TMI Blog2022 (12) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre of Excellence Private Limited [ 2021 (3) TMI 138 - SUPREME COURT] Permanent Establishment [PE] in India - profits attribution - HELD THAT:- The Tribunal has returned a finding of fact, that the respondent/assessee recorded a global net loss in the relevant assessment year, and therefore no profit could have possibly been attributed to it. Having regard to the following finding of fact returned by the Tribunal, we are of the view that the proposed questions of law i.e., A and B would not arise for consideration. A plain reading of the Article 7 of the Double Taxation Avoidance Agreement entered into between India and Finland also persuades us to take the same view as that which is taken by the Tribunal. A plain readin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance Agreement? B. Whether on the facts and circumstances of the case, the Ld. ITAT erred in holding that no profits are attributable to the PE of the Assessee relying on the decision of the Hon'ble Special Bench of the Ld. ITAT in case of Nokia Corporation for A Y. 1997-98 and A.Y. 1998-99? C. Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT has erred in following the decision of the Ld. ITAT in case of Nokia Corporation for A.Y. 2004-05 to 2006-07 and the decision of the Hon'ble Delhi High Court in the case of Adobe Systems Incorporated Vs. ADIT W.P.(C) No. 2384/2013 while holding that the activities of Research and development activities do not constitute a PE of the assessee in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore no profit could have possibly been attributed to it. 11.1 A discussion on this aspect is set forth in the following paragraphs of the impugned judgment passed by the Tribunal: 19. The assessee emphatically denies that the Appellant has a P.E. in India. However, without any prejudice to that basic contention, the assessee submitted that even assuming without conceding that the assessee has a P.E in India, no profit or income can at all be attributed to the P.E as the net profit of the assessee is loss and there are no taxable attributable profits available. The AO has incorrectly determined the profits taking into GP into consideration and if the net profit is taken into consideration rightly, then the issue as to whether the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he global net profit rate has been ascertained at 10.8% and 16.1% by the CIT (Appeals), to which no objection has been taken by either side. This percentage has to be applied to the Indian sales and by Indian sales, we mean the total contract price for the equipment as a whole and not the bifurcated price which the Assessing Officer has referred to in the assessment order. This will also be consistent with our view that the software and the hardware constitute one integrated equipment. The resultant figure would be the net profit arising in respect of the Indian sales.Out of this figure of net profit 20% shall be attributed to the PE to cover the three activities mentioned above. The Assessing Officer is directed to compute the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Finland Double Taxation Avoidance Agreement (DTAA), which is set out at page 719, at 723 of Volume B of the Compilation. For the -sake of convenience, Article 7(1) is reproduced hereunder: 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprises carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 25. Article 7(1) thus provides as under: (a) The profits of an enterprise can ordinarily be taxed only by the country in which it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a deduction from the gross profit figures taken by the A .O., then again the resultant figure would be losses. Consequently, even if the method of attribution adopted by the A.O. is considered to be correct, in any event, there would be no profit/income attributable to the PE. The computation is as under: Particulars Amount (INR) Gross Margin of the alleged PE (as determined by the AO) 6,62,39,89,219 Less: Deduction for actual payments to NSN India during the relevant A.Y.: (a) Compensation for network management support 1,28,53,61,568 (b) Compen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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