9911796707
TMI Blog2015 (10) TMI 2830X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices by utilizing its advanced information system capabilities, human resource management skills and industry experience. The assessee has a subsidiary in India by the name of Convergys India Services Pvt. Ltd. (hereinafter referred to as "CIS"), which provides IT enabled call centre/back office support services to the assessee. The assessee claims that substantial risk of procurement of services by the assessee from CIS lies with the assessee like, market risks, price risks, R&D risk, service liability risk towards its customers for quality and efficiency in delivery of services. The assessee claims that its customers are outside India, aforesaid risk resides outside India. 3. The assessee did not file any return of income u/s. 139(1) for the year under consideration. Accordingly, notice u/s. 148 was issued to the assessee on 30.03.2007. The assessee filed writ petition against the re-assessment proceedings before the Hon'ble Delhi High Court, wherein the assessee was directed to file the return of income and file objections, if any, before the AO after obtaining the reasons recorded and the AO was directed to dispose of the objections of assessee by way of speaking order. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourced its core business activity to CIS who is wholly owned subsidiary in India. On the basis of these facts, the AO held that the two entities are having complete integration and CIS is practically the projection of assessee's own business in India. It was seen that the CIS did not have either economic independence or functional independence in relation to the function carried out by it. The Assessing Officer thus held that the profits attributable to PE in India is taxable in the hands of the assessee. However, the AO held that since the assessee has paid service fee during the year to CIS amounting to Rs. 16,01,57,880/- amounting to USD 4.09 million, the margin kept by the assessee over and above the payment to the CIS is a loss. Accordingly, the profits attributable to PE in India was assessed at nil. The assessee challenged the assessment order in appeal before the ld. CIT(A) who vide impugned order confirmed that the assessee has PE in India, but reversed the conclusion of the AO that CIS is a dependent Agent PE of assessee in India. He accordingly, partly allowed the appeal of the assessee for the A.Y. 2002-03. Aggrieved by the impugned order, both the parties have come up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch functions. Besides assessee has also provided certain hardware and software assets on free of cost basis to CIS. Thus, the findings of the CIT(A) that assessee has a fixed place PE in India under Article 5(1) of the DTAA is upheld." 8. As regards the issue raised by the Revenue regarding dependent agent PE in terms of various articles of DTAA, we find that this issue has been decided by the Tribunal in favour of the assessee in para 10 of the order dated 10.05.2013, which reads as under : "10. Apropos the dependent agent PE in terms of Article 5(4) and 5(5) of the DTAA, after hearing the rival contentions, we do not find any infirmity in the order of the ld. CIT(A) and hold that CIS did not constitute a dependent agent PE of the assessee in India as the conditions provided in paragraph 4 of Article 5 of the DTAA are not satisfied. The grounds of appeal taken by the assessee and the department in connection with the PE are accordingly disposed off." 9. Taking a consistent view, we hold that the assessee has a fixed place PE in India, but has no dependent agent PE in India. Accordingly, ground No. 1 to 1.4 raised by the assessee and the only ground No.1 raised by Revenue in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of profits and that would. depend on the functional and factual analysis to be undertaken in each case. Lastly, it may be added that taxing corporates on the basis of the concept of economic nexus is an important feature of attributable profits (profits attributable to the PE)." The application of transfer pricing principles is also supported by the decisions of the Bombay High Court in Set Satellite (Singapore) Pte Ltd. (307 ITR 205), jurisdictional High Court in Rolls Royce Singapore Pvt. Ltd. (202 Taxman 45) (Del.), Director of Income Tax vs. BBC Worldwide Ltd. (203 Taxman 554) (Del.) D. The ld. CIT (A) has held that further profit was required to be attributed on account of Assets provided by the assessee to CIS and management of risk by the assessee in India. In our view no attribution of profits can be made on account of management of risk as risk resides outside India. Even otherwise the charge for the employees seconded to CIS and employees visiting India to provide the technical services is subsumed in the transfer pricing analysis of CIS. Therefore, attribution can only be made on account of free of cost assets and software's provided by the assessee to CIS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was liable to TDS, as the assessees are non-residents, therefore there was no liability to pay advance tax as per the provisions of sec. 209(1) of the I.T. Act and interest u/s 234B should not be levied. 14.1. We have considered rival submissions and record. The charging of interest is automatic under the Act if the assessee has defaulted in payment of advance tax. The income of the assessee was not liable for withholding tax under section 195 of the Act. In this case we have no option but to hold. that the assessee is liable to interest u/s 234B, as the income being assessed now cannot be held. to be income liable to TDS under Indian provisions. The same is being assessed in the hands of PEs who had not filed their return on the ground that this income was not attributed to Indian Business Connection. Provisions of section 234B are mechanical in nature. In view of the above this ground of appeal of the assessee is dismissed." 13. Following the findings of the Tribunal, this ground of assessee's appeal is, accordingly, dismissed. As a result, the appeals of the assessee and the revenue for A.Y. 2002-03 are dismissed. 14. Adverting to the cross appeals for the A.Y. 2009-10, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en decided in favour of assessee and against the Revenue after following the decision of Tribunal dated 10.05.2013 for A.Y. 2006-07 and 2008-09. The relevant findings of Tribunal have been reproduced above while deciding the appeals for A.Y. 2002-03. Therefore, grounds No. 1 and its sub-grounds raised by the assessee and ground No. 1 raised by the revenue are dismissed. 16. Similarly, the issue regarding attribution of profits to the PE has been decided by the Tribunal in terms of findings given in para No. 11.17 and 11.18 of the order dated 10.05.2013 reproduced above. Following the same, we do not find any infirmity in the directions of the ld. CIT(A) on this count to determine the profits as per steps given by the ITAT. Accordingly, grounds Nos. 2 to 5 of the assessee's appeal and 2 to 3 of the Revenue's appeal are dismissed. 17. Regarding the taxability on IPLC/link charges, the Hon'ble ITAT held in para 13 to 13.5 that the payment is not taxable in the hands of the assessee as Royalty. The findings of the Tribunal are reproduced as under : "13. Adverting to the issue of taxability of link charges as 'Equipment Royalty' in terms of Article 12(2) read with Article 12(3)(b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd Chartered Bank Vs Dy. Director of Income Tax [ITA No. 3824/MUM/2006] 13.2. CIT (A) in his order has accepted the contention of the assessee that the third party service provider was merely using its own equipment itself while rendering the services to its customers including the assessee and CIS and there is no transfer of the right to use, either to the assessee or CIS. The assessee has merely procured services and provided the same to CIS and no part of the equipment was leased out to CIS. The Ld. CIT (A) held that the payment for link charges do not constitute Royalty under the provisions of Article 12 of the DTAA. 13.3. The provisions of Equipment Royalty are also contained in Explanation 2(iva) of section 9(1)(vi) of the Income Tax Act, 1961 ('Act') which is similar to the provisions of Article 12(3)(b) of DTAA. 13.4. Besides, though Asia Satellite case is a decision on the domestic law but also makes an observation regarding DTAA. In para 74 of the judgment, it is specifically mentioned that " Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the assessee gets a boost". This observation supports the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
