TMI Blog2021 (9) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... to Assessment Year 2012-13. 2. The grounds of appeal read as under : Ground No. 1: Summary of the effects of grounds of appeal 1.1 On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) - 57, Mumbai [*t he CIT(A)'] erred in upholding the action of the learned Dy. Commissioner of Income-tax, International Taxation - 3(2)(2), Mumbai ('the AO') of determining the total income of Mobileum Inc ('the Appellant' or 'the Company') at INR 2,18,99,797 (i.e. USD 4,31,863 converted using conversion rate of INR 50.71) as against the returned income of INR 1,57,88,512 (i.e. USD 3,11,349 converted using conversion rate of INR 50.71). Ground No. 2: Treating Mobileum (India) Private Limited ('MIPL') as Dependent Agent Permanent Establishment of the Appellant in India 2.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO in constituting MIPL as Dependent Agent Permanent Establishment ('DAPE') of the Appellant in India under Article 5(4) of Double Taxation Avoidance Agreement between India and United States of America ('In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and Article 12(3) of the India - US tax treaty without appreciating that the Appellant is merely acting as a trader of Third Party Software. Ground No. 6 - Treating affairs of the Appellant as a way to avoid payments of taxes in India 6.1 On the facts and circumstances of the case and in law, the learned CIT (A) erred in upholding the action of the AO in treating affairs of the Appellant as a way to avoid payments of taxes by non-submitting the fact that the Appellant has a Permanent Establishment in India and that the Appellant has circumvented the provisions of the Act. 3. Brief facts of the case are as under:- Mobileum Inc (hereinafter referred to as 'the Appellant' or 'Mobileum') is a Company incorporated under the laws of United States of America ('USA') and a tax resident of USA. The Appellant is engaged in the business of developing and providing voice and data roaming solution to worldwide mobile operators. The Appellant sells 'Mobileum Software / Mobileum Product1 alongwith third party hardware and third party software to mobile operators across the globe and also provides incidental services. The Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer has also mentioned that Shri. Srinivasan who was a common director of the assessee and MIPL, in the initial years, had visited India. In view of the above the Assessing Officer held that MIPL constitutes DAPE of the assessee in India. The assessee contended that MIPL does not maintain any stock of Mobileum software/product in India, does not secure any orders and Mr. Srinivasan was no longer in the company. These submissions were considered by Ld.CIT(A). But, he held that, the facts of the case as mentioned by the assessing officer, like, there is no separate website for MIPL and it is shown as part/entity/dependent agent of Mobileum Inc. as per the website. That It is also a fact that assessee i.e. Mobileum, Inc. would not have earned income from India but for its Indian agent MIPL, since all the operations such as installation, maintenance etc are/were done by MIPL. That, further, most important aspect is the brand name used by the assessee is same as that of its agent in India. Hence, Ld.CIT(A) held that thus, it is understood that a foreign enterprise is virtually projected into the territory of another country, in any manner; it constitutes a PE in that country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India, and (iii) the sales are made on a principal-to-principal basis. Therefore, on the background of the withdrawal of the said CBDT Circulars No. 23 of 1961, the AO was correct in disallowing the claim of the assessee that the assessee company's PE in India had been financially compensated at arm's length price for the services provided by RIPL (now known as MIPL) and therefore, no further attribution of any profits to the DAPE of the assessee company in India could be made. The assessee's reliance on circular No. 5 dt. 28,09.2004 is misplaced, because it is actually not on the issue of attribution of profits for a PE but it is for the entities which are not having any business connection and also a permanent establishment, therefore, the assessee's contention is not accepted. As regards the quantum of attribution of revenue the assessing officer's view has to be upheld in the absence of details of expenditure. The assessee even during appellate proceeding^ has not given the details. Therefore, this ground of appeal is dismissed. 6. Apropos ground No.5 Ground No. 5: This issue relates to treatment of receipt from Indian cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Order dated 28 January 2016 passed in case of MIPL For AY 20I2-13under section 92CA(3)of the Income-tax Act, 1961 [Ref: pg. 1-4 of paper book]. 3.2 Reliance was placed on various judicial precedents with reference to the Paper Book filed before the Hon'ble ITAT wherein it has been held that if PE is remunerated at ALP, then there cannot be any further attribution to the non-resident assessee. 3.3 It is respectfully submitted that if Ground No. 3 is decided in favour of the Appellant, Grounds No. 2 and 4 would become academic and would not require adjudication. Submissions with respect to Ground No. 5: 3.4 The AO inter alia placed reliance on the decision of Hon'ble Karnataka High Court in case of CIT vs. Samsung Electronics Co Ltd and others (ITA 2802/2005) and treated the revenue earned by the Appellant from supply of off the shelf computer software to Indian customers as Royalty under Article 12 of India-USA Tax Treaty. The said view was upheld by the CIT(A). 3.5 It is submitted that the amount in question cannot be brought to tax in India for the following reasons a. Since one proceeds on the footing that there exists a PE of the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal)] for AY 2012-13 iv) NGC Network Asia LLC v. DIT(IT) [ITA No.8671/Mum/2004 and other appeals(Mumbai Tribunal) v) Celltick Technologies Ltd. v. DCIT [ITA No.4167/Mum/2017 (Mumbai Tribunal)] for AY 2014-15 11. In this regard, he may gainful refer to the order of ITAT in the case of Zee TV USA Inc.(supra) ITAT has adjudicated the same issue by reference to Hon ble Supreme Court decision in the case of CIT v. E-funds I.T. Solutions Inc., in Civil Appeal No. 6082 of 2015 dated 24.10.2017, order of the co-ordinate bench on this issue reads as under:- The Ld. Counsel for the assessee, at the outset submitted that the issue raised in the cross objection by the assessee that, even if it is held that the assessee has permanent establishment in India its income is not taxable in India as it has paid arm s length remuneration/commission to its agent in India which is taxed in India and therefore no adjustment to be made in the hands of the assessee, is decided in favour of the assessee in assessee s own case for the A.Y. 2007-08 by the Coordinate Bench of the Tribunal in ITA No. 8862/Mum/2010 by order dated 17.11.2017 following the decision of the Hon ble supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Para 22 reads as under: - Shri Ganesh has referred to and relied upon an order of the Additional Taxation Commissioner, who is the Transfer Pricing Officer. The said order is dated 22nd February, 2006 and states as under: The taxpayer company filed its return of income with ACIT Circle 11(1), New Delhi. A reference was received from the Assessing Officer to determine the arm s length price u/s 92CA(3) in respect of international transactions entered into by the assessee during the F.Y. 2002-03. In response to notice u/s 92CA, Shri Vijay Iyer, CA of S.R. Batliboi Co. Chartered Accountants, authorized representative of the assessee appeared form time to time. The documentation prescribed under Rule 10D of the Income Tax Rules was submitted and placed on record. The taxpayer company is engaged in providing IT enabled services which include Back office services and Call centre services. It also has a software design center for development of software for call centres. eFunds International (India) Pvt. Ltd. is a wholly owned subsidiary of IDLX Holdings BV, Netherlands. IDLX is a wholly owned subsidiary of eFunds Corp. The major international transactions undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us with PE in India. A foreign enterprise is liable to be taxed in India on 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 the IT Act. All provisions of the IT Act are applicable, including provisions relating to depreciation, investment losses, deductible expenses, carryforward and set-off losses, etc. However, deviations are made by DTAA in cases of royalty, interest, etc. Such deviations are also made under the IT Act (for example Sections 44-BB, 44-BBA, etc.) Under the impugned ruling delivered by 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 risktaking functions of the enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. We find that the alternative contention made by the assessee that once no income chargeable to tax in India is attributable to the assessee for the reason that the transaction between the assessee and its AE has been found at arm s length price, no further income chargeable to tax in India can be said to be attributable on account of PE. Accordingly, this issue is squarely covered in favour of assessee by the decision of Hon ble Supreme Court in the case of EFunds IT Solution Inc. (supra) and also co-ordinate Bench decision in the case of Taj TV Ltd. (supra). Respectfully following the same we allow the appeal of the assessee. Respectfully following the decision of the Coordinate Bench, we hold that since transactions between the assessee and its AE have been found at arm s length prices no further income chargeable to tax in India can be said to be attributable for the PE of the assessee. Hence this ground is decided in favour of the assessee. Since we have decided issue on the preliminary point, we are not inclined to go into the merits of other grounds. 12. We find that the above ratio is fully applicable on the facts of the present case since, it is not disputed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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