TMI Blog2023 (1) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case in assessment years 2013-14 [ 2020 (11) TMI 1101 - ITAT DELHI] relying on New Skies Satellite BV [ 2016 (2) TMI 415 - DELHI HIGH COURT ] held that the amendment in section 9 will not affect the DTAA, thus find that the payment of link charges received by the Appellant from Conuergys India Services Rut. Ltd. would not qualify as process royalty in terms of Article 12 of lndia-US 39 DTAA. Hence, the ground of appeal allowed. - ITA No.7782/Del/2018, ITA No.7924/Del/2018 - - - Dated:- 11-1-2023 - SHRI G.S. PANNU, HON BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For the Assessee : Sh. Ravi Sharma, Advocate Sh. Rishabh Malhotra, AR For the Department : Sh. Gangadhar Panda, CIT (DR) ORDER PER SAKTIJIT DEY, JM: These cross appeals arise out of order dated 26.09.2018 of learned Commissioner of Income Tax (Appeals)-42, New Delhi, pertaining to assessment year 2014-15. 2. The common dispute arising in the corresponding appeals is on the issue, whether the assessee has any kind of Permanent Establishment (PE) in India under Article 5 of India USA Double Taxation Avoidance Agreement (DTAA) and in case there is a PE, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as Article 12(2) read with Article 12(3)(b) of India USA DTAA and process royalty in terms of explanation 6 to section 9(1)(vi) of the Act and Article 12 of DTAA. In the aforesaid line, the Assessing Officer completed the assessment. Against the assessment order so passed, the assessee preferred an appeal before learned Commissioner (Appeals). While deciding the appeal, learned Commissioner (Appeals) agreed with the submissions of the assessee that the assessee does not have a dependent agent PE and service PE in India. However, he held that the assessee had a fixed place PE in India. With regard to attribution of profit to the PE, learned Commissioner (Appeals) held that profits could be attributed on account of assets provided by the assessee to CIS. In this regard, learned Commissioner (Appeals) followed the methodology provided in the order of the Tribunal in assessment year 2006-07. Further, learned Commissioner (Appeals) held that receipts from link charges do not qualify as equipment royalty and process royalty under Article 12 of the tax treaty. Being aggrieved, both the assessee and Revenue are before us. 4. Learned counsel appearing for the assessee submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the transfer pricing analysis placed by the taxpayer is exhaustive of attribution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies with the submission of the assessee dated 26-12-2010 to the assessing officer in which it has been submitted that the approximate operating profits of CMG in USD come to 0.8 million. Now the important question that arises is as to how much of the profits shall be attributable to CMG s Indian PE over and above the profits declared by its subsidiary CIS. 11.20. Apropos TPO s estimation, we are of the view that the same is not justified as it involves a very unrealistic method of counting the worldwide number of employees and dividing it with CMG s global revenue without considering the relevant aspects. The finer and material aspects about the status, capacity of the employees are over looked and result become very vague and distorted. Therefore, the method adopted by assessing officer cannot be relied on as most appropriate method. 11.21. Apropos CIT(A) s estimate about attribution, though he accepted the proposition that there cannot be notional addition to India revenue, however, CIT(A) s method also does not become a rational inasmuch as the various expenditures incurred by CMG i.e. research development, depreciation, amortization etc. have not been considered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Departmental Representative relied upon the observations of the Assessing Officer. 7. Having considered rival submissions and perused the materials on record, we find, these are recurring issues between the parties from assessment years 2006-07 onwards. While deciding the issue in the latest order passed for the assessment year 2013-14 in ITA No. 7724/Del/2017, dated 27.11.2020, the Coordinate Bench has held as under: 6.2 After duly considering the submissions of both the sides as well as the impugned order, we are of the considered opinion that the Tribunal in assessee s own case for Assessment Years 2006-07 and 2008-09 has reached the conclusion that there was a fixed place PE of the assessee in India and that profit attribution had to be made in the hands of the assessee due to such fixed place PE. Although, the assessee has approached the Hon ble High Court against the said order of the Tribunal holding that the assessee had fixed place PE in India, the appeals are yet to be disposed of by the Hon ble High Court. Thus, as of date, the order of the Co-ordinate Bench of the Tribunal for Assessment Years 2006-07 and 2008-09 have a binding precedential value for us be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it attribution done by the AO. The Department s appeal also challenges the action of the Ld. CIT (A) in holding that the receipts towards IPLC / link charges were not taxable in India as royalty. The issues raised by the department are squarely covered in favour of the assessee by the order of the Tribunal in assessee s own case for assessment year 2006-07 and 2008-09. The relevant observations of the ITAT with respect to the assessee not having a service PE in India are contained in paragraph 3.10 of the order of the Tribunal and it has been followed by the Ld. CIT (A) in the year under consideration. Observations of the Tribunal are contained 34 in Para 3.10 and the same is being reproduced here in under for ready reference:- 3.10. Aggrieved with the order of the CIT (A), both assessee and revenue have preferred appeals before the ITAT. The revenue has not challenged the order of the CIT (A) holding that assessee has no Service PE. Thus, the revenue has accepted that CMG does not have a Service PE in India. 7.0.1 We also note that the Ld. CIT (A) has returned a finding based on the order of the ITAT and has also noted that even in assessment year 2006-07, the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude contracts or maintaining stock of goods or habitually securing orders. I am of the view that CIS did not constitute a dependent agent PE of the Appellant in India. In view of this, Grounds 5.9 to 5.11 are allowed. 7.1.2 In this case also, the department has not been able to bring out any distinguishing facts in this year under consideration and, therefore, following the order of the ITAT in earlier assessment years, we dismiss the related grounds in department s appeal in this year also. 8. Thus, as could be seen from the aforesaid observations of the Coordinate Bench, all the issues relating to existence of PE and attribution of profit have been decided/resolved in assessee s own case in earlier assessment years. Therefore, the decision of the Tribunal, as referred, will squarely apply to the present appeals as well. Though, learned counsel for the assessee attempted to make out a case that there was no fixed place PE in the year under consideration, however, we are not convinced as the arrangement between the assessee and PE remains identical with earlier years. As regards attribution of profit to PE, we direct the Assessing Officer to follow the directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G or to CIS. The ITAT observed that the Appellant has merely procured a service and provided the same to CIS. Further, ITAT observed that even otherwise, the payment is in the nature or reimbursement of expenses and accordingly not taxable in the hands of the Appellant. Therefore, it is held that the said payments do not constitute Royalty under the provisions of the DTAA. 8.11 Respectfully following the Hon ble ITAT decision in the case of the Appellant and jurisdiction High Court s decision of New Skies Satellite BV (Supra) wherein it is held that the amendment in section 9 will not affect the DTAA, I find that the payment of link charges received by the Appellant from Conuergys India Services Rut. Ltd. would not qualify as process royalty in terms ofArticle 12 of lndia-US 39 DTAA. Hence, the ground of appeal, including additional ground of appeal is allowed. 7.2.2 Therefore, in absence of any contrary facts having been pointed out by the department, in view of the order of the coordinate bench in assessee s own case as aforementioned, we dismiss the related grounds raised by the department in this regard. 10. Facts being identical, respectfully following the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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