TMI Blog2019 (10) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively associated to any particular non-resident supplier. The case of the assessee squarely falls in the Proviso to Section 9(1) of the Act which provides that such business connection shall not include any business activity carried out through a broker/agent commission agent or any other agent having an independent status if such broker, agent, commission agent having an independent status is coming in the ordinary course of his business . Since in our view there is no business connection between the non-resident and SPEPL therefore there will be no income deemed to have accrued or arises in India of the alleged non-resident suppliers in relation to the role of coal purchased by the assessee. Since no business connection is established of the non-resident suppliers in India for the purpose of computing income as per Section 9(1) there is no permanent establishment (PE) of the alleged four non resident suppliers in India. Also we are of the considered view that the agent SPEPL is an independent agent and is not wholly and exclusively associated with the alleged non resident suppliers. Thus the action of the A.O of estimating the profit on the amount remitted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (Appeals) -13, Ahmedabad ['ld. CIT (A)'] has erred in law and on facts in upholding the action of the learned Assessing officer ('AO') in treating the appellant as an assessee in default u/s 201 (1) of the Income Tax Act, 1961 ('the Act') and raising demand of ₹ 7,15,88,395/- [including interest of ₹ 1,24,86,591/- u/s 201 (1 )(1A) of the Act] for non-deduction of tax at source u/s 195 of the Act on payments made to the following non-resident suppliers towards import of coal. ( i) PT Bara Jaya Utama, Indonesia ('PT Bara Jaya') ( ii) Brooklyn Enterprise Pte. Ltd., Singapore ('Brooklyn Enterprise') ( iii) Avani Resources Pte. Ltd., Singapore ('Avani Resources') ( iv) Suek AG, Switzerland ('Suek AG') 1 (b) The ld. CIT (A) has erred in law and on facts in holding that the non-resident suppliers of coal had business connection in India by virtue of Explanation 2 to section 9(1 )(i) of the Act as well as Permanent Establishment ('PE') as per Article 5 of the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services. 3.The ld. CIT (A) erred in overlooking the relevant information and material available on record and observing lack of information and has instead made observations contrary to the material information available on record rendering his findings to be such which no reasonable person duly briefed in the matter could have ever reached. The appellant craves leave to add, amend, modify, rescind, supplement or alter the grounds taken hereinabove either before or at the time of hearing of this appeal 3. Briefly stated facts as culled out from the records are that the assessee is a Limited Company engaged in the business of trading in coal. The assessee is responsible for deducting tax a source under Chapter 15 of I.T. Rules, 1961. During the Financial Year 2014-15 assessee imported coal from following four non-resident suppliers; 1.PT Bara Jaya Utama, Indonesia ('PT Bara Jaya') 2. Brooklyn Enterprise Pte. Ltd., Singapore ('Brooklyn Enterprise') 3. Avani Resources Pte. Ltd. Singapore ('Avani Resources') and 4. Suek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and the contract entered into with the agent SPEPL. It was also submitted that tax has been deducted at source on the commission charges paid to SPEPL. In view of these submissions assessee submitted that since there was no permanent establishment (PE) of the non-resident suppliers of coal, there stood no liability of deduction of tax at source u/s 195 of the Act. 7. Ld. Assessing officer however was not convinced and he while passing order dated 01.09.2016 u/s 201(1)/201(1A) r. w. s. 195 of the Income Tax Act, 1961 ('the Act'), held that import of coal by the appellant through broker viz. SPEPL constitutes business connection and non-residents sellers in India and accordingly estimated 10% income on the alleged purchases from Non-resident sellers as taxable income in India. He further held that inspection charges paid by the appellant falls within the definition of Fees for Technical Services ('FTS') and accordingly liable to deduction of tax at source u/s 195 of the Act. 8. Accordingly Ld. A.O calculated the TDS and interest liability on the alleged payment for import of coal and technical service charges paid to non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,89,14,918 2,01,552,946 24.04.15 36,27,530 Subtotal (a) 86,07,05,873 8,60,70,588 14,34,50,980 5,91,01,804 1,24,86,591 Technical Services Name of Recipient Total Amount remitted in Rs. Gross up amount as per section 195A of the Act Default of TDS @ 25.75% as per Act incl. cess Date of payment Interest u/s 201(1)/1(A) of the Act PT ARTH BUNANA, Indonesia 2,55,886/- 3,41,181/- 87,854/- 19.06.14 24,599/- 9. Aggrieved assessee preferred an ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agent or any other agent having an independent status is acting in the ordinary course of the business. Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a nonresident thereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. If In the Assessment Order, the assessing officer has stated that the agent had important role in concluding the contract and had authority to negotiate the dealing on behalf of the nonresident. Accordingly, the assessing officer has held that there exists business connection of non- resident in India by observing that the agent exercises authority to conclude contract on behalf of the non-resident Principals. Further, Para 33 of Article 5 of OEeDcommentary read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o negotiate the contract in its order. The appellant could not submit any cogent evidence as to nonexistence of authority by the agents to negotiate all aspects of a contract in a manner that effectively bind the principal. The argument derives support from the general rule of law of evidence codified in section 106 of the Evidence Act, 1872, as per which the authority of the agent is a matter in the exclusive knowledge of the assessee which he has to prove and demonstrate. As per the provisions of the Act, the onus is on the appellant to prove that the agents are independent agent and the Principal negotiated the contract. The burden of proving the same always lies on the appellant. On going through the submissions filed by the appellant it is seen that the appellant has not produced any cogent evidence to show that the contract was negotiated by the non-resident Principal. Now, coming to the plea of the Appellant that the agent is an independent agent, the prerequisite to prove that an agent is independent, Agent must not be legally and / or economically dependent on the principal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its principal can be summarized as under: 1. Significance of control by the principal on the agent with respect to the manner in which the work is carried out; 2. Extent of the obligations which the agent has vis-a-vis the principal with respect to the work carried out; 3. Extent to which the activities of the agent are subject to detailed instructions of the principal with respect to the work carried out; 4. Reliance on the special skill and knowledge of the agent by the principal; 11. In this regard, BEPS concerns arising from artificial avoidance of PE status through commissionaire arrangement stand similar strategies need to be highlighted. It was observed by OECD that Commissionaire arrangement and similar strategies were put in place primarily in order to erode the taxable base of the state where sales took place. These strategies seek to avoid the application of Article 5(5) which involves situations where contracts which are substantially negotiated in a State are not concluded in a State because they are finalized or authorized abroad or where the person that habitually ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Gurgaon. 5. Yes, as above. M/s Southern Pacific Energy Pvt. Ltd., Gurgaon, Haryana. PAN: AARCS6495J 6. Broker has facilitated the transaction e.g. get well negotiated price for us smooth execution of agreement channelizing communication between both ends. The assessee itself accepted that all the transactions has been made through a broker named M/s Southern Pacific Energy Pvt. Ltd., Gurgaon and contract has been placed by email facilitated by a broker based in India. All Coal selling Non-residents have been contacted through Broker and the broker well negotiated price for the assessee, assisted to smooth execution of agreement and channelize communication between both ends. On the basis of this information the undersigned issued show cause notice dated 27.04.16, to treat the broker as business connection of non-residents in India. The reply of the assessee along-with other documents was received on 03.06.2016. The assessee has also submitted the copy of mail conversation with the broker M/s Southern Pacific Energy Pvt. Ltd., Gurgaon. The assessee has describe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent. The assessee itself accepted that communication is done through the broker, since the offer comes through him. To confirm the role of the broker M/s. Southern Pacific Energy Put. Ltd. Gurqaon and to establish him as a business connection and permanent establishment of non-resident in India, the undersigned issued a notice u/ s. 133(6) of the Act to the broker on 12/07/2016 and raised various queries. The broker has furnished some important information in his reply by which it may be easily established that he is working as business connection and permanent establishment of non-resident in India. The relevant portion of the reply is reproduced as under: Q. What was your role while procuring orders for Hind energy Coal Beneficiation (India) Pvt Ltd Bhopal on behalf of the above mentioned 4non-residents? Ans. Our step by step conversation as below: i) Any entity, whether resident or non-resident having any requirement of coal! consignment of coal to offer, approaches us for our services. We discuss and send the requirement with various probable suitors of such requirements based on our knowledge abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the procedure of finalizing the contract is done by assessee and broker. Issuing offer, price negotiation and finalization of terms and conditions are done between the assessee and broker.] Q. Please submit the copy of agreement executed between you and the above mentioned 4 non-residents. Ans.We have a written agreement only with M/ s. Suek AG Switzerland and the agreement is enclosed required. No formal agreement exist with other 2 mentioned parties. The question of having any agreement with PT Bara Jaya Utama Indonesia does not and cannot arise since we have never provided any services to the said non-resident. ( Note - the broker has submitted the copy of agreement with only one nonresident. The assessee has submitted his common reply regarding all the non-residents and submitted a similar procedure followed by him in all cases. The statement that the broker did not provided any services to PT Bara Jaya Utama Indonesia, is not acceptable as the mail conversation between the assessee and broker for this nonresident is available on record.) Broker M/s. Southern Pacific Energy Pvt. Ltd Gurgaon h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n SUEK and the relevant parties. He also gave the various responsibility to the broker related with Indian Market.) EXCLUSIVTY, CONFLICT OF INTEREST 2.1 The Agent represents and warrants to SUEK that it is able to act as SUEK's exclusive Agent in India for the specified coal and is not currently acting nor will it act in future for any competitor of SUEK in relation to specified coal during the term of this Agreement, except as otherwise agreed herein. 2.2 SUEK represents and warrants to the agent that in it has not appointed not will it appoint any other agent for marking and promotion of the specified coat in India during the term of this Agreement, except as otherwise agreed herein ( NOTEK Suek AG Switzerland appointed M/s Southern Pacific Energy Pvt Ltd Gurgaon as an exclusive agent in India and he accepted that he will not appoint any other agent for marking and promotion of the specified coal in India means the broker is exclusively and wholly working for the non. resident. Whole affairs related with Indian market for the nonK resident have to manage by the broker on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the enterprise. The authorization should be construed in substance and not in form. Thus, if an agent has the authority to negotiate all parts of the contract in a manner, which is binding on the principal but the contract is signed outside the Source Country, the agent could be said to have the authority to conclude contract. Accordingly, proviso to Explanation (2) of Section 9( l)(i) of the IT Act would not be applicable and accordingly, contention of the appellant that agents are working in independent status is not accepted. 12. In the AAR's ruling in case of 8002 Company (Australia) Pvt., In re [14th February 2014 [2014J 42 taxmann.com 288 (AAR New Delhi); [2014J 265 CTR 449 (AAR - New Delhi) is a good example wherein the agent was found to be dependent upon the foreign principal. It has made reference to the case of CIT v. R.D. Aggarwal Co. [1965J 56 ITR 20 (SC) which has been relied upon by the AR in his contentions. The relevant para of the said decision is reproduced herein under- In Cl'T v. R.D. Aggarwal S: Co. [19651 56 ITR 20 (SC), the essence of the expression is brought out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company is owned by Indian company. Act for both buyer and seller as per section 182 of Indian Contract Act, 1872. 16. The said argument of the Appellant has no merit. Section 182 of the Indian Contract Act, defines the term agent and principal . However, while defining these terms, it is no where provided in section 182 of Indian Contract Act, that the Agent cannot act for both buyer and seller. Arrangement of agent with both buyer and seller are independent of each other and cannot be used to interpret business arrangement with other party. 17. Having taken note of the AO's order and the observations made in his order, I am completely in agreement with the AO's finding that Indian agent is working as an exclusive agent for non-residents in India and has authority/deemed authority to conclude/negotiate the terms and conditions with the customers in India on behalf of non-residents. Further, as mentioned above the existence of presence of the overseas parties in India and their business connection in India cannot be ruled out. Accordingly, I consider it proper and appropriate to hold that the reasoning assigned by the AO for concluding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session of the appellant and which are otherwise also not within the dominion or control of the appellant and therefore could not be filed earlier. True copy of i) the forwarding email dated 11/3/2019 received from M/s Southern Pacific Energy Pvt. Ltd., ii) CA certificate about the parties and the amount of commission received by M/s Southern Pacific Energy Pvt. Ltd and iii) copy of intimation u/s 143(1) for FY 2014-15 (AY 2015-16) are annexed herewith as annexure A/1, A/2 and A/3 respectively. 3. That another issue raised by the Ld. CIT(A) was that one of the exporter based in Switzerland SUEK AG has an office in India. The appellant has downloaded a copy of master data of SUEK AG from the MCA portal which categorically shows the said India office to be a liaison office. This information is available in public domain and since this issue was raised for the first time by the Ld..CIT(A) therefore the appellant could not get any opportunity to rebut the same and this document is thus now being filed as additional evidence (although since the same is available in public domain therefore in true spirit it is not additional evidence) but nevertheless in order to comply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - to Southern Pacific for providing assistance in procurement of coal from PT Bara Jaya. This factual position was not disputed by the AO or the CIT(A). Vide reply dt. 5 August 2016 against notice u/s 133(6) issued by the AO (refer Exhibit-32 pg. no. 387-391 of PB), Southern Pacific has categorically clarified that it had never provided any services to PT Bara Jaya. CA certificate certifying party-wise break-up of revenue earned by Southern Pacific during FY 2014-15 (refer Annexure A/2 of application for submission of additional evidence) substantiates the fact that no revenue was earned by Southern Pacific from PT Bara Jaya. Further, payment of commission by the appellant to Southern Pacific proves that Southern Pacific has provided brokerage services to the appellant and not to PT Bara Jaya. In view of the above, treating Southern Pacific as an agent of PT Bara Jaya thereby considering Southern Pacific as business connection of PT Bara Jaya is factually incorrect. Therefore, TDS demand of ₹ 2,29,70,660/- in respect of import from PT Bara Jaya should be deleted. Ground No.1(b), 1(d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) vide letter dt. 2 August 2017) between the appellant and Southern Pacific substantiate that Southern Pacific is merely acting as a facilitator between the appellant and the non-resident suppliers. Southern Pacific merely communicates the pricing and other terms and conditions of the offer to the other party whereby the other party counter offers their price and terms and conditions which is intimated to the appellant. On perusal of these e-mails, it can be observed that the contract could be finalized only when the pricing and other terms and conditions are agreed upon by the appellant and the non-resident suppliers. It is worth noting that when Southern Pacific forwarded offer of the supplier to the appellant, it distinguished communication from supplier with separate para marked as Quote reproducing extract of e-mail, which it received from the supplier. Then Southern Pacific marked next para as Unquote and wrote whatever it wanted to communicate from its side. This clearly demonstrates that Southern Pacific was not giving any offer from its side but just forwarded what was received from the supplier and accordingly, had no authority to conclude contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial statements of Southern Pacific for the year ended 31 March 2015, it can be observed that its revenue from operating activity is generated by providing broking services. As such, services to Avani Resources, Brooklyn Enterprise and Suek AG were provided by Sothern Pacific in its ordinary course of business. Further, from the shareholding pattern of Southern Pacific (as per its financials), it can be observed that none of the non-resident suppliers has any control over it. The Hon ble Mumbai ITAT in the case of ADIT (IT)-3(2), Mumbai v. Bay Lines (Mauritius) has categorically held thatfor determining the independence, one should look at the agent and as to whether the agent has only one principal for whom the agent works exclusively. The fact that the principal has only one agent in India who undertakes all the activities for the principal is not relevant. The decision relied on by the AO in the case of DHL Operations (supra) was distinguished by DIT (International Taxation) v. Morgan Stanley Co. Inc. [2007] 292 ITR 416/ 162 taxman 165 (SC). Further, in the case of DIT v. B4U International Holdings Ltd. [2012] 23 taxmann.com 372 (Mum.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining in India a stock of goods or merchandise from which is regularly delivered on behalf of the non-resident. Habitually securing orders in India, mainly or wholly for the non-resident Ground No.1(f) The non-resident suppliers adequately remunerated Southern Pacific for services rendered by it. Further, the AO or the CIT(A) have not doubted amount of arm s length nature of the commission income earned by Southern Pacific in India from these non-residents. As such, no further attribution of profits of non-resident suppliers in India is warranted. The Hon ble Mumbai ITAT in the case of Delmas, France vs. ADIT (IT) [2012] 17 taxmann.com 91 (Mum) has held thatonce the agent is paid an arm s length remuneration for the services rendered, no further profit can be attributed to the PE. The Hon ble Bombay High Court in DIT(IT) v. Delmas France (232 Taxman 401) dismissed the revenue s appeal against the said order of the Hon ble ITAT. The AO as well as the CIT(A) have not at all dealt with the aforesaid aspect. 14. Ld. Counsel for the assessee relied and referred following judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y PT Bara Jaya Utama, Indonesia ('PT Bara Jaya'), Brooklyn Enterprise Pte. Ltd., Singapore ('Brooklyn Enterprise'), Avani Resources Pte. Ltd., Singapore ('Avani Resources') and Suek AG, Switzerland ('Suek AG'). Before proceeding to adjudicate the facts we will first like to refer three relevant sections namely 195, 5(1), 9(1) of the Act and the same are reproduced below; Section 195 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ; ( d) in the case of a non-resident, being- ( 1) an individual who is not a citizen of India ; or ( 2) a firm which does not have any partner who is a citizen of India or who is resident in India ; or ( 3) a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India; ( e) in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrolling interest in the principal nonresident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. 17. The above stated four non-resident suppliers are from Indonesia, Singapore and Switzerland. It is worthwhile also to go through Article 5 of the Double Taxation Avoidance Agreement (DTAA) between India and Indonesia, India and Singapore and India and Switzerland and the relevant extract of the article relating to permanent establishment is reproduced below; A. Article -5 of India - Indonesia DTAA: 1 to 4 . 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person- other than an agent of an independent status to whom paragraph 7 applies-is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person: (a) has, and hab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if - (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise ; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise. 9. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises which are controlled by it or have a controlling interest in it, he would not be considered an agent of an independent status within the meaning of this paragraph. 7. The fact that a company, which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise), shall not, of itself, constitute for either company a permanent establishment of the other. 18. From going through the above Section 195, Section 5(1), Section 9(1) of the Act and Article 5 of DTAA between India and Indonesia, India and Switzerland and India and Singapore and in context to the facts and issues raised before us can be summarized in following steps:- (i) Section 195 comes into action when any sum chargeable to tax under the provisions of this Act is paid to non-resident, which in this case is the payment made by the assessee to the non-resident exporters of coal. (ii) The sum chargeable under Section 195 of the Act takes its color from Section 5(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... communicates the information coming from both the sides and charge its brokerage on the completion of that deal. Ld. Counsel for the assessee also submitted that the case of the assessee falls under the proviso to explanation 2 of Section 9(1) of the Act which says that the business connection shall not includes business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent have an independent status is acting in its ordinary course of business . 21. Therefore now we are confined to adjudicate the issue as to whether the agent SPEPL and its activities as agent constitute the business connection for the non-resident suppliers or not . 22. Before proceeding to examine the facts of the case as to whether the business connection of the non-resident suppliers is established in India or not, we would like to go through the facts and the judgment of Hon'ble Apex Court in the case of CIT v. R.D. Aggarwal Co. [1965] 56 ITR 20 which in our view seems to be quite relevant to adjudicate the issue before us:- Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n S. 42(1) of the Indian Income-tax Act ? Observation of the Hon'ble Supreme Court The Hon'ble Supreme Court held that merely procurement of orders by non-resident supplier through an agent in India without giving an authority to such agent to conclude the contract would not lead to creation of business connection of non-resident in india. The relevant extract of the decision is reproduced as under: Turning to the facts of the present case, as found by the revenue authorities, contracts for the sale of goods took place outside the taxable territories, price was received by the nonresidents outside the taxable territories, and delivery was also given outside, the taxable territories. . No operation such as procuring raw materials, manufacture of finished goods, sale of good or delivery of goods against price took place within the taxable territories : the assessees merely procured orders from merchants in Amritsar for purchase of goods from the non-resident companies. The orders were offers which the assessees had no authority to accept on behalf of the non-residents. Some commercial activity was undoubtedly carried on by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Morgan Stanley Co. Inc (supra) and B4U International Holdings Ltd (supra) Mumbai I.T.A.T. has held that the wordings of Article 5.5 viz when the activities of such an agent are devoted exclusively or almost exclusively on behalf of the assessee enterprises referred to the activities of an agent and its devotion to the non-resident and not the other way round. The perspective should be from the angle of the agent and not of the non-resident. . 26. Now to examine the issue we need to go through the process adopted by the assessee in completing the contract of import in coal from various non-resident suppliers. The process of procurement of import of coal as explained by the assessee before the lower authorities is summarized in the following steps; Step. Step Process for procurement of import of coal 1 The Appellant approaches the Broker viz. Southern Pacific with requirement of grade and quantity of coal 2 The 'broker identify the supplier having requisite grade and quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mails exchanged between the three parties i.e. buyers, sellers and the agent in one of the purchases from PT Bara Jaya vide invoice dated 22.2.2014 for supply of 54850 MT of Indonesian steam coal is reproduced below; Sr. No. Date Particulars 1 25.01.14 Hind Energy sent a bid to southern pacific with detailed requirements such as - a. Commodity-non coking coal in bulk of Indonesia origin b. Quantity -50,000 MTS+/-10% C. Price-USC 27/MT 2 28.01.14 Southern Pacific forwarded a quotation sent by PT Bara Jaya Utama to Hing Engergy stating a price as USD 28.50/MT 3 28.01.14 Hind Energy replied to the above-mentioned e-mail bidding a price of USC 28/MT. 4 29.01.14 PT Bara Jaya Utama sent a revised quotation to Southern Pacific stating a price of U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Jaya. 30. The above steps and the e-mail correspondences shows the assessee's two way communication between the assessee and the coal suppliers through the agent SPEPL. Prices have been negotiated but in such negotiation the non-resident supplier has a vital and final role. It is not coming out from the steps mentioned above and the e-mail that the agent SPEPL has full authority to negotiate and finalize the rate of coal. Another important fact brought to our notice is that the agent SPEPL is not having any stock in hand and there is no direct sales made by it. SPEPL has charged commission of ₹ 43,56,703/- from the assessee for providing assistance in procurement of coal from the two non-resident parties namely PT Bara Jaya Utama, Indonesia and Brooklyn Enterprise Pte. Ltd, Singapore. The shareholding pattern of SPEPL as on 31.3.2015 shows that Mr. Vivek Jindal and Mr. Tijo Job are only two share holders having 5000 equity shares each. Names of the non-resident suppliers or their representatives are not appearing in the share holding pattern nor any person authorized by the non-resident suppliers are on the panel of Directors of the agent company SPEPL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.89 16 Noble Resources International PTE Ltd. Singapore 2.90 17 Swiss Singapore Overseas Enterprises PTE Ltd. Singapore 0.72 18 Suek AG, Switzerland 4.71 19 Seacons Trading Ltd, British Virgin Islands 2.69 20 PT AntangGunungMeratus, Indonesia 0.16 21 PT Astri Mining Resources, Indonesia 1.22 22 PT Bayan resources TBK, Indonesia 0.65 23 PT ProlindoCipta Nusantara, Indonesia 1.22 24 Samtan Co. Ltd. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owhere conclude any business dealing on behalf of any party. v. Once the price and other terms conditions are finalized a final contract is entered directly between the buyer and seller which neither we are a party nor a witness. vi After the contract is signed, vessel nomination is done by the responsible party. The vessel nomination is communicated to us and we forward the same as received to the counter party. vii. In the meantime he buyer opens a Letter of Credit in terms of the finalized contract, in favour of the seller and it is sent directly by the LC issuing bank to the sellers nominated bank. viii. After being 100% satisfied with the Letter of Credit, only then, the seller loads the cargo and it is intimated to the buyer through us. ix. Post loading of the vessel, the documents related to cargo loaded is prepared by the seller and within the presentation period as mentioned in the Le, the seller sends the documents directly to buyer's bank and within the due date, the seller gets payment direct from bank against the said Letter of Credit. x. Once the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's services, provided that (a) the non-resident principal's business activities in India are wholly channelled through his agent, (b) the contracts to sell are made outside India, and (c) the sales are made on a principal-to-principal basis. In the assessment of the amount of profit, allowance will be made for the expenses incurred, including the agent's commission, in making the sales. If the agent's commission fully represents the value of the profit-attributable to his service, it should prima facie extinguish the assessment. (c) Where a non-resident principal's business activities in India are not wholly channelled through his agent in India the assessment in India will be on the sum-total of the amount of profit attributable to his agent's activities in India and the amount of profit attributable to his own activities in India, less the expenses incurred in making the sales. 36. Now examining the facts of the instant appeal on context to the Circular No.23 issued by CBDT reproduced above, we find that the contract for sale of coal were entered between the assessee and non-resident on principal to principal basis. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious non-residents. In the present case, southern pacific is providing procurement services to many non-residents located various part of the world and not acting as exclusive agent supplier. Kindly refer list of overseas clientele of southern pacific in the attached letter marked as Annexure-J 4 If the contract is resulted between Indian buyer and non-resident supplier and price for the goods purchased is paid by the Indian buyer, agent was entitled for commission In the present case, the contract is signed between the appellant and non- resident supplier 5 The assessee was neither distributor/agent for sale of goods manufactured by the non-goods manufactured by the non-resident for procuring raw material in India for manufacturing process outside India. In the present case also, Southern Pacific was not assisting non-resident for sale of their product in India nor helps in procuring raw materials in India for their manufacturing process outside India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any business dealings on behalf of them or to conclude contracts on their behalf. Other than providing the agency services SPEPL has not provided any other services to import/export of coal such as shipping, customs clearance and cargo handling activities. It is also not disputed that SPEPL has no authority to take possession of the goods on behalf of any supplier and its role is confined to facilitating in bringing the purchaser and seller of the coal together. The Ld. A.O nowhere doubted the arm's length nature of the commission income earned by SPEPL from the non-resident suppliers as well as the assessee. In similar facts Mumbai I.T.A.T. in the case of Delmas France (supra) has held that once agent is paid arm's length for the services rendered no further profit can be attributed to the PE . Hon'ble Bombay High Court in the case of Delmas France (supra) dismissed the revenue's appeal against the said order of I.T.A.T., Bombay. 43. In the instant case after examining the facts we are of the considered view that SPEPL is an independent agent and by no stretch can be termed as an agent wholly and exclusively associated to any particular non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since in our view there is no business connection between the non-resident and SPEPL therefore there will be no income deemed to have accrued or arises in India of the alleged non-resident suppliers in relation to the role of coal purchased by the assessee during the year totaling to ₹ 86,07,05,873/-. Since no business connection is established of the non-resident suppliers in India for the purpose of computing income as per Section 9(1) of the Act there is no permanent establishment (PE) of the alleged four non resident suppliers in India. Also we are of the considered view that the agent SPEPL is an independent agent and is not wholly and exclusively associated with the alleged non resident suppliers. Thus the action of the Ld. A.O of estimating the profit on the amount remitted and subsequently calculating the TDS default @41.21% (gross) on the deemed profit is uncalled for. We therefore set aside the finding of Ld. CIT(A) in relation to Ground No. 1(a) to 1(f) and delete the demand of tax deducted at source at ₹ 5,91,01,804/- created by Ld. A.O for non deduction of tax at source u/s 195 of the Act on the estimated income calculated @10% on the total amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard rival contentions and perused the records placed before us. Assessee's grievance in Ground No.2 is against the finding of Ld. CIT(A) confirming the action of the Ld. A.O treating the inspection report charges paid to PT Arth Buana as fees of technical services . Assessee before importing the coal obtained the inspection report of inspection of grade of coal at the time of shipment. Assessee has not received any technical services in India. In the assessment order at page-62 the bill of PT Arth Buana is scanned. In the quotation it has been mentioned that As per Teleco discussion with you we are pleased to offer our inspection for your vessel at Muara Pantai and out service charges for inspection and certificate will be 0.07 USD per MT + 10% VAT . The content of the quotation only refers to the inspection certificates i.e. before the shipment starts from the place of origin inspection report is to be filed. This service is specifically related to procurement of coal. We do not see any technical services to have been provided to the assessee irrespective of the fact that the services are provided in India or outside India. It is not the case of the revenue that PT A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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