TaxTMI 
TaxTMI 
2023 (3) TMI 1349
X X X X Extracts X X X X
X X X X Extracts X X X X
....October 2019 passed by the Deputy Commissioner of Income-tax, International Tax Circle 1(1)(2), Mumbai [DCIT] for the0020aforesaid assessment year on the following among other grounds: 1. The final assessment order is bad in law The DCIT erred in not following the directions of the DRP and hence, the Impugned assessment order dated 23 October 2019 passed under section 143(3) r w.s. 144C(13) is bad in law. 2. Permanent establishment ("PE" Fixed place PE) 2.1. The DCIT erred in holding that the assessee has a fixed place PE in India and is not following the directions passed by the DRP, wherein the DRP held that the appellant does not have a fixed place PE in India Dependent agent PE 2.2. The DRP erred in holding that the appellant has an agency PE in India. 2.3. The DRP erred in holding that the appellant has an agency PE in India, without appreciating that the DCIT has not concluded that the appellant had an agency PE in India. Thus the conclusion of the DRP that the appellant had an agency PE in India is beyond the DRP's jurisdiction and needs to be overturned. 2.4. The DRP erred in holding that a case of 'Dependent Agent PE' has been made by the DCIT. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Avoidance Agreement (DTAA), such services are liable to be considered as 'Fees for Technical Services' (FTS) only if they 'make available' technical knowledge, experience, skill, knowhow or processes , or consist of development and transfer of a technical plan or technical design. The assessee has contended that it has not made available the technology to RIL. The assessee mentioned that though RIL has applied for a Nil deduction of tax certificate from the income tax department, the same was issued to it only after RIL deducted tax at source on the payments and now the assessee is claiming refund of the same. 4. The essence of the arguments advanced by the assessee before the ld. AO in the original assessment proceedings are as under:- 2.2. The AO has summarised the work processes in his draft assessment order as under: 1. The contract is essentially for repair services of four coke drums. 2. The assesses company had appointed a consultant [Mr. Rupam Saikia) in India, to liaise with Indian Customers. The consultant had a meeting with RIL to inform them about the services provided by AZZ. [l is claimed that the commutant has no decision-making authority or power] 3. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 The Equipments were brought to India on 05-03-2015 and sent back from India on 07-05- 2015 The total weight of the machinery brought to India was 59,767 40 kgs [grass weight] 12 Assessee company will provide all weld wire requirements. 13. Weld wires heeded for the scope of work was sold by the assessee to RIL separately for which a separate invoice of EUR 2,49,830 was raised on RIL. The weld wires sued by the assessee for the repair work done at RIL 14. It is claimed that the goods were supplied by the assessee to RIL to the port of Rotterdam, Netherlands and the transfer of title happened outside India. The transport of goods were the responsibility of RIL In view of the same, the transaction was to offshore supply. 15 The assessee has carried out similar repair services with RIL in FY 2016-17 and has received an amount of EUR 31,38,750" 5. The ld. AO was of the view that the presence of the assessee in India for the purpose of securing the contract and the presence of its employees and equipment indicates a Permanent Establishment (PE) in India. The ld. AO rejected the submissions of the assessee that it did not have a PE or that it does not fulfill the 'place of busi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had held that these places are distinct from the jobsite where the reactors of RIL were housed and where the employees of the assessee were provided limited access for undertaking repair / welding works. The ld. AO stated that the assessee had full access to the office site which was near the job site and the assessee through its employees had lodging facilities too. There were no restrictions placed by RIL on these spaces allocated to the assessee. The ld. AO noted that the entire equipment which the assessee brought to India were specialized equipments which required special skills to operate and all the equipments were under the control of the assessee during the entire project and were never leased out to RIL and that those equipments are to be kept by the assessee in its control in order to protect its technology and specialization as well as to safeguard its process and expertise. The ld. AO observed that these places could also be accessed by the assessee's consultant Mr Rupam Saikai (who was also a consultant for assessee's group company) and hence they could be used for other business activities of the assessee too. Hence the third condition and fourth condition for the ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the business income in India. 9. The assessee preferred objections before the ld. DRP. The assessee explained the entire modus operandi before the ld. DRP and filed written submissions that the place of business test, permanence test, place of disposal test, unrestricted access of office space to the consultant, space of storing of equipment , boarding and lodging facilities of employees, business activity test , business connection test were not fulfilled in the instant case. The submissions made by the assessee in this regard are reproduced in pages 11 to 18 of the order of ld. DRP together with related case laws. The ld. DRP after considering the submissions of the assessee held that the tests of place of business, business activity, permanence and place of disposal do not lead to the inference of a PE in India but the case of 'Dependent Agent PE' has been made out by the ld. AO. The relevant observations of ld. DRP are as under:- 8. Discussions and directions of DRP: 4.1 The DRP has carefully considered the facts of the case as mentioned above. The DRP is of the considered view that the assessee through its employees/equipment has come for a specific repair work of RIL and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e designation of Mr. Rupam Saikia as 'Business Development Manager His email address is also mentioned as rupam saikia@azz.com. This email mentions that Mr. Rupam Saikia and Mr. Anrea Pacchiarotti had visited RIL as representatives of AZZ WSI. The email also mentions that Mr. Rupam Saikia shall follow up with RIL for the amended scope of the work and also set up a call with the WSI team to discuss the way forward Subsequent emails between Mr. Rupam Saikia and the AZZ WS! people are also available on record and it is noted that Mr. Rupam Saikia has been kept in the loop throughout. For instance, in the email sent from RIL on 02/09/2014, it is informed that the coker unit of the refinery is planned for shut down in March 2015 and certain documents like the scope of work, repair details & drawing, general conditions of contract etc, were enclosed with a request to study the attached document and submit the techno-commercial offer for the job. There are also emails whereby Mr Rupam Saikia has informed RIL about and the stay arrangements made by RIL there. It is also noted that in another email Mr. Rupam Saikia has provided the updated budgetary proposals to RIL. The record also has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shall include any business activity carried out through a person with acting on behalf of the resident:- (a) has and habitually exercises in India on authority is conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident, or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident, or (c) habitually secures orders in India, mainly or wholly for the non-residet or for that non- resident and other non-residents controlling controlled by or subject to the same common control, as that non-resident Provided that such business connection shall not include any business activity carried out through a broker general commission agent or any other agent having an independent status if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terprise is bound by the contract entered into by the Agent on its behalf. The term 'habitually exercises signifies a certain degree of permanence, repeatedly and over some period of time. In this regard the assessee has claimed that while Mr. Rupam Saikia was present in the meetings with RIL, the contract was not finalised as there were various clauses on which both the parties had to get internal confirmations. The assessee claims that all preparatory work in order to prepare the contract (both legal and technical) and decision on the quotation of the work order were done in Netherlands and the final decision/clearance was taken in Netherlands. On this ground the assessee claims that there was no business activity carried out in India, It was also argued that Mr. Rupam Saikia was acting as an independent consultant and that he had no decision-making authority or power. The DRP is not convinced with these arguments. The role played by Mr. Rupam Saikia has already been elaborated above. It is also not necessary that the agent should have power to conclude the contract in respect of all aspects of work. Even if the final discount and tax work was decided by the assessee at Nethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inancial discussions with RIL. Therefore, the existence of an Agency PE of the assessee is positively inferred and held accordingly. 4.5. In view of the above discussion the objection no. I of the assessee is dismissed. 10. Having held that there was Agency PE in India, the ld. DRP discussed the action of the ld. AO in treating the receipts from offshore supply of weld wires to be taxable income in India. The observations of the ld.DRP in this regard are as under:- 6. Discussions and directions of DRP: 6.1. The DRP has considered the facts of the case, It is noted that invarishly tecahility if an independent offshore supply of material goeds arises in the resident country and not in the destination country unless it is a case of a PE However, in the instant care the entire job work is essentially one single composite contract. This was a specific contract requiring the assessee to repair the Coke drums by a welding process. There is an economic relationship between the function of offshore supply and the onshore repair work by the assessee/PE. It is noticed that as the reliance of the assessee on the decision of the Honourable Supreme Court in the case of Ishikawajima Harima....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bution of 30% estimated by the ld. AO as profit attributable to the PE, the ld. DRP after considering the submissions, additional evidences submitted before ld. DRP, remand report of the ld. AO and rejoinder filed by the assessee to the remand report, directed the ld. AO to treat 7.13% of the total receipts from India as the taxable income of the assessee from Indian operations. Further the ld. DRP held that for the purpose of allocation of this resultant profit, the respective role of the AE and the PE needs to be factored in. The ld. DRP held that it is obvious that while the PE has done the marketing and actual execution of the work in India, the intangibles are only with the Head Office at Netherlands and the capital deployed is also by the Head Office at Netherlands. Hence to meet the ends of justice, the ld. DRP held that a further allocation of 25% of the income is made for the Head Office and remaining 75% is allocated to the PE in India. The ld. DRP also directed the ld. AO to adopt the correct figure of total contract revenue after verification of the records while computing profit margins of the assessee. 12. Despite the aforesaid elaborate directions of the ld. DRP, we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he findings of the TPO. Since the objections of the assessee to the draft assessment order u/s 143(3) r.w.s. 144C of the Act dt. 21-12-2019 have been disposed off by the Hon'ble DRP, Delhi vide its order dt.17-3-2021, the income of the assessee for the A.Y. 2016-17 is computed as proposed in the draft assessment order u/s 143(3) r.w.s.144C of the Act dt.21-12-2019 as under:- Returned Income Rs.5,37,08,930/- Addition as per Para.3 of order dt. 21-12-2019 Rs.4,90,46,335/- Addition as per Para.4 of order dt, 21-12-2019 Rs.13,97,914/- Total assessed Income Rs.10,41,53,179/- Rounded off Rs. 10,41,53,180/- 6. An addition of Rs. 10,41,53,180/- is made by the undersigned to the taxable income of the assessee on account of the TP adjustment and disallowances of expenses u/s 36(1 )(iii) of the Act. I am satisfied that the assessee company has concealed the income/furnished inaccurate particulars of income. Therefore, penalty proceedings u/s 271 (l)(c) of the Income-tax Act, 1961 for concealed the income/furnishing inaccurate particulars of income are being initiated separately, 7. Assessed at a total income of Rs. Rs. 10,41,53,180/-as above. Issue Tax and Interest u/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Paradigms Infotech (P.) Ltd. (supra) has quashed the final order of assessment observing as follows:- "3.3.1 We have heard the rival contention of both parties in the matter and perused and carefully considered the material on record. The undisputed facts on record, as brought out by the discussions above, is that the AO, as per law, was required to pass the final order of assessment dated 17-1-2014 for asst. year 2009-10 u/s. 143(3) r.w.s. 144C of the Act in conformity with the directions issued by the DRP u/s. 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and within the time prescribed u/s. 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the AO passed the impugned final order of assessment dated 17-1-2014 u/s. 143(3) r.w.s. 92CA of the Act; which, as contended by the id AR, is identical to the draft order of assessment passed on 14-3-2013 by only incorporating this TPO's proposals and, thereby evidently giving the DRP's mandatory directions issued u/s. 144C(5) of the Act a complete go-by. In our view, it is factually established that the AO in the final order of assessment dated 17-1-2....