TMI Blog2021 (2) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Tribunal in assessee s own case [ 2020 (11) TMI 206 - ITAT DELHI] We are of the considered view that when RIPL, a domestic subsidiary company, has already been remunerated at arm s length, no further attribution of profit to PE would be warranted. Even otherwise, by following the order passed by the coordinate Bench of the Tribunal in assessee s own case for AY 2007-08 [ 2020 (11) TMI 206 - ITAT DELHI] , when we deduct the remuneration/commission paid to RIPL from the amounts of profit attributed to the PE no taxable income left in the hands of the PE. Consequently, additions made by the AO and confirmed by ld. CIT (A) are ordered to be deleted being not sustainable in the eyes of law. Consequently, all the appeals filed by the assessee are hereby allowed. - ITA No.4909/Del./2018, ITA No.4910/Del./2018, ITA No.3967/Del./2017, ITA No.3968/Del./2017, ITA No.3969/Del./2017, ITA No.4911/Del./2018, ITA No.4756/Del./2019 And ITA No.416/Del./2020 - - - Dated:- 17-2-2021 - Shri Anil Chaturvedi, Accountant Member And Shri Kuldip Singh, Judicial Member For the Assessee : Shri Ajay Vohra, Senior Advocate For the Revenue : Shri Sanjay Kumar, Senior DR ORDE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agent. 6. That the ld. CIT (A) has completely disregarded the principle paid down by the Hon'ble Delhi High Court in the case of Rolls Royce Singapore Pte Limited (2011) and has completely relied upon the erroneous decision laid down by his predecessor by commenting that However my predecessor CIT(A) had considered the attribution of 50% to be more appropriate. The appeal order for AY 2012-13 indicated that there was a very low component of the profit being shown in India thereby justifying proper attribution 7. That the Ld. CIT (A) has erred on the facts and in the circumstances of the case and in law by concluding that no prior exercise seems to have done to remunerate the Indian subsidiary at arm's length . 3. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Ricardo UK Limited, the assessee is a company incorporated under the laws of the United Kingdom (UK) and is a tax resident of the United Kingdom as per Article 4 of the India and UK Double Taxation Avoidance Agreement (DTAA). The assessee is into providing testing, services to its clients and providing assistance to its Indian customers in conducting the fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission/remuneration already paid to assessee benchmarked and held to be at arm s length and thereby no adjustment has been made. It is also not in dispute that in all the aforesaid appeals commission/remuneration paid on arm s length basis is more than the profits attributed to the PE. However, assessee challenged the attribution of 50% of India-centre profit being highly unreasonable and excessive. 8. In the backdrop of the aforesaid facts and circumstances of the case, ld. AR for the assessee while keeping this challenge/issues/grounds qua attribution of India-centric profit at 50% being highly unreasonable and excessive open, contended that since assessee is adequately remunerated at arm s length basis and commission/remuneration paid to the assessee shall be reduced from the profits attributed to the PE, no further attribution to the PE is sustainable in view of the law laid down by Hon ble Apex Court in DIT vs. Morgan Stanley and Co. Inc. 292 ITR 416 (SC), E-Funds IT Solution Inc. vs. DIT 399 ITR 34 (SC), DIT vs. Honda Motors Co. Ltd. 255 taxman 72 (SC) and the decisions in Set Satellite (Singapore) 307 ITR 205 (Bom), Amadeus IT Group SA vs. DCIT ITA No.4906/Del/2010 (De. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91,24,923/- 4,28,58,978 2015-16 90,02,297/- 5,69,29,447 2016-17 4,50,38,195/- 6,80,06,297 12. In the backdrop of the aforesaid facts and circumstances of the case, the sole contention raised by the ld. AR for the assessee that :- Whether when RIPL has already been remunerated at arm s length, no further attribution to PE would be warranted? and relied upon the law of the land laid down by Hon ble Supreme Court in cases of DIT vs. Morgan Stanley and Co. Inc., E-Funds IT Solution Inc., DIT vs. Honda Motors Co. Ltd. (supra) and the decisions in Set Satellite (Singapore) and Amadeus IT Group SA vs. DCIT (supra) . 13. Hon ble Supreme Court in case of DIT vs. Morgan Stanley and Co. Inc. (supra) upheld the order passed by the ld. AAR reached the conclusion that when transaction between two parties, PE on the one hand and domestic subsidiary company on the other hand, as in the present case, is remunerated on arm s length basis taking into account all the risk taking functions of multi-national enterprise, nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise by way of interest on moneys le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so much of its business profit as is attributable to the PE in India. The quantum of taxable income is to be determined in accordance with the provisions of Income-tax Act. All provisions of Income-tax Act are applicable, including provisions relating to depreciation, investment losses, deductible expenses, carry forward and set-off losses etc. However, deviations are made by DTAA in cases of royalty, interest etc. Such deviations are also made under the Income-tax Act (for example: Sections 44BB, 44BBA etc.). Under the impugned ruling delivered by the AAR, remuneration to MSAS was justified by a transfer pricing analysis and, therefore, no further income could be attributed to the PE (MSAS). In other words, the said ruling equates an arm's length analysis (ALA) with attribution of profits. It holds that once a transfer pricing analysis is undertaken; there is no further need to attribute profits to a PE. The impugned ruling is correct in principle insofar as an associated enterprise, that also constitutes a PE, has been remunerated on an arm's length basis taking into account all the risk-taking functions of the enterprise. In such cases nothing further would be lef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.A. vs. DCIT 113 TTJ 767 (Del.) by the coordinate Bench of the Tribunal which has been affirmed by the Hon ble Delhi High Court in ITA 689/2011 795-797/2011 by relying upon the decision held in case of DIT vs. Galileo International Inc. 224 CTR 251 (Del.) wherein it is held as under :- Reading the above Article 7 of the Treaty it is clear that the profit of an enterprise will be taxable only to the extent as is attributable to that permanent establishment. This is in pari materia with clause (a) of Explanation 1 to section 9(1)(i) of the Income-tax Act. Thus where the entire activity of an enterprise are not carried out in a Contracting State where the PE is situated, than only so much of the profit as is attributable to the functions carried through the PE can be taxable in such source State. While dealing with the. question as to what is such part of income as is reasonably attributable to the operations carried out in India, we have held that only 15% of the revenue generated from the bookings made within India is taxable in India. The same proportion has to be adopted here while computing profit attributable to the PE. We have also held that since the payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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