TMI Blog2019 (5) TMI 1710X X X X Extracts X X X X X X X X Extracts X X X X ..... ow does not seems to be on a sound footing, especially when they have alleged that common activities were carried out from the LO. Then in that case, it would not possible to distinguish as to which activities of LO pertains to RRIL or activities of LO were undertaken on behalf of the assessee and what part of activities at the LO which assessee itself was executing for its sale. We hold that the profits to be taxed in the hands of the assessee in the assessment years impugned before us, should be attributed at 35%, instead of 75% subject to rectification as stated above in para 14, which should be made in the computation of tax for each of the assessment years. Further, tax actually paid by the assesse for these years should be credited from the tax liability to determine the final amount to be paid or refunded to the assessee as the case may be. - I.T.A. No.3839/DEL/2007, 3247/DEL/2014, 1205/DEL/2015, 5167/DEL/2010 & 834/DEL/2014 - - - Dated:- 28-5-2019 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For the Appellant : Shri Percival Billimoria Shri S.R. Patnaik, CA For the Respondent : Shri G.K. Dhall, CIT-D.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se company RRPL. The Assessee-company being a non-resident was not filing any return of income in India on the assumption that the income from sale of goods from outside India was not taxable in India. The AO noted that assesse had entered into an agreement with RRIL on 01.07.1979 for rendering certain services from India over the territory of India, Nepal, Bangladesh, Bhutan and Sri Lanka and as per the agreement, RRIL was required to perform the following services in lieu of compensation of 6% over the cost incurred:- i) To obtain and report to Rolls Royce on a regular basis such marketing information as is considered to be relevant to Rolls Royce interest. ii) To disseminate such marketing and commercial information relating to Rolls Royce's products as Rolls-Royce may require. iii) To provide administrative and secretarial assistance locally for the services representative deployed in the territory. iv) To provide a liaison service between Rolls Royce and relevant departments of India and other customers of Rolls Royce in the territory in all matters of supply of products and services. v) To monitor the effectivenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us, learned counsel for the assesse, Mr. Percival Billimoria, vehemently argued that there are various reasons as to why the assesse cannot be said to have PE in India; and since each assessment year is independent and the issue of PE is always fact based, therefore, this issue should be looked into independently for each assessment year. Now the entire facts has to be seen and construed in light of the legal principle settled by the Hon ble Supreme Court in the cases of Formula World Championship Ltd. v. Commissioner of Income-tax, (International Taxation)-3, Delhi, (2017) 394 ITR 80; and ADIT vs. E funds IT Solution Inc., (2014) 364 ITR 256 . He submitted that RRPL and RRIL are separate and distinct entities and the liaison office was set up by RRIL for its own activities and not by RRPL. None of the activities of the sales of spare parts, etc. of RRPL was carried out through the liaison office and there is absolutely no basis or material found during the course of survey that the liaison office of RRIL was in any manner at the disposal of RRPL or there was any kind of Dependent Agent PE. The Authorities below on the basis of survey conducted at liaison office of RRIL have all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove his point, he has also pointed out certain observations and findings in the order of the ld. CIT (A) in various paras that activities were same and also drew our attention to various observations of the AO in the remand report. Thus, he submitted that profits of PE of RRIL got settled from the MAP order and once similar activities for PE and attribution have been made in the case of RRIL, then again further attribution cannot be made in the case of assesse. 7. Before us, the ld. CIT-DR, Mr. G.K. Dhall, pointed out that all those issues which has been raised by the AO and ld. CIT(A) have been discussed threadbare including the arguments taken by the Ld. Counsel by the Tribunal in the preceding assessment year which has now been upheld by the Hon ble High Court. Even the ld. CIT (A) has followed the findings given in the earlier assessment years and assesse itself has submitted before the AO during the course of assessment proceedings for Assessment Year 2005-06 that the facts and circumstances prevailing during the financial year 2003-04 has not changed during the financial year 2004-05 and there is no change in the business model or process. Thus, it was never the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities carried on by the assessee and with the assistance of RRIL were much more than that as per material found during survey and as noted in Para 19 of the order. This factual finding has not been challenged as perverse or otherwise not carved out from the material found during survey. Even the factual finding given in other paragraphs like 21, 22 23 are also not challenged. Therefore, the effect of this finding is that the appellant's sales to Indian customers are not secured entirely through services of the agent in India for which it was appointed but by deputing own personnel and also availing the services of RRIL which was not part of the agreement with RRIL. The extinguishment of assessment as envisaged in Para 6(c) of Circular No 23 of 1969 will not apply as in this ease the 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 attributed to his agents in India and the amount of profit attributable to his own activities in India. Since it is found that the appellant's business activities in India are not wholly channelled through his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of fixed place as per Article 5(1) and also in terms of Article 5(4)(c) of the Treaty. it may also be remembered that the assessee does not maintain any books and thus, a part of its 'global profits' are attributed to its PE . Another important fact that must be kept in mind is that the AO has not attributed or taxed any income in the hands of RRll for its alleged services to RRPIc. What has been taxed in the hands of RRIL and which has been subjected to TP adjustments as well as MAP proceedings is the transaction between RRIL RRlnt only. Moreover, the functions carried on by RRIL as per Service agreement are completely different, distinct and independent from the activities of RRPlc . The assessee has not paid or remunerated any amount to RRIL and as shown hereunder, RRIL is not working for RRPIc . RRIL has filed its ROI disclosing the value of its international transactions with RRlntl which were subjected to TP adjustments and no part of the transactions relate to the assessee RRPIc- The functions carried on by RRIL are for RRlntl and no further attribution/adjustments towards the services provided to RRPI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been subjected to double taxation. The entire income and profit is only with regard to RRIL and it has no bearing whatsoever on the profit attributed to RRPL and there is no double taxation. 10. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. Ld. Counsel for the assesse had set out various reasons as to why RRPL cannot be said to having any PE in India mainly for the reason that, it was only supplying aero-engines and spare parts to the Indian customers on principal to principal basis. The service agreement for carrying out various other technical services was between RRIL and RR International and RRIL for has set up a liaison office in India to undertake the relevant service in India, for which was compensated on mark up basis. Thus, the activities of the all the three entities were entirely different. The liaison office of RRIL was neither negotiating any contract for sales nor was carrying out any activity relating to sales. Neither the LO was in any manner at the disposal of RRPL even for its employees. Thus, in view of the judgment of Hon ble Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order and have reached to the following conclusion:- It can, therefore, be summarized that in the light of the facts as well as document mentioned above, RRIL s presence in India is a permanent establishment of appellant because: (a) It is a fixed place of business at the disposal of the Rolls Royce Plc and its group companies in India through which their business are carried on. (b) The activity of this fixed place is not a preparatory or auxiliary, but is a core activity of marketing, negotiating, selling of the product. This is a virtual extension/projection of its customer facing business unit, who has the responsibility to sell the products belonging to the group. (c) RRIL acts almost like a sales office of RR Plc and its group companies. (d) RRIL and its employees work wholly and exclusively for the Roll Royce Plc and the Group. (e) RRIL and its employees are soliciting and receiving orders wholly and exclusively on behalf of the Rolls Royce Group. (f) Employees of Rolls Royce Group are also present in various locations in India and they report to the Director of RRIL in India. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IL or nothing remained to be assessed in the hands of the assessee. Once there is a finding that activities of LO have resulted in PE in India, then tax attributable to such activity must be brought to tax in India. If activities give rise to PE which undertakes marketing and sales in India then tax attribution of the PE must be made. Here the attribution in the hands of RRIL was only limited to cost plus basis, whereas in the case of the assesse the profit which has been attributed relates to purely sales of engines and parts. Further, nothing has been brought before us that under the MAP agreement the profit attribution of sales of RRPL were also subject matter of consideration or discussion and there cannot be any assumption that the quantum of tax agreed in the case of RRIL exhausts the contribution of profit to the PE of assesse in India. 13. In so far as attribution of profit is concerned, we are of the opinion that such a blanket attribution as done by the authorities below does not seems to be on a sound footing, especially when they have alleged that common activities were carried out from the LO. Then in that case, it would not possible to distinguish as to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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