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TMI Blog2022 (12) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... Agent Permanent Establishment of the assessee, based on his erroneous observations that the conditions of Article 5(5) of the DTAA between India and Germany ("the DTAA") are fulfilled in the present case. 3. That the learned CIT(A), without appreciating the nature of the business activities carried out by the assessee and KIPL, has erred in making erroneous observations, contrary to the facts, that: a) KIPL habitually secures orders for the assessee; b) KIPL maintains stock of inventory of the assessee; and c) KIPL is economically dependent on Krones AG. 4. That the learned CIT(A) has erred in upholding the taxation of offshore supplies in the hands of the alleged Permanent Establishment ("PE"), without appreciating that offshore supplies are not chargeable to tax; a) under the provisions of the Act; b) as per Article 7 of the DTAA read with Protocol thereto. 4.1 That the learned CIT(A) has erred in confirming attribution of profits in relation to offshore supplies to the alleged Dependent Agent PE, by erroneously holding that the receipts from such business activities were effectively connected with the alleged PE in India. 4.2 That without prejudice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit pertaining to Installation & commissioning charges/ technical services to the alleged PE of the assessee in India, on arbitrary basis. 7.3 That, without prejudice to the above grounds, the learned CIT(A) has erred in not reducing the amount of service charges paid to KIPL from the profit of the alleged PE as so computed, for the purpose of attributing and taxing additional income in the hands of the alleged PE. 7.4 That, without prejudice to above grounds, the learned CIT(A) has erred in upholding taxation of the amount of Installation & commissioning charges received from customers, offered to tax on conservative basis by the assessee without prejudice to its claim for non-taxability, in the absence of Installation PE in India of the projects. 8. That the learned CIT(A) has erred in mechanically holding the provisions of levy of interest under section 234B of the Act as consequential in nature, without appreciating that the provisions of the same are not applicable on facts and in law to the assessee for the year under consideration, as held by the Hon'ble High Court of Delhi in DIT v. GE Packaged Power Inc. [2015] 373 ITR 65 (Delhi). 9. That the learned CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s services. 7. The Assessing Officer was carried away with the mention in the TP Study Report KIPL is wholly dependent on use of intangibles owned by the assessee. KIPL is the sole selling and marketing agent of the products of the assessee. KIPL Co-ordinates with the delivery and payment with the customer for which KIPL gets commission. 8. Basis the observations made in the TP Study Report of KIPL, the Assessing Officer formed a belief that KIPL should be treated as agency PE and further the Revenue derived by the assessee should be attributable/effectively connected with such agency PE. 9. In its reply, the assessee emphatically refuted the charges made by the Assessing Officer and strongly contended that it is not a Dependent Agent Permanent Establishment [DAPE] of the assessee. It was strongly contended that even in a case where an enterprise in not held as 'independent agent', it will not automatically become dependent agent. 10. It was brought to the notice of the Assessing Officer that KIPL has no authority to conclude the contracts on behalf of the assessee company. KIPL has never acted as the stockist of the assessee company and has never maintained the stock records o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on record in light of Rule 18(6) of the ITAT Rules. Pursuant to the findings of the ld. CIT(A), the quarrel boils down to the determination of DAPE only. The allegations of the Assessing Officer /DRP in so far as DAPE is concerned are : (i) KIPL habitually secures orders for the assessee; (ii) KIPL maintains stock inventory of the assessee; and (iii) KIPL is economically dependent on the assessee. 17. The agreement consisting of Delivery of Krones Products and services between the assessee and KIPL is at pages 3 to 8 of the Paper Book which have been duly considered by us. This agreement begins on 0101.2007. 18. A perusal of the agreement shows that KIPL does not carry out any manufacturing or processing activity in India using intangibles of the assessee and therefore, assumption of the Assessing Officer is factually incorrect. It further comes out from the agreement that research and development function and the risk in respect of technical obsolescence is assumed by the assessee only and not by KIPL as assumed by the Assessing Officer. 19. The plant as supplied has to be made to the specifications of each customer. The contracts for supplies are directly negotiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d tax. Asset 3,074,437 785,121 TOTAL 3,874,437 785,121 SCHEDULE -4 : CURRENT ASSETS, LOANS AND ADVANCES Current Assets 17,818,000 4,821,675 Inventory (Valued at lower of cost and net realisable value) Trading Inventory 17,818,000 4,821,675 28,050,000 Cost of Incomplete Projects Unbilled 139,354,844 21,462,282 Service Charges 6,356,0671 231,671,247 Sundry Debtors (Unsecured, cohsidorod good) Outstanding for more than six months Others 145,710,910 2531133,529 SCHEDULE - 9 : COST OF SALES Opening Stock Add: Purchases Less: Closing Stock 4,821,675 326,948,085 1,043,300 276,110.779 331,769,760 17,818,000 277,154,079 4,821,675 313,951,760 272,332,404 24. It can be seen from the financials that the commission income of KIPL is only Rs. 6,74,61,516/- on total revenue of Rs. 59,08,86,477/- which comes to around 11.5% of total revenue which means that 89% of the Revenue of the assessee is from its own sources. Therefore, it cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ordinary course of that business. (v) This person maintain in the other contracting state a stock of gods or merchandise from which that person regularly delivers goods or merchandise on behalf of an enterprise. 28. The agreement shows that entrepreneurial risk is with the assessee and sharing of risk indicates that each party perform non integrated business activities. 29. The co-ordinate bench Mumbai in the case of Airline Rotables 44 SOT 368 describes rationale of DAPE as follows: "The rationale for dependent agent permanent establishment is simple. A foreign enterprise may chose between business activity itself , or having it done through a domestic agent. In case this domestic agent acts in the normal course of business, and is not wholly or almost wholly dependent on the foreign enterprise, the PE situation is out of reckoning because it is business of the agent, rather than business of the foreign principal, that the agent is mainly carrying out. In case of a dependent agent, the PE situation arises because when the foreign enterprise prefers to perform the business activity through a domestic agent, he does not need to depend on having a right to use a fixed plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Revenue's appeal] 35. The only grievance is that the ld. CIT(A) erred in hodling that the assessee could not be held liable to pay interest u/s 234 B of the Act. 36. This issue is no more res integra as it has now been settled by the decision of the Hon'ble Supreme Court in the case of DIT Vs. Mitsubishi Corporation 130 Taxmann.com 276 wherein the Hon'ble Apex Court has held as under: "19. The dispute relating to the interpretation of the words "would be deductible or collectible" in Section 209 (1) (d) of the Act can be resolved by referring to the proviso to Section 209 (1) (d), which was inserted by the Finance Act, 2012. The proviso makes it clear that the assessee cannot reduce the amounts of income-tax paid to it by the payer without deduction, while computing liability for advance tax. The memorandum explaining the provisions of the Finance Bill, 2012 provides necessary context that the amendment was warranted due to the judgements of courts, interpreting Section 209 (1) (d) of the Act to permit computation of advance tax by the assessee by reducing the amount of income-tax which is deductible or collectible during the financial year. If the construction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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