TMI Blog2017 (2) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... a letter from Price Waterhouse Coopers to some person of the GE group at AIFACS Building, 1, Rafi Marg, New Delhi intimating the approval by the RBI of change of nodal office of GEIOC from Mumbai to New Delhi vide its letter dated 8th March, 2000. It is this address which was subjected to survey proceedings in 2007. Page 311 of the survey documents paper book is a copy of the lease agreement for the official premises of the LO which shows that the lease agreement of AIFCAS premises was renewed from 1st December, 2003. The same page indicates that the earlier lease agreement dated 1st March, 1994 came to an end on 28th February, 2003. These two documents corroborate that the premises, subjected to survey proceedings on which business activities of GE overseas entities were found to be carried on, was at their disposal for all the years under consideration. These two documents coupled with the GE group supplying information about the sales made by the GE overseas entities from the year 2000 onwards tilt the balance in favour of the Department. Above discussion boils down that the seven expats worked in India for a period of 2-5 years covering some of the years and for the prior pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the matter and the further fact that the sales were made by GE Overseas in India through GE India, there was income of the assessee chargeable to tax in India for which the return of income ought to have filed and the benefit of DTAA, if any, could have been claimed as was done pursuant to the notice u/s 148. The fact that the assessee had a PE in India and no return was filed prior to the issuance of notice u/s 148 also brings the case within the fold of Explanation 2(a) to section 147. In view of the foregoing discussion, we are fully satisfied that the AO was justified in initiating reassessment proceedings. TP Adjustment - Held that:- ALP of payment made by GEIOC to GEIIPL was determined only w.r.t. the apparent services elaborated in the Agreement which are more or less of liaison nature, not leading to the doing of some income generating activity. But in reality, the actual services rendered by GEIIPL to the GE overseas entities under the leadership of expatriates from GEII is alien to the Agreement. Such activities performed by GEIIPL beyond the scope of the Service agreement have led to the creation of the PE of the assessee in India. Such services have not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y liaison and it does not constitute a permanent establishment as defined in Article 5 of DTAA, liaison office is undertaking an activity of trading and therefore entering into business contracts, fixing price for sale of goods and merely because, the officials of the liaison office are not signing any written contract would not absolve them from liability, finding recorded by the tribunal is based on legal evidence and that the finding that the liaison office is a permanent establishment as defined under Article 5 of DTAA and therefore, the business profits earned in India through this liaison office is liable for tax is established , Agency PE - Held that:- The nature of activities done by GE India, which are of core nature and not merely preparatory or auxiliary, we hold that they clearly indicate its authority to conclude contracts on behalf of GE Overseas. It is, consequently, held that GE India constituted agency PE of all the GE Overseas entities in India. Attribution of income - chargeability of tax in India - Held that:- Considering the nature of activities performed by GE India in generating sales of GE Overseas in India, we have elaborately taken note of the lead r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outset, it is imperative to mention that there is a batch of 139 appeals by the GE group overseas entities under consideration. The group has chosen the extant as the lead case. It has been fairly admitted that there are four broader issues in all or some of the appeals. Two issues, namely, existence of PE and attribution of profits are common in all the appeals; issue of reassessment is specific to more than one hundred appeals, wherever the orders have been passed u/s 147 read with section 143(3) of the Income-tax Act, 1961 (hereinafter also called `the Act ) ; and the last issue of interest u/s 234B is in relation to some of the appeals for the A.Ys. 2007-08 and 2008-09.Submissions were made by both the sides on all the four issues in this lead case and it was candidly admitted that the other appeals involve mutatis mutandis similar issues. In fact, the same arguments were adopted by both the sides and no separate submissions were made for the remaining 138 appeals. As such, we are espousing the instant appeal for consideration and ex consequenti, the decision taken on all the four issues will apply to the remaining 138 appeals to the relevant extent. A. CHALLENGE TO R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 3.5% of the total value of supplies made by the assessee to the customers in India was held to be the income attributable to the PE in India. As total sales made by the assessee in India during the year amounted to ₹ 19,98,06,676/-, profit at the rate of 3.5% on the same, amounting to ₹ 69,93,234/-, was held to be taxable business income. The assessee s grounds against the re-assessment proceedings failed to convince the ld. CIT(A) as well. Now, the assessee is before us challenging the initiation of re-assessment. 5. We have heard the rival submissions and perused the relevant material on record. Before delving into the legality or otherwise of the initiation of the reassessment proceedings, it is sine qua non to note the reasons recorded by the AO before issuing the notice u/s 148, which are as under :- A survey u/s 133A of the Income Tax Act, 1961 ( Act ) was carried out at the office premises of General Electric International Operation Company Inc., India liaison office ( GEIOC ), located at AIFACS, 1 Rafi Marg, New Delhi-l 10001 on 02.03.2007. The liaison office ('LO ) of GEIOC, USA was started in India from July 01, 1987. The office was set up to un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountrywide Financial Services - A Gurgaon based nonbanking finance company dealing in retail finance. (iii) GE Money Housing Finance - A Gurgaon based company having NHB license provides housing loans. (iv) GE Capital Transportation Financial Services Ltd. - Deals in truck leasing and construction equipments financing. (v) Maruti Countrywide Auto Finance - GE Group has 37% equity in the company engaged in financing of Maruti cars. (vi) GE Corporate Financial Services - A newly formed NBFC operating from Gurgaon. (vii) GE Strategic India Investment - A NBFC having portfolio equity investment in Indian companies. (viii) SBI Cards Processed Services Pvt. Ltd. - Deals with SBI credit cards and GE owns 40% equity of the company. (ix) GE Business Process Services Management Pvt. Ltd. - GE owns 60% equity of the company while balance is held by SBI and processes the SBI transactions in India only. B. INDUSTRIAL GROUP (i) Wipro GE Ltd. - GE owns 51% equity whereas balance is owned by Wipro and is engaged in manufacturing and local distribution of medical diagnostic equipments. (ii) GE-BEL Ltd. - The joint venture company of GE (74%) and Bharat Electronics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 in Annexure 10 has submitted a list of divisions of GE businesses, which are not conducted either wholly or partly through GE subsidiaries in India and these are in the following business lines: Infrastructure (oil gas, energy, rail, aircraft engines and aviation financial services). Industrial (equipment services) Healthcare (Diagnostic imaging, information technology, services and bio sciences) 4. Before discussing the contents of various documents, it is appropriate to state that, GE Group is engaged in various sales activities in India, for which the business heads are generally expats, who are appointed to head Indian operations, with the support staff provided by GE India Industrial Pvt. Ltd. and also by various third parties. These expats are on the payroll of GE International Inc(hereinafter: GEII)but working for various businesses of GE Group. After these brief comments, the contents of various documents are discussed hereunder: ANNEXURE 'A' This consists of 125 pages and mostly deals with GE infra division particularly oil gas. Page 1 to 16 is a copy of Memorandum of Understanding ( MoU ) for technology transfer agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of exhaust stack extension. Page 58 to 61 is a copy of purchase order for exhaust ducts placed by Hak International Contractors Asia for supply of 14 units of exhaust stack of 30 meter height for a value of USD 5,426,568. This is addressed to Nuovo Pignone S.p.A, Italy. This is also unsigned and a draft order only. The availability of this document evidences the role of Indian office. Page 62 to 69 is again the copy of mails relating to Reliance purchase order. Page 71 is a copy of mail from Vivek Venkatachalam of GE Infra Oil Gas, India to Fabio relating to the Reliance order. Page 72 to 100 is the documents (technical proposal) with regard to Bina Refinery India to BHEL made on 27.02.2007. The contact name shown as Araniti. Danila. Page 101 to 122 is a copy of commercial proposal (proposal No. 06.DW, 1056/F/O) with regard to Bina Refinery Ltd. for BHEL. This is given by Nuovo Pignone S.p.A. It provides the scope of supply and price. Page 123 is a forwarding letter to the BHEL regarding the commercial proposal, which mentions that please note that the present proposal is valid only under the collaboration agreement between Nuovo Pignone S.p.A. an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed that present job shall be dealt with new sales Dept. and prices shall be competitive. However, contrary things happened. With this, we do not see any chances of getting the order. We draw your attention to the fact that in last two year Euro has appreciated from 45 Rs to 58 Rs while our competitors currency i.e. Japanese Yen is static from last two years at 0.4 Rs. We once again request you to revise your offer for present job in line with enclosed past similar order either through your new sales Dept. or service Dept. This will have bearing ongoing collaboration discussions of NP BHEL. Page 58 to 63 is the comments on draft MoU for compressors sent by GE Infra Oil Gas vide e-mail dated 22.09.2006 (and counter comments from NP, October 16, 2006). Page 64 to 72 is a power point presentation relating to EWPL gas pipeline project of Reliance Gas Pipelines Ltd. This also provides the delivery summary. Page 73 to 83 is the commercial proposal relating to Bina Oman Refinery. Page 84 and 85 is with regard to GE Infrastructure message from John Rice. Page 86 is a list of 16 employees of GE Global Sourcing India Pvt. Ltd. This also shows the list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to expand sales teams refers to develop qualified pipeline of opportunities......expand customer Base......two top talent added. The seven pillars of growth refers to: Expand sales team Localize ITO support Partnerships Local sourcing Localize service Leverage local engineering COE Maximize infra synergies Page 107 is the GME profile and compensation worksheet of Riccardo Procacci on 01.02.2007, who is on assignment with GE Infra Oil Gas. ANNEXURE 'C' This contains 49 pages and has the details of employees working in AIFCAS building regarding their names, designation, employing legal entity, employed since, working for the company, job description, reporting manager, incentive compensation, appraisal report and employment letter. In respect of some employees, the information is as below: Partha Ranjan Dey is working as Site Leader and reporting to Riccardo Procacci and the job description is sourcing. Amit Verma is a Junior Buyer and is engaged in sourcing and reporting to Riccardo Procacci. Jagdish Lal is the Secretary and reporting to Riccardo Procacci. Pravinna Yagnam Bhat is Executive Assistant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eight GE businesses. He also received management award (GECIS Global 2004). Anjali Sinha, hired 25 students from 14 management schools as per targets and she is Manager, Human Resources. Page No. 49 is a list of employees working in the AIFACS building. ANNEXURE 'D' This consists of 52 pages. Page 1 to 3 is a copy of lease deal with regard to leasing of house i.e. 4, Panchsheel Marg, Chanakya Purl, New Delhi for Mr. Scott R. Bayman of General Electric Company Inc., liaison office for the period 01.07.2004 to 30.06.2007 for annual rental value of Rs.l crore. Page 4 to 9 is a copy of house lease deed dated 01.07.2005 for leasing of house i.e. D-79, Citi Apartments, Vasundhara Enclave, by Mr. Iqbal Singh to General Electric International Co. Inc. at monthly rent of ₹ 6,250/- Page 10 is a copy of letter dated 22.08.2003 from RBI, New Delhi for extension of time of the permission u/s 6(6) of the Foreign Exchange Management Act, 1999 to M/s General Electric International Operation Co. Inc. Page 11 12 is a letter from PricewaterhouseCoopers Pvt. Ltd. relating to change of nodal office from Mumbai to New Delhi with regard to GEIOC li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of L T Mumbai regarding the enquiry relating to its client IOCL, Baroda; the enquiry was given to Mr. VivekVenkatachalam, Neeraj Saxena (GEMS, India) and Mr. Procacci relating to reciprocating compressors of hydrogen generation unit for IOCL, Baroda. Page 4 to 7 relates to the enquiry of reciprocating compressors for IOCL, Baroda. Page No. 7 is a mail from J.K. Khandelwal, Vice President-Sales Marketing to Mr. Nicola of GE Infra Oil Gas and copy to other persons of GE Infra Oil Gas including Jagdish J. requesting a authority letter indicating M/s General Energy Management Systems Pvt. Ltd., New Delhi as the authorized representative of GE Infra Oil Gas. It mentions that Nuovo Pignone has regularly participating in the various pipeline projects. Page 8 11 is a copy of mail from Riccardo Procacci, in which he is introducing himself as the newly appointed GE Oil Gas. India Country Leader based in Delhi. Page 9 10 is a copy of mail from Senior Manager of Bharat Pumps and Compressors Ltd., addressed to Rajesh Gupta of GE Infra Oil Gas with a copy to Vivek Vekatachalam and has details regarding draft of MoU. Rajesh Gupta has forwarded this mail to Riccardo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is to only have employees linked directly to the Project Office to have the PoA - we may decide about this once we have the GE resident engineer in Ahmedabad 4. Revoke the current PoAs for Riccardo Rahul. We will have to expedite the above actions as the 3 PO bank accounts in India are w/o authorized signatories and we are not able to issue any cheques locally. Pls. let me know if there are any more queries... Thanks Rahul Page 31 to 85 - me photocopy of excel documents, sent by Barbara to Riccardo, relating to India sales for 2004, 2005 and 2006. The same gives the name of customer, customer number, date of invoice, the place of delivery, order number, amount, region, name of manufacturer etc. Page 86 87 is an e-mail from Vivek (Venkatachalam) to Ciao Riccardo, which mentions that I would want you to make Vittorio understand that we cannot change the payment terms completely..... . Page 88 to 98 pertains to WHRU proposal of Reliance regarding total base scope price and the value of contract is Euro 5,849,293 and mentions the scope of supply, deliveries, various clarifications and the mails are evidence of involvement of Vivek and Riccardo in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the packager facility (4 million). Page 9 is a mail from Riccardo Procacci to Ashok of GE Infra Energy, dated 23.02.2007 asking the name of people to be added in the O G India distribution list. Ashok writes that project related information is - Ashok Rodgi, Balasubramanyan, Sunder Rajan MB (GE Infra, Energy) and V.C. Arunachalam(GE Infra, Energy). Page 10 to 14 relates to TSA for GE supplied compressors. This shows that Chaini, Nitin, Gakhar, Ashwin and Jaimin Shah of GE Infra Energy are working for the GE Infra business in India. The purchase orders are issued on GE Oil Gas LLC, USA, GE Oil Gas Thermodyn, France and GE Oil Gas Nuovo Pignone Spa, Italy. The mail states that Jaimin Shah is handling all the recent GE orders. Ravi Kumar of Reliance writes that we do not have problem in issuing 3 TSAs for three GE entities . The copy of mail is also given to Rajesh Gupta of GE Infra Oil Gas. Page 15 16 is a mail from/to Nalin Jain, GE Transportation, aircraft engines, sales Director South Asia Pacific. Page 17 is a mail from Nalin Jain to William Blair of GE Infra, Aviation, USA regarding Jet-LH partnership. Nalin Jain has address of AIFACS, 1 Raf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the enterprise business Gujarat Desalination, AIIMS and Medicity. Page 19 20 gives the details of operating plan of OE in India for February, 2007, in the sectors of healthcare, consumer finance, commercial finance, industrial and infrastructure. Page 21 to 23 is a copy of e-mail from Aashish Sonawala of GECAS dated 14.02.2007 to Chandan Jain (GE Corporate) on the subject GECAS growth council. Page 22 has estimated financials of GECAS for the years 2006 to 2010. In this sheet the details of revenue, exposure, return on income, return on expenditure and net income are given. The mail also states the requirement of aircrafts by Indian Airlines. Page 24 is a mail from Nalin Jain of GE Infra Aviation to Chandan Jain regarding news release-Indian Airlines, CFM sign MRO joint venture agreement. CFM International is a joint venture company. wherein 50% is held by General Electric Company. Page 25 is a mail from Amar Navin of GE Corporate to Badal Bagri and Chandan Jain of GE Corporate and relates to authority to sign HR related documents for oil gas. This shows that Anjali Sinha has the authority to sign the HR related documents and she is supporting the HR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wllliam Blair Ashfaq Nainar Kenneth Peirson Sameer Aggarwal Prat Kumar These persons are working for various direct businesses of the GE group in India, which are neither being conducted through a subsidiary or joint venture company. These persons are India Head of different businesses and they are being supported by a team of persons, who are employed by either GE India Industrial Pvt. Ltd. or other group concern. The employees working on the payroll of GEIOC are also supporting the various direct businesses of GE group. The assessee was asked to submit the information regarding the above employees particularly the copy of employment (assignment) letters, job responsibilities, self appraisal etc., part of this information was submitted by the assessee vide letter dated 16.03.2007/09.04.2007. A brief of various businesses not conducted through GE subsidiaries in India either wholly or partly (submitted by the assessee as Annexure-l0 of letter dated 16.03.2007), is given below: INFRASTRUCTURE Oil Gas Energy Rail Aircraft Engines Aviation Financial Services INDUSTRIAL Equipment Services HEALTHCARE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of GE India Industrial Pvt. Ltd., who are working for other GE group entities/ business in India. These are 43 employees, who are working for other group entities and these are Nand Kumar Dhekne, Sujoy Ghosh, Pramod Joshi, Alpana Khera, Faizi Mohisini, Ninnala Murthy, Jaimin Shah, Baldeep Singh, Shannila Barathan, Ravi Anand, Anand Bansal, Haridas' Menon, Chandan Guha,Anand Awasthy, Ramgopal Yadavalli, Narendran Mannazhi, Ashish Malhotra, Srinivas K. Marella, Tarak B. Chayya, N. Guruprasad, Deven Shukla, Hitangshu Majumdar, Siddhartha Ghosal, Manish Narula, N. Nagraj, Sudipta Saha, Neeraj Bhargava, Shantanu Chakraborty, Shashank Naik, Parag Nag. Srikanth Thorapalli Venugopal, Sanjeev Kumar, Hemlata Singh, Archana Singh, Asim Bose, Geeta Taneja, Suman Nag, Nalin Jain, Sanjeev Kakkar, Mangal Dev, Vivek Venkatachalam, Rajesh Gupta and Amit Verma. From the information available during the surveyor afterwards. it is clear that various employees of GE India Industrial Pvt. Ltd. are working with the expatriates so as to constitute Indian teams looking after the GE overseas entities businesses. The detail of such employees is also available in Annexure-C, discussed earlier. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 GE Packaged Power Inc. USA ...do .. 13 GE Energy Parts Inc.. USA - TRANSPORTATION 14 GE Transportation Parts, LLC USA . AVIATION 15 GE Company USA GE Legal Entities -Supplies j 16 GEES Distribution LLC ...do... 17 GE International Inc. USA GE Legal Entities -Services 18 Elano USA ...do... 19 Garrett Aviation Services Inc. USA ...do... 20 GE Accessory Services - Grand Prairie, Inc. USA ...do... 21 GE Structured Services USA ...do... 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers in India. However, the company instead of undertaking the permitted activities is employing various persons and providing the services of such persons to the GE group entities worldwide. The company performs all the functions relating to such employees, including their employment, payroll administration, the activities relating to deputation etc. and such activities constitutes business activities being carried out in India. The expenses incurred by such office are reimbursed by the head office without any margin. Independent third parties providing such services will certainly earn profits on the activities. The activities indicate that the GEIOC is carrying out business in India through a Permanent Establishment (PE) and the income attributable to such PE is taxable in India. The company has not filed return of income for any year. 7. The business of various GE group non-resident companies in India is being conducted by the expatriate employees of GE Group (who are employed by GE group company and deputed to India as India Head of the specific business like oil gas, energy, aviation, transportation etc.), with the support and help of employees drawn from GE Indian entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondence discussed above also indicates that such employees have also participated in the price negotiations. The various documents in the form of agreements/purchase orders/copies of contracts also proves the active involvement of the employees of Indian company and expats in the conclusion of contracts on behalf of such nonresident GE group entities, therefore, GE India Industrial Pvt. Ltd. also constitutes the agent other than an agent of independent status of the nonresident GE group entities. This results into the creation of the dependent agent PE as per the provisions of the tax treaties and business connection as per the provisions of Explanation 2 to Section 9(l)(i) of the Income Tax Act, 1961. The activities of the third parties working for the GE group as mentioned above also may constitute agency PE/ business connection of the GE group entities. It is possible that in respect of various projects relating to rendering of services/supervisory services, such GE group entities will be considered to have the PE as per the other paragraphs of the Article relating to the PE of the respective tax treaties. 7.1 After having established that various GE group entities were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned above, the assessee has business connection as well as the PE in India as per the provisions of Article 5 of the tax treaty between both the countries and the income attributable to the PE/ business connection is taxable in India. Since the assessee has not filed return of income in India to that extent the income chargeable to tax has escaped assessment. On the basis of material collected during or after survey operations and discussed above, I have reason to believe that income chargeable to tax has escaped assessment for A. Y. 2001-02. This belief is formed on the basis of fact that assessee has not furnished return of income although its income earned in India during the previous year was chargeable to income tax. Considering the quantum of sales made, I have reason to believe that income chargeable to tax, which has escaped assessment amounts to or is likely to amount to more than ₹ 1 lakh for the year. In this case, not more than 6 years have elapsed from the end of relevant assessment year (i.e. A.Y. 200-0) and income of more than ₹ 1 lakh has escaped, assessment, therefore, the Notice u/s 148 r.w.s. 147 of the Income Tax Act, 1961 satisfies the time lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Name of the assessee appears at Sl. nos.11 and 13 of this list under the broader category of `Energy business . In fact, name of the assessee appears not less than six times in the reasons (including two times in the Exhibits, which are part of the reasons). 8.3. Be that as it may, we find that the seven expatriates from GEII, repeatedly referred to in the reasons, were positioned in India to head the business operations of the GE overseas (referring to all the GE Overseas entities collectively, as described by the assessee itself before the AO).They were not deputed for the business of a specific GE group company, but, for the worldwide GE group companies in one of the three sectors, that is, Infrastructure (oil gas, energy, rail, aircraft engines and aviation financial services); Industrial (equipment services); and Healthcare (Diagnostic imaging, information technology, services and bio sciences). On a pointed query, it was candidly admitted on behalf of the assessee that all the business interests of GE overseas entities involved in the instant batch of 139 appeals were looked after by any of such seven expats and there was no business of GE overseas entities in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent year, the ld. AR argued that the same cannot be considered for initiating reassessment for an earlier year. For this proposition, he relied on certain judgments including CIT vs. Gupta Abhushan (P) Ltd. (2009) 312 ITR 166 (Del) and SGS India Pvt. Ltd. vs. ACIT Anr. (2007) 292 ITR 93 (Bom) . The ld. AR also placed a great deal of emphasis on the fact that seven expats were not positioned in India during all the years under consideration and hence there was lack of sufficiency of reasons for such years in which they were not in India. It was urged that in the absence of any other material evidencing presence of the GE overseas entities in India, it could not be said that any business was carried out in India at least for such years. This was countered by the ld. DR, who took us through some material to decipher that this contention is not correct. 8.6. Having gone through the above referred two judgments, it is patent that there must be some material to indicate that income chargeable to tax has escaped assessment for a particular year. If material in the possession of the AO divulges escapement of income for year A , no inference can be drawn, de hors some oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of sales of GE entities in India from 1.4.2003 onwards, but, the actual information supplied by the assessee also covered the period 1.4.2000 to 31.3.2003 in addition to the information as required in writing for the period 1.4.2003 onwards, which was orally demanded during such post survey meetings. The ld. DR submitted that the information about the expats working in India prior to the seven expats was also orally demanded as was apparent from the reasons recorded by the AO. 8.9. The moot question which looms large before us is to decide if any information about the employees of GE in India prior to the present seven expats was called for. If the answer is in affirmative and the same was not given, it will lead to an inference that other expats were working in India for the GE overseas entities during the period starting from 1.4.2000 onwards, thereby, prima facie constituting PE of such GE entities in India and vice versa . In this regard, it is relevant to note that the AO categorically recorded in para 7 of the reasons dated 26.3.2008 that such information was demanded, but, not given by the GE group, which demonstrated that there were other expats working/making sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing order. In a case before the Hon ble Bombay High Court in Crown Consultants Pvt. Ltd. vs. CIT (2014) 362 ITR 368 (Bom ), the assessee, challenging the issuance of notice of reassessment u/s 148, contended that the alleged loan transaction in the reasons was reflected in its financial statements as margin money which it had received from its directors and their family members which was reflected in Schedule A to the balance sheet. The Hon ble High Court refused to accept this submission as the same was not taken in the objections to the reasons for reopening. In view of this new stand not taken in the objections, but, taken for the first time in writ petition, the Hon ble High Court held that the assessee cannot take up fresh objections which the AO had no occasion to deal with by laying down that : ` Just as the revenue cannot improve upon its case for reopening before the Court and but must stand or fall by the reasons recorded for reopening the assessment, the same test would be applicable in case of an assessee i.e. it must stand or fall by its objection to the grounds for reopening of assessment. It is not open to the assessee to urge fresh objections before the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments coupled with the GE group supplying information about the sales made by the GE overseas entities from the year 2000 onwards tilt the balance in favour of the Department. 8.14. Above discussion boils down that the seven expats worked in India for a period of 2-5 years covering some of the years and for the prior period covered in this batch of appeals, some other expats were working in India for the GE overseas entities in a similar manner. 8.15. To sum up, we jettison the contention of the ld. AR that the reasons for reopening do not refer to the name of the assessee or its business activities for the year under consideration. ii. No assertion in reasons that any person in India entered into contract on behalf of assessee. 9.1. The ld. AR then contended that there is no assertion in the reasons that any person in India entered into contract on behalf of the assessee and hence the reassessment be set aside on this score. Au contraire, the ld. DR took us through the relevant parts of the reasons to falsify the claim of the assessee. 9.2. We do not concur with the submissions put forth on behalf of the assessee in this regard. Some documents found during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment because of failure of assessee to disclose fully and truly all material facts 10.1. The ld. AR also challenged the initiation of reassessment by contending that there was no assertion in the reasons that income chargeable to tax escaped assessment because of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Reliance was placed on certain decisions to bring home the point that the reassessment needs to be quashed in the absence of a specific allegation in the reasons about the failure of the assessee to disclose fully and truly all material facts necessary for his assessment. This was strongly rebutted on behalf of the Revenue. 10.2. We are again not persuaded to concur with the argument of the assessee on this issue. It is significant to note at this stage that the assessee did not file its return of income for any of the years under consideration prior to notice u/s 148 of the Act. Para 6.1 of reasons records that the assessee company had not filed return of income for any year. Para 8 further records that the Authorised Representative confirmed that the non-resident entities had not filed returns of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India during the previous year was chargeable to income tax . Thus, the argument that there is no assertion in reasons that income escaped assessment because of the failure of the assessee to disclose fully and truly all material facts, does not hold water. 11. Foregoing discussion reveals that the following broader points emerge from the reasons recorded by the AO along with the Annexures to such reasons. i. Neither the assessee nor any other GE overseas entity, except Nuovo Pignone Spa, Italy, had filed returns of income in India for any of the years under consideration. ii. Survey u/s 133A of the Act carried out at AIFACS premises of the LO of GEIOC in Delhi set up to undertake only the liaison activities divulged that other GE overseas entities were carrying on full-fledged business from there. iii. The GE overseas entities in the lines of Infrastructure (oil gas, energy, rail, aircraft engines and aviation financial services); Industrial (equipment services); and Healthcare (Diagnostic imaging, information technology, services and bio sciences) had presence in India. iv. The GE overseas entities were engaged in various sales activities in India, through expa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts on the basis of which the Department can reopen the case, it is sufficient to initiate reassessment. The sufficiency or correctness of the material is not a thing to be considered at this stage. The same view has been reiterated again by the Hon ble Summit court in ACIT vs. Rajesh Jhaveri Stock Broker (P) Ltd. (2007) 291 ITR 500 (SC). The Hon ble Apex Court held in this later case that: If the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion at that stage the final outcome of the proceedings is not relevant. It further went on to hold that: At the initiation stage, what is required is reason to believe , but, not the establishment of fact of escapement of income . At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage . The Hon ble juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that the AO had prima facie reason to believe about income escaping assessment, the matter ends there insofar as the initiation of reassessment proceedings is concerned. No fault can be found with the jurisdiction of the AO to initiate reassessment. 15. Adverting to the facts of the instant case, we find that the survey and post-survey enquiries conducted by the AO before issue of notice u/s 148 gave sufficient material for the formation of a prima facie belief that the income of the assessee had escaped assessment. 16. The ld. AR, contended that the AO did not prima facie prove in reasons the existence of PE of the assessee in India and hence reassessment be set aside. To buttress such argument, he simply focused on some of the e-mails etc. found in survey, which in themselves did not establish that some revenue generating activity was carried out from India. It is true that such e-mails do not establish the existence of PE in India, but the other e-mails along with the remaining material collected during the course of survey and post-survey enquires, which we will elaborately discuss later, prima facie, compel a person, reasonably instructed in law, to form a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Marketing services by GEIIPL for the A.Ys. 2004-05 and 2005-06, but, the TPO accepted the transaction at ALP. For the A.Y. 2006-07, the TPO made certain TP adjustment, but, the Tribunal restored the matter to the TPO for a fresh determination which was still pending. For the A.Y. 2007-08, no TP adjustment was stated to have been made in the hands of GEIIPL and the TP adjustment made for the AY 2008-09 was pending consideration before the Tribunal. Copies of the orders passed by the TPO for such earlier years were placed on record. Relying on the judgment of the Hon ble Supreme Court in the case of DIT (I.T.) vs. Morgan Stanley Co. Inc. (2007) 292 ITR 416 (SC), the ld. AR contended that once a transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. It was contended that similar view has been taken by the Hon ble Delhi High Court in Adobe Systems Inc. vs. Asstt. DIT (2010) 240 Taxman 353 (Del) and in DIT vs. BBC Worldwide Ltd. (2011) 203 Taxman 554 (Del.) For this proposition, the ld. AR also relied on another judgment of the Hon ble Bombay High Court in Set Satellite (Singapore) Pte Ltd. vs. DDIT (International Taxation) (2008) 307 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Investigate and provide information on current trends in business, status of competing products, technological developments, pricing of competitors, Government policies and other development, etc., that would be of interest to GEIOC/its affiliate entities; and to (v) Provide an effective link between GEIOC/its affiliate entities and various regulatory authorities from time to time on all business matters. 18.5. Nature of support services to be provided by GEIIPL as per this Agreement is inclusive of the services permitted by the Reserve Bank of India to GEIOC at the time of setting up of its LO in India. The permission was granted by the RBI for the purpose of undertaking purely liaison activities, viz., to act as a communication channel between head office and its customers in India. This permission was granted subject to the conditions that except the proposed liaison work, the LO will not undertake any other activity of a trading, commercial or industrial nature or it shall not enter into any business contracts in its own name without prior permission of the RBI. It was further directed by the RBI that the Liaison Office will not charge any commission/fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IPL were much more than those prescribed in the Agreement. 18.7. The ld. AR vehemently argued that only the activities approved by the RBI for acting as a liaison office were carried out in India and this was established from the fact that the permission so granted by the RBI was not revoked. He relied on an order passed by the Delhi Bench of the Tribunal in Metal One Corporation vs. Dy.DIT (2012) 52 SOT 304 (Del) in which it has been held that since no violation of RBI condition was shown, the LO was to be presumed to be engaged in the activity as permitted. For the same proposition, he relied on another decision of the Tribunal. This was opposed by the ld. DR 18.8. It is found as an admitted position that the RBI did not revoke the permission to carry on LO nor any adverse action was taken against the GEIOC who was allowed to open an LO in India. Under such circumstances, a question arises if non-action by the RBI should lead to a presumption that only the designated activities sanctioned to the LO were carried on? In normal circumstances, when permission is granted for setting up of an LO, and then renewed by the Reserve Bank of India from time to time, the presumption is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further need to attribute profits to a PE. The Hon ble Supreme Court countenanced the Ruling of the AAR in principle insofar as an AE, that also constituted a PE, was remunerated at ALP taking into account all the risk taking functions of the enterprise (emphasis supplied by the Hon ble Supreme Court). The Hon ble Summit Court found that in such cases nothing further would be left to be attributed to the PE. It, however, held that: the situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to the PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the tax payer has to be examined as to whether the transfer pricing analysis placed by the tax payer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. From the above observations of the Hon ble Supreme Court in Morgan Stanley (supra) itself, it is unambiguously beyond any shadow of doubt that if the transfer pricing analysis does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not reported at all, there was no question of any transfer pricing analysis of the same. These facts delineate that the instant cases fall under the exception to the rule laid down in Morgan Stanley (supra) as reiterated in LG Electronics (supra). We, therefore, reject this contention raised by the ld. AR. III. SANCTION U/S 151 19.1. On an earlier occasion, the assessee raised an additional ground before the tribunal, reading as under:- That on the facts and circumstances of the case and in law, the proceedings initiated under Sections 147/148 of the Act are without jurisdiction because the mandatory sanction required under section 151(2) of the Act has been granted by the Addl. DIT in a mechanical manner and without application of mind. 19.2. The Bench, vide its separate order dated 10.06.2015, admitted the additional ground. As such, we are now taking up this ground for adjudication on merits. 19.3. The ld. AR contended that the sanction granted by the Addl. DIT u/s 151(2) was without application of mind and, hence, the proceedings flowing from such illegal sanction given in a mechanical manner, be set aside. To buttress this submission, the ld. AR relied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much prior to the placing of reasons before him for sanction. Not only the text of sanction but also the earlier involvement of the Addl. DIT in the proceedings dealing with such reasons, go a long way to prove that he did not act in a mechanical manner. Thus, it is wholly incorrect to state that the sanction was granted by the Addl. DIT without application of mind. 19.6. The facts in United Electrical Company (supra) are that the reasons were de hors the facts available on record, and there was no information which could provide foundation for the AO s belief that the assessee s transactions with a disputed company were not genuine and its income had escaped assessment. The Hon ble High Court held that the action of the AO was not sustainable. It was in this background that the Hon ble High Court found: Even the Addl.CIT has accorded the approval for action u/s 147 mechanically. If the Addl. CIT had cared to go through the statement of V.K. perhaps he would not have granted his approval which was mandatory in terms of proviso to sub-section (1) of section 151 as the action u/s 147 was being initiated after the expiry of four years from the end of the relevant assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examining validity of a sanction is the genuineness of reasons for re-assessment and application of mind by the authority before granting sanction u/s 151 of the Act. We are satisfied that in the given circumstances, the Addl.CIT committed no mistake in granting sanction u/s 151(2) of the Act. This ground, therefore, fails. B. PERMANENT ESTABLISHMENT 20. The A.O. examined the taxability of income of GE Overseas under the Act as well as the Double Taxation Avoidance Agreement. He did not accept the contention of the assessee that the sale consideration was not taxable in India as the title in respect of the equipments was transferred outside India and the payments were also received outside India. He held that a lot of activities relating to marketing and sales took place in India. Expatriates from GEII along with the employees of GEIIPL constituting the Indian team (GE India) were always involved and participated in the negotiation of prices. Such negotiations of prices took place in India. The Indian customers discussed MOU terms with the Indian team. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. He furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, presumed that the language of Article 5 dealing with Permanent Establishment of the other relevant DTAAs is no different from the DTAA. Paras 1 to 3 deal with the fixed place PE. Before examining the rival contentions, we consider it apposite to set out the relevant parts of these paras, as under :- `1. For the purposes of this Convention, the term permanent establishment' means 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; (c) an office; (d) to (l) 3. Notwithstanding the preceding provisions of this Article, the term permanent establishment' shall be deemed not to include any one or more of the following : (a) to (d) (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character , for the enterprise. 23. Para 1 of Article 5 provides that the term Permanent Establishment means a fixed place of business through which the business of an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enterprise whether or not they are used exclusively for that purpose. Such place of business can also be situated in the business facilities of another enterprise. Para 4.3 gives an example of a fixed place PE, being, an employee of a company, who, for a long period of time, is allowed to use an office of another company. Further, the character of fixed should be attached to such a place, which means that it should be used with a certain amount of permanence. In a nutshell, if a place is used by a foreign enterprise for carrying on its business in India with some sort of regularity or permanence, it satisfies the first condition of a fixed place PE. 26.2. Adverting to the facts of the instant case, we find that GE India also comprising of the expatriates from GEII were permanently using the LO premises of GEIOC at AIFACS building. It was found during the course of survey, that the expatriates were having specific chambers/rooms allotted to them with their name plates affixed and they were occupying the same. Secretarial assistance and staff was also provided to them by GEIIPL/GEIOC. Their laptops, computers and business related documents were in such specifically allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of their Assignment letters, Self appraisal and Manager assessment, wherever provided. i. Kenneth Pierson - A copy of the Assignment letter of Kenneth Pierson has been placed at page 104 of the Paper book, which shows his position as `Sales Marketing Manager of GE Transportation with the anticipated start date of assignment as 1.5.2004 and the term of assignment as thirty six months. Kenneth M. Pierson also gave Self appraisal report, whose copy is available at page 190 onwards of the paper book. Under the head Accomplishments , he claimed to have maintained a constant focus on organic growth in emerging market. He: `Led the GS team through key activities Sales, Cross-approval, Partnership approvals, Marketing and Resourcing. Page 192 of the paper book is Manager assessment of the Self appraisal of Kenneth M. Pierson. It has been mentioned that: Ken is committed to growing the India signaling business. Although he missed the orders target for the year, 2006 was a significant year as his team closed $6M in orders and has positioned the business to winning major deal in 2007. This shows that Kenneth M. Pierson was working as Sales and Marketing Manager of GE Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he: Utilized 13+ years of sales experience and market instincts to enter new growth areas such as commuter and propulsion markets in India. Then, there is the `Manager Assessment on page 63, which shows that he made solid progress in 06 with Orders $27 and sales of $19($ 13 + 12%). Details emanating from his Assignment letter, Self appraisal report and Manager assessment speak volumes about his nature of work extending to managing the entire business including sales and marketing, matching with his designation. iii. Riccardo Procacci - A copy of the Assignment letter of Riccardo Procacci has been placed at page 97 of the Paper book, which shows his position as `Oil Gas, India Country Leader of GE Energy with the anticipated start date of assignment as 1.8.2006 and the term of assignment as five years. Despite specific request by the AO, the GE group neither supplied Self appraisal report nor the Manager s assessment report of Riccardo Procacci. As against the requirement of the DDIT for tendering the Appraisal reports and Manager Assessment of the seven expats and the employees of GEIIPL, the assessee furnished such reports in respect of only two employees, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure with specific role and responsibilities to: Help GE infrastructure business develop their strategy in India; Align GE solutions with customer need; Put the key success factors in place; Help shape policy to realize opportunities; and Facilitate business development discussions. Page 207 of the paper book shows his major activities, which, inter alia, provide that he: Facilitated dialoge between GE Infrastructure s Energy, Oil Gas and Water business to develop consistent T Cs. This shows that Shri Pratyush Kumar was looking after GE Infrastructure business in India at the apex level, inter alia, developing business strategy in India and also finalizing consistent business terms and conditions. Despite a specific request by the AO, the GE group neither supplied Self appraisal report nor the Manager s assessment report of Pratyush Kumar. 27.3. The above facts indicate two broader things. First is that these expats of GEII, who are highly qualified and some have even double qualifications, worked in India for different business interests of GE group and their activities were not confined to the business of a particular entity. Second is that they were heading the opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. 27.5. Having seen the job responsibilities of the expatriates and employees of GEIIPL assisting the expats in the Indian operations of GE Overseas, now let us have a look at some of the e-mails which are part of the survey documents, which fully justify the respective designations given to them. As noticed earlier, the assessee in its replies to the AO has used two terms, namely, GE Overseas and GE India. Admittedly, GE Overseas has been referred to as all the `GE overseas entities collectively and GE India has been referred to as `expatriate employees of GE International Inc. located in India and employees of GE India Industrial Private Limited i.e. GEIIPL engaged in providing marketing support services for offshore sales into India . Use of the expression GE India prima facie shows that firstly, the expats of GEII worked for GE Overseas in India, and secondly, the role played by the employees of GEIIPL is more than what has been set out in the Agreement. 27.6. Page 127 of the Survey documents PB-I is an e-mail from La Moita of GE overseas entity to P. Riccardo (GE India) and others which has been styled as Confidential. This e-mail reads : now the case of BHEL as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices Agreement) for Reliance attached. I guess this needs to be reviewed by your aftermarket colleagues in India or does it need to go back to someone in Florence . This e-mail communication shows that the draft agreement sent by Reliance Industries Ltd. to Mike Hosford (GE Overseas) was, in turn, sent to India, namely, Vivek Venkatachalam (GE India), requiring him to get it reviewed from his aftermarket colleagues in India. Pages 32 and 33 of Survey documents PB-II are certain e-mails between P. Riccardo, Vivek Venkatachalam (GE India) and Dino Catastine (GE Overseas). P. Riccardo writes to Dino Catastine that: The credibility of the team is compromised. Why changes have been made to what we agreed during the last two meetings and conference calls with RIL without prior consultation with the local team? . All communication to RIL must be passed through Vivek. If there is no agreement on the subject let us discuss. Then, Dino Catastine writes to Riccardo saying: `We didn t change our position with respect to the conference calls we have partecipated . Once again he writes to Ricardo and Vivek saying: Following our phone call, I confirm that, if necessary to close the deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete comments, so that the same could be incorporated in the original MOU. This e-mail shows that the entire correspondence with the customer in India was being done by the Indian team head P. Riccardo. Page 120 of the same PB-II is an e-mail from R. Procacci (GE India) to Domenico (GE Overseas) with a copy to Vivek Venkatachalam (GE India) reading: `As agreed we will try to put together a simple business case in order to take the initiative forward to the need level of evolution ..the approach must be as light as possible in order to match the current business strategies and priorities. This shows GE India (Procacci) advising GE Overseas of the way in which a case is to be put up before the Indian client. Then La Motta (GE Overseas) replies to P. Riccardo, Vivek Venkatachalam (GE India) and others referring to Sales Team (Vivek and Riccardo) . This again discloses that GE India (Riccardo and Vivek) were Sales team and not merely a communication channel as contended. 27.7. Now let us examine the statement of Shri Chander Jain recorded at the time of survey, whose copy is available on pages 1-14 of Survey documents PB. He admitted in response to question No.10 that GEI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of a permanent establishment. The term `preparatory activity is understood in common parlance as some job concerned with the preparation of the main task to be undertaken. It is pursued before the taking up of the actual activity. Black s Law Dictionary 7th Edition at page 130 defines the term auxiliary to mean as aiding or supporting, subsidiary. An activity becomes auxiliary if it is in support or aid of the core income generating activity. The Hon ble jurisdictional High Court in U.A.E. Exchange Centre Ltd. vs. Union of India and Ors. (2009) 313 ITR 94 (Del) considered a case in which the activity to be done through the Liaison Office in India was of downloading the data; preparation of cheques for remitting the amount; and dispatching the same through courier by Liaison Office. The Hon ble High Court designated it as auxiliary to the main activity of the petitioner. The Hon ble jurisdictional High Court in a more recent decision in National Petroleum Construction Company vs. DIT (IT) (2016) 383 ITR 648 (Del) , considering the earlier decisions in Morgan Stanley (supra) and UAE Exchange Centre (supra), has held that activity of preparatory or auxiliary character is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.4. Now, let us examine if the activities carried out in India by the GE overseas entities through GE India are of preparatory or auxiliary character. Main focus of the ld. AR was to establish that the activities done by GE India were of preparatory or auxiliary character. As per the application made to RBI and permission obtained, the LO of GEIOC was to act as a communication channel between the head office and the customers in India. Thus, there remains no doubt that the activities to the extent of communication channel, as sanctioned by the RBI, being of preparatory or auxiliary character, would not constitute any PE in India. However, it has been noticed above that the actual activities carried on from the fixed place of AIFCAS building did not remain confined only to those of a communication channel as was allowed by the RBI to GEIOC at the time of setting up its LO in India. 28.5. The ld. AR harped on the assessee s reply to the AO s letter dated 14.11.2008 submitting four stages of sales to contend that the activities carried out in India by GE India were merely preparatory or auxiliary. He further relied on the roles and responsibilities of employees of GEIIPL etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d business opportunity or not. Entire technical and commercial evaluation of the opportunity at this stage is carried out by GE Overseas with inputs from its various functional personnel spanning operations, finance, marketing, etc. In the event, GE Overseas decides to pursue the identified business opportunity, it commences the proposal development process and intimates GE India in this regard. GE India (on receipt of such intimation and under the explicit instructions of GE Overseas) undertakes an interaction with the prospective end-customer so as to identify customer's requirements/ which are passed on to GE Overseas as inputs in the proposal development process. As part of the proposal development process, GE Overseas may seek inputs from GE India in respect of various aspects such as pricing, preparation of bidding package and other supplementary information. 28.8.2. It is noticed that the assessee has admitted a small role played by GE India. Claim of independent decision taken by GE overseas has been rightly held by the AO as erroneous. Various survey documents, as discussed above, abundantly show GE India playing an important and proactive role in the finalization o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advising accordingly to the GE Overseas. Then, there is a mail showing that the change was permitted in the terms of MOU by the Indian team, which was conveyed by GE India to the customer, with a copy to another member of GE India. GE India was negotiating terms with the Indian customers is also borne out from page 195 of Survey Documents PB I as discussed above, whereby Indian customer was requesting GE India to revise the offer. Similarly, page 82 of Survey Documents PB I, as discussed above, shows that GE India changed the terms and conditions. In the like manner, pages 2 and 3 of Survey Documents PB II show that the draft agreement by Reliance Industries Ltd. to GE Overseas was sent back to GE India to get it reviewed from aftermarket colleagues in India. Pages 32 and 33 of Survey documents PB-II show that when GE Overseas tried to contact directly with RIL, GE India objected to the same and wanted the entire consultations only through the Indian team, which was positively responded by GE Overseas. Page 39 of the Survey documents PB II again shows that it is GE India which was negotiating with Indian customers and not allowing GE Overseas even to change the terms and conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bolster the argument of the preparatory or auxiliary services rendered by GE India was reference to the Roles and responsibilities of some of the expats and employees of GEIIPL etc. supplied by the assessee to Department pursuant to the judgment of the Hon ble High Court. Based on such details, it was argued that GE India was simply assisting GE Overseas and their role was not more than that of a support staff to GE Overseas, who, in turn, was taking all the relevant decisions regarding sales in India. 28.13. At this point it is pertinent to mention that the Department collected LinkedIn profiles of some employees of GE group, who in its opinion were carrying on the operations of GE overseas in India. Such details were filed before the Tribunal on an earlier occasion as additional evidence. The tribunal passed a separate order admitting such evidence. On a writ petition, the Hon ble High Court vide its order dated 21.11.2014 set aside the tribunal order but required the assessee to furnish the details of :`Names, designations, roles and responsibilities of the employees of G.E. Group Companies, who were working in India during the relevant period along with their educational qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him and the picture of his role which the assessee portrayed after the conclusion of assessment. It goes without saying that the primary document duly signed by William showing his job responsibilities will have precedence over what the assessee stated by way of Annexure after the termination of assessment. ii. Kumar Pratyush - Annexure 12 to the assessee s letter pursuant to the Hon ble High Court s order explains his roles and responsibilities. It has been written that, inter alia, : `Pratyush was not involved in any sales .. was never involved in negotiating deals, terms and conditions and pricing for or on behalf of any GE overseas entity. He was more involved in overall management of client and government relationships including smooth functioning of GE businesses in India . In contrast, when we see his designation in the Assignment letter as `Leader, GE Infrastructure, Ops- India of GE Transportation reporting directly to the Global CEO of GE Infrastructure and the `job description given by him in the earlier referred documents of having a specific role to: `Help GE infrastructure business develop their strategy in India; Align GE solutions with customer need; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kenneth being technical person did not have any authority to negotiate any terms of contracts in India. Now let us have a look at his Assignment letter, which shows his position as `Sales Marketing Manager of GE Transportation. We fail to comprehend as to what a `Sales Marketing Manager will do without any authority to take any decision w.r.t. sale. Fallacy of the assessee s claim in the postassessment letter is established from the Self appraisal report of Kenneth, which states that `He Led the GS team through key activities Sales, Cross-approval, Partnership approvals, Marketing and Resourcing. Then there is Manager assessment of the self appraisal of Kenneth M. Pierson. It has been mentioned that: Ken is committed to growing the India signaling business, but missed the orders target for the year . This shows that Kenneth Pierson was given sales target, which he could not achieve. Here, it is relevant to note the judgment of the Hon ble Allahabad High Court in Brown and Sharpe Inc. vs. CIT Anr. (2014) 369 ITR 704 (All) in which the Tribunal, while affirming the order of the CIT (A), relied upon relevant documentary material in arriving at the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did not furnish his Appraisal report and Manager assessment despite a specific request by the AO till the completion of assessment. vi. Nalin Jain (GEIIPL) - Annexure 8 to the assessee s letter pursuant to the Hon ble High Court s order explains his role and responsibilities. It has been written, inter alia , that,: `Nalin's role was to collect the market intelligence and initiate a dialog with the Indian customer to understand their requirements His role was to pass on the information/queries between the overseas entity and the Indian customer Nalin has no authority to finalize any deal. He was just acting as a communication channel All the pricing and terms and condition decisions were taken by GE overseas entity and he had no role in such decision making . Here again, we find that the assessee did not come out clean. Survey documents show his designation in India as Sales Director of GE Transportation, Aircrat engines. Job description has been given as Market Intelligence and Support to Headquarters. He has indicated his Reporting Manager as William Blair, who is one of the seven expats from GEII working in India for GE overseas entities. 28.15. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anand Bansal He is in Business Administration/Management and is an employees of GEIIPL working since Financial year 2002-03. His designation is `Sales Manger . Annexure 2 discussing his roles and responsibilities provides through the second bullet point that :`As a part of his job, Anand s role was to formulate marketing strategy for wind energy related equipments in India, which involved, among other things, determining a marketing strategy that helps distinguish GE products from its competitors, assist potential customers in their study phase and help define their needs for wind energy equipments. Bullet point 5 also provides that :`From 2007 onwards, Anand was supporting BGGTS (Joint venture of GE and BHEL), and was responsible to providing after sale and maintenance support. iii. Sharmila Barathan - She is MA in Economics and also did her Masters in International Business. She is an employee of GEIIPL. Her designation is `Government Affairs . Annexure 3 discussing her roles and responsibilities provides through the second bullet point that : `She supports the team of Market Development and assist them through shaping government policies. Her role was to provide recommenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering. His designation is `Sales Director . He is an employee of GEIIPL working since 2000. Annexure 10 discussing his roles and responsibilities provides through the sixth bullet point that:` As a part of his job, Sanjeev would understand the requirements of clients in terms of equipment required as well as financing required and thereafter, communicate these requirements to the overseas entities. There is again a reference to R Table process and it has been mentioned that he will not sign or negotiate with any customer in India without any prior approval of the overseas entities. This again shows that he was signing or negotiating with customers in India, but with the approval of the GE overseas. It has been specifically provided in the eighth bullet point that: `Although Sanjeev and other people sitting in India were part of the negotiating team with customers, however, at no point of time could they commit to any negotiation with respect to terms and conditions or discount without prior approval from the overseas people listed on the R Table. vii. Alpana Khera - She did her Engineering in Instrumentation and Diploma in Marketing. Her designation is `Sales Manager . She i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of business which renders services not only to its enterprise but also directly to other enterprises, for example to other companies of a group to which the company owning the fixed place belongs, would not fall within the scope of subparagraph e) . This part of the Commentary explaining `preparatory or auxiliary activities makes it clear that if a fixed place of business is used for rendering services to more than one companies of a group, as is a case under consideration, then such services cannot be treated as of preparatory or auxiliary character. 28.19. It is further pertinent to note at this stage that the permission to set up LO at AIFACS building was given by the RBI to GEIOC and not to the assessee including all GE overseas entities covered in this batch of appeals. Thus, none of the instant assesses had any LO in India. Be that as it may, even the LO of GEIOC has been treated as its fixed place PE and the exclusion claimed on the ground of preparatory or auxiliary activities, has been denied up to the tribunal level. Not only that, even penalty u/s 271(1)(c) on this score has been confirmed by the tribunal on GEIOC and no material has been placed on record to demons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond state. It was further held that it did not follow that if activities are not covered in the negative or exclusions set out in paragraph 3, a PE is established or deemed to be established under paragraphs 1 or 2 of Article 5. We fail to comprehend as to how the position stated by the Hon ble High Court is missing here. It has been discussed above that paras 1 and 2 of Article 5 apply and the activities done by GE Overseas are not covered by para 3(e) of Article 5 of the DTAA. 31. In the like manner, the reliance of the ld. AR on CIT VS. Sumitomo Corporation (2016) 382 ITR 75 (Delhi) for contending that no fixed place PE was constituted, is misplaced. We do not find any relevance of this case to the issue under consideration. In that case, the question was of supervisory PE, in which the tribunal held that assessee had no PE in India and that supervisory services were not connected through any of its other PE in India and that since supervision fee was earned in India, it was taxable under Article 12(2) of DTAA at 20%. The Hon ble Court approved the view of the tribunal that FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. It is thus clear that this case d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercise through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) to (c) 35. Para 4 begins with a non obstante clause keeping aside the provisions of paragraph 1 and 2. These two paragraphs, in turn, deals with fixed place PE to mean a fixed place in the nature of office or factory, etc., through which the business of an enterprise is carried on. Insertion of non obstante clause qua paras 1 and 2 brings out that there is no need of a fixed place when agency PE is under consideration. Even if an agent, referred to in para 4, operates from a non-fixed place, he will still constitute PE of the enterprise, if other relevant conditions are satisfied. 36. Next part of para 4 of Article 5 specifies a person who, acting in a Contracting State on behalf of an enterprise of other Contracting State, constitutes PE. Relevant part of para 4 in this context states : where a person other than an agent of an independent status to whom paragraph 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities of `such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm s length conditions, he shall not be considered an agent of independent status within the meaning of this para. 39. The ld. AR contended that the second part of para 5 of Article 5 of the DTAA envisages that the activities of an agent must be wholly or almost wholly on behalf of that enterprise. He submitted that the reference to the term that enterprise draws its colour from an enterprise whose PE is sought to be proved. If the activities of an agent in India are devoted to more than one enterprise, such an agent will cease to be an agent constituting PE of the US enterprise in India. He submitted that the Revenue has admittedly made out a case that these expats from GEII and other employees of GEIIPL, etc., were rendering services to multiple entities in one line of business and such activities were not confined to a particular entity. It was, therefore, contended that representation by such individual persons to multiple entities took the case out of the purview of agency PE. 40. This was countered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enterprise and not multiple enterprises. The ld. AR has relied on the decision of the Mumbai Tribunal in Varian India (P) Ltd. vs. Asstt. DIT (2013) 142 ITD 692 (Mum) in which it has been held that in order to be covered within this part of para 5, it is necessary that the activities of agent must be devoted wholly or almost wholly to one enterprise. 42. Now, we take up the contention of the ld. DR that since the transactions were not at ALP, or for that matter, the international transactions were not even disclosed, the assessee cannot claim not to have an agency PE. There is no doubt about the fact that the transactions of making sales by GE India (consisting of expats and employees of GEIIPL etc.) on behalf of GE Overseas were not disclosed and, as such, question of deeming such transactions at ALP does not arise. The ld. DR is right to this extent. However, we find that the second part of para 5 clearly provides that a person shall not be considered an agent of independent status only if he satisfies both the conditions simultaneously. In other words, when the activities of such an agent are devoted wholly or almost wholly on behalf of an enterprise and the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, becomes utterly obvious that the exclusion enshrined in part 2 of para 5 is of an agent who is otherwise of an independent status. When we read both the parts of para 5, it follows that whereas the first part refers to an agent of an independent status, the second part carving exception to the first part makes it lucid that upon the fulfillment of the given conditions, such an agent of otherwise independent status shall not be considered an agent of independent status within para 5. To sum up, the first part of para 5 refers to an agent of independent status and the second part of para 5 refers to an agent of independent status who is not considered an agent of independent status because of the conditions set out in this paragraph. 44. A foreign company may appoint or set up a person as an agent in India for its exclusive purpose, who obviously will be called as an agent of dependent status. The position will remain so, even if there are more than one related companies of the same group. Such a person will now be dependent on such more number of related companies of the same group. He will not lose his character of an agent of dependent status simply because he is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or almost wholly devoted to one enterprise. On the other hand, if there is an agent of dependent status per se whose activities are devoted to one or multiple related enterprises, he will be directly covered within the scope of para 4 of Article 5 of the DTAA. 46. Coming back to the facts of the present case, we find that the expats of GEII and employees of GEIIPL were appointed to act as agent of multiple GE overseas enterprises. It is nobody s case that they were otherwise acting as agents of independent status working for other third parties in India. This proves that expats and employees of GEEIPL acted as agents of dependent status in the first place itself. Although, the number of GE overseas entities looked after by each of them is more than one, but the fact that such entities were in one of the three broader lines of businesses of GE group, makes them agents of dependent status per se . 47. Facts of Varian (supra), relied by the ld. AR, are distinguishable inasmuch as Varian India had provided services to five AEs for which there were separate agreements and different payments. The Tribunal recorded that the commission income was quite normal and the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and his activities are, inter alia , not limited to preparatory or auxiliary activities which if carried through a fixed place would not make that fixed place a PE. The expression an authority to conclude contracts has not been defined in the DTAA. Para 5 of Article 5 of OECD Model Convention also uses the similar expression, namely: an authority to conclude contracts. Para 5 of OECD deals with the same subject matter as para 4 of the DTAA with the USA, namely, dependent agent PE. Paras 31-35 of the OECD commentary deal with para 5 of the OECD Model Convention whose language, is similar to para 4 of Article 5 of the DTAA. 51. The ld. AR strongly relied on two sentences from para 33 of the OECD commentary for driving home the contention that no agency PE of GE overseas was constituted in India. First sentence is that a person who is authorized to negotiate all elements and details of a contract in a way binding on the enterprise can be said to have exercised this authority and the second is that the mere fact, however, that a person has attended or even participated in negotiations .. will not be sufficient , by itself, to conclude that the person has exercised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interpretation of the Conventions of that member country is concerned. Para 30 of the Introduction to the OECD commentary further clarifies that: Observations on the Commentaries have sometimes been inserted at the request of member countries that are unable to concur in the interpretation given in the Commentary on the Article concerned. These observations thus do not express any disagreement with the text of the Convention, but usefully indicate the way in which those countries will apply the provisions of the Article in question. . . This para also clarifies that sometimes observations are inserted in the commentary at the instance of some member countries who do not concur with the interpretation given in the commentary. This, again, clearly decodes that the OECD Commentary is not conclusive in itself. If some member country has reservations on any part of the commentary, it can express so. In such a situation, the interpretation given in the Commentary bows down in favour of the observations given by such country in so far as the Conventions of such a country are concerned. 52.2. Due to the growing influence of non-member countries, the OECD invited some non-member cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by an enterprise in transactions may be indicative of a grant of authority to an agent. For example, an agent may be considered to possess actual authority to conclude contracts where he solicits and receives (but does not formally finalise) orders which are sent directly to a warehouse from which goods are delivered and where the foreign enterprise routinely approves the transactions. It is clear from the above para that lack of active involvement by an enterprise may be indicative of grant of authority to an agent. Lack of does not mean absence of. It shows that if the enterprise is not fully involved in the transaction which is concluded by an agent, it will give an inference of the agent having an authority to conclude contract in the name of the enterprise. This position given in para 32.1 is running contrary to the position contained in para 33 on which the ld. AR has heavily relied to the effect that all elements and details of a contract must be negotiated to constitute an authority to conclude contract in the name of enterprise. Further, the immediately next line following the line on which the ld. AR has relied, reads : the fact that a person has atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of preparatory or auxiliary nature. It does not require doing of each and every aspect of the contract, howsoever minor. Our view gets fillip from the judgment of the Hon ble Supreme Court of Italy in Phillip Morris (supra) in which it has been held that: the participation of representatives or employees of a resident company in a phase of the conclusion of a contract between a foreign company and another resident entity may fall within the concept of authority to conclude contracts in the name of the foreign company, even in the absence of a formal power of representation . Having discussed supra the nature of activities done by GE India, which are of core nature and not merely preparatory or auxiliary, we hold that they clearly indicate its authority to conclude contracts on behalf of GE Overseas. It is, consequently, held that GE India constituted agency PE of all the GE Overseas entities in India. 53.1. Now, we take up the contention of the ld. AR that if the activities carried out from the fixed place do not lead to conclusion of contracts in India, then no fixed place PE is constituted. This was stated by referring to the line from para 33, reading: Since, by vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CD commentary represents discussion on agency PE, it is too much to argue that the same should be read for fixed place PE as well. One needs to understand the rationale behind making reference to para 4 in para 5 of Article 5 of the OECD. It has been done to indicate that the habitual exercise of an authority to conclude contract in the name of the enterprise shall constitute PE only if the activities of the agent are not limited to those mentioned in paragraphs 4 i.e., of preparatory and auxiliary character. Reference to para 4 of fixed place of business has been made simply to avoid repetition of the activities listed in clauses (a) to (f) in the language of para 5. Instead of specifically referring to all the above activities, the OECD Model Convention has incorporated them by making a reference to paragraph 4(4) in it. Nothing more than that should be read from it. Similar is the position qua the USA - DTAA. Be that as it may, we have already repelled the contention of the ld. AR on applicability of the two sentences from para 33 of the Commentary as the only necessary conditions to constitute Agency PE. Ex consequenti , such a reference in the context of a fixed place PE al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, which the AO has taken at 35% of 10%. As regards the first component, being, the estimation of profit on the sales made in India, we find that the AO specifically required the assessee to furnish year-wise entity-wise profits of GE overseas entities for the operations carried out in India. Either such information was not given or a part of the information given did not help in deducing the correct amount of profit. In such circumstances, the AO was left with no alternative, but, to estimate income on some rational basis. He invoked the provisions of Rule 10(iii) and estimated profit at 10% of sales made in India. Rate of 10% was applied by drawing strength from sections 44BB and 44BBB, which, in turn, are special provisions for computing profits and gains in connection with the business of exploration, etc. of mineral oils/operation of aircraft in the case of non-residents. In our considered opinion, the approach of the AO in estimating income at 10% of sales made in India, in the given circumstances, is perfectly in order and does not require any interference. 57. As regards the second component of the share of marketing activities in the total profit, the AO applied 35% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, we direct to apply 2.6% on the total sales for working out the profits attributable to the PE in India. D. INTEREST U/S 234B 59. The ld. AR contended that interest u/s 234B has been wrongly charged from some of the GE overseas entities which are in appeal before the Tribunal in relation to the assessment years 20007-08 and 2008-09. The same was requested to be cancelled. To support his contention, the ld. AR relied on the judgment rendered by the Hon ble Delhi High Court in one of the GE overseas entities which has since been reported as DIT (IT) vs. GE Packaged Power Inc. (2015) 373 ITR 65 (Del) . It was stated that the AO levied interest u/s 234B in all the appeals starting from AY 2001-02 till 2008-09. The appeals for the assessment years 2001-02 to 2006-07 were routed through the CIT (A), who deleted such levy of interest. The deletion of interest was confirmed by the Tribunal. In further appeals by the Revenue, the Hon ble High Court in the aforecited case also upheld the deletion of interest u/s 234B. This was opposed by the ld. DR who referred to an earlier judgment of the Hon ble Delhi High Court in DIT (IT) vs. Alcatel Lucent USA Inc. (2014) 264 CTR 240 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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