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TMI Blog2020 (9) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... cts with National Hydroelectric Power Corporation Ltd. (NHPC) on 6.12.2001 for carrying out Electrical and mechanical Works of Teesta H.E. Project [3 X 1 70 MW (Stage-V) Sikkim, India] These agreements are - a) First Contract - For CIF/CIP Supply of all offshore equipments and materials including Mandatory Spares for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V). b) Second Contract - For Ex-works supply of all equipments and materials of Indian origin for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V). c) Third Contract - For providing all onshore services in respect of all equipments supplied under First & Second Contract and other services for Lot- 6 Electrical & Mechanical works of Teesta HE Project (Stage-V). 4. The AO further noted that the assessee has also entered into contracts with West Bengal State Electricity Board, Calcutta (WBSEB) on 11.08.2000 in respect of Purulia Pumped Storage Project. These agreements are - a) Contract for Erection, Testing and Commissioning of Equipment and Materials in respect of Electro Mechanical Equipment (Lot 6. 1) of Purulia Pumped Storage Project. b) Contract for supply of equipment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the cases of McDowell and Co. Ltd., and Raman & Co. (67 ITR 11). f) The Hon'ble Supreme Court in the case of Morgan Stanley has very clearly stated that attribution of profits would depend on the functional and factual analysis to be carried out in each case. The above findings are applicable for the present proceedings as well since the facts in both these years are same and this has not been disputed by the assessee with any documentary evidence. In view of the above discussion, it is held that MIPL is DAPE of Mitsui & Co. Japan in India." 5. Accordingly, the AO computed the taxable profits attributable to Indian operation at 50% and made addition of Rs. 1,86,548,468/- to the total income of the assessee. 6. The submission of the assesee that even if it is onstrued that MIPL constitutes DAPE of the assesse in India, the transactions between them being at arms length no further profit is attributable in view of the decision of the Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley & Co. Inc. 292 ITR 416 (SC) and in the case of DCIT vs SET Satelite 218 CTR 452 (M) was rejected by the AO. 7. In appeal, Ld. CIT(A) upheld the view of the AO that M/s. Mitsui & CO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be attributed in India even if MIPL is considered to be Dependent Agent PE in India. On this issue the learned CIT-DR though stated that though in view of the TPO order under Section 92CA(3) holding the transactions between the assessee and the MIPL at arm's length, addition may not be sustainable, yet argued that MIPL be considered as/Dependent Agent PE in India in terms of Article 5(7) of DTAA between India and Japan. It was contended by the learned CIT-DR on the basis of the allegation levied by the Assessing Officer in the assessment order that MIPL habitually secures order for the assessee in India and MIPL is economically dependent on the assessee as major revenue of MIPL is from the assessee company. Accordingly, it has to be examined whether MIPL can be considered to be a Dependent Agent of the assessee company. In this regard it may be relevant to refer to Article 5(7) of DTAA between India and Japan, which reads as under :- "7. Notwithstanding the provisions of paragraphs 1 and 2, where a person-other than an agent of an independent status to whom paragraph 8 applies-is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appear to be correct. As per the agreement which has been quoted by the Assessing Officer in the assessment order, MIPL is supposed to put best effort to collect information with regard to Instant Noodle project etc. to make the best effort to find the best candidate, to attend/take care of the visitor from Japan, to make the best effort to analyze the feasibility report. None of these clauses can be interpreted to mean that MIPL is securing orders. On the basis of this clause the Assessing Officer was wrong in assuming that MIPL is securing orders. The Assessing Officer has not brought any other material to substantiate his allegation that may demonstrate that MIPL has secured orders for the assessee. It is to be noted that this clause (c) uses the word 'habitually secures orders'. Thus, there has to be procurement of orders habitually. As against this the assessee's contention has been that MIPL is only providing support services and it is not securing order on behalf of assessee company. It may be relevant to further mention that the expression 'has' shall mean a legal existence. Whereas 'habitually secures orders' shall mean a systematic conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent though not legally but will be bound to obey his principal's instructions and be regarded as being Dependent Agent. This contention of the learned CITDR again ignores the basic requirement i.e. fulfilling one of the three conditions. It is also important to note that the DTAA provide for treating a person as Dependent Agent. The DTAA has to be strictly interpreted. The DTAA having prescribed the conditions, no further conditions can be read. What learned CIT-DR is canvassing will mean adding new condition in the DTAA. Further, it may be relevant to note that as per Para 9 of this Article 5 in DTAA, it has been specifically provided that if a company in the contracting state is controlled by a company in the other contracting state that itself shall not itself constitute either of company a permanent establishment of the other. Thus, the fact that MIPL is controlled by the assessee company shall not mean that MIPL is a PK of the assessee company. 4.4 Our view gets supported by the judgment of Hon'ble Delhi High Court in the case of Director of Income Tax And Others Versus M/s. E Funds IT Solution and Others 364 ITR 256 Delhi, where the Hon'ble court has held as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 5 of Article 5 will, therefore, normally not include agents who have power to conclude contracts. Paragraph 38.1 of the OECD Commentary has been quoted above (see paragraph 15). The commentary elucidates and gives illustrations and tests. 33. Earlier U.N. commentary had deviated in some respect from the OECD commentary and had observed that an agent who was wholly or almost wholly engaged by one principal shall be considered to be a dependent agent. This initial position stated in UN commentary has, however, not been accept in subsequent commentaries. The essential criteria being arms length relationship though engagement with one or a group might serve as an indicator of absence of independence of an agent. 34. Subsidiary by itself cannot be considered to be a dependent agent PE of the Principal, otherwise it would negate the overriding effect of paragraph 6 to Article 5, a provision which precedes and seeks to give recognition to separate legal entity principle associated with juristic incorporated enterprises. However, a subsidiary may become dependent or an independent PE agent provided the tests as specified in paragraphs 4 and 5 are satisfied. A dependent agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to enter into or conclude contracts on behalf of the foreign establishment / agency.The contracts were entered.- into in America arid, were concluded there. Only implementation of those contracts to the extent of back office operations were carried out in India. This legal position is relevant in the present case. 37. In TVM Ltd. vs. Commissioner of Income Tax (1999)237 ITR 230, Authority of Advance Ruling has interpreted the two expression "has" and "habitually exercises" in the case of dependent agent. It has been observed that the expression "has" may have reference to the legal existence of such authority on terms of the contract between the Principal and the Agent, the expression "habitually exercises" has certainly reference to systematic course of conduct on the part of the agent. Reference to OECD Commentary and Klaus Vogel was made and. it has been observed :- " Para. 4 uses two expressions :"has and "habitually exercises an authority to conclude contracts on behalf of the enterprise in question. 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 "habitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia , therefore, following the consistent decisions of the Tribunal in assessee's own case in the preceding assessment years and in absence of any contrary material brought to our notice against the decision of the Tribunal we hold that MIPL is not a Dependent Agency Permanent Establishment of the assessee. Ground No. 2 of the assessee's appeal accordingly is allowed. 12. So far as ground of appeal No. 3 and 4 are concerned these relate to attribution of profits to DAPE. We find this issue also stands squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for asstt. Year 2005-06 vide ITA No. 2335 /Del/ 2011order dated 14th September, 2017 wherein the Tribunal held as under :- "This issue is squarely covered by the assessee's own case for the AY 2005-06 by the order of Hon'ble ITAT Delhi dated 14.09.2017 bearing ITA No. 2335/Del/2011. Copy of ITAT order is enclosed at PB Pg. 31-58.The relevant findings of the court are as under (PB Pg. 48) The ground 2 raised in Revenue appeal is regarding attribution of the income if MIPL is taken as Dependent Agent PE. Though, this ground becomes academic in nature in view of our finding holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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