M/s. BAE Systems Plc, Gurgaon V. DCIT (International Taxation), New Delhi

CO 186/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7540 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 27-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K AGGARWAL
• Assessee Lawyers: SATPAL GULATI
• Keywords: Transfer pricing; Double taxation relief; Source of fund; Permanent establishment
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 6212/DEL./2016 ASSESSMENT YEAR: 2010-11 DCIT(INTERNATIONAL TAXATION), CIRCLE-1(1)(2), NEW DELHI VS. M/S. BAE SYSTEMS PLC. C/O.-BSR & CO., DLF CORPORATE PARK, DLF CITY, PHASE-III, GURGAON PAN :AAACB1214C (APPELLANT) (RESPONDENT) AND C.O. NO.186/DEL/2018 [IN ITA NO.6212/DEL./2016] ASSESSMENT YEAR: 2010-11 M/S. BAE SYSTEMS PLC. C/O.-BSR & CO., DLF CORPORATE PARK, DLFB CITY, PHASE-III, GURGAON NEW DELHI VS. DCIT(INTERNATIONAL TAXATION), CIRCLE-1(1)(2), NEW DELHI PAN :AAACB1214C (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SATPAL GULATI, CIT(DR) RESPONDENT BY SHRI S.K. AGGARWAL, CA DATE OF HEARING 14.01.2020 DATE OF PRONOUNCEMENT 20.03.2020 2 ITA NO.6212/DEL./2016 & C.O. NO.186/DEL/2018 ORDER PER O.P. KANT, AM: THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST ORDER DATED 30/09/201 6 PASSED BY THE LEARNED CIT(APPEALS)-38, NEW DELHI [IN SHORT TH E LD. CIT(A)] FOR ASSESSMENT YEAR 2010-11. THE GROUNDS RAISED IN THE APPEAL ARE REPRODUCED AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS AND CONTRARY TO FACT & LAW. 2. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON F ACTS AND OF THE CASE IN HOLDING THAT THE LIAISON OFFICER DO NOT C ONSTITUTE ASSESSEES PERMANENT ESTABLISHMENT IN INDIA WITHOUT PROPERLY APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY OR ALTER ANY GROUND OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 2. THE GROUNDS RAISED IN THE CROSS OBJECTION ARE REPR ODUCED AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME-TAX (APPEALS ) [CIT(A)] HAS ERRED, AFTER HAVING HELD THAT AS LIAISON OFFICES D O NOT CONSTITUTE PE IN INDIA, THE QUESTION OF ATTRIBUTION OF ANY PRO FITS OR INCOME U/S 92 OF THE IT ACT DO NOT ARISE, NOT TO HAVE SPECIFI CALLY DIRECTED TO DELETE THE ADDITION, THOUGH SHE HAS IMPLIEDLY DELET ED THE ADDITION. 2. THAT THE RESPONDENT RESERVES ITS RIGHT TO ADD, A LTER, AMEND OR WITHDRAW ANY GROUND OF CROSS-OBJECTION EITHER BEFOR E OR AT THE TIME OF HEARING OF THIS APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY INCORPORATED UNDER THE LAWS OF THE ENGLAND AND WALES WITH ITS REGISTERED OFFICE LOCATED AT 6, CARLTON GA RDENS, LONDON SW 1Y 5AD, UNITED KINGDOM. THE ASSESSEE PROVIDES SE RVICES OF 3 ITA NO.6212/DEL./2016 & C.O. NO.186/DEL/2018 TREASURY, COMPANY SECRETARIAL, LEGAL, GROUP STRATEG Y AND PLANNING, GROUP FINANCIAL REPORTING, GROUP COMMUNIC ATION, MARKETING ANALYSIS, CENTRAL MARKETING ETC. TO ITS ASSOCIATED COMPANIES. THE ASSESSEE HAD SET UP LIAISON OFFICES IN INDIA LICENSING/ ACTING AS A COMMUNICATION CHANNEL FOR TH E BAE GROUP. THE LIAISON OFFICES AT NEW DELHI AND BANGALORE WERE INITIALLY SET UP BY THE ASSESSEE FOR A PERIOD OF TWO YEARS AS PER THE APPROVAL GRANTED BY THE RESERVE BANK OF INDIA(RBI) VIDE LETT ER DATED 07/08/1981 AND THEREAFTER THE RBI EXTENDED ITS APPR OVAL TO CONTINUE THE LIAISON OFFICES FROM TIME TO TIME, UPO N APPLICATION OF THE ASSESSEE. 3.1 THE ASSESSEE FILED RETURN OF INCOME FOR THE YEAR U NDER CONSIDERATION ON 13/10/2010 DECLARING NIL INCOME. T HE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY ASS ESSMENT AND STATUTORY NOTICES ISSUED UNDER INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WERE DULY COMPLIED. THE ASSESSING OFFICER FOL LOWING THE FINDING OF HIS PREDECESSOR IN ASSESSMENT YEAR 2006- 07 AND 2007- 08 HELD THAT THE LIAISON OFFICE IN INDIA CONSTITUTE THE PERMANENT ESTABLISHMENT (PE) OF THE ASSESSEE IN INDIA AS PER PARAGRAPH 1 AND PROVISIONS OF PARAGRAPH (J) AND (K) OF PARAGRAP H 2 OF ARTICLE 5 OF THE TAX TREATY BETWEEN INDIA AND THE UK OBSERVIN G AS UNDER: 3. THE FACTUAL MATRIX AND THE BUSINESS MODE IN THE SUBJECT ASSESSMENT YEAR IS IDENTICAL WITH THAT IN AYS 2006- 07 AND 2007-08, WHEREIN THE LIAISON OFFICES OF THE ASSESSEE WERE FO UND TO CONSTITUTE ITS PE IN INDIA. DURING THE ASSESSMENT PROCEEDINGS, REFERENCE WAS ALSO MADE TO TRANSFER PRICING OFFICER ON DATE TO DE TERMINE ARM'S LENGTH PRICE WITH RESPECT TO THE SERVICES RENDERED BY THE ESTABLISHED PERMANENT ESTABLISHMENT OF THE ASSESSEE. IN ORDER D ATED 22.01.2014 PASSED U/S 92 CA(3) OF THE ACT, THE TRAN SFER PRICING OFFICER HAS CONCLUDED THAT THE PROFIT ATTRIBUTABLE TO THE ASSESSEE'S PE FOR ITS INCOME GENERATING ACTIVITIES IN INDIA CO MES TO RS 3,56,30/339/-. THE SAME AMOUNT IS ACCORDINGLY PROPO SED TO BE 4 ITA NO.6212/DEL./2016 & C.O. NO.186/DEL/2018 ADDED TO THE RETURNED INCOME OF THE ASSESSEE. SATIS FACTION IS HEREBY RECORDED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND HAS CONCEALED ITS INCOME. 3.2 ON FURTHER APPEAL, THE LD. CIT(A) AFTER CONSIDERIN G SUBMISSION OF THE ASSESSEE AND FOLLOWING THE DECISI ONS OF HIS PREDECESSORS ON THE ISSUE IN DISPUTE HELD THAT LIAI SON OFFICES DO NOT CONSTITUTE PE IN INDIA. THE FINDING OF THE LD. CIT(A) IS REPRODUCED AS UNDER: 4.4 IN VIEW OF THE FACT THAT THE FACTUAL MATRIX FO R THE CURRENT YEAR IS SAME AS THAT IN THE PREVIOUS AYS 2006-07 TO 2008-09 , AND THAT THE SAME ISSUE HAS BEEN CONSIDERED AND DECIDED IN FAVOR OF THE APPELLANT, I CONCUR WITH THE ORDERS OF THE CIT(A) - XXIX AND CIT(A) - XXIX IN THE PREVIOUS AY 2006-07 AND AYS 2007-07 AND 2008-09 RESPECTIVELY. CONSEQUENTLY, AS LIAISON OFFICES DO N OT CONSTITUTE PE IN INDIA, THE QUESTION OF ATTRIBUTION OF ANY PROFITS O R INCOME U/S 92 OF THE IT ACT DO NOT ARISE. 3.3 AGGRIEVED, THE REVENUE IS BEFORE THE TRIBUNAL RAIS ING THE GROUNDS AS REPRODUCED ABOVE. 4. AT THE OUTSET, THE LEARNED COUNSEL OF THE ASSESSEE FILED PAPER-BOOK CONTAINING PAGES 1 TO 429 AND SUBMITTED THAT IN ASSESSMENT YEAR 2006-07, THE ORDER OF THE LD. CIT(A ) ATTAINED FINALITY AS NO APPEAL WAS PREFERRED BY THE REVENUE AGAINST THE SAID ORDER. FURTHER, IN ASSESSMENT YEAR 2007-08 AND 2008-09, THE LEARNED ASSESSING OFFICER PASSED THE ORDERS PLA CING RELIANCE ON THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 AND HELD THAT THE LIAISON OFFICE (LO) CONSTITUTES PERMANENT ESTABLISHMENT (PE) OF THE ASSESSEE IN INDIA, HOWEVER, THE LD. CIT (A) QUASHED THE SAID ASSESSMENT ORDER BY HIS CONSOLIDATED ORDER DAT ED 24/01/2013 FOR ASSESSMENT YEAR 2007-08 AND 2008-09. SUBSEQUENTLY, THE REVENUE PREFERRED APPEAL BEFORE T HE TRIBUNAL 5 ITA NO.6212/DEL./2016 & C.O. NO.186/DEL/2018 AND THE TRIBUNAL VIDE CONSOLIDATED ORDER DATED 17/0 3/2017 FOR ASSESSMENT YEAR 2007-08 AND 2008-09 DISMISSED THE A PPEAL OF THE REVENUE APPROVING THE ORDER OF THE LD. CIT(A). THE LEARNED COUNSEL SUBMITTED THAT FACTS FOR THE YEAR UNDER CON SIDERATION BEING IDENTICAL TO THE FACTS FOR THE ASSESSMENT YEA R 2006-07 TO ASSESSMENT YEAR 2008-09, THE ORDER OF THE LD. CIT(A ) IN THE YEAR UNDER CONSIDERATION MIGHT BE UPHELD. 5. ON THE CONTRARY, THE LEARNED DR RELIED ON THE ORDE R OF THE ASSESSING OFFICER. 6. WE HAVE HEARD THE SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE. IT IS UNDISPUTED THAT THE LEARNED ASSESSIN G OFFICER HAS RELIED ON THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 AND 2007-08 FOR HOLDING THAT LO OF THE ASSESSEE IN INDI A CONSTITUTE PE IN INDIA AND LD. CIT(A) ALSO FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSESSMENT YEAR 2006-07 TO 2008-09 HAS DELETED THE ADDITION HOLDING THAT LO DO NOT CONSTITUTE PE IN INDIA. WE F IND THAT THE TRIBUNAL IN ITA NO. 2014 AND 2015/DEL/2013 FOR ASSE SSMENT YEAR 2007-08 AND 2008- 09 CONCURRED THE FINDING OF THE LD. CIT(A). THE RELEVANT FINDING OF THE TRIBUNAL IS REPRODUCED AS U NDER: 19.7 ON THE BASIS OF AFORESAID DISCUSSION, IT CAN BE CONCLUDED THAT THE PRESUMPTION WHICH CAN VALIDLY BE RAISED IN THIS CASE THAT LOS DO NOT CONSTITUTE A PE AS NO VIOLATION WAS NOTICED BY THE RBI. THIS PRESUMPTION HAS NOT BEEN REBUTTED BY THE AO BY BRIN GING ANY POSITIVE MATERIAL TO SHOW THAT ANY SUBSTANTIVE BUSI NESS ACTIVITY WAS CARRIED ON BY THE ASSESSEE IN INDIA. 19.8 THEREFORE, WE ARE OF THE VIEW THAT THE LOS DO NOT CONSTITUTE PE OF THE ASSESSEE IN INDIA. THUS, IT IS HELD THAT ALT HOUGH THE ASSESSEE HAS A FIXED PLACE OF BUSINESS IN INDIA, THERE IS NO EVIDENCE ON RECORD THAT ANY SUBSTANTIVE BUSINESS ACTIVITY HAS BEEN CAR RIED ON FROM THIS PLACE. THE FINDING OF THE AO IN HIS ORDER THAT THE LOS CONSTITUTE PE OF THE ASSESSEE UNDER PARAGRAPH 1 AND CLAUSE (J) AND ( K) OF PARAGRAPH 2 OF ARTICLE 5 OF THE DTAA IS THUS MISCONCEIVED AND IS BASED ON NO MATERIAL. FURTHER, SINCE NO INCOME ACCRUES OR ARISE S TO THE ASSESSEE 6 ITA NO.6212/DEL./2016 & C.O. NO.186/DEL/2018 IN INDIA, NO INCOME CAN BE DEEMED TO ACCRUE OR ARIS E TO THE ASSESSEE IN INDIA BY INVOKING EXCLUSIONARY CLAUSE (E), AS HE LD IN THE CASE OF UAE EXCHANGE CENTRE LTD. (SUPRA). 19.9 FURTHER, WE ALSO CONCUR WITH THE ORDER OF THE ID. CIT(A) AND AFFIRM THE FOLLOWING FINDINGS: 19.9.1 THE AO HAS NOT POINTED OUT THAT THE LOS HAVE BEEN DOING ANY COMMERCIAL ACTIVITY IN CONTRAVENTION OF C ONDITIONS IMPOSED BY 19.9.2 THE E-MAILS OF BAE SYSTEMS (OPERATIONS) LIMI TED HAVE JUST BEEN DOWNLOADED BY THE LOS AND FORWARDED TO THE GOV T, OF INDIA. THE LOS HAVE NOT CREATED THOSE E-MAILS. THESE WERE SENT BY BAE SYSTEMS (OPERATIONS) LIMITED. 19.9.3 THE AO HAS NOT ESTABLISHED THAT THE BUSINESS OF THE ASSESSEE IS CARRIED OUT WHOLLY OR PARTLY THROUGH THE LOS AS REQUIRED UNDER ARTICLE 5(1) OF THE DTAA. 19.9. HOW ARTICLE 5(2)(J) IS APPLICABLE TO THE LOS HAS NOT BEEN ESTABLISHED. 19.9.5 HOW ARTICLE 5(2)(K) IS APPLICABLE TO LOS HAS NOT BEEN ESTABLISHED BY THE AO. 19.9.6 THE LOS CANNOT BE TREATED TO BE THE PE OF TH E APPELLANT UNDER ARTICLE 5 OF THE DTAA. 19.10 ADDITIONALLY, IN THE PRESENT CASE, THE REVENU E HAS ATTEMPTED TO MAKE AN ADJUSTMENT IN ARMS LENGTH PRICE ON THE GROUND THAT THE ASSESSEE DID NOT CHARGE FOR THE SERVICES RENDERED B Y IT TO ITS AE AND AS SUCH THE CONTENTION OF THE REVENUE BEFORE THE AU THORITIES WAS THAT, A BENEFIT HAS BEEN GIVEN BY THE ASSESSEE TO I TS AE AND THUS AN INCOME ACCRUED TO THE ASSESSEE. IN THIS REGARD, WE CONCUR WITH THE ID. AR. THAT ALL THE SUPPOSITION THAT, HAD THE ASSE SSEE CHARGED THE AE, IT WOULD HAVE EARNED AN INCOME, IS BASED ON A C ONCEPT THAT, THERE IS A NOTIONAL INCOME. THIS HAS BEEN REJECTED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE (SUPRA), WHEREIN IT WAS HELD THAT UNDER THE PROVISIONS OF CHAPTER X OF THE ACT, NOTIONAL INCOME CANNOT BE BROUGHT TO TAX. IN FACT, THE ASSES SEE HAS NO SOURCES OF INCOME IN INDIA AND EXPENSES INCURRED HA VE ALSO NOT BEEN CLAIMED AS EXPENDITURE ALLOWABLE TO IT. 19.11 FURTHER, THERE BEING NO ACCRUAL OF INCOME OR ANY SUM RECEIVED, IT IS BEYOND THE SCOPE OF SECTION 5 OF THE ACT. SIN CE, THE ASSESSEE HAD NO PE IN INDIA, THERE IS NO QUESTION OF ATTRIBU TION OF THE REVENUE. 7 ITA NO.6212/DEL./2016 & C.O. NO.186/DEL/2018 7. THE ISSUE IN DISPUTE INVOLVED IN THE PRESENT APPEA L BEING IDENTICAL TO ISSUE INVOLVED IN ASSESSMENT YEAR 2007 -08 AND 2008- 09, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL (SUPRA), WE UPHOLD THE FINDING OF THE LD. CIT(A) ON THE ISSUE I N DISPUTE THAT LOS OF THE ASSESSEE DO NOT CONSTITUTE PE IN INDIA A ND DISMISS THE GROUND OF THE APPEAL RAISED BY THE REVENUE. 8. THE LEARNED COUNSEL OF THE ASSESSEE DID NOT PRESS CROSS OBJECTIONS BEFORE US AND SUBMITTED TO TREAT THE SAM E IS WITHDRAWN. ALSO IN VIEW OF OUR FINDING THAT THE LOS DO NOT CONSTITUTE PE IN INDIA, THE ARGUMENT OF THE ASSESSE E THAT LD. CIT HAS NOT DIRECTED SPECIFICALLY TO DELETE THE ADDITIO N FOR PROFIT ATTRIBUTION, IS RENDERED ACADEMIC IN NATURE. THE CR OSS OBJECTION FILED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2020. SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 TH MARCH, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI