M/s. Prodelin Corporation, New Delhi V. ADIT, New Delhi

CO 50/DEL/2014

AI Insights

The case involves Prodelin Corporation, a US-based company engaged in manufacturing and supplying antennas, which had a wholly owned subsidiary in India, Prodelin India Pvt. Ltd. The dispute centered on whether Prodelin Corporation had a Permanent Establishment (PE) in India, which would subject it to Indian taxation on income earned. The Assessing Officer (AO) initially determined that the assessee had a PE in India and assessed its income accordingly. The Commissioner of Income Tax (Appeals) upheld this finding but modified the profit attribution percentage. The assessee contested these findings, leading to the current appeal before the Income Tax Appellate Tribunal, which ultimately ruled in favor of the assessee by rejecting the existence of a PE in India.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131194 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 11 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-02-2023
• Assessment Year: 2004-2005
• Appeal Filed On: 10-02-2014
• Other Referred Cases: Rolls Royce PLC Vs. DDIT (2008) 113 TTJ 448 (Del)
• Laws Referred To: Income Tax Act, 1961, India-US Double Taxation Avoidance Agreement
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect; Permanent establishment
• Section: 143(3); 142(1); 113

Judgement Text

Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER CO No. 50/Del/2014 (In ITA No. 1210/Del/2012) (Assessment Year: 2004-05) Prodelin Corporation, (now merged with General Dynamics SATCOM Technolgoeis Inc, C/o. Prodelin India Pvt. Ltd, C81, Basement, Dayanand Colony, Lajpat Nagar IV, New Delhi VS. ADIT, Circle-2(1), New Delhi (Appellant) (Respondent) Assessee by : Shri Vishal Kalra, Adv Ms. Sumisha Murgai, AR Revenue by: Shri Sanjay Kumar, Sr. DR Date of Hearing 06/02/2023 Date of pronouncement 09/02/2023 O R D E R PER ANUBHAV SHARMA, J. M.: 1. The present cross objection been preferred by the Assessee against the order dated 06.12.2011 of Ld. Commissioner of Income Tax (Appeals)-XXIX, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') in appeal No. 60/07-08 arising out of an appeal before it against the order dated 27.12.2006 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the Id Assessing Officer, Dy. Director of Income Tax, Circle-2(1), New Delhi (hereinafter referred as the Ld. AO). 2. Facts in brief are that the Assessee is a company incorporated in United States and is engaged in the business of manufacturing and supply of various types of antennas and reflectors. It had wholly owned subsidiary in India, namely Prodelin India Pvt. Ltd (PIPL) to which it supplied antennas etc. PIPL was also engaged in the manufacturing parts locally. As the assessee did not earn any taxable income in India it did not file any return. However, in pursuance to the notice u/s 142(1) of the Act return was filed. Subsequently, assessment was CO No. 50/Del/2014 (In ITA No. 1210/Del/2012) Prodelin Corporation Page | 2 completed by assessment order dated 27.12.2006 determining total income at Rs. 40,42,026/-. The ld AO had held that the assessee had a permanent establishment (PE) in India by way of Fixed Place PE, Agency PE, Service PE and installation/ supervisory PE. The ld CIT(A) upheld the findings of the ld AO to the extent that the Indian associated enterprises was considered Agency PE. However, accepting the contention of the assessee with regard to the attribution of profit it directed to adopt net profit @7.58 % as against 11.43% adopted by the ld AO. Further, applying the decision of the Delhi Bench in case of Rolls Royce PLC Vs. DDIT (2008) 113 TTJ 448 (Del) the ld CIT(A) attributed 35% of the profit of sales regarding percentage of income attributable in India. At the same time in relation to sales made to the Agency PE Enterprises it held that transactions are at arm’s length. 3. The Revenue had come in appeal and the same was dismissed owing to low tax effect and the assessee had also filed cross objection on following grounds:- “1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) [“CIT(A)’] erred in upholding that the Assessee has a permanent establishment (“PE”) in India, in the nature of agency PE in terms of Article 5 of the India- US Double Taxation Avoidance Agreement (“DTAA”). 2. That on the facts and circumstances of the case and in law, the CIT(A) has erred in not deleting the arbitrary/ adhoc attribution to the alleged PE @ 50% made by the Assessing Officer (“AO”) and further erred in upholding the adhoc attribution to the extent of 35 percent by merely placing reliance on the decision of the Delhi Bench of the Tribunal in the case of Rolls Royce PLc vs DIT [2008] 113 TTJ 446 (Del). 3. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding levy of interest under section 234A of the Act.” 4. Heard and perused the record. 5. The basic argument of the ld AR was that the ld CIT(A) has fallen an error in concluding that the assessee has Agency PE in India in the form of Associated Enterprises. It was submitted that there was no evidence on the record to show that the alleged agency habitually exercised agency to conclude contract for principal. It was submitted that in fact that two AEs are only the customers of the assessee and the assessee had engaged services of M/s. Zamana Consultants Pvt. Ltd for procuring business on commission basis. It was submitted that M/s. Emlec Associates had been appointed as representative of Tripoint Global Asia Pvt. Ltd and not of the assessee. Referring to the copies of CO No. 50/Del/2014 (In ITA No. 1210/Del/2012) Prodelin Corporation Page | 3 the invoices available in PB it was submitted that except in case of a purchase made by Govt Enterprises STPI there was no role of local AEs in procuring or administrating the sales. It was submitted that the public enterprises wanted a local address and the same was given by the AEs. Referring to purchase order made available in the paper book it was submitted that the orders were being fulfilled by the assessee company on its own account. It was submitted that without any evidence the Ld Tax Authorities Below have concluded that existence of PE in India. 6. The ld DR further relied on the findings of the Ld. Tax Authorities Below. 7. In regard to ground No. 1 of the cross objection giving thoughtful consideration to the matter on record and submission it can be observed that the ld AO had primarily taken into consideration circumstances around the transactions between assessee and it’s AE to concluded that the assessee company was being supported in identification of potential customers and to render sales, service etc. However, the ld AO had not discussed any specific piece of evidence or any clauses of agreements to draw the aforesaid conclusion. 8. So far the agreement between the assessee and Zamana Consultants Pvt. Ltd. is concerned the ld AO was carried by the benefit of discounted commission rates extended to the associated enterprises Prodeline India Pvt Ltd also to conclude there was agency. The bench is of considered opinion that if any benefit is derived by the AE out of an agreement between the Principal and 3 rd party that would not be sufficient to impute that the AE was beneficial arm of the assessee company. Important is to enquire what did AE do to serve the interest of principal, which is lacking in the orders of Ld. Tax authorities. 9. There is force in the contention of the ld AR on the basis of copies of invoices on record that a meager part of the total sale reflected in the purchase order and invoices have reference to a AE and to which also there was an explanation that the transaction with STPI was an independent transaction and AE was not beneficiary or accessory to the transaction. 10. The ld CIT(A) had duly taken into consideration the fact that only a portion of income from supplies to 3rd party was attributed in India and no part form the supplies of the third parties can be attributed in India. In that case CO No. 50/Del/2014 (In ITA No. 1210/Del/2012) Prodelin Corporation Page | 4 without there being substantial evidence of active role of AE or an individual for identification of potential customers and to conclude the orders of assessee, PE Agency has been wrongly sustained by Ld. CIT(A). Thus, the bench is inclined to decide this ground of cross objections in favour of the assessee. That being so as it is concluded that there was no PE, the other ground of attribution of income, becomes adjunct issue and accordingly, decided in favour of the assessee. 11. In the result, the cross objection of the Assessee is allowed. Order pronounced in the open court on 09/02/2023. -Sd/- -Sd/- (N. K. BILLAIYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 09/02/2023 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi