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2016 (5) TMI 73 - ITAT KOLKATA

2016 (5) TMI 73 - ITAT KOLKATA - TMI - Failure to deduct the TDS on the payment made to overseas entities for logistic services - concept of permanent establishment (PE) - Held that:- liability to deduct TDS arises ‘only if the tax is assessable in India’. Since tax was not assessable in India, there was no question of TDS being deducted by the assessee.

With regard to countries in respect of which India has no DTAA, we find that It is an undisputed fact and law that the taxability of .....

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tion of their business profits earned by them exclusively for services rendered outside India can be brought to tax in India, either under Section 9(1) or otherwise or at all.

Therefore, there is no question of treating the relationship between the Appellant Company and the overseas entities as a business connection within the meaning of Section 9(1)(i) of the Income Tax Act, 1961. Since there is no business connection within the meaning of section 9(1)(i) of the said Act between the .....

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e Agreements executed in between the Appellant Company and each of the different non-resident entities used the nomenclature “Reciprocal Appointment as Agents”, both ways, for Air / Ocean import and export transportation between India and the respective establishments in the overseas countries, it cannot and does not make the Appellant Company as the agent of the non-resident entities in any manner whatsoever, as is by now well settled in Super Poly Fabriks Ltd. v. Commissioner of Central Excise .....

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the Appellant Company was not required to deduct any tax at source either under section 195 and/or section 195A of the said Act.

The payment made by the assessee to the overseas entities is not chargeable to tax in India therefore the question of TDS deduction does not arise. The assessee is neither acting as an agent of the overseas entities nor its place of business can be regarded as PE of the overseas entities. Accordingly we reverse the order of the authorities below. Hence this .....

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y ITO I.T),Ward-1(1), Kolkata u/s 201(1)/1A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 28.01.2014 for assessment year 2012-13. Grounds raised by assessee are reproduced below:- 1. That the learned Commissioner of Income Tax (Appeals)-VI, Kolkata erred in arbitrarily and wrongly confirming that the Appellant Company was liable to deduct tax at source under section 195 of the Income Tax Act, 1961 on account of remittance of profits made to the Non-Reside .....

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arbitrarily and wrongly holding and/or confirming that the Appellant Company acted as a Dependent Agent - Permanent Establishment in India of different Non-Resident Entities, in terms of the various Double Taxation Avoidance Agreements (DTAA). 4. That the learned Commissioner of Income Tax (Appeals)-VI, Kolkata erred in arbitrarily and wrongly holding and/or confirming that though income is received by the Overseas Entities outside India, it accrued or arose in India, and is, therefore, chargea .....

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ted to the overseas entities was not chargeable to tax in India. 6. That the findings and/or observations made by the learned Commissioner of Income Tax (Appeals)-VI, Kolkata, more particularly in paragraph 9 of his impugned Order dated 4th September, 2014, inter alia to the effect that the terminology of Agency Agreement and/or Reciprocal Agency used in different Agreements executed between the Appellant Company and the Overseas Entitles leads to a normal presumption that the same has been used .....

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entities; that the Appellant was regularly generating business for the Overseas Entities from India are erroneous and based on mere presumptions and also contrary to the facts on record. 7. That the leaned Commissioner of Income Tax (Appeals)-VI, Kolkata failed to note and appreciate that the contracts executed by the Appellant Company with its Indian Customers, who wanted to import goods from overseas countries, were annual rate contracts; and that the Appellant Company was free to choose the .....

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duct tax at source under section 195 of the said Act in respect of remittance of share of profits of the Overseas Entities, are against the facts and evidences on record, illegal, invalid, unreasonable and/or otherwise perverse. There is a single and common issue in all the grounds of appeal, so all the grounds are clubbed together for the sake of convenience. The solitary issue raised by the assessee in all the grounds of appeal is that the assessee failed to deduct the TDS on the payment made .....

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the world. As and when the assessee receives the contract from its client based in India for the logistic services for a country outside India then the assessee approaches to his overseas agent of that country for such services. The major role of the overseas agents is to coordinate with the shipping companies, arrange local transportation as required and book the shipment either by the Sea or the Air as per the instruction of the customers. The agent submits the actual bills of the expenses whi .....

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erseas agent. Accordingly the overseas agent raises the invoice to its client which comprises the cost of the services and profit element. This profit is again shared between the overseas agent and the assessee in the ratio of 50 : 50. 2.1 The assessee has the overseas agent in various countries as mentioned above and with whom there is an agency agreement with each of them. The AO during the assessment proceedings observed that all the agreements similarly worded in terms of language, terms &am .....

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-2401 Fischamend, Austria for all of its branches in Europe hereinafter called ABC whereby it is agreed as follows: 1. RECIPROCAL APPOINTMENT BL agrees to appoint ABC and ABC agrees to appoint BL as its agent covering air and ocean import and export transportation between India and all the establishments of ABC in Europe, both ways. It is agreed by both parties that throughout the term of this agreement that neither party will establish an operating company doing the business of air and ocean im .....

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ecoverable from the consignee. (c) If the consignor want the parties to perform customs clearance, the parties shall render all possible help to the consignor or consignor s representative with reasonable service charges plus the normal charges required for the issue of delivery orders. (d) Upon effecting final delivery to the consignee or consignee s representative, the parties shall obtain a signed delivery receipt for each shipment in token of having delivered the consignment in good order an .....

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shall ensure that their respective client do not suffer in any way because of short service (and not getting their consignments in time) due to any difference between the parties at any time. (g) In respect of Charges Collect Shipment it is the respective party s responsibility to receive payment of all charges due from the consignee before making final delivery. (h) If the consignee does not want to take delivery of his shipment right away, or refuses to accept it, whether party shall communica .....

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rties shall account to each other in EURO for Air Shipments and US $ for Ocean shipments for the money collected or disbursed by one party on behalf of the other. Such accounts between the parties will be settled by the end of the second month following the transactions date, (i.e July invoices will be paid in full by 30th September, after allowing for contra items from the other party in the same period). Remittance to ABC from India will be arranged by BL on complying extant rules applicable f .....

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rom the customer. No other costs will be permitted in the profit share calculation including breakbulk fees, trucking, supplementary FOB charges, airline handling or security fees, unless expressly agreed by both parties in writing. (d) Queries/Disallowances to be notified promptly, on arrival of shipments, to the origin agent and will be replied to within 7/15 days by both sides. The origin agent to raise a credit not if the query is accepted. (e) The origin agent will invoice the Agent with th .....

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Accordingly for the sake of clarity the provisions of PE in relation to DTAA with UAE - United Arab Emirates is reproduced below:- UAE: Article 5- Permanent establishment- 1. For the purposes of this Agreement, the term permanent establishment mans a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term permanent establishment includes especially: (a) A place of management; (b) A branch; (c) An office; (d) A factory; (e) A workshop; (f) a .....

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such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. 3. Notwithstanding the preceding provisions of this Article, the term permanent establishment shall be deemed not to include: (a) The use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; (b) The maintenance of a stock of goods or merchandise belonging to the enterprise so .....

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r auxiliary character. 4. Notwithstanding the provisions of paragraphs (1) and (3), where a person - other than an agent of independent status to whom paragraph (5) applies- is acting on behalf of an enterprise and has, and habitually exercises in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the .....

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devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of independent status within the meaning of this paragraph. 2.2 For the year under consideration the assessee has made the payment to its overseas agents towards the logistic services for an amount of ₹ 9785.36 lacs. The breakup of such services stands as under : i) Remittances towards Air Logistic Services from Kolkata 8724.53 ii) Remittance towards Sea Logistic Services from Kolkata 641.38 ii .....

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ssessment proceedings observed that no TDS has been deducted by the assessee on the above payments to overseas agent. Accordingly the AO sought the clarification from the assessee for the nondeduction of tax on the above stated payments. The assessee submitted that the above payments have two elements as described in the aforesaid table. Firstly the remittance on account of air freight, local transport etc. which is nothing but reimbursement of the actual cost incurred by the overseas agent on b .....

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oes not arise. 3. All the activities are carried outside India so the income of the overseas agent does not accrue or arise in India. 4. As per the provisions of DTAA the income to the non resident entities is not taxable in India then the aforesaid transaction is out of the purview of TDS provisions. In view of the above the assessee submitted that the question of deducting TDS from the payment to the overseas agents does not arise as their income is not assessable to tax in India. However the .....

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re of profit as the assessee or the overseas agent has not submitted any application under section 195(2), 195(3) or 197 of the Act. The AO has relied in the decision of Hon ble Supreme Court in the case of Transmission Corporation of AP Vs CIT 105 Taxman 742 while holding the assessee in default. 3. Aggrieved, assessee preferred an appeal to Ld CIT(A). Before the ld. CIT(A) the assessee submitted that the payment made to the overseas agents is not liable to tax by virtue of the provisions of th .....

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with the overseas agents on principal to principal basis and none of them is agent to the assessee and vice versa. The mere fact that the agreements executed between the assessee and the overseas agents used the nomenclature Reciprocal Appointments as agents does not make the assessee as the agent of the non-resident entities. The Operations and activities carried out by the assessee and each of the overseas agents clearly show that none of them are agents of each other and that each of them ar .....

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d the terminology, if one analyses the relationship between the appellant and the overseas entities, it can be seen that the overseas entities have appointed the appellant as exclusive agent in respect of import from their respective countries on a long term basis. As a result, wherever an import is to be made from a particular country, the appellant is dependent upon a single overseas entity relevant to that country for the purpose of meeting requirement of its customers. The appellant has no o .....

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nd other terms with the clients in India, which generated business for the overseas entity and determined, even if indirectly, the consideration being received by the overseas entity. The rate negotiated by the appellant with its clients in India is binding on the overseas entity and determined the profit received by the overseas entity. Viewed in this light, it can be said that the appellant was regularly generating business for the overseas entity from India, was acting exclusively on behalf o .....

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half of the principal in such a manner that agent s action would bind the enterprise. Agents who are dependent upon the principal may constitute a PE and the authority to bind should be for the purposes which are essential and significant to the principal s business. Such provisions regarding agency PE are present in practically all the DTAAs signed by India with several counties. The ITO has, in his order extensively quoted such provisions in some of the DTAAs, such as those with UAE, Germany, .....

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ngle country there is only one overseas entity involved, on whom it was depending for providing logistical services. Moreover, profit from the contract entered into with the client is shared with the overseas entity. Though the appellant was having other independent business activities, so far as import form a particular country was concerned, it was dependent on a particular overseas entity. Thus, the appellant is, as a matter of fact, acting as a dependent agent PE of the overseas entity, so f .....

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provisions of various DTAAs signed by India with various countries. It may be mentioned that all the DTAAs have a provision that business since accrued in India is taxable if the non-resident has a PE in India. I, therefore, do not agree with the contention of the appellant that business income of the non-residence was not taxable in India. 10. However, it is noted that the amount remitted by the appellant to the overseas entity had two components. The first one was towards cost of logistic serv .....

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ion u/s. 195(2), 195(3) or u/s. 197 of the Act, tax was required to be deducted on the entire payment in view of the ratio given by the Hon'ble Supreme Court in the aforesaid case. On carefully going through the said decision, it is seen that the issue before the Hon'ble Supreme Court in that case was whether in a case where any sum is payable to the nonresident was a trading receipt, whether the assessee was liable to deduct tax on the entire payment or on the net income. In that contex .....

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deration was not chargeable to tax at all and hence, in such a situation, ratio of the said decision shall not apply. Hon'ble Delhi High Court has also taken such view in its decision the case of Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del), after analysing the ratio given by Supreme Court in the case of Transmission Corporation of AP. Ltd (supra). The position is somewhat peculiar in the appellant s case. Here, the appellant is making payments towards reimbursement of cost a .....

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in a number of decisions, that reimbursement of cost has no component of income and therefore, tax is not required to be deducted on the same. Some such decisions are by Hon'ble Calcutta High Court in the case of CIT v. Dunlop Rubber Co. Ltd. (1983) 142 ITR 493 (Cal), by the Bangalore Bench of the Tribunal in Bangalore International Airport Ltd. v. ITO (International Taxation) (2008) 307 ITR (AT) 295 (Bang), by Mumbai bench of Tribunal in Asst. Director of Income Tax (International Taxation) .....

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chargeable to tax in India. There may be some dispute as to quantum of income taxable in India. In the case of Galileo International Inc. vs. DCIT 19 SOT 257, Hon'ble ITAT, Delhi had examined the case where a resident of USA, engaged in provision services to hotels, airlines etc., appointed a distributor in India. It was held by the Hon'ble Tribunal that such appointment of distributor amounted to business connection in India and also the same, practically being a dependent agent, was t .....

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e in India. However, since some part of such income was taxable in India and the appellant/payees had not made any application u/s 195(2), 195(3) or u/s. 197 of the Act, the entire sum paid to the overseas entities towards share in profit was liable to be TDS in view of the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd. (supra). 12. In the light of the above discussion it is held, that while the reimbursement of cost incurred by non-resident entity s .....

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IT(A) assessee came in second appeal before us. 4. Before us Ld. AR submitted that the Appellant Company is inter alia engaged in the business of providing logistic services. It has entered into Agreements with several independent Overseas Concerns, each of whom are similarly engaged in the business of providing logistic services overseas. 4.1 The major function of these Overseas Agents is to coordinate with shipper overseas, arrange local transportation overseas as and when required, and book t .....

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ses incurred by them overseas are reimbursed on actual basis. 1. The pre-agreed share in the net income derived by the Appellant Company from such logistic services is remitted to overseas independent agents on account / by way of their remuneration for rendering all services overseas. 2. The pre-requisite condition for the application of section 195 of the Income Tax Act, 1961 requiring deduction of tax at source by any person responsible for making any payment to a non-resident is that the amo .....

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- XVII of the said Act about the collection and recovery of tax are ruled out, and the person responsible for paying such sum cannot be fastened with any liability for deduction of tax at source, and cannot under any circumstance whatsoever be treated as an assessee in default. 4.2. In order to treat the payer as assessee in default, it is of the utmost importance that the amount so paid or credited to the account of the payee is capable of being brought within the purview of the tax net and su .....

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t TDS arises only if the tax is assessable in India . Since tax was not assessable in India, there was no question of TDS being deducted by the assessee. In GE India Technology s case, the Hon ble Supreme Court following its earlier decision in Vijay Ship Breaking, held and observed at pages 463-465 of the Reports inter alia as under : If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words & .....

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n Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in section 195. For example, section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, sections 194EE and 194F, inter alia, provide for deduc .....

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rovision to provide information to the Income-tax Officer (TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a nonresident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e., sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in section 195(1). The fact that the Revenue has not obtained any information per se cannot be a gr .....

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mean obliteration of the expression "sum chargeable under the provisions of the Act" from section 195(1). While interpreting a section one has to give weightage to every word used in that section. While interpreting the provisions of the Income-tax Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT v. E .....

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there is some similarity between the two. If one looks at section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, section 195 imposes a statutory obligation on any person responsible for paying to a nonresident any sum "chargeable under the provisions of the Act", which expression, as stated above, do not find place in other sections of Chapter XVII. It is in this sense tha .....

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re is no provision in the Income-tax Act by which a payer can obtain refund. Section 237 read with section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable .....

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ion of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax………... As stated hereinabove, section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, section 195 uses the word "payer" and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fail .....

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er to rope in the income of a non-resident under the deeming provisions of law as contained in section 9 of the 1961 Act corresponding to section 42 of the 1922 Act, it must be shown by the Department that the non-resident carried out some operations or rendered some services in India, in respect of which the income is sought to be assessed to tax in India on deemed accrual basis. Reliance in this connection is placed on the decisions of the Hon ble Supreme Court in Carborandum Co. v. CIT (1977) .....

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an 259 (Mad) and by the Bangalore Bench of the learned Tribunal in Zanav Home Collection v. JCIT (2015) 68 SOT 184 (Bang). 8. Therefore, the law is by now well settled that there is no requirement to deduct any tax at source if the amount paid to non-resident is not chargeable to tax in India. Reliance in this connection is placed inter alia on the decision of the Hon ble Delhi High Court in Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del) and of the Hon ble Gauhati Bench of the lear .....

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Hon ble Supreme Court inter alia held and observed at pages 341-345 of 108 ITR, inter alia as under : The income assessable to income-tax, therefore, is of two kinds, viz., (i) accruing or arising in the taxable territories; and (ii) deemed to accrue or arise to the non-resident in the taxable territory. The concept of actual accrual or arising of income in the taxable territories, although not dependent upon the receipt of the income in the taxable territories, is quite distinct and apart from .....

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hall be deemed to be income accruing or arising within the taxable territories, and where the person entitled to the income, profits or gains is not resident in the taxable territories, shall be chargeable to income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax. " If the whole of the deemed income can be roped in for the levy of tax under sub-section (1 .....

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ing of sub-sections (1) and (3) of section 42 it would appear that income accruing or arising from any business connection in the taxable territories-even though the income may accrue or arise outside the taxable territories-will be deemed to be income accruing or arising in such territory provided operations in connection with such business, either all or a part, are carried out in the taxable territories. If all such operations are carried out in the taxable territories, subsection (1) would a .....

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ns carried out in the taxable territories. Thus comes in the question of apportionment under subsection (3) of section 42. In Commissioner of Income-tax v. R. D. Aggarwal and Co. [1965] 56 ITR 20 (SC), Shah J., as he then was, speaking for this court, said at page 24: " A business connection in section 42 involves a relation between a business carried on by a nonresident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to th .....

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t and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In each case the question whether there is a business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case." The learned judge says further: " A relation to be a 'business connection' must be real and intimate, and through or from which income must accrue or arise whet .....

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e territories in the previous year is taxable by section 4(1)(a) and (c) of the Act, whether the person earning is a resident or non-resident. If the agent of a non-resident receives that income or is entitled to receive that income, it may be taxed in the hands of the agent by the machinery provision enacted in section 40(2). Income not taxable under section 4 of the Act of a non-resident becomes taxable under section 42(1) if there subsists a connection between the activity in the taxable terr .....

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reign personnel available to the Indian company outside the taxable territory. The latter took them as their employees, paid their salary and they worked under the direct control of the Indian company. The service rendered by the American company in that connection was wholly and Solely rendered in the foreign territory. Even assuming however, that there was any business connection between the earning of the income in the shape of the technical fee by the American company and the affairs of the .....

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mmissioner of Income-tax v. Tata Chemicals Ltd. [1974] 94 ITR 85 (Bom) with reference to the similar or almost identical provisions in section 9(1) of the Incometax Act, 1961, that in order to rope in the income of a nonresident under the deeming provision it must be shown by the department that some of the operations were carried out in India in respect of which the income is sought to be assessed………. 10. In Toshoku Ltd. s case (supra), the Hon ble Supreme Court clearly hel .....

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ts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the department. 11. In Ishikawajima-harima s case (supra), their Lordships of the Hon ble Supreme Court inter alia held and observed at page 437 of the Repots …Mere existence of business connection may not result in income of the non-resident ass .....

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ctivities through the permanent establishment. If income arises without any activity of the permanent establishment, even under the DTAA the taxation liability in respect of overseas services would not arise in India. Section 9 spells out the extent to which the income of non-resident would be liable to tax in India. Section 9 has a direct territorial nexus. Relief under a Double Taxation Treaty having regard to the provisions contained in section 90(2) of the Income-tax Act would arise only in .....

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h section 9, whereupon the question of seeking assessment of such income in India on the basis of the Double Taxation Treaty would arise. In cases such as this, where different severable parts of the composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction can tax that particular part of the transaction. This principle helps determine, where the territorial jurisdiction of a particular State lies, to determine its .....

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the DTAA. There, however, may be a case where there can be overlapping of income; but we are not concerned with such a situation. The entire transaction having been completed on the high seas, the profits on sale did not arise in India, as has been contended by the appellant. Thus, having been excluded from the scope of taxation under the Act, the application of the double taxation treaty would not arise. The Double Tax Treaty, however, was taken recourse to by the appellant only by way of an a .....

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an undisputed fact that none of the overseas independent Entities with whom the Appellant Company has been dealing with is having any permanent establishment in India. It is by now well settled that even when Section 9 of the Income Tax Act, 1961 applies to a given case, considering the provisions of the Double Taxation Avoidance Agreement, if beneficial, than the provisions of the Income Tax Act, the provisions of the Double Taxation Avoidance Agreement would prevail. In the absence of a perman .....

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37 ITR(St.) 1 as well as by the Hon ble Calcutta High Court in CIT v. Davi Ashmore India Ltd. (1991) 190 ITR 626 (Cal). The Hon ble Bombay High Court in CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom), and the Hon ble Delhi High Court in Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del), the Authority for Advance Rulings in HMS Real Estate Pvt. Ltd., In re (2010) 325 ITR 71 (AAR) and Ernst & Young Pvt. Ltd., In re (2010) 323 ITR 184 (AAR), as well as the Special Bench o .....

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istence of a PE in India through which their business operations were carried on in India. 14. However, the learned JCIT / Sr. DR has made the following allegations, in paragraph 5 of his said Written Submissions, in regard to the business operations of the Appellant Company herein vis-a-vis those overseas entities which are established in Countries with which India has Double Taxation Avoidance Agreements : a. In the instant case the Appellant Company was associated with the non-resident overse .....

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for the purpose of carrying on its activities in India….kindly see para 5, at page 7 of the said Written Submissions; c. Under each of such Agreements, the Appellant Company was to ensure to break bulk consolidation of consignments in India expeditiously and then undertake the job of delivery to the consignees concern….kindly see para 5, at page 7 of the said Written Submissions; d. It is common knowledge that such a process involve several orders being consolidated at a warehouse .....

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Submissions; e. It thus becomes absolutely clear that the overseas entities had substantial interest of enduring nature in India attributable to the Appellant Company. There was, thus, a virtual projection of each such overseas entity into the territory of India through the Appellant Company….kindly see para 5, at page 7 of the said Written Submissions; f. As per paragraph 1 of Article 5 of the DTAAs, permanent establishment means a fixed place of business through which the business of th .....

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ragraph 1 of Article 5, and that such PE was in the form of warehouse within the meaning of paragraph 2 of Article 5….kindly see para 5.1, at pages 7-8 of the said Written Submissions; h. Paragraph 5 of Article 5 provides that where a person other than an independent agent to whom paragraph 6 applies, is acting in one State on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first State. Paragraph 6 excludes such agents f .....

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d as a dependent agent on behalf of each of the overseas entities. The natural corollary of this finding was that paragraph 6 of Article 5 was not applicable in the instant case….kindly see para 5.2, at page 8 of the said Written Submissions; k. Moreover, in each Agreement, it is specifically mentioned that the overseas entity will not establish an operating company doing the business of Air and Ocean, import and export transportation, without the express consent of the Appellant Company, .....

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pplication in the instant case….kindly see para 5.2, at page 8 of the said Written Submissions; m. Once, the applicability of paragraph 6 is excluded, the existence of an agency PE in India vis-a-vis each nonresident entity is inevitable in so far as the Appellant Company was acting as an agent on behalf of each of the overseas entities on a fairly long term basis, negotiating contract on their behalf having direct dealing on their business activity in India and was also acting in a manne .....

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ons; o. Therefore, considering the provisions under paragraph 5 of Article 5 of DTAAs between India and the foreign Countries, it is now amply clear that the Appellant Company constituted an agency PE in India for each of the nonresident overseas entities, in the instant case….kindly see para 5.2, at page 9 of the said Written Submissions; p. In view of the above analysis, it followed that each of the non-resident overseas entity had carried on a part of its business activities in India t .....

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ptember, 2015 has made following allegations in paragraph 4.1 at pages 5 & 6 thereof, in relation to Countries like Hong Kong, Taiwan, Lithuania & Slovakia, with whom undisputedly India has no Double Taxation Avoidance Agreement : i. In the absence of any DTAAs, the issue of taxability of business profits in India earned by overseas entities in those countries has to be considered only in terms of section 9(1)(i) of the Income Tax Act, 1961….kindly see para 4.1, at page 5 of the s .....

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llip;.kindly see para 4.1, at page 6 of the said Written Submissions; v. There was, thus, a business connection of the overseas entities in India through the Appellant Company….kindly see para 4.1, at page 6 of the said Written Submissions; vi. The overseas entities carried on their activity of business in India and there was an intimate and real relationship of a business character of the overseas entities with the Appellant Company in India, which contributed to the earning of profit by .....

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i), they are liable to tax in India under section 9(1)(i), subject to Explanation (a) to section 9(1)(i), which stipulates that in the case of a business of which all operations are not carried out in India, the income of the business deemed under the clause to accrue or arise in India is only such part of income as is reasonably attributable to the operations carried out in India….kindly see para 4.1, at page 6 of the said Written Submissions; viii. As per the terms and conditions of the .....

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The activity of such delivery in India through the Appellant Company amounted to their operations carried out in India in respect of which a reasonable estimate of income attributable to such operations was assessable to tax in India under section 9(1)(i) ….kindly see para 4.1, at page 6 of the said Written Submissions; x. Therefore, the profit earned by the abovementioned nonresident entities from the business operations carried out in India through the Appellant Company was assessable t .....

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records of both the Assessing Officer, as well as of the learned CIT(A). The observations and/or allegations made by the learned Sr. DR, in his said Written Submissions, as extracted in paragraphs 17 & 18 hereinabove, more particularly those highlighted, as aforesaid, are wholly contrary to the facts on record; and therefore the observations and/or allegations made by the learned Sr. DR, are wholly arbitrary, baseless, contrary to the facts and evidences on record, unreasonable and/or otherw .....

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mpany, based upon tenders floated by the Indian customers / importers, and/or on specific nomination basis, enters into contracts for a fixed rate for logistic services, with reference to the weight / volume / unit of the consignment (either on CIF / FOB / Ex-works basis etc.) to be imported to India from overseas s. The customers concerned engage the Appellant Company to render logistic services in relation to such imports against the particular Purchase Order already placed by the concerned In .....

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dependently engaged for rendering such logistic services overseas. It may be appreciated that the materials ordered by the Indian customers are to be imported from overseas to India; v. As such, the logistic services viz. engaging Carrier overseas, arranging, if required, stuffing / lashing / packing and transportation of materials from the overseas manufacturers / suppliers / consignors to the Carrier overseas, arranging customs clearance in the overseas Ports, and thereafter, handing over all .....

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w. The job assigned by the Appellant Company to the overseas entity is completed, as soon as the relevant consignment to be imported from overseas country to India is handed over by such overseas entity to the carrier outside India; x. In terms of the Agreements executed in between the Appellant Company herein and the entities overseas, who are engaged by the Appellant Company for rendering logistic services overseas, in the concerned overseas Country, the logistic provider intimates to the Appe .....

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Company from the Indian Importer / customer for arranging such import, would be shared in between the Appellant Company and the overseas logistic services provider entity, as per the agreed terms; z. The freight charges and other incidental expenses incurred overseas, on actual basis, in between the Appellant Company and the overseas logistic services provider, is reimbursed and remitted by the Appellant Company to the overseas entity; and the amount representing the prefixed share of the overse .....

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lines company and/or the Shipping Lines and/or the local transporters etc. on Principal to Principal basis, and not as agent of the Appellant Company herein; cc. The overseas entity does not have any permanent establishment in India. In relation to export activity (cases falling under this category are not more than 5%): i. The Indian Exporter(s), who are all customers of the Appellant Company, engage(s) the Appellant Company about the cargo to be exported from India together with the relevant d .....

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consignment (either on CIF / FOB / Ex-works basis etc.) to be exported from India to overseas countries; iii. The logistic charges for arranging exports from India to overseas countries are receivable only by the Appellant Company, in India, from the Indian exporter(s), in pursuant to specific agreements entered into in between the Appellant Company and the Indian exporter(s); iv. There is no contract or arrangement in between the overseas associate, on the one hand, and the overseas importer(s .....

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ough its concerned branch office in India, communicates with the entities overseas, who are independently engaged by the Appellant Company only for rendering such logistic services overseas; vii. These logistic services are rendered by the overseas entities directly on behalf of the Appellant Company, in pursuant to the logistic services contracts entered into between the Appellant Company and the overseas entities, and not on behalf of the Indian exporters and/or the overseas importers; viii. I .....

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s; ix. Under instructions from the Appellant Company, the overseas entity receives the cargo from the carrier(s) and delivers the same to the consignee (overseas importer); x. The job assigned by the Appellant Company to the overseas entity is completed as soon as the relevant consignment exported from India is handed over by such overseas entity to the overseas importers outside India; xi. The overseas entity invoices to the Appellant Company for local overseas transportation and other actual e .....

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share of the overseas entity in the net profits for each such consignment, is also remitted by the Appellant Company to the overseas entity; xiii. The overseas entity in such cases does not render any service in India; xiv. The Appellant Company, while making remittances to the overseas entity, does not deduct any tax at source, since all services by the overseas entity are rendered by it wholly outside India; and no income in relation thereto accrues or arises in India; xv. At no stage of oper .....

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/ Sr. DR (ITAT), Kolkata, the Appellant Company respectfully submits as under :In respect of Countries with which India has DTAA dd. It is wholly incorrect on the part of the learned Sr. DR to arbitrarily and wrongly allege that the consignment sent by the overseas exporters, in respect of which overseas logistic services were rendered by the overseas entities, were required to be delivered by the Appellant Company, for and on behalf of the overseas entities. It has been repeatedly stated before .....

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its own in pursuant to the contracts entered into by it with the Indian Importers; and it was not doing any job in this respect for and on behalf of the overseas entities, as wrongly alleged by the learned Sr. DR and/or otherwise or at all; ee. In that view of the matter, it is wholly incorrect on the part of the learned Sr. DR that the place of business of the Appellant Company in India, where the services were provided, in regard to the imported consignments received from abroad for delivery i .....

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f the business activities of the overseas entities, as arbitrarily and wrongly alleged by the learned Sr. DR and/or otherwise or at all; hh. In the circumstances, it is wholly incorrect on the part of the learned Sr. DR to wrongly allege that overseas entities had substantial interest of enduring nature in India attributable to the Appellant Company and/or that there was any virtual projection of any such overseas entity into the territory of India through the Appellant Company, as arbitrarily a .....

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f the learned CIT(A) that the Appellant Company acted as a dependent agent on behalf of each of the overseas entities. This finding is wholly baseless, against the facts and evidences on record, unreasonable and/or otherwise perverse; kk. It is also wholly incorrect on the part of the learned Sr. DR to allege that the Appellant Company had carried on the activities of each of the non-resident entities either wholly or partly in India. The Appellant Company repeats and reiterates that in respect .....

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he part of the learned Sr. DR to arbitrarily and wrongly allege that the Appellant Company maintained any stock of inbound parcels / consignments in its warehouses at any time whatsoever. The question of maintaining any stock could never arise inasmuch as the Appellant Company was required to immediately deliver the imported consignments on case to case basis to the Indian importer; oo. Therefore, no portion of paragraph 5 of Article 5 of DTAA is at all applicable in the instant case; and that t .....

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mitted that the non-resident entities are not liable to tax in India in any manner whatsoever, in the undisputed facts and circumstances of the instant case. In respect of Countries with which India has no DTAA rr. It is an undisputed fact and law that the taxability of business profits earned by overseas countries in India would wholly depend upon the fact whether such non-resident overseas entities rendered any services in India or not. Only if the services are rendered in India, the deeming p .....

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cels / consignments were handled by the Appellant Company in India wholly on its own behalf and not on behalf of the overseas entities, as arbitrarily and wrongly alleged by the learned Sr. DR or otherwise or at all; uu. Therefore, there is no question of treating the relationship between the Appellant Company and the overseas entities as a business connection within the meaning of section 9(1)(i) of the Income Tax Act, 1961; vv. It is wholly incorrect on the part of the learned Sr. DR to allege .....

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rvices by them wholly outside India. 19. The Appellant Company states and submits that it filed detailed submissions before the Income Tax Officer (International Taxation), Ward - 1(1), Kolkata through its two letters dated 11th September, 2013 and 20th December, 2013 in response to the show cause notice dated 18th July, 2013 issued by him; and through those two replies, the Appellant Company explained in particular as to why no portion of the remittances made to the non-resident entities were t .....

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ed to the regular provisions of the Income Tax Law in the light of the principles discussed and set out in paragraph 15 hereinabove; aaa. remittances made to the non-resident entities by way of reimbursement of freight and other charges / expenses incurred by them were not taxable in India in the light of the principles laid down in various decisions, which have been accepted by the learned CIT(A), and the Revenue is not in appeal before the learned Tribunal there against; bbb. in the absence of .....

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ways, for Air / Ocean import and export transportation between India and the respective establishments in the overseas countries, it cannot and does not make the Appellant Company as the agent of the non-resident entities in any manner whatsoever, as is by now well settled by several decisions of the Hon ble Supreme Court - kindly see Super Poly Fabriks Ltd. v. Commissioner of Central Excise (2008) 11 SCC 398 (SC) = (2008) 10 STR 545 (SC); ddd. the nature of operations and activities carried ou .....

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section 195 and/or section 195A of the said Act; fff. the decision of the Hon ble Supreme Court in Transmission Corporation of Andhra Pradesh Ltd. v. CIT (1999) 239 ITR 587 (SC) = (1999) 105 Taxman 742 (SC) referred to by the learned Income Tax Officer (International Taxation) at pages 21 & 22 of the said impugned Order dated 28th January, 2014 has no application in the facts and circumstances of the instant case. 20. The Appellant Company states and respectfully submits that it was not liab .....

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), cited by the Revenue is clearly distinguishable on facts. In that case the payment by the Indian Assessee was made to an overseas party in relation to a composite contract for supply and installation of a machinery with sophisticated technology in India. The Court found that the two components of supply of machinery and subsequent installation thereof in India was not severable; and therefore the amount paid by the Indian Assessee to the overseas party was taxable in India, and therefore the .....

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u Electricity Board, two berths in Ennore Port were kept under lease exclusively for ships chartered by that assessee. The facility, that is placed for berthing is guaranteed for the foreign ships in coastal water chartered by the assessee tantamount to a permanent establishment for the foreign shipping companies. It was in these circumstances that the learned Chennai Bench of the Tribunal held that amount payable by the assessee to the non-resident was chargeable to tax in India; and therefore .....

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of its said Decision that the assessee in that case was carrying out the business of operation of ships in India through its agent Hapag-Lloyod India Pvt. Ltd. The agent in India was concluding the contract of cargo transportation by issuing bill of lading which are legally binding on the assessee; therefore, the assessee was held to be carrying on the business of operation of ships in India and was thus held to be having a PE in India as per Article 5 of DTAA. This decision has no application t .....

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ightly liable to be taxed in India and therefore there was need to deduct tax at source. This decision has no application in the facts and circumstances of the instant case. 25. The fifth decision of Delhi Bench of the learned Tribunal in Van Oord ACZ India Pvt. Ltd. v. ACIT (2008) 112 ITD 79 (Del), cited by the Revenue is again distinguishable on facts. There, the assessee an Indian Company was a wholly owned subsidiary of VOAMC, a foreign company. The Indian Company was to execute a dredging c .....

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lication was rejected by the Assessing Officer as well as by the learned CIT(A). It was in these circumstances that the learned Delhi Bench of the Tribunal upheld the claim of the Revenue that it was for the Assessing Officer to determine what portion of the payments made by the Indian assessee was liable to tax in India. This decision has no application in the instant case. 26. The sixth decision of the Chennai Bench of the learned Tribunal in ACIT v. Evolv Clothing Co. Pvt. Ltd. (2013) 33 taxm .....

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el), cited by the Revenue, is again distinguishable on facts. There the Hon ble High Court held that payments made by the Indian assessee by way of fee for technical services rendered to it in connection with assisting it in conducting its business of quality control and management was liable to tax in India; and therefore there was requirement to deduct tax at source. This decision has no application in the instant case. 28. The eighth and last decision of the Bangalore Bench of the learned Tri .....

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has no application in the facts and circumstances of the instant case. 29. On the other hand the ld. DR has submitted that M/s Balmer Lawrie & Co. Ltd. ( the appellant company ) is an Indian company, engaged in the business of providing logistic services. It had entered into agreements with several non-resident (overseas) concerns to act as an agency for each such non-resident concern as per the terms & conditions as set out in the respective agreements. All the agreements are almost ide .....

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eciprocal appointment of agents by the appellant company and the overseas entities. (b) In those agreements, it has been specifically mentioned that the appellant company shall be exclusive agent of overseas entity in India insofar as import/export relating to particular territory is concerned. (c) It has been specified that throughout the term of the agreement, neither party shall establish an operating company doing the business of air and ocean, import and export transportation in the other s .....

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gulations and promptly notify the individual consignee about the arrival of their consignments. (b) The parties shall undertake delivery of the individual shipment on the other party s consolidations if so required by the individual consignee. All such clearance and delivery charges will be recoverable from the consignee. (c) If the consignors want the parties to perform customs clearance, the 1parties shall render all possible help to the consignor or consignor s representative with reasonable .....

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ceiving party to the other party after the transaction. (f) Both parties shall ensure that their respective clients do not suffer in any way because of short service (and not getting their consignments in time) due to any difference between the parties at any time. (g) It is the respective party s responsibility to receive payment of all charges due from the consignee before making the final delivery. (h) If the consignee does not want to take delivery of his shipment right away, or refuses to a .....

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, it has been specifically agreed between the parties (the appellant company and the non-resident overseas party) that profit sharing shall be on a 50:50 basis. 29.2. In terms of the above arrangement, during the financial year 2011-12, the appellant company paid to the overseas entities under the agreement of various sums as under : Remittance towards Air Logistic Services from Kolkata Rs.8724.53 lakh Remittance towards Air Logistic Services from Kolkata ₹ 641.38 lakh Remittance towards L .....

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t, 1961 and also under the DTAAs, wherever applicable. In the end, the ITO came to the conclusion that the entire remittances including the profit element embedded therein was income in the hands of the respective non-resident overseas entities and hence, the appellant company was liable to deduct tax under section 195(1) of the Act. 30. Aggrieved by the ITO s order, the appellant company challenged the action of the ITO, claiming that no part of activities of the non-resident overseas entities .....

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that for income-tax purpose, what is more important is the substance of the transaction and not the terminology per se, when in a legal document any term is used, normal presumption is that the same has been used consciously and for a valid reason. Nevertheless, going beyond the terminology, if one analyses the relationship between the appellant and the overseas entities, it can be seen that the overseas entities have appointed the appellant as exclusive agent in respect of import from their re .....

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ed by the overseas entity. It passes on, in addition to the cost, pre-agreed share in profit to the overseas entity. Such profit obviously depended upon the price negotiated by the appellant with the clients. Thus, the appellant was, on a regular basis, negotiating the rates and other terms with the clients in India, which generated business for the overseas entity and determined, even if indirectly, the consideration being received by the overseas entity. The rate negotiated by the appellant wi .....

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nt includes agency PE. The UN model convention contains Article 5(5) dealing with agency PE. It has been mentioned therein that where an enterprise does not have its own establishment, it could have a PE through an agent. The agent should be authorized to conclude contracts on behalf of the principal in such a manner that agent s action would bind the enterprise. Agents who are dependent upon the principal may constitute a PE and the authority to bind should be for the purposes which are essenti .....

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e agent for overseas entity on a long term basis, negotiating contracts having a direct bearing on its business and is acting in a manner which binds overseas entity in relation to profit of its business. Though the appellant is having agreements with a number of entities, for a single country there is only one overseas entity involved, on whom it was depending for providing logistical services. Moreover, profit from the contract entered into with the client is shared with the overseas entity. T .....

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utside India, it accrues or arises in India and is, therefore, taxable as per section 5(2) of the Income-tax Act, 1961. Moreover since the overseas entity has PE in India in the form of its agent (appellant), such income would be taxable in India even after taking into account the beneficial provisions of various DTAAs signed by India with various countries. It may be mentioned that all the DTAAs have a provision that business income accrued in India is taxable if the non-resident has a PE in In .....

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, not taxable in India. On the other hand, it was also held that the amount remitted in the form of profit arising out of activities in India (though PE in India as discussed above) constituted 'income' in the hands of the respective overseas entities in India and was, hence, taxable in India. 30.2 In view of the above discussion, it is humbly submitted that the decision rendered by the Ld. CIT (A) is most reasonable, based on correct delineation and appreciation of facts of the case and .....

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Entity 1 Hongkong Comprehensive International Ltd. 2 Do Go-Trans (Hongkong) Ltd. 3 Taiwan Top Exp. 4 Do Scanwell Logistics (Taiwan) Ltd. 5 Lithuania UAB "AD SERVICES" 6 Slovakia ABC European Air & Sea Cargo Distribution SR spol s.r.o. 30.4 In the absence of any DTAAs with the above mentioned countries, the issue of taxability of business profits in India earned by these entities has to be considered under the basis law only, that is in terms of section 9(1)(i) of the Income-tax Ac .....

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carried on their activity of business in India and there was an intimate and real relationship of a business character of the overseas entities with the appellant company in India, which contributed to the earning of profit by the overseas entities in their business. The connection between the overseas entities with the appellant company in India was undoubtedly a commercial connection intimately connected with the business activity of those entities and such a connection was contributory to the .....

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operations carried out in India. As per the terms and conditions of the agreements between the respective overseas entities and the appellant company, the latter was responsible to perform various services as stipulated in the agreements and deliver the parcels of the overseas entities in India for which the charges to be collected and shared were distinctly stipulated in those agreements. Normally it was the obligation of the overseas entities to deliver the parcels/ consignments in India. The .....

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o tax in India, even without bothering to look for a PE coming into existence in India. 30.5 But for the above mentioned entities, all other overseas entities under consideration belonged to and were resident of countries with whom India had, at the relevant time, DTAAs in operation. The appellant company has rightly contended that in order to tax the business profits in India of such entities, there must be in existence of a PE in India through which there business operations were carried on in .....

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of the overseas entities. Therefore, the place of business of the appellant company where the services were provided in regard to the consignments received from abroad for delivery in India was to be included as the office of the overseas entities in India for the purpose of carrying on its activities in India. Under each of such agreements, the appellant was to ensure to breakbulk consolidation of consignments in India expeditiously and then undertake the job of delivery to the consignees conc .....

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usiness activity of the overseas entities in India. This arrangement is for fairly long period under the agreement between the appellant company and each overseas entity. It, thus, becomes absolutely clear that the overseas entities had substantial interest of enduring nature in India attributable to the appellant company. There was, thus, a virtual projection of each such overseas entity into the territory of India through the appellant company. As per paragraph 1 of Article of the DTAAAs, ' .....

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nition of 'eminent establishment; and one such place is 'warehouse'. Paragraph 2 of Article 5 gives inclusive definition of 'permanent establishment' and it does not, by necessary implication, follow that what is not included in paragraph 2 is automatically excluded. Therefore, the finding that a part of the activities of the business of the foreign enterprise in India was carried on through a fixed place fell within the meaning of paragraph 1 of Article 5 and was not affecte .....

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udes such agents from the operation of paragraph 5 who are of independent status acting in ordinary course of their business. However, paragraph 6 is not applicable in such cases where the activities of agent of an independent status are devoted wholly or almost wholly on behalf of the foreign enterprise. It is well settled principle of law that the words in a statute or document take their colour from the context. When is kept in mind that the enquiry to be made is relating to the activities of .....

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ining the agreements clause by clause between the appellant company acted as a "dependent" agent on behalf of each of the overseas entities. The natural corollary of this finding was that paragraph 6 was not applicable in the instant case. Moreover, in each agreement it is specifically mentioned that the overseas entity will not establish an operating company doing the business of air and ocean, import and export transportation in the Indian territory, without the express consent of th .....

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f paragraph 6 is excluded, the existence of an agency PE in India vis-a-vis each non-resident entity is inevitable insofar as the appellant company was acting as a agent on behalf of each of the overseas entities on a fairly long term basis, negotiating contracts on their behalf having direct bearing on their business activity in India and was also acting in a manner which bound the overseas entities to relation to profit derived from their Indian operations. The existence of such an agency PE i .....

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In view of the above analysis, it follows that each of the non-resident overseas entity had carried on a part of its business activities in India through its PE, namely, the appellant company within the meaning of paragraph 1, paragraph 2 as well as paragraph 5 of Article 5 of the relevant DTAA. Therefore, each of non-resident overseas entities was liable to tax in India, by virtue of Article 5(1) or 5(2) or 5(5) or all of them. 30.9 Since the existence or non-existence of a PE is to be examine .....

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butable to the Indian operations shall be deemed to accrue or arise in India. On the other hand, the DTAA provisions, more precisely the Article 7, stipulate that when a foreign enterprise of a contracting State carries on business activity in the other contracting State through a PE, then profit attributable to the PE will be taxed in the other contracting State. It, thus, follows that in the instant case, the profit generated by each of the nonresident overseas entities from their Indian opera .....

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assessable to tax in India. The AO further held that the assessee was to deduct the TDS on the whole amount of payment made to the overseas agents i.e. actual cost of reimbursement plus the amount of share of profit as the assessee or the overseas agent has not submitted any application under section 195(2), 195(3) or 197 of the Act. However the ld. CIT(A) has partly granted the relief to the assessee by holding that only the profit element attributable to the overseas entities shall be subject .....

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le to tax in India, as per section 5(2)(b) of the said Act. 3. Whether the overseas entities had appointed the assessee as their Exclusive Agent in respect of import from their respective Countries on a long term basis. 4. Whether the assessee acted as a Dependent Agent - Permanent Establishment in India of different Non-Resident Entities in terms of various DTAA with various countries. At this juncture we find important to highlight the provisions of section 195 of the Act and the relevant extr .....

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cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. 32.1 From the plain reading of the section it is clear for the applicability of section 195 of the Income Tax Act, 1961 with regard to the deduction of tax at source by any person responsible for making any payment to a non-resident is that the amount paid to the non-resident is otherwise chargeable to income tax in India under the provisions of the said Act. If the amount paid or payable .....

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ed with any liability for deduction of tax at source, and cannot under any circumstance whatsoever be treated as an assessee in default. In this connection we rely on the decision of the Hon ble Supreme Court in Vijay Ship Breaking Corporation v. CIT (2009) 314 ITR 309, 313 (SC), which decision was followed and reiterated in GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456, 463-465 (SC). In Vijay Ship Breaking s case, the Hon ble Supreme Court clearly held and observed at page 313 .....

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ted then we are obliterating the words "chargeable under the provisions of the Act" in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. (See : Vijay Ship Breaking Corporation v. CIT [2009] 314 ITR 309). Now whether the paym .....

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ollowing incomes shall be deemed to accrue or arise in India:- (j) 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 I].- 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 .....

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newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India;] (d) In the case of a non-resident, being- (1) An individual who is not a citizen of India; or (2) A firm which does not have any partner who is a citizen of India or who is resident in India; or (3) A company which does not have any shareholder who is a citizen of India or who is .....

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e non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or (b) Has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly0 delivers goods on 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 n .....

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ferred to as the principal non-resident) or on behalf of such non-resident and other nonresidents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. Explanation 3.- Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable .....

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all be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India;] 32.2 We are placing our reliance in this connection on the decisions of the Hon ble Supreme Court in Carborandum Co. v. CIT (1977) 108 ITR 335 (SC), CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC) and in Ishikawajima-harima Heavy Industries Ltd. v. Director of Income Tax (2007) 288 ITR 408 (SC). The concept .....

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(i) accruing or arising in the taxable territories; and (ii) deemed to accrue or arise to the non-resident in the taxable territory. The concept of actual accrual or arising of income in the taxable territories, although not dependent upon the receipt of the income in the taxable territories, is quite distinct and apart from the notion of deemed accrual or arising of the income, The High Court does not appear to have kept this distinction in view and mixed the one with the other while deciding t .....

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rritories, shall be chargeable to income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax. " If the whole of the deemed income can be roped in for the levy of tax under sub-section (1) of section 42, no question of any apportionment arises. If not, sub-section (3) is attracted. It says : " In the case of a business of which all the operations are not .....

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se outside the taxable territories-will be deemed to be income accruing or arising in such territory provided operations in connection with such business, either all or a part, are carried out in the taxable territories. If all such operations are carried out in the taxable territories, sub-section (1) would apply and the entire income accruing or arising outside the taxable territories but as a result of the operations in connection with the business giving rise to the income would be deemed to .....

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ITR 20 (SC), Shah J., as he then was, speaking for this court, said at page 24: " A business connection in section 42 involves a relation between a business carried on by a nonresident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories: a stray or isolated transac .....

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ugh which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case." The learned judge says further: " A relation to be a ' business connection' must be real and intimate, and through or from which income must accrue or arise whether directly or indirectly to the non-resident. But it must in all cases be remembered that by section 42 income, profit or gain which accrues or arises to a nonresident outside the taxa .....

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at income or is entitled to receive that income, it may be taxed in the hands of the agent by the machinery provision enacted in section 40(2). Income not taxable under section 4 of the Act of a nonresident becomes taxable under section 42(1) if there subsists a connection between the activity in the taxable territories and the business of the non-resident, and if through or from that connection income directly or indirectly arises." The High Court was wrong in its view that activities of t .....

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Indian company. The service rendered by the American company in that connection was wholly and Solely rendered in the foreign territory. Even assuming however, that there was any business connection between the earning of the income in the shape of the technical fee by the American company and the affairs of the Indian company, yet no part of the activity or operation could be said to have been carried on by the American company in India. And in the absence of such a sustainable finding by the .....

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order to rope in the income of a nonresident under the deeming provision it must be shown by the department that some of the operations were carried out in India in respect of which the income is sought to be assessed………. 32.3 The Hon ble Supreme Court clearly held and observed in the case CIT vs. Toshoku Ltd. (1980) 125 ITR 525 at page 531 of 125 ITR has held as under : In the instant case, the non-resident assessees did not carry on any business operations in the taxable .....

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n in India. The High Court was, therefore, right in answering the question against the department. 32.4 In Ishikawajima-harima s vs DIT (2007) 288 ITR 408, their Lordships of the Hon ble Supreme Court inter alia held and observed at page 437 of the Repots …Mere existence of business connection may not result in income of the non-resident assessee from transaction with such a business connection accruing or arising in India. The distinction between the existence of a business connection an .....

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respect of overseas services would not arise in India. Section 9 spells out the extent to which the income of nonresident would be liable to tax in India. Section 9 has a direct territorial nexus. Relief under a Double Taxation Treaty having regard to the provisions contained in section 90(2) of the Incometax Act would arise only in the event a taxable income of the assessee arises in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. .....

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re different severable parts of the composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction can tax that particular part of the transaction. This principle helps determine, where the territorial jurisdiction of a particular State lies, to determine its capacity to tax an event. Applying it to composite transactions which have some operations in one territory and some in others, is essential to determine the taxab .....

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n completed on the high seas, the profits on sale did not arise in India, as has been contended by the appellant. Thus, having been excluded from the scope of taxation under the Act, the application of the double taxation treaty would not arise. The Double Tax Treaty, however, was taken recourse to by the appellant only by way of an alternate submission on income from services and not in relation to the tax of offshore supply of goods. Thus, for a non-resident to be taxed on income for services, .....

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a. It is by now well settled that even when section 9 of the Income Tax Act, 1961 applies to a given case, considering the provisions of the Double Taxation Avoidance Agreement, if beneficial, than the provisions of the Income Tax Act, the provisions of the Double Taxation Avoidance Agreement would prevail. In the absence of a permanent establishment, the industrial or commercial profits derived by a non-resident are not assessable to tax in India, particularly when all activities are carried by .....

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ns Aktiongesellschaft (2009) 310 ITR 320 (Bom), and the Hon ble Delhi High Court in Van Oord ACZ India Pvt. Ltd. v. CIT (2010) 323 ITR 130 (Del), the Authority for Advance Rulings in HMS Real Estate Pvt. Ltd., In re (2010) 325 ITR 71 (AAR) and Ernst & Young Pvt. Ltd., In re (2010) 323 ITR 184 (AAR), as well as the Special Bench of the Income Tax Tribunal, Mumbai in Mahindra and Mahindra Ltd. v. DCIT (2009) 313 ITR(AT) 263 (Mum)(SB). With regard to the issue of agency relationship we find tha .....

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completing the custom formalities, the assessee communicates with overseas entities who are independently engaged for rendering required logistic services and delivers the same to the overseas importer. For such services the assessee and overseas agent share the profit after the expenses incurred in India. Accordingly the assessee does not deduct the TDS as no service in India and no income accrued or arose in India. The assessee engages the airlines, shipping lines and local transport in India .....

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ommissioner of Central Excise Punjab (2008) 11 SCC 398 (SC) civil appeal No. 1713 of 2007, decided on April 24, 2008 wherein it was held as under : the expressions principal and agent is rules to our not this is it the nature of transaction is required to be to come mind on the basis of such expense the and not by the Norman later used documents are to be construed having regard to the context thereof 04 labours and may not be of much relevance 32.6 We also rely in the Article 5 of the DTAA with .....

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t be considered an agent of independent status within the meaning of this paragraph. The ld. DR has also not brought anything on record with regard to his allegation that the assessee carries out the activity of break bulk consolidation of the consignment and makes the delivery of the goods to the consignee in accordance with the instruction of the consignor. Therefore the place of the business of the assessee should be treated as the PE of the overseas entities in terms of the provisions contai .....

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deeming provisions contained in Section 9(1) of the Act would apply so as to tax the income deemed to accrue or arise in India. Since the nonresident overseas entities did not carry any activity or business operation in India, and they did not render any service in India, no portion of their business profits earned by them exclusively for services rendered outside India can be brought to tax in India, either under Section 9(1) or otherwise or at all. Therefore, there is no question of treating .....

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ne of the non-resident Entities had any permanent establishments in India. The Appellant Company as well as each of the nonresident entities were acting on Principal to Principal basis; and that none of them were agents of each other. The mere fact that the Agreements executed in between the Appellant Company and each of the different non-resident entities used the nomenclature Reciprocal Appointment as Agents , both ways, for Air / Ocean import and export transportation between India and the re .....

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