TMI Blog2004 (10) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... The applicant is an associate of Dun Bradstreet group (referred to as "D B") which has the largest and the most comprehensive database available, with information on 79 million business entities worldwide-for making credit, marketing and purchasing decisions. D B provides various products to various businesses worldwide. Among these products are Business Information Reports (BIRs). A BIR is similar to a book which is available, both in electronic form as well as in hardcopy which used to be delivered physically till advent of E-commerce revolution which made e-delivery possible. A BIR provides information in respect of a company on various aspects e.g. its existence, operations, financial condition, management's experience, line of business, facilities and location of the prospect and also information about any suits, liens, judgements etc.. After filing of this application D B group has undergone a change in shareholding pattern and the group companies as a result of re-structuring with effect from 1 st March, 2004. The applicant was permitted to bring on record the changes in shareholding of associates and to amend annexures to the application. We shall refer to the position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the BIR. There is further obligation on the Indian customer to use the BIR for its own purpose, the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer. In regard to the pricing of a BIR, DBIS is free to determine the price on principal-to-principal basis and in that the applicant has no say. The price at which the BIR is sold by the applicant to the DBIS would be the applicant's average domestic price at which it is sold to local customers in Spain. It is specifically averred that the applicant does not have any subsidiary, branch or office or place of business in India. It is also stated that it does not have any employee, advisor or agent in India nor is any employee deputed to India. 2. The applicant being a tax resident of Spain is entitled to the benefit of the Double Taxation Avoidance Agreement entered into between the Government of the Republic of India and the Kingdom of Spain effective from January 12, 1995 vide Notification dated 21 st April, 1995 (for short the "treaty"). As per section 90(2) of the Act, the provisions of the Act would apply to the extent they are more beneficial to the applicant. Article 7 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant under section 139 of the ITA? It may be mentioned at the outset that the question Nos. 1, 6 and 7 are not pressed by Mr. Desai. 3. The Commissioner offered the following comments. It is not disputed that the Government of the Republic of India and the Kingdom of Spain have entered into treaty which was notified on 21 st April, 1995. The provisions of section 90(2) of the Act will be applicable if the applicant's claim of being a tax resident of Spain is established. The payments made by DBIS to the applicant for electronic purchases of business information reports, are part of applicant's revenue receipts so the taxability will have to be considered under article 7 read with article 5 of the Treaty. On the facts and circumstances of the case, the applicant would be held as having PE in India under article 5 of the Treaty. Many appellate authorities held that the server located in India would constitute a PE of the firm or company. The appellant categorically stated that DBIS purchases BIRs on the server of the applicant. In the case of Ericsson Telephone Corporation India AB, Sweden, the Authority held that the character of royalty or fees for technical services wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the treaty. Article 5 of the Treaty is in the following terms:- Article 5 (Permanent Establishment ) • For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) a place of management; (b) branch; (c) an office; • to (h) x x x x x x x x x x (i) a premises used as a sales outlet (j) to (k) x x x x x x x x x x x x 3. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include: • the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; • the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock or goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods and merchandise, or of collecting information for the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include them within the scope of the expression and para 3 which commences with a nonobstante clause contains deemed exclusionary clause to exclude the use of facilities noted in clause (a), maintenance of stock of goods mentioned in clauses (b) and (c) and maintenance of fixed place of business for the purposes indicated in clauses (d) and (e) from the scope of the expression despite provisions of paras 1 and 2. However, para 4 contains a deemed inclusion clause. It also commences with nonobstante clause and says that notwithstanding the provisions of paras 1 and 2, a person acting in a contracting state on behalf of an enterprise shall be deemed to have a permanent establishment in the first mentioned state, if any one of clauses - (a) or (b) thereof - applies. Clause (a) deals with a person who has and habitually exercises authority to conclude contract on behalf of the enterprise in the first mentioned state unless the activities are limited to the purchase of goods or merchandise for the enterprise; and clause (b) deals with a person who acts without authority, but habitually maintains a stock of goods or merchandise in the first mentioned state from which he regularly delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sales outlet of another. To hold one associate company as the branch or sales outlet of another, there must be some material indicative of characteristic of 'branch' or 'sales outlet'. On the facts of the case it is difficult to uphold the contention of the Commissioner that DBIS is a branch or a sales outlet of the applicant. (ii) The second ground is based on paragraph 4 of article 5 which is extracted above. It has been noticed that para 4 contains a deeming provision to include within the meaning of the expression 'PE' a person who acts on behalf of the enterprise in a contracting state if one of the two conditions mentioned in clauses (a) and (b) thereof, is satisfied. It is nobody's case that DBIS has and habitually exercises in India an authority to conclude contracts on behalf of the applicant. Therefore, clause (a) does not apply. The case of the Commissioner is that DBIS habitually maintains stock of goods and delivers them on behalf of the enterprise, as DBIS has a password protected access to the website of the applicant to access the BIRs of the applicant's server farm which amounts to maintaining of stock of goods or merchandise on behalf of the applicant and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grammer - the doer of an action. 4. Computing - an independently operating Internet programme, typically one set up to locate information on a specified subject and deliver it on a regular basis." The meaning of the term 'agent' is given in Black's Law Dictionary, inter alia, as follows: "The etymology of the word agent or agency tells us much. The words are derived from the Latin verb, ago, agree; the noun agens, agentis. The agent denotes one who acts a doer, force or power that accomplishes things" And, section 182 of the Indian Contract Act defines 'agent' as a person employed to do any act for another or to represent another in dealing with third parties. A close reading of the above extracts brings out the essence of the term 'agent' 'An agent' works for another in accordance with his authority while dealing with third parties. The record in this does not justify the conclusion that DBIS is an agent of the applicant. The DBIS is carrying on in its own business and is an independent entity. It is not under the control and instructions of the applicant in carrying on its business. Further, in regard to purchase of BIRs it acts on its own, settles its own price dependi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rldwide credit card and travel business. The applicant was maintaining a centralised computer in USA (referred to as CPU) to keep track of the expenses incurred on a travellers' credit card or purchase and encashment of travelers cheques. The CPU was accessed and used by various group entities located worldwide through a consolidated data network maintained in Hong Kong . An Indian company located in Delhi was also collecting information about the use of credit card and travellers' cheques by travellers all over the country and were serving 13 group companies in Asia and the Pacific. The information was being passed on to the Hong Kong computer centre of the applicant by leasing lines from VSNL. For the use of computer set up in Hong Kong and in USA , the American company was charging fees to the Indian company. The question posed by the applicant for seeking advance ruling of the Authority was: whether payment due to the applicant under the transaction with the Indian company was liable to tax in India under article 12(3)(a) or 12(3)(b) of the Treaty between India and USA . It was ruled by the Authority that the transmission of the information through encryption as the data relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be publicly available; they are collected and complied by D B associates. A BIR is accessible by any subscriber on payment of requisite price with regular internet access for which no particular software or hardware is required. The applicant states that access to data base of the applicant is available to public at large at a price as in case of buying a book and it is not a pre-requisite, that BIR must be downloaded by DBIS only and in fact some clients, such as Expert credit guarantee corporation , in fact, access the server themselves to download BIR. The applicant does not have any server in India for the use of DBIS. Indeed the applicant has specifically averred that the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer. From these aspects it is clear that the aforementioned ruling of the Authority is distinguishable on facts. If a group of companies collects information about the historical places and places of interest for tourists in each country and all informations are maintained on a central computer which is accessible to each constituent of the Group in each country, can a supply of such information electroni ..... 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