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TMI Blog2019 (12) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... ave any Fixed Place PE in India under Article 5(1) of the Treaty; - VGSIPL should not be the Appellant's PE merely due to the fact that it is the Appellant's group company. Agency PE in India 3. erred in holding that VGSIPL constitutes an Agency PE of the Appellant in India under Article 5(5) of the Treaty; The learned AO/ DRP failed to appreciate that Transaction between the Appellant and VGSIPL are on principal to principal basis and there is no agency relationship; VGSIPL should not be the Appellant's PE merely due to the fact that it is the Appellant's group company; VGSIPL is an independent agent and hence does not lead to a Dependent Agent PE of the Appellant in India; without prejudice to the contention that VGSIPL is an agent of independent status, failed to appreciate that VGSIPL does not exercise authority to conclude contracts on behalf of the Appellant in India, maintain any stock of the merchandise of the Appellant, from which it makes regular deliveries on behalf of the Appellant and secure orders wholly or almost wholly for the Appellant in India. Business connection in India 4. erred in holding that VGSIPL constitutes a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest under section 234B of the Act 12. erred in levying interest of Rs. 1,21,40,837 under Section 234B of the Act. The learned AO/ DRP failed to failed to appreciate that no interest under Section 234B of the Act can be levied being Appellant is a non resident assesses and its income is subject to deduction of tax at source. Non-receipt of refund of Rs. 55,01,130 13. erred in adjusting the amount of refund of Rs. 55,01,130 while computing tax demand payable which was never received by the Appellant. Levy of Interest under section 234D of the Act 14. erred in levying interest of Rs. 6,05,124 under section 234D of the Act, as the amount of refund of Rs. 55,01,130 was never received by the Appellant. 3. Even though the issues in this appeal are admittedly covered by the decision of coordinate bench dated 3rd September 2019, in assessee's own cases for the assessment year 2009-10 and 2010-11, the matter was heard at length. We however see no reasons to take any view of the matter then the view taken by the coordinate bench in the aforesaid decision wherein the coordinate bench has inter alia observed as follows:- 13. We have considered the rival submission of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer worked out the taxable income by applying operating profit margin of 6.39% as per global audited account and computed taxable income of Rs. 3,11,43,567/-. The ld DRP conformed the action of the assessing officer it its direction dated 06.09.212 holding that that activity of storage, marketing, advertisement, promotion of product of the assessee, soliciting with clients and potential customers, after sales services and support services, supply of spare parts and accessories, taking part in Auto Expo are done by VGSIPL on behalf of the assessee and are carried out from fixed place of business maintained in India. Sales targets are meet jointly established by the assessee and VW group. VW Group sales has no independent authority to act on his own, but is bound by the terms and conditions of the assessee. The ld DRP also relied on the decision of Aramex International Logistic Pvt Ltd.(supra). 16.The foremost and primary controversy before us, whether VW group sales constitute assessee's PE in India or not. The assessee is tax resident of Germany. Article 5 of India Germany text treaty defined fixed place of PE. As per article 5 of Indo Germany text treaty, a fixed place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that in the case of an agreement with a South Korean Company for fabrication and installation of Oil exploration platform, the PE attributable to installation and commissioning came into existence only after the supply of the equipment. Therefore, profits from supply of the platform did not accrue in India. Similarly in the case of Ishikawajima Harima Heavy Ind. Ltd v. DIT ( 288 ITR 408), the Apex court held that profit will not accrue in India in respect of offshore supply of equipment. (The subsequent amendment to sec 9(1)(i) will not affect the decision on profit arising from sale of equipment offshore.) Mere sale of raw materials/ components will not result in business connection and even if it does as per the terms and conditions of the contract between the Assessee and DCIL no income accrues to the Assessee on the basis of any activities carried out, on behalf of the Assessee in India. Therefore in our opinion DCIL does not constitute the Assessee's business connection in India and thus the Assessee's income from sale of raw material/CKD units to DCIL would not be liable to tax in India under the provisions of the Act. We therefore, concur with the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prices offered to the clients are as per the list price notified by the Assessee. DCIL has no authority to conclude any deal. Thus the mere acting as post office between the Assessee and the client will not render DCIL as a dependent agent. DCIL cannot be considered as habitually procuring orders for the Assessee. In fact DCIL themselves are manufacturing and selling the cars aid procurement of orders for direct shipment of cars by the assessee would in fact he contrary to and against the interest of the DCIL in its manufacturing activity. DCIL by passing on communication from Assessee to the client and vice versa, are merely rendering a very insignificant auxiliary/preparatory service in the sale of CBUs by the Assessee to Indian clients. Therefore DCIL does not constitute a dependent agent of the Assessee. The prices offered to the Indian clients arc as per list price notified and so whether DCIL is involved or not the price charged to the customer would be the same. No profits can be attributed to the services of DCTL in India. In fact by engaging the services of DCIL, the profit of the Assessee is reduced to the extent of he commission paid to DCIL. 31. The following decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32. From the above it can be seen that merely acting for a non resident principal wou1d not by itself render an agent to be considered as PE for the purpose of allocating profits taxable in the hands of the principal. There should be some definite activity of the PE to which profits can he attributed. Unless it is so established, merely calling a person as agent acting on behalf of foreign non-resident would not by itself render him to be considered as an agency PE and pro tanto part of the profits of the non-resident is liable to be taxed in India. We find that the Revenue has not established that DCIL had carried out any activity to which any profit can he attributed. DCIL was merely carrying out the work of a post office transferring communication from one to another. Therefore, we are not. convinced that the department had established that the activity of DCIL, even if it is to be considered as PE has resulted in any profits to the Assessee and in view of the specific provisions of the Article 7 of the Double Taxation Avoidance Agreement between Indian and Germany no part of the profit of the non-resident. Assessee can be attributed to the activity with DCIL and hence is not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standalone basis then such supplies under this agreement were made outside India. The properties and goods has passed on to the buyers under the supply contract outside India where the equipment was manufactured and for coming to this conclusion, the Hon'ble High Court has referred and relied upon the judgment of Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. (supra) that such agreement would not be taxable in India and no profit arising from supply of equipment outside India would be chargeable to tax in India. In paragraph 15, the Hon'ble Court has further observed that no doubt the contract in question was signed in India but it may not be a relevant circumstance to determine the taxability of such an income and for this proposition they have referred the judgment of Hon'ble Andhra Pradesh High Court in the case of Skoda Export v. Addl. CIT [1983] 143 ITR 452/[1984] 17 Taxman 256. Finally in paragraph 17 as incorporated above, Hon'ble High Court has categorically said that the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test is not the determinative of this facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and independent activity. The assessee claimed that Cars are sold to Volkswagen Group Sales for further sales in India and Volkswagon Group sales is not acting on behalf of Audi AG nor Audi AG is selling Car through Volkswagon Group Sales. The assessee also claimed that Cars are sold to Volkswagon Group Sales principle to principle basis and thereafter, Volkswagon Group Sales it on a principle to principle basis to the dealers. The sales of goods/Car are completed outside India than income arising from sales by no stretch of imagination can be said to be taxed in India. The assessing officer has not brought any material to counter the stand of the assessee that Cars are not sold to Volkswagon Group Sales on principle to principle basis and thereafter, Volkswagon Group Sales it on a principle to principle basis to the dealers. 21. We are also in agreement with the submissions of the ld. AR for the assessee that the facts of the decision in Daimler Chrysler AG (supra) are similar to some extent with the assessee in the present case. In the said case the assessee the assessee is also in the business of manufacturing and selling of premium vehicles worldwide (Mercedes) and tax res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers in India is income accruing or arising in India and is taxed separately in the hands of Volkswagen Group Sales. In our view merely acting for non-resident principal would itself render an agent to be considered PE for the purpose of allocating profit. The assessee is not undertaking any definite activity to which profit can be attributed. 23. In view of the aforesaid discussions, we are of the V W Group sales is an independent and separate entity, which is engaged in selling of fully built up cars imported from the assessee, Volkswagen AG and Skoda India to dealers and distributors. Thus, VW Group cannot be regarded as a PE of assessee in India. 24. The case law relied by ld. DR for the revenue in Aramex Logistic Private Limited (supra) is not helpful to the revenue as the said case is based on the different set of facts. In the said case Aramex entered in to the contract with the customer outside India for delivery of parcel, where the delivery of the parcel located in India, further Aramex had an agreement with Aramex India for the delivery of the parcel to the location in India. The privity of contract was between Aramex and customer outside India. The completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. The assessee has raised the following grounds of appeal: (a) Ground No. 1 to 12 relates to Fixed Place PE/Agency PE in India. (b) Ground No. 13 to 16 relates to attribution of income in India. (c) Ground No. 17 to 18 relates to levy of interest under section 234B. (d) Ground No. 19 to 21 relates to levy of interest under section 234C. 31. We have noted that the assessee raised the identical grounds of appeal as raised in appeal for A.Y. 2010-11, which we have allowed. Therefore, considering the fact that the issues raised in the year under consideration are based on similar set of facts, therefore, the appeal for the year under consideration is also allowed with similar directions. 4. Learned representative has also fairly agreed that the issues raised on this appeal are squarely covered by the aforesaid decision. We see no reasons to take in other view of the matter then the view so taken by the coordinate bench. Respectfully following the same we uphold the plea of the assessee and direct the Assessing Officer to give relief as prayed for. The Tribunal observations in the assessment year 2009-10 and 2010-11 will apply mutatis mutandis on this year as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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