02 to 2003-04, the above two grounds raised by the assessee are dismissed as infructuous 12 Grounds of appeal nos 7 8 read as under: (7) The ld CIT(A) has erred in holding the fees for Symantec Nortion Antivirus software as royalty. (8) The ld CIT(A) erred in holding that fees aid by DCIL to the appellant for purchase of license of Symantec Norton Antivirus software is royalty without appreciating that the purchase of license of the software was akin to purchase of goods and therefore payment of the same b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and upheld the action of the AO by holding as under: I have considered the facts of the case and the submissions of the appellant. The appellant had only submitted a copy of the invoice raised by it on DCIL. The said invoice did not describe the transaction nor did it specify the terms of the transaction. Thus to examine the issue, the appellant was required to produce the said Symantec Norton Antivirus Software agreement of the appellant with DCIL. However, the said agreement was not produced before me despite specific and several opportunities in this regard. In this regard, the case records of the appellant were also examined and it was seen that the appellant had not furnished the said agreement even before the AO. In a letter to the AO dated Dec 7, 2006 the appellant stated at serial no.4 of the said letter that there is no agreement between DCAG and DC India in respect of Norton Antivirus software. Hence, in absence of the said agreement it is not possible to ascertain the nature of transaction or the terms of payments between the appellant and DCIL and in absence of this primary evidence it cannot be concluded that the receipt of the license frees by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of dispel the possible controversy a licence whatever be its nature, can be characterised as transfer. In view of the above decisions, we are of the considered opinion that a computer software when put into a media and sold becomes goods it becomes goods like any other audio cassette or painting on canvass or book. In view of the decisions cited above, we are of the considered opinion that the amount paid by the assessee towards purchase of IXOS-eCON for R/3. 50 users cannot be treated as payment of royalty taxable in India under Article 12 of the DTAA between India and Singapore. 17 In view of the above decision and in view of the various decisions cited by the ld counsel for the assessee as well as the consistent view of the coordinate Bench of the Tribunal on this issue, we hold that the fees paid by DCIL to the assessee for purchase of license for Symantec Antivirus software as not in the nature of royalty. The ground raised by the assessee is accordingly allowed. ITA No. 4325/Mum/2008 ( by the revenue) 17 Grounds of appeal no.1 by the revenue reads as under: On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the order of the Tribunal, the Tribunal in assesee s own case in ITA No.317/Mum/2007 order dated 16.7.2010 for Assessment Year 2003-04 has also allowed the claim of the assessee and dismissed the ground raised by the revenue. In view of the consistent decisions of the Tribunal in assessee s own case, we do not find any infirmity in the order of the CIT(A) and accordingly, the ground raised by the revenue is dismissed. 20 Grounds of appeal 2 by the revenue reads as under: On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in holding that the assessee does not have a Permanent Establishment in India within the meaning of Article 5(2)(a), (b) ( c) and (g) of the DTAA. 21 After considering the rival submissions made by both the parties, we find identical ground had come up before the Tribunal in assessee s own case for Assessment Years 2001-02 and 2002-03 order dated 31.3.2010 . We find the Tribunal decided the issue and dismissed the ground raised by the revenue by holding as under: 16. In our opinion mere existence of subsidiary does not by itself constitute the subsidiary company a PE of the parent. The main condition for consti ..... 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