TaxTMI 
TaxTMI 
2022 (2) TMI 319
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....assessee vide ground Nos.3-5 revolves on the existence of PE in India. Hence, we take up the central issue as to whether the assessee has a PE in India. 4. We have heard rival submissions and perused the materials available on record. The assessee is a company incorporated in USA and also a tax resident of USA. It is engaged in the business of diamond grading and preparation of diamond dossiers. The assessee filed its return of income for the A.Y.2017-18 on 30/11/2017 declaring total income of Rs. 597,75,36,450/-. Later a revised return was filed on 30/11/2018 declaring total income at Rs. 348,35,96,480/-. The assessee is one of the companies of GIA group, a trusted name of gems and diamond grading and gemstone identification industry and is regarded as an authority in Gemology. During the year under consideration, the assessee has rendered diamond grading services to its associated enterprises in India i.e. GIA India Laboratory Pvt. Ltd., and to third parties. The assessee pleaded that it does not have any PE in India in terms of Article 5 of the Double Taxation Avoidance Agreement (DTAA) entered into and subsisting between India and USA. The Indian Company i.e. GIA India Laborat....
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....s, and retain 12% of service revenue for its coordinating effort. 4.5. In the background of the aforesaid agreement, the ld. AO held that assessee has a PE in India viz GIA India Lab through which it carries on its business in India. Accordingly, 50% of gem grading fees received by the assessee from GIA India Lab has been held to be attributable to the Indian PE and a profit percentage of 20.31% was applied thereon to determine the total income of the assessee. The total receipts of the assessee company was determined at Rs. 789,00,91,734/- which includes royalty income of Rs. 348,35,96,482/-. Hence, the remaining receipts of Rs. 440,64,95,252/- represents business receipts of the assessee. The ld. AO applied the profit ratio of 20.31% of 50% of such business receipts (Rs. 440,64,95,252/-). Accordingly, the ld. AO determined the profit attributable to PE at Rs. 44,74,79,593/- in the final assessment order pursuant to the directions of the ld. DRP. We find that the ld. DRP had given a categorical finding in 5.1 of its order that the contentions raised by the assessee during the year under consideration are identical to those raised by it in earlier assessment years and there is no ....
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....a-USA DTAA. 10. Firstly, we may examine whether GIA India Ltd. can be constituted as a fixed place PE of the assessee in terms of Article 5(1) of the India- USA DTAA. As per Article 5(1) of the Indo-USA DTAA, a fixed place PE arises when the foreign entity has a fixed place in India through which its business is wholly or partly carried on. In this context, the learned Counsel pointed out that a similar situation has been considered by the Hon'ble High Court of Delhi in the case of E- Funds IT Solutions (supra), which has been upheld by the Hon'ble Supreme Court. In that case, it has been held that a subsidiary cannot be regarded as a 'fixed place PE' of the parent company on the ground of a close association between the Indian subsidiary and the foreign taxpayer. In that case, it was noted that because various services were being provided by E-Fund India (Indian subsidiary) to the taxpayer or that the foreign tax payer was dependent upon Indian subsidiary (e- Fund India) for its earnings or assignment or sub-contract of contracts to e-Fund India or e-Fund India being reimbursed on a certain cost- plus basis or saving / reduction in cost by transferring business o....
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.... or other personnel, but only if: activities of that nature continue in India for a period or periods aggregating to more than 90 days within any twelve-month period; or the services are performed within India for a related enterprise. Hence, a service PE is triggered if the services (other than included services as defined in Article 12 'Royalties and Fees for Included Services') are rendered by the assessee company through employees or other personnel and activities of that nature continue in India for a period or periods aggregating to more than 90 days within any twelve-month period; or the services are performed within India for a related enterprise. The assessee company renders 'grading services' and 'management services to GIA India Lab'. In fact, 2 graders who were earlier employed with the assessee company are now employed with GIA India Lab and are on the payrolls of GIA India Lab and are working under control and supervisions of GIA India Lab and therefore, no service PE is created in India in terms of India- US DTAA. The Supreme Court has affirmed the decision of the Delhi High Court in E- Funds (supra) wherein it has been held that two employees....
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....aid to be an independent agent, i.e., - That he should be an agent of independent status; that, he should be acting in the ordinary course of his business; and, that his activities should not be devoted wholly or almost wholly on behalf of the foreign enterprise for whom he is acting as agent. 15. GIA India Lab is an independent/separate legal entity in India which is engaged in rendering of grading services. Further, considering the functions and the risks assumed by GIA India Lab vis- à-vis its business activities in India (as has been recorded in the transfer pricing study report - which functional and risk analysis has been accepted by the Transfer Pricing Officer both in the case of GIA India Lab and in the case of the assessee company), GIA India Lab is an independent entity which is rendering grading services to its clients in India. GIA India Lab also bears service risk and all client facing risks vis-à-vis the stones sent to the assessee company for grading purposes (as has been recorded in the Transfer Pricing Study Report). Hence, GIA India Lab is not acting in India on behalf of the assessee company. Further, GIA India Lab is not having any authority t....
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....stands on an entirely different fact-situation. In the present case, there is no material to show that the assessee dictates to the Indian subsidiary as to what activities it is authorised to engage in. We have also noted earlier that the Indian subsidiary is operating in an independent manner and there is nothing to show that factually speaking the Indian subsidiary constitutes a PE of the assessee in India. Thus, on account of difference in fact-situation, the reliance placed by the Ld. DR in the case of Formula One World Championship Ltd. (supra) is misplaced. 18. In view of the aforesaid discussion, in our considered view, the Assessing Officer has erred in invoking section 9 of the Act and/or Article 5 of the India-USA DTAA in order to say that the assessee company has a PE in India. Thus, assessee succeeds on this issue." 4.6. Similar view was expressed by this Tribunal in assessee"s own case for A.Yrs. 2011-12 to 2016-17 in ITA Nos.386/Mum/2016, 1836 and 7174/Mum/2017, 53,7739 and 7740/Mum/2019 dated 30/04/2021. 4.7. In view of the fact that there is no change in the facts and circumstances of the case, during the year under consideration vis-à-vis earlier years w....