TMI Blog2023 (4) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of alleged PE of the assessee, the transactions have been treated to be arm s length price. Furthermore, the assessee has pointed out that while making addition, the AO has also included the transaction related to hardware whereas allegation of PE is related to software. In the light of the binding precedents, we are of the considered view that the authorities below erred in making the impugned additions. We therefore, direct the AO to delete the same. Ground Nos. 1 to 10 raised by the assessee are hence, allowed. - SHRI G.S.PANNU, PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER For the Appellant : S/Shri Nageshwar Rao Akshay Uppal, Advocates For the Respondent : Shri Bhuvnesh Kulshrestha, CIT DR ORDER PER KUL BHARAT, JUDICIAL MEMBER : Both appeals filed by the assessee are directed against the separate orders of Assessing Officer passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 ( the Act ) dated 06.06.2022 and 09.06.2022 for Assessment Years ( AYs ) 2018-19 and 2019-20 respectively. Since identical grounds have been raised, both appeals were taken up together for hearing and are being disposed off by way of this consoli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India through NCR Corporation India Private Limited ( NCR India ), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant. 3.4. Impugned order erred in assuming that the Appellant is procuring orders and executing sales to Indian customers through NCR India without appreciating that NCR India transacts with Indian customers on its own account on a principal-to-principal basis and not as an Agent of the Appellant. 3.5. Ld. AO! Ld. DRP have lightly ignored the fact on record that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India itself in its manufacturing business and thus, the allegation of NCR India procuring orders and executing sales on behalf of Appellant is ex- facie erroneous and without any basis consequently destroying very basis of allegation on existence of Agency PE. 4. Ld. AO erred and Ld. DRP erred in confirming the allegation that NCR India is acting as a agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP erred, in law and on fact, in including consideration received towards sale of hardware amounting to INR 37,10,69,493 while computing the alleged income attributable to the PE without appreciating that existence of PE has been alleged only in respect of the software distribution activities and sale of hardware has not even been alleged to be connected to the PE. 9. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP has erred, in law and on fact, in assuming 35% of the gross amount of international transactions as the business income accruing from the business of Appellant in India on an arbitrary basis without any basis, explanation and reasoning. 10. Without prejudice to the above grounds of appeal, Id. AO/ Ld. DRP has erred, in law and on fact, in arbitrarily considering 70% of the business income to be attributable to the alleged PE in India, on the pretext that substantial sales and marketing activities are being carried out in India. Other grounds: 11. The Ld. AO has erred in levying interest of INR 2,43,96,870 under Section 234B of the Act. 12. The Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate the facts in right prospective. He reiterated the submissions as made in the written submissions. Ld. Counsel for the assessee submitted that the finding of Ld.DRP in respect of existence of fixed place/agency PE of the appellant in India is without any factual foundation and basis. He further contended that the Revenue failed to discharge initial burden of proof to establish PE of appellant in India. He placed reliance on the judgment of Hon ble Supreme Court in the case of ADIT vs E-Funds IT Solution Inc. [2017] 399 ITR 34 (SC). Further, reliance was placed on the judgement of Hon ble Supreme Court in the case of Formula One World Championship [2017] 394 ITR 80 (SC). On a without prejudice basis, it was submitted that the impugned transactions of sale of software/hardware was undertaken from outside India to group company in India i.e. NCR Corporation India Pvt.Ltd. were subjected to transfer pricing scrutiny in hands of the alleged PE and were accepted to be at arm s length, nothing further would be attributable to the alleged PE in India as per decision of Hon ble Supreme Court in case of DIT vs Morgan Stanley Co. [2007] 292 ITR 416 (SC). In support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Remarks Date of Order Remarks 2015-16 NCR GSL 30.11.2016 130,89,24,300 17.12.2018 (Pg 451-452 of Factual PB-AY 2018-19) No adverse inference drawn 24.10.2018 (Pg 455-456 of Factual PB-AY 2018- 19) NO adverse inference drawn. NCR India 08.06.2019 (modified ROI) 10,38,50,770 25.02.2019 ld.AO incorporated transfer pricing adjustments made towards margins earned in software development segment and disallowed payment of Royalty, and disallowed provision for product support and service expenses. 29.10.2018 In the TP Study report, NCR India considered cost of import of software and hardware purchases from NCR GSL as part of Operating cost for benchmarking of Complete solution Provider ( CSP ) Segment. After TP Scrutiny, ld. TPO did not find fault with above approach, and arm's length price was accepted. The on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCR India 10.06.2019 (modified ROI) 63,51,84,590 29.07.2022 Ld.AO incorporated transfer pricing adjustments made towards margins earned in software service provider segment and imputed notional interest on outstanding receivables. 29.03.2019 (pg 342-444 of Factual PB-Ay 2018- 19) In the TP Study of NCR India (Pg 215- 341 of Factual PB - AY 2018-19), the same consistent approach as in earlier years of treating purchase of software and hardware from NCR GSL as Principal-to-principal transaction, and including in operating cost for TP benchmarking of CSP Segment was continued. Consistently, Ld. TPO did not find fault with above approach, and arm's length price was accepted. The only adjustment made by Ld. TPO was towards software development segment. 2019-20 (currently in dispute before the Hon ble Tribunal) NCR GSL (Currently in dispute before the Hon ble Tribunal) 24.09.2020 23,25,76,760 09.06.2022 (Pg 10-39 of Appeal set) Ld. AO held that NCR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for sale of software cannot be lawfully characterised as Royalty and subjected to tax under the Act read with Article 12 of IndiaIreland DTAA. Further, existence or otherwise of permanent establishment is a factual exercise and the onus is on department to establish the same. In this regard, Appellant relies on decision of Hon'ble Delhi high court in case of Nortel Networks India International Inc. vs. DIT: [2016] 386 ITR 353 (Delhi). As per the documents and submissions on record, it cannot be denied that sale of software/ hardware by Appellant was to NCR India only and to no other party. The routine and perfunctory allegation of NCR India being a Dependent Agent Permanent Establishment concluding sales on behalf of Appellant is without any factual foundation and contrary to facts. Moreover, no material whatsoever is cited by department in support of claim of Fixed Place PE during the period in appeal. For all these reasons there is no merit in the contentions of the Department. Ld. DRP and following therefrom the final assessment order concludes without any basis to the contrary and further proceeds to arbitrarily attribute huge amounts to non-existent Permanent Establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the name of the assessee by the Indian customers. Moreover, the Revenue failed to rebut the fact that impugned transaction of sale of software/hardware was undertaken outside India to group company in India and were subjected to transfer pricing scrutiny in the hands of the alleged PE and same was accepted to be at arm s length price. Therefore, nothing further would be attributable to the alleged PE. Hon ble Supreme Court in the case of DIT vs Morgan Stanely Co. (supra) has held as under:- 33. To conclude, we hold that the AAR was right in ruling that MSAS would be a Service PE in India under Article 5(2)(l), though only on account of the services to be performed by the deputationists deployed by MSCo and not on account of stewardship activities. As regards income attributable to the PE (MSAS) we hold that the Transactional Net Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS. We accept as correct the computation of the remuneration based on cost plus mark-up worked out at 29% on the operating costs of MSAS. This position is also accepted by the Assessing Officer in his order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 9. Looking to the facts of the present case, we find merit into the contention of the assessee that the Assessing Authority was not justified in making addition in the hands of the assessee when in the case of alleged PE of the assessee, the transactions have been treated to be arm s length price. Furthermore, the assessee has pointed out that while making addition, the AO has also included the transaction related to hardware whereas allegation of PE is related to software. In the light of the binding precedents, we are of the considered vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleging that the Appellant has a Fixed place of business in India to carry on the business. 3.2. Impugned order erred in ignoring relevant and complete facts brought on record explaining Appellant's business with Indian entity and proceeded on unsubstantiated and imaginary presumptions to hold existence of PE and further perpetuated such error by attributing income on imaginary and baseless presumptions. 3.3. Ld. AO erred and Ld. DRP erred in confirming existence of a Fixed place of business in India through NCR Corporation India Private Limited ( NCR India ), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant. 3.4. Impugned order erred in assuming that the Appellant is procuring orders and executing sales to Indian customers through NCR India without appreciating that NCR India transacts with Indian customers on its own account on a principal-to-principal basis and not as an Agent of the Appellant. 3.5. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, purely based on speculations and without taking cognizance of the fact that profits/ income earned in relation to activities in India (by alleged PE, i.e., NCR India), have already been offered to tax in India and margin earned on such activities has been accepted to be at arm's length. 7. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on facts, in attributing the profit to the alleged PE in India, in an arbitrary manner and not as per the authorized OECD approach, which is based on a separate and distinct enterprise approach. 8. Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP erred, in law and on facts, in including consideration received towards sale of hardware amounting to INR 1,08,21,81,046 while computing the alleged income attributable to the PE without appreciating that existence of PE has been alleged only in respect of the software distribution activities and sale of hardware has not even been alleged to be connected to the PE. 9. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP has erred, in law and on facts, in assuming 35% of the gross amount of international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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