TMI Blog2018 (10) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had business connection, it did not have any fixed place PE or agency place PE in India, and, in the absence of any PE in India, the profits, if any, attributable to India’s operation could not be assessed as business profits under Article 7 of the Treaty. - decided in favour of assessee. - ITA No.4532/Del/2015 - - - Dated:- 28-9-2018 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Assessee : Shri S.S. Rana, C.I.T. DR For The Department : Shri Tarandeep Singh, CA ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : This appeal is preferred by the department against the order dated 15.05.2015 passed by the ld. CIT(A)-43, New Delhi for assessment year 2011-12. 2.0 Briefly, the relevant facts are that the assessee is a nonresident company registered in USA. It is engaged in the business of rendering money transfer services since 1890. The business of the assessee includes transfer of monies across international borders. For the purpose of carrying out its business in India, the assessee has entered into agreements appointing agents in India. There are four types of agents - the Department of Posts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of permanent establishment of the assessee according to the commentary stated above. This aspect of fact was not examined by Hon ble Tribunal in the assessee own case for 2001-02, therefore, reliance placed by the assessee on its order for A.Y.2001-02 is found misplaced. .. . Generally the appointment of the agents is for a period of 5 years in the beginning and can be extended any number of times for periods of one year at a time. The agents are remunerated at 30% in the case of Department of posts and 25% in the case of others, of the money handed over by the agent in India. The percentage may be reduced if the assessee assumes responsibility for advertising and promotion of the services in India or establishes a customer service center to handle telephonic queries. One other feature of the agreement is that the money is to be first paid out by the agent in India and therefore he will be reimbursed the same together with the commission due to him. One more noticeable feature of the agreement is that the agent has been given the power to appoint sub-agents / representatives. However, it is the responsibility of the agents to pay the subagents. The assessee can ask t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on its principal. Further how the advertisement is to be done, awareness to be created, call center to be opened is all subject to control from the assessee company. Therefore the agents appointed in India have failed the test of being an independent agent as provided in article 5(5) of DTAA. From above, it is clear that they are not agent of independent status then whether they qualify as dependent agent PE as per the article 5(4) of DTAA which is extracted below:- .. .. D.4 The assessee has dependent agent permanent establishment in India due to the following facts:- D.4.1 The agents are working wholly and exclusively for the assessee company in respect of transborder money transfer business. At para 5 of the agreement between the assessee and Weizmann Ltd., which is available on last year s records, it is mentioned the representative agrees that it will not during the term of agreement and for six months after the termination of this agreement act as an agent for or represent or operate as principal, another public money transfer service or engage directly or indirectly in any money transfer business other than as representative for Wun. This shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority to conclude the contract or not. In this industry the transfer of money to beneficiary is the main objective of the business and for these activities it receives commission. The agents in India do aggressive marketing and educate the sender / beneficiary to enter into contract for money transfer which will be concluded by them. They also have call centre to guide people. Therefore, they literally enter into contract which require for this business. They also have power to appoint subagents in India, so that market and reach of the assessee increases. These are the contract which requires for money transfer and agents have authority to conclude them. Theefore the Hon ble Tribunal has not correctly appreciated the fact of the case in A.Y.2001-02, and it is clear that they have authority to conclude the contract. It is well settled principle that the substance of activities should determine the issue of PE not the forms which it shown to appears. In Money transfer business they are totally dependent on their principal and they have no resource to do this business independently. Further, the department has not accepted the findings of the Hon ble ITAT in case of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn case in ITA No.4889/Del/2004, ITA No.1572- 74/Del/2010 Co. No.163-165/Del/2010, ITA No.5551 5552/Del/2010 and in ITA Nos 5649/Del/2010 4956/Del/2011 for AYs 2001-02, AY 2002-03, 2003-04 2005- 06, AY 2004-05 2009-10 and 2007-08 2008-09 respectively. He further submitted that there is no change in the facts of the case and even the allegations levied by the AO are same. 6. This was not disputed by Ld DR. In crux both the parties admit before us that the facts of the case for AY 2011-12 are similar to the facts involved for the earlier years. 7. We have carefully considered these facts in the light of the orders of the Co-ordinate Benches of this Tribunal for the assessment years 2001-02, 2002-03, 2003-04, 2005-06 2004- 05, 2009-10. In ITA No.4889/Del/2004 for the AY 2001-02, the Tribunal considered the issues at length and reached the conclusions that though the assessee has a business connection in India, it had neither fixed nor the agencies PE in India, as such in the absence of any PE in India, the profits, if any, attributable to Indian operations could not be assessed as business profits under Article 7 of the Treaty. It was also held that the agents enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.4. Three conditions are required to be satisfied in order that an agent may be said to be an independent agent: (1) he should be acting in the ordinary course of his business; (2) his activities should not be devoted wholly or almost wholly on behalf of the foreign enterprise for whom he is acting as agent and (3) the transactions between the foreign enterprise and the agent should be at arm s length. 31. The argument of the learned CIT (DR) was that the agents were not carrying on the activity in the ordinary course of their business. What is business has been explained in various decisions. In the leading case of Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 772 the Supreme Court explained that business connotes some real, substantive and systematic course of activity or conduct with a set purpose. In Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265, the Supreme Court held that underlying the expression business is the fundamental idea of continuous exercise of an activity. In Barendra Prasad Ray v. ITO [1981] 129 ITR 295 the Supreme Court again held that the word is of wide import and means an activity carried on continuously and systematically by a person b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(DR), the activity engaged in would still, in our opinion, amount to a business, though not banking business, because it has been carried on systematically and continuously with the objective of earning commission. Having regard to the variegated services provided by the banks these days, which cannot be ignored, all with a business motive, it seems to us too technical an objection to say that the activity carried on by the assessee s agents in India is not a business activity in the ordinary course of their business. Non-banking financial companies deal with money belonging to others and the activity of paying out monies on behalf of the Western Union Financial Services Inc., must be viewed as part of their business activity. In the case of tour operators, acting as agents of an established firm engaged in the international money transfer business may be conducive to their business. A broad view of the matter has to be taken in these matters. We are therefore satisfied that the objection of the Department cannot be accepted. 33. The second question to be considered is whether the activities of the agent are wholly or almost wholly devoted to the assessee. So far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revised commentary on the OECD model and has relied on the same in support of his argument that the agents in the present case are not independent agents within the meaning of article 5.5 of the DTAA. The commentary discusses what in general are the tests to be applied to ascertain whether the agent is an independent agent or not. The extent of legal dependence or control, the undertaking of risks, the fact whether the agent is subject to the control of the principal for the manner in which the work is to be carried out etc. have been discussed. Much of the discussion loses relevance to the controversy before us where we have to apply article 5.5 which requires that the activities of the agent must be wholly or almost wholly devoted to the foreign enterprise. This is the test laid down in the article. Even on this aspect, paragraph 38.6 of the revised commentary has this to say: Another factor to be considered in determining independent status is the number of principals represented by the agent. Independent status is less likely if the activities of the agent are performed wholly or almost wholly on behalf of only one enterprise over the lifetime of the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of banks appointed as agents, the amount of reduction is left to the determination of the assessee. There is no material to show that the rates of compensation are higher in other cases so as to indicate that the agents were discriminated against. The higher rate of compensation in the case of the Department of Posts is probably because its reach is much wider compared to the commercial banks, NBFCs or tour operators. The terms of appointment of sub-agents are uniform in all cases. Thus there seems to be no basis for the charge that the compensation paid is not adequate for the services rendered by the agents. There is no finding contrary to the claim made by the assessee that the rates of compensation are uniform throughout the world. In these circumstances, there is no merit in the claim that the transactions between the assessee and the agents are not under arm s length. 36. The result is that (1) the agents are acting in the ordinary course of their business; (2) their activities are not devoted wholly or almost wholly to the foreign enterprise and (3) the transactions are under arm s length. Therefore the agents are independent agents under article 5.5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing contracts on behalf of the principal, on his own, freely and without control from the latter... (pages 241-42 of the report). It is therefore necessary to examine whether the agents in the present case have authority, or habitually exercise authority to conclude contracts for the assessee. Here also, the observations of the AAR in the above case are worth reproducing: At page 242-43 it was noted that paragraph 4 of the article uses two expressions: has and habitually exercises the authority to conclude contracts on behalf of the foreign enterprise. It was held that While the expression has may have reference to the legal existence of such authority on the terms of the contract between the principal and agent, the expression habitually exercises has certainly reference to a systematic course of conduct on the part of the agent. If, despite the specific provision of the soliciting agreement, it is found, as a matter of fact that TVI is habitually concluding contracts on behalf of TVM without any protest or dissent, perhaps it could be presumed either that the relevant provisions of the agency contract are a dead letter ignored by the parties or that the principal has ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under their agreement, they cannot delegate the same to their sub-agents (delegatus non potestdelegare). 40. There is also no material to hold that the agents have habitually exercised the authority to conclude contracts. As already noted, the authority must be to conclude contracts in the conduct of the business proper of the foreign enterprise. The fact that the agents conclude in India the commitment of the assessee made abroad cannot be considered as an authority to conclude con- tracts. The contract is between the remitter abroad and the assessee. It is entered into outside India. The agents are not party thereto. The agents merely carry out the concluding step in the arrangement embodied in the contract. In other words, the assessee undertakes outside India to transfer the money to India. It is only the payment part of the undertaking that is executed by the agents in India. The contract is already concluded outside India. The agent has no say over the contract. He has to merely execute the pay- ment part, after satisfying himself as to the genuineness of the transaction and the identity of the beneficiary in India. By executing the last leg of the contract which ha ..... 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