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M/s. Carpi Tech SA, C/o. T.N. Seetharaman, Advocate Versus ADIT, (international Taxation) , Chennai.

2016 (10) TMI 426 - ITAT CHENNAI

Permanent Establishment (PE) in India - DTAA between India and the Swiss Confederation - Held that:- In the present case, the business of the assessee has been conducted from the address of project coordinator, Mr. V. Subramanian and all correspondences relating to prospecting of client, participation in bids, correspondence with customers, signing of contract document, execution of the project and closure of the project etc. were initiated or routed through the business address of the company a .....

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ngly indicate towards Sri V. Subramanian constituting a dependent agent / PE for reasons brought on record by the AO and as discussed in foregoing paragraphs. There were no presence of a number of principals who exercised legal and or economic control over the agent Sri V. Subramanian. The principal i.e. the assessee has failed to demonstrate this aspect when confronted by the AO. - The principal i.e. the assessee was relying on the special skills and knowledge of the agent Sri V. Subramania .....

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it was a mere passing, transient or casual presence for its activity in India. In view of this, we confirm the order of the lower authorities This ground is therefore dismissed. - Income computation - contention of the ld. AR is that the assessee is entitled to salestax, service-tax, customs duty paid on import - Held that:- In our opinion, due deduction to be given in respect of the above components proportionate to the Indian rupees component, if it is not already given. It is also brough .....

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rder. With this observation, this ground of appeal of appeal is partly allowed for statistical purposes. - I.T.A.No.1742/Mds./2011 - Dated:- 24-8-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Mr.T.N.Seetharaman,Advocate For The Respondent : Mrs.Parminder,CIT DR ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal of the assessee is directed against the order of the Asst. Director of Income Tax, International Taxation, Chennai dated .....

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that whether M/s.Carpi India Waterproofing Specialists Pvt. Ltd.,(CIWSPL) represented by Mr.V.Subramanian himself treated as P.E rendering income of M/s.Carpi Tech SA liable to Indian income tax. 3. The facts of the case are that M/s.Carpi Tech SA is a foreign company, resident in Switzerland, specialized in Geo composite membrane water proofing and drainage systems. During the course of assessment proceedings, the assessee submitted that the project receipt from Tanakpur Power Project of Natio .....

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s of the view that as stated earlier the assessee is engaged globally in geo composite membrane water proofing and drainage systems for dams, canals, tunnels and other hydraulic structures. During the period under consideration the assessee commenced the work awarded by National Hydro Power Corporation Ltd (NHPC) relating to providing PVC geo membrane water proofing for an area of 25100 sq.mt in Tanakpur power channel in Uttarkhand. The project receipt of F11,95,56,285 was claimed as being exemp .....

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2005-06 onwards. It was found that the assessee had rendered service for the assessment years 2004-05 to 2007-08 for the TNEB at Kadamparal and NHPC at Tanakpur. While for the financial year 2004-05 & 2005-06 the project for TNEB was executed between 06-11-2004 & 21-05- 2005,. the total number of days being less than 180. The project for NHPC, Tanakpur was executed between 27-01-2008 and 05-03-2008 -the number of days being less than 40. 3.2 The ld.A.R submitted before AO that the asses .....

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m letter dated 06-08-2007 to the Chief Engineer, NHPC. This letter was also signed by Sri V. Subramanlan. This letter also evidenced the visit undertaken by Sri V. Subramanian to the site, his interaction with senior officers and other officers at site and the associated jobs relating to the contract The AO was of the opinion that the existence of PE in the shape of the office address of the company which was the same as the office address of the project coordinator, as being a fixed place of bu .....

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at different point in time i.e. between 2002 & 2006 while the Tanakpur project referred to the period 2007-2008 and not during the same period when Sri V. Subramanian was involved in undertaking the project work of the assessee. Further that in the data sheet presented before the Principal i.e. NHPC Sri V. Subramanian has been represented as the Indian representative of the assessee. CIWSPL was also the Indian face of Carpi Tech SA, Switzerland representing the company in all practical matt .....

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therein which leads to the irreversible conclusion that the receipts contrary to the claim of being fees for included services, was actually in the nature of business income taxable in India that the PE was in existence. 3.3 The assessee s submission was not accepted by the AO and framed the Draft assessment order dated 28.12.2010. The draft assessment order was served on the assessee on 05.01.2011. The AO determined the total income as F 1,09,84,831/- as follows:- Gross receipts 11,95,56,285 LE .....

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business. The AO has also gone through the conduct of Carpi Tech SA and the active role it plays in obtaining and executing the contracts where Sri V. Subramanian also is a Director since inception. It is pertinent, in this regard to analyse Article 5 and the element contained therein. According to DRP, the findings of the AO cannot be brushed aside especially being backed by evidence and facts brought on records. The assessee and the services rendered in India when examined with that of its sub .....

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office cum residential address of Sri V. Subramanian. But for the feeble assertion that Sri V. Subramanlan is an independent agent, also acting for and on behalf of M/s Koncar, Croatia and M/s Litostroj Power, Slovenia, no evidence, credible or otherwise was led in this regard. Also, to refute and rebut the assertion made by the AO that Sri V. Subramanian primarily represented the assessee company almost exclusively during the period when these contracts were executed. In this case, the activit .....

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. Subramanian, the Managing Director of the Indian entity is the technical head with qualifications of being a graduate, Engineer and Marketing Management having experience in handling Hydro Power projects for various foreign and domestic companies. The role played by him as an agent of the non-resident company and the. Indian company who render similar services cannot be easily discerned or separated. There being a unison of interest to a great extent, while as an independent agent there would .....

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While business constitutes continuous activity in organized manner It is often a question of fact & law Place of business usually means a premises of the enterprise used for carrying on the business, whether or not exclusively used for business. The residence of the country Manager was held to be a fixed place of business as the same was used as an office address in Sutron Corporation (268 ITR 156). Similarly an office space of 3 x 6 metres in Motorola Inc & Ors, 95 lTD 269 (Del). To con .....

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number of principals who exercised legal and or economic control over the agent Sri V. Subramanian. The principal i.e. the assessee has failed to demonstrate this aspect when confronted by the AO. The principal i.e. the assessee was relying on the special skills and knowledge of the agent Sri V. Subramanian the Managing Director of the Indian entity by the same name and rendering similar functions. Sri V. Subramanlan was acting exclusively or almost exclusively for and on behalf of the assessee .....

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verned in tune with Article 7(1) which lays down the basic rule of taxation of a PE. The country of source is given right to tax only that much of the profits of the enterprise which is attributable to the PE. In this case the AC needs to bring to tax such profits attributable to the operations carried out in India as also contemplated in the provisions of Explanation to Section. 9(1) of the Act. Hence, the DRP directed the AO to finalise the order keeping in view the directions as contained abo .....

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s for the F.Ys. 2004-05 & 2005-06. The other project carried out by it was for NHPC which was commenced and completed in duration of 40 days in the F.Y. 2007-08. There is of three years between the two of them; (iii) the address in Chennai mentioned by the AO was only a mailing address, the premises being the residence-cum-office of Sri V. Subramanian; (iv) the mere existence of books of account and bank account cannot either conclusively or inferentially point to the fixed place of business .....

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projects during the short duration within a gap of three years. (vii) the Invitation Of Bid clearly describes the scope of work as Design, manufacture, supply and installation of exposed impervious PVC Geocomposite Membrane . The type of work falls within the purview of the exclusion under Article 5.2(j) due to the short duration of the work and the benefit is available to the assessee; (viii) the power of attorney in favour of Sri V. Subramanian is a specific power of attorney executed on 22-1 .....

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connection in India which contemplates the person who acting on behalf of the non-resident habitually exercises in India an authority to conclude contracts on behalf of the non-resident. The DTAA which envisages a person other than an agent of independent status if considered as a habitual exercise in that state, an authority to negotiate and enter into contracts for or on behalf of the enterprise ; (xi) not having prejudice to the above, the AC has not allowed expenses towards cost of material, .....

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n [2005] 257 ITR 1(Delhi) 5. Aditya Birla Nuro Ltd. Vs. ADIT in 11 ITR (Trib) 812(Mum.) 6. Tiong Woon Project and Contracting Pte Ltd., in (2011) 338 ITR 386(AAR). 6. On the other hand, ld.D.R relied on the order of the lower authorities. 7. We have heard both the parties and perused the material on record. In this case, the ld. AR made a plea that the assessee has executed the project of NHPC at Tanakpur between 27.01.2008 to 05.03.2008, so that the number of days is only 40 days. Hence, as per .....

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in bids, correspondence with customers, signing of contract document, execution of the project and closure of the project etc. were initiated or routed through the business address of the company as above. Mr. V. Subramanian is the Power of Attorney holder from the company for all the projects, as the assessee was non-resident. He represented the nonresident assessee at site and he signed all the documents on behalf of nonresident assessee. Further, it is to be noted that : (i) the claim of the .....

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y of material and therefore the time limit of 182 days in clause (j) of Article 5.2 would not apply; iv) the contract was not one of assembly, construction or installation and no time limit has been prescribed for incidence of source country taxation of such projects. Reliance was placed on the decision of the Delhi Tribunal in the case of Furgo Engineers BV[20 SOT 78](Delhi) wherein it was held that number of days was not significant in peculiar type of work undertaken. In that case work undert .....

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contract documents were signed by Sri V. Subramanian on behalf of the assessee; vi) the company in its reply dated 15-11-2010 before the AO had specifically mentioned its date of incorporation as 216-12-2005 with share holders and Directors including the name of Sr V. Subramanian as a Director with two others; vii) the letter heads of both the assesses i.e. CIWSPL and M/s. Carpl Tech SA were similar and to that extent CIWSPL - Sri V. Subramanian was the India face of the assessee; viii) the dome .....

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the account of CIWSPL through their bank account. 7.1 On the basis of the above factual findings, a show cause dated 21- 10-2010 was issued by AO requiring the assessee to explain why CIWSPL represented by Sri V. Subramanian or alternatively, Sri V. Subramanian himself be not treated as PE in terms of Article 5.1 and 5.2 of the DTAA. In reply to the above, the assessee merely took the plea of the provisions and time limit as contain in Article 5.2(j) of the DTAA. It also took the plea that ther .....

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ed to have been represented by Sri V. Subramanian such as Litostroj Power and M/s Koncar were at different point in time i.e. between 2002 & 2006 while the Tanakpur project referred to the period 2007-08 and not during the same period when Sri V. Subramanian was involved in undertaking the project work of the assessee. Further that in the data sheet presented before the Principal i.e. NHPC Sri V. Subramanian has been represented as the Indian representative of the assessee. CIWSPL was also t .....

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It is now that the facts have been analysed with reference to contract document, terms contained therein which leads to the irreversible conclusion that the receipts contrary to the claim of being fees for included services, was actually in the nature of business income taxable in India that the PE was in existence. 7.3 Sri V. Subramanian, the agent for the assessee who is critical to all aspects of the contract through the stages of signing the contract to execution is critically functional as .....

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Litostroj Power, Slovenia, no evidence, credible or otherwise was led in this regard. As also, to refute and rebut the assertion made by the AO that Sri V. Subramanian primarily represented the assessee company almost exclusively during the period when these contracts were executed. In a case as this before us, the activities of the assessee and the Indian entity are intertwined and the Indian entity participates in the economic activities of the assessee, the activities of the Indian entity the .....

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er projects for various foreign and domestic companies. The role played by him as an agent of the nonresident company and the. Indian company who render similar services cannot be easily discerned or' separated. There being a unison of interest to a great extent, while as an independent agent there would be required an objectivity in execution of the tasks of the non- resident company. 7.5 It is also noted that Sri V. Subramanian represented the consortium of M/s. Litostroj Power & M/s K .....

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e business, whether or not exclusively used for business. The residence of the country Manager was held to be a fixed place of business as the same was used as an office address in Sutron Corporation In re 268 ITR 156 AAR. Similarly an office space of 3 x 6 metres in Motorola Inc & Ors 95 ITD 269 (Del). To constitute a PE, the business must be located at a single place for a reasonable length of time. The activity need not be permanent, endless or without interruptions. It may not be out of .....

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o demonstrate this aspect when confronted by the AO. The principal i.e. the assessee was relying on the special skills and knowledge of the agent Sri V. Subramanian the Managing Director of the Indian entity by the same name and rendering similar functions. Sri V. Subramanian was acting exclusively or almost exclusively for and on behalf of the assessee during the currency of the contracts in question. To that extent it was not in furtherance of his ordinary course of business. Finally the refug .....

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SA, Switzerland by bank transfer and Rupee component of which the INR component was ₹ 2,89,22,585/- only (out of the total contract value of ₹ 11,95,56,285/-) which alone was payable and received in India for payment of customs duty on imports (amount paid ₹ 1,21,12,541/-), Service Tax and Sales Tax and towards sub-contractors payment/labour charges and site expenses; the AO has allowed only sales tax/service tax; the assessee submits that the income so computed is patently inc .....

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