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TMI Blog2023 (1) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... to these issues are, the assessee is a non-resident corporate entity incorporated in the United States of America (USA) and a tax resident of USA. As stated, the assessee provides outsourced customer and marketing support services as well as comprehensive customer management services by utilizing its advance information system capabilities, human resources management skills and industrial experience. The assessee has a subsidiary in India, viz., by Convergys India Service Pvt. Ltd. (CIS). In respect of some of the overseas customers of the assessee, namely, AT&T, Microsoft etc. the assessee procures Information Technology (IT) Enabled call centre/back office service from CIS. For this purpose, the assessee had entered into a sub-contract arrangement with CIS under which CIS is remunerated on cost plus markup of 14%. It is the say of the assessee that it undertakes certain functions, such as, client relationship, client account management, sales/marketing, technology and brand development, which are performed outside India. Whereas, CIS provides in-bound call services, out-bound call services, web based support, technical help desk, email customer care services and other miscellaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of attribution of profit to PE the Tribunal held as under in assessment years 2006- 07 to 2008-09: "11.17. In view of the above facts, circumstances, case law, CBDT circulars and various articles of India-USA DTAA, following conclusions are arrived at: A. The Ld. CIT (A) accepted the revenue from end-customer with regard to contracts/projects wherein services were procured from CIS of USD 138.9 million submitted by the assessee for assessment year 2006-07. The end customer revenue has been accepted by the AO is the assessment of all the other years on the same basis. B. The methodology adopted by the AO and the ld. CIT(A) cannot be accepted as they have considered revenue of the assessee company (CMG as a multi-national enterprise) as the starting point for arriving at the profits attributable to the PE of assessee in India. The revenue of the assessee company cannot be considered as the revenue of the PE by any stretch of imagination. Furthermore the expenses incurred outside India are linked with the business activities of the assessee undertaken outside India for the functions performed outside India and are not linked to the PE of the assessee in India. C. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing study for assets and software cannot be accepted. Further, in the facts and circumstances of the case Profit Split method is not the correct method for attribution of profits to the PE of the assessee in India. F. In our considered opinion, the correct approach to arrive at the profits attributable to the PE should. be as under: Step 1: Compute Global operating Income percentage of the customer care business as per annual report/10K of the company. Step 2: This percentage should. be applied to the endcustomer revenue with regard to contracts/projects where services were procured from CIS. The amount arrived at is the Operating Income from Indian operations. Step 3: The operating income from India operations is to be reduced by the profit before tax of CIS. This residual is now attributable between US and India. Step 4: The profit attributable to the PE should be estimated on residual profits as determined under Step 3 above. The attribution of India profit shall be worked out as under, mentioned after the table: 11.18. In the computation based on the above approach for the assessment year 2006-07, the profits attributable to India comes as under: Parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into no further attribution of profits to Indian PE. 11.23. In this backdrop we are reminded of two case laws decided by Hon'ble Supreme Court which have dealt with attribution of the profits to the Indian PEs: (i) Anglo French Textile Company Ltd. vs CIT 23 ITR 101 (SC), in which 10% attribution has been held to be reasonable. (ii) Hukum Chand Mills Ltd. Vs. CIT 103 ITR 548 (SC), in which 15% attribution has been held to be reasonable. 11.24. These cases decided by the Apex Court though are old, but they still hold the field as they have not been tinkered with. In our considered view, the adoption of higher figure of 15% as held by Hon'ble Supreme Court in the Hukum Chand Mills Ltd. (supra), for attribution of assessee's Indian PE operations will meet the ends of justice. Thus, the attribution of Indian PE income should be made at 15% of profit retained by CMG in the US. 11.25. In other words 15% of the placitum 'X' (result of G=E-F) in the chart at para 11.18, as mentioned above as a reasonable attribution of profit of India PE, will meet the ends of justice. Thus, assessing officer will work out the profits attributable to Indian PE on this method for A.Y. 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d control over the operations of CIS and such employees had a fixed place of business at their disposal. CIS was practically the projection of assessee's business in India and carried out its business under the control and guidance of the assessee and without assuming any significant risk in relation to such 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." 6.3 Accordingly, respectfully following the order of the Coordinate Bench in assessee's own case for Assessment Years 2006-07 and 2008-09, we uphold the action of the Ld. CIT(A) in holding that the assessees has a fixed place PE in India. 6.4 As far as the methodology of profit attribution is concerned, the Co-ordinate Bench in assessee's own case for Assessment Years 2006-07 and 2008-09 has laid down the 33 methodology in paragraphs 11.17 to 11.26 of the said order and respectfully following the same, the TPO is directed to adopt the same methodology as enumerated by the Co-ordinate Bench. Thus, the issue to attribution of profits is restored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Even in the assessment order the Ld. AO has 35 accepted the returned position and taxed the said amount as Fee for Included Services in terms of Article 12 of the DTAA. Even in AY 2006-07, the CIT(A) has held that there is no Service PE in India and the AO had not challenged this before ITAT. Accordingly, I hold that the Appellant does not have a Service PE under Article 5(2X1) of the DTAA. Accordingly, Ground no 5.12 is allowed." 7.0.2 Therefore, in absence of the department pointing out any distinguishing facts in this year, on identical facts, we dismiss the related grounds raised by the department. 7.1 As far as the issue of dependent agent PE is concerned, it is again seen that this issue was decided in favour of the assessee by the Tribunal in assessee's own case in assessment year 2006-07 and the relevant observations are contained in Para 4.26 which are reproduced here in under for a ready reference :- "4.26. In the light of above, even assuming, CIS is not an agent of CMG, it does not have any authority to conclude contracts or secure orders on behalf of CMG and hence CMG does not have a Dependent Agent PE in India." 7.1.1 We also note that the Ld. CIT (A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIS. The assessee has merely procured a service and provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. Therefore, it is held, that the said payments do not constitute Royalty under the provisions of Article 12 of the tax treaty and the ground is allowed in favour of assessee." 7.2.1 It is also seen that the Ld. CIT (A) has taken due cognizance of this finding of the Tribunal in the year under consideration and has allowed relief to the assessee. The findings of the Ld. CIT (A) are contained in paragraph 8-9 which is being reproduced here in under:- "8.9 The Hon'ble Delhi High Court in the case of New Skies Satellite BV (supra) further held that India's change in position to the OECD commentary cannot act as influence in interpreting the word royalty as it stands today. The only way such change can he brought about is through such change being incorporated in the DTAA itself an amendment in the domestic law cannot bring about a unilateral change in the DTAA. Further, Hon'ble court observed that the argument that cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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