Hind Energy & Coal Benefication (India) Ltd., Bilaspur V. ITO (International Taxation & Transfer Pricing), Bhopal

ITA 107/Ind/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3984 (ITAT-INDORE)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 07-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Keywords: Capital asset; Transfer pricing; Double taxation relief; Deemed to accrue or arise in india; Additional evidence; Permanent establishment; Non-deduction of tax; Prejudicial to interest; TDS; Set aside
• Section: 2; 133(6); 201(1); 143(1); 195; 201; 208; 64; 43; 48; 9(1); 9(1); 9(1); 195A; 2(A); 13; 22; 101; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.107/IND/2019 ASSESSMENT YEAR: 2015-16 M/S. HIND ENERGY & COAL BENEFICATION (INDIA) LTD. HIND HOUSE, SAIPARISAR COMMERCIAL COMPLEX, SHRIKANTVARMAMARG, BILASPURCHHATISHGARH / VS. ITO (INTERNATIONAL TAXATION & TRANSFER PRICING), INDORE ( APPELLANT ) ( RE VENUE ) PAN: AABCH5699C APPELLANT BY SHRI SUMIT NEMA, SR. ADV. RE VENUE BY SMT. ASHIMA GUPTA , CIT - DR DATE OF HEARING: 15.06.2019 DATE OF PRONOUNCEMENT: 21.08.2019 / O R D E R PER MANISH BORAD, A.M: THE ABOVE CAPTIONED APPEAL PERTAINING TO ASSESSMENT YEAR 2015-16 FILED AT THE INSTANCE OF THE ASSESSEE IS DI RECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-13 , AHMEDABAD, (IN SHORT CIT(A)), DATED 21.12.2018 WHICH IS ARIS ING OUT OF THE ORDER HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 2 U/S 201(1) & 201(1A) R.W.S. 195 OF THE INCOME TAX A CT 1961(HEREINAFTER CALLED AS THE ACT) FRAMED ON 01. 09.2016 BY ITO(INTERNATIONAL TAXATION), BHOPAL. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: THE FOLLOWING GROUNDS OF APPEAL ARE DISTINCT AND S EPARATE AND WITHOUT PREJUDICE TO EACH OTHER: 1. NON-APPLICABILITY OF TDS ON PAYMENTS TOWARDS IM PORT OF COAL 1 (A) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) -13, AHMEDABAD ['LD. CIT (A)'] HAS ERRED IN LAW AND ON F ACTS IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER ('AO') IN T REATING THE APPELLANT AS AN ASSESSEE IN DEFAULT U/S 201 (1) OF THE INCOME TAX ACT, 1961 ('THE ACT') AND RAISING DEMAND OF RS. 7,15,88,395/- [INCLUDING INTEREST OF RS. 1,24,86,591/- U/S 201 (1 )(1A) OF THE ACT] FOR NON-DEDUCTION OF TAX A T SOURCE U/S 195 OF THE ACT ON PAYMENTS MADE TO THE FOLLOWING NO N-RESIDENT SUPPLIERS TOWARDS IMPORT OF COAL. (I) PT BARA JAYA UTAMA, INDONESIA ('PT BARA JAYA') (II) BROOKLYN ENTERPRISE PTE. LTD., SINGAPORE ('BRO OKLYN ENTERPRISE') (III) AVANI RESOURCES PTE. LTD., SINGAPORE ('AVANI RESOUR CES') (IV) SUEK AG, SWITZERLAND ('SUEK AG') 1 (B) THE LD. CIT (A) HAS ERRED IN LAW AND ON FACT S IN HOLDING THAT THE NON-RESIDENT SUPPLIERS OF COAL HAD BUSINESS CONNECT ION IN INDIA BY VIRTUE OF EXPLANATION 2 TO SECTION 9(1 )(I) OF THE ACT AS WELL AS PERMANENT ESTABLISHMENT ('PE') AS PER ARTICLE 5 OF THE RESPEC TIVE DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA') APPLICABLE TO SUCH NON -RESIDENT SUPPLIERS. 1 (C) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RELYING ON INFORMATION AVAILABLE IN PUBLIC DOMAIN TO CONCLUDE THAT NON-RESIDENT SUPPLIERS FROM WHOM THE APPELLANT PURCHASED COAL WE RE HAVING A BUSINESS CONNECTION AND PE IN INDIA. 1 (D) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE AO IN TREATING THE INDEPENDENT AGENT IN INDIA VIZ. SOUTHERN PACIFIC ENERGY PVT. LTD. ('SOUTHERN PACIFIC') AS BU SINESS CONNECTION IN INDIA OF NON-RESIDENT SUPPLIERS OF COAL WITHOUT APPRECIAT ING THE PROVISIONS OF SECTION 9 OF THE ACT AND ARTICLES OF THE RESPECTIVE DT AA APPLICABLE TO SUCH NON-RESIDENT SUPPLIERS. 1 (E) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT OUT OF FOUR NONRESIDENT SUPPLIERS VIZ. PT BARA JAYA , BROOKLYN ENTERPRISE, AVANI RESOURCES AND SUEK AG FROM WHOM THE APPELLANT IMPORTED COAL, SOUTHERN PACIFIC ACTED AS AN AGENT OF THE APPELLANT FOR IMPORT OF COAL FROM TWO SUPPLIERS VIZ. PT BARA JAYA AND BROOKLYN ENTERP RISE AND APPELLANT HAD PAID AGENCY COMMISSION TO SOUTHERN PACIFIC FOR PROVIDING ASSISTANCE IN IMPORTING COAL FROM THESE TWO NON-RESIDENT SUPPL IERS. THE LD. CIT (A) HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 3 OUGHT TO HAVE APPRECIATED THAT PAYMENT OF COMMISSIO N BY THE APPELLANT TO SOUTHERN PACIFIC ITSELF PROVES THAT SOUTHERN PACIFI C HAD PROVIDED SERVICES TO THE APPELLANT AND NOT TO PT BARA JAYA AND BROOKL YN ENTERPRISES AND HENCE INFERENCE DRAWN BY THE AO THAT SOUTHERN PACIF IC IS AN EXCLUSIVE AGENT OF PT BARA JAYA AND BROOKLYN ENTERPRISE IS NO T CORRECT. 1 (F) WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE LD. C1T(A) HAS ERRED IN UPHOLDING ACTION OF THE AO AS REGARDS THE MANNER OF PROFIT ATTRIBUTABLE TO THE ALLEGED PE OF NON-RESIDENT SUPPLIERS IN INDI A. 2. NON-APPLICABILITY OF TDS ON PAYMENTS TOWARDS IN SPECTION CHARGES 2(A) THE LD. C1T(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE AO IN TREATING THE APPELLANT AS ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT AND RAISING DEMAND OF RS. 1,12,453/ - [INCL UDING INTEREST OF RS. 24,599/- U/S 201 (1 )(1A) OF THE ACT] FOR NON-DEDUC TION OF TAX AT SOURCE U/S 195 OF THE ACT ON PAYMENT OF RS. 2,55,886/- TOW ARDS INSPECTION CHARGES BY TREATING THE SAME AS FEES FOR TECHNICAL SERVICES. 3. THE LD. CIT (A) ERRED IN OVERLOOKING THE RELEVANT I NFORMATION AND MATERIAL AVAILABLE ON RECORD AND OBSERVING LACK OF INFORMATI ON AND HAS INSTEAD MADE OBSERVATIONS CONTRARY TO THE MATERIAL INFORMAT ION AVAILABLE ON RECORD RENDERING HIS FINDINGS TO BE SUCH WHICH NO R EASONABLE PERSON DULY BRIEFED IN THE MATTER COULD HAVE EVER REACHED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, R ESCIND, SUPPLEMENT OR ALTER THE GROUNDS TAKEN HEREINABOVE EITHER BEFORE O R AT THE TIME OF HEARING OF THIS APPEAL 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE REC ORDS ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINE SS OF TRADING IN COAL. THE ASSESSEE IS RESPONSIBLE FOR DEDUCTING TAX A SOURCE UNDER CHAPTER 15 OF I.T. RULES, 1961. DURING THE F INANCIAL YEAR 2014-15 ASSESSEE IMPORTED COAL FROM FOLLOWING FOUR NON-RESIDENT SUPPLIERS; 1.PT BARA JAYA UTAMA, INDONESIA ('PT BARA JAYA') 2. BROOKLYN ENTERPRISE PTE. LTD., SINGAPORE ('BROOKLYN ENTERPRISE') 3. AVANI RESOURCES PTE. LTD. SINGAPORE ('AVANI RESOURC ES') AND 4. SUEK AG, SWITZERLAND. ('SUEK AG') HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 4 4. FROM THE ABOVE REFERRED FOUR PARTIES COAL VALUED AT RS.86,07,05,873/- WAS IMPORTED THROUGH THE COMMON B ROKER NAMELY SOUTHERN PACIFIC ENERGY PVT. LTD.( IN SHORT SPEPL), GURGAON, HARYANA. DURING THE YEAR UNDER APPEAL THE APPELLANT ALSO REMITTED AMOUNT OF RS.2,55,886/- FOR OBTAINING INS PECTION REPORT FROM NON-RESIDENT INSPECTING AGENCY VIZ. PT ARTH BU ANA, INDONESIA. FOR THE PURPOSE OF MAKING THE PAYMENTS ASSESSEE FIL ED FORM 15CA OF THE I.T. RULES REGARDING REMITTANCES OF VARIOUS PAYMENTS TO THE ABOVE STATED NON-RESIDENT SELLERS. NO TAX WAS DEDU CTED AT SOURCE U/S 195 OF THE ACT. LD. A.O ON OBSERVING THAT NO T AX HAS BEEN DEDUCTED AT SOURCE ON THE ABOVE STATED PAYMENTS FOR PURCHASE OF COAL AND INSPECTION CHARGES CONFRONTED THE ASSESSEE VIDE SHOW CAUSE NOTICE DATED 27.6.2016 FOR WHY NOT TREATING T HE ASSESSEE IN DEFAULT U/S 201(1) AND 201(1A) OF THE ACT AND SEEKI NG AS TO WHY NOT THE NON-RESIDENT SELLERS BE SUBJECT TO TAX IN INDIA ON THE PROFITS EARNED BY THEM FROM THE SAID TRANSACTION OF EXPORT ING COAL TO INDIA THROUGH AGENT NAMELY SPEPL AND ALSO WHY THE TAX HAS NOT BEEN DEDUCTED AT SOURCE ON THE TECHNICAL SERVICES I.E. I NSPECTION CHARGES PAID TO THE NON-RESIDENT INSPECTION AGENCY. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 5 5. DURING THE COURSE OF HEARING ASSESSEE GAVE DETAILED REPLY SUBMITTING THAT SPEPL IS AN INDEPENDENT AGENT PROVI DING SERVICES TO IMPORTERS AND EXPORTERS OF COAL BY BRINGING THE TWO INTERESTED PARTIES TOGETHER. ALL THE NEGOTIATION ABOUT THE RA TE OF COAL IS PURELY BETWEEN THE ASSESSEE AND NON-RESIDENT SELLER. THE AGENT I.E. SPEPL IS NOT AUTHORIZED TO NEGOTIATE WITH EITHER OF THE PARTIES. AGREEMENTS HAVE BEEN ENTERED INTO BETWEEN THE ASSES SEE AND SOME OF THE ALLEGED NON-RESIDENT SELLER FOR THE CONTRACT OF IMPORTING THE COAL. ASSESSEE HAS ALSO FILED THE DETAILS ABOUT S TEP BY STEP PROCESS OF IMPORTING COAL SUPPORTED WITH THE REQUIREMENT OF GRADE AND QUANTITY OF COAL AS WELL AS THE RATES. 6. LD. A.O ALSO ISSUED NOTICE U/S 133(6) OF THE ACT ON 12.07.2016 RAISING VARIOUS QUARRIES TO SPEPL. THE BROKER FURN ISHED VARIOUS INFORMATION IN REPLY TO THESE QUESTIONS WHICH MAINL Y POINTED OUT THAT SPEPL IS WORKING AS AN INDEPENDENT AGENCY AND IN NO CASE CAN BE TREATED AS AN AGENT SOLELY WORKING ON BEHALF OF PARTICULAR NON-RESIDENT SUPPLIER. ASSESSEE ALSO FILED THE AGRE EMENTS WITH THE NON-RESIDENT SELLERS AND THE CONTRACT ENTERED INTO WITH THE AGENT SPEPL. IT WAS ALSO SUBMITTED THAT TAX HAS BEEN DEDU CTED AT SOURCE ON THE COMMISSION CHARGES PAID TO SPEPL. IN VIEW O F THESE HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 6 SUBMISSIONS ASSESSEE SUBMITTED THAT SINCE THERE WAS NO PERMANENT ESTABLISHMENT (PE) OF THE NON-RESIDENT SU PPLIERS OF COAL, THERE STOOD NO LIABILITY OF DEDUCTION OF TAX AT SOU RCE U/S 195 OF THE ACT. 7. LD. ASSESSING OFFICER HOWEVER WAS NOT CONVINCED AND HE WHILE PASSING ORDER DATED 01.09.2016 U/S 201(1)/201(1A) R. W. S. 195 OF THE INCOME TAX ACT, 1961 ('THE ACT'), HELD THAT IMP ORT OF COAL BY THE APPELLANT THROUGH BROKER VIZ. SPEPL CONSTITUTES BUS INESS CONNECTION AND NON-RESIDENTS SELLERS IN INDIA AND A CCORDINGLY ESTIMATED 10% INCOME ON THE ALLEGED PURCHASES FROM NON-RESIDENT SELLERS AS TAXABLE INCOME IN INDIA. HE FURTHER HELD THAT INSPECTION CHARGES PAID BY THE APPELLANT FALLS WITHIN THE DEFI NITION OF FEES FOR TECHNICAL SERVICES ('FTS') AND ACCORDINGLY LIABLE T O DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 8. ACCORDINGLY LD. A.O CALCULATED THE TDS AND INT EREST LIABILITY ON THE ALLEGED PAYMENT FOR IMPORT OF COAL AND TECHN ICAL SERVICE CHARGES PAID TO NON-RESIDENT SUPPLIERS/AGENCY TOTAL ING TO RS.7,17,00,848/-IN THE FOLLOWING MANNER; HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 7 IMPORT OF COAL NAME OF TOTAL AMOUNT PROFIT - GROSSED UP- DEFAULT OF DATE OF INTEREST U/S NO NON- REMITTED ESTIMATED AMOUNT AS PER TDS ACT PAYMENT 201(1)/ . RESIDENT AT 10% OF SECTION 195A 41.20% 201(1A) AMOUNT OF THE ACT (A) OF THE ACT. REMITTED (B) 1. PT BARA JAYA, 9,86,01,190 98,60,119 1,64,33,532 67,70,615 17.06.14 18,95,772 2. PT BARA JAYA 8,68,94,500 86,89,450 1,44,82,417 59,66,756 19.11.14 13,72,354 3. PT BARA JAYA 8,52,39,000 85,23,900 1,42,06,500 58,53,078 05.03.15 11,12,085 4. BROOKLYN 14,54,53,440 1,45,45,344 2,42,42,240 99,87,803 10.12.14 21,97,317 ENTERPRISE 5. AVANI RESOURCES 15,10,28,237 1,51,02,824 2,51,71,373 1,03,70,606 12.12.14 22,81,533 6. SUEK AG 29,34,89,506 2,93,48,951 4,89,14,918 2,01,552,946 24.04.15 36,27,530 SUBTOTAL (A) 86,07,05,873 8,60,70,588 14,34,50,980 5,91,01,804 1,24,86,591 TECHNICAL SERVICES NAME OF RECIPIENT TOTAL AMOUNT REMITTED IN RS. GROSS UP AMOUNT AS PER SECTION 195A OF THE ACT DEFAULT OF TDS @ 25.75% AS PER ACT INCL. CESS DATE OF PAYMENT INTEREST U/S 201(1)/1(A) OF THE ACT PT ARTH BUNANA, INDONESIA 2,55,886/- 3,41,181/- 87,854/- 19.06.14 24,599/- 9. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE TH E LD. CIT(A) BUT COULD NOT SUCCEED ON ANY OF THE GROUNDS AS LD. CIT( A) AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AS WELL AS OBSERVATIONS OF THE LD. A.O DISMISSED BOTH THE GROUNDS RAISED BY TH E ASSESSEE OBSERVING AS FOLLOWS; 7.1 I HAVE GONE THROUGH THE OBSERVATIONS OF THE A O IN DETAIL AND I HAVE ALSO DULY CONSIDERED THE ARGUMENTS OF TH E APPELLANT IN DETAIL. THE APPELLANT HAS CLAIMED THAT M/ S SOUTHERN PACIFIC ENERGY PVT. LTD, IS AN AGENT OF INDEPENDENT STATUS. THE CONTENT ION OF THE HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 8 APPELLANT THAT NO INCOME ACCRUES OR ARISES TO NON-R ESIDENT VENDOR IN THE TRANSACTION OF SUPPLY OF COAL IN INDI A HAS BEEN DULY CONSIDERED. IT IS OBSERVED THAT WHEN THE APPEL LANT CONTACTED NON-RESIDENTS FOR THE PURCHASE OF COAL, I T WAS NOT A PRINCIPAL-TO-PRINCIPAL DEALING. THE APPELLANT WAS D EALING WITH AGENTS OF THE NON-RESIDENT PRINCIPALS. ON BARE READING OF SECTION 9 OF THE IT ACT, IT IS EVIDENT THAT ALL INCOME ACCR UING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA WOULD BE DEEMED TO ACCRUE OR AR ISE IN INDIA. ACCORDINGLY, QUESTION ARISE AS TO WHETHER THERE EXI ST ANY BUSINESS CONNECTION OF NON-RESIDENT IN INDIA. EXPLA NATION 2 TO SECTION 9(1)(I) IS WORTH READING, WHICH IS REPRODUC ED HEREIN BELOW: EXPLANATION 2- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT 'BUSINESS CONNECTION ' SHALL INCLUDE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A PERSON WHO, ACTING ON BEHALFOFTHE NON-RES IDENT, - (A) HAS AND HABITUALLY EXERCISES IN INDIA, AN AUTH ORITY TO 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 AUTHORITY , BUT LUZBITUALLY MAINTAINS IN INDIA A S TOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIVERS GOO DS OR MERCHANDISE ON BEHALF OF THE NON-RESIDENT; OR (C) HABITUALLY SECURES ORDERS IN INDIA, MAINLY OR WHOLLY FOR THE NON RESIDENT OR FOR THAT NON-RESIDENT OR THAT NONRESIDE NT AND OTHER NON- RESIDENTS CONTROLLING, CONTROLLED BY OR SUBJECTTO T HE SAME COMMON CONTROL, AS THAT O(NON- RESIDENT : PROVIDED THAT SUCH BUSINESS CONNECTION SHALL NOT INCLUDE AN Y BUSINESS ACTIVITY CARRIED OUT THROUGH A BROKER, GEN ERAL COMMISSION AGENT OR ANY OTHER AGENT HAVING AN INDEPENDENT STAT US IS ACTING IN THE ORDINARY COURSE OF THE BUSINESS . PROVIDED FURTHER THAT WHERE SUCH BROKER, GENERAL CO MMISSION AGENT OR ANY OTHER AGENT WORKS MAINLY OR WHOLLY ON BEHALF OF A N ONRESIDENT THEREAFTER IN THIS PROVISO REFERRED TO AS THE PRINCIPAL NON-RESID ENT) OR ON BEHALF OF SUCH NON-RESIDENT AND OTHER NON-RESIDENTS WHICH ARE CONT ROLLED BY THE PRINCIPAL NON-RESIDENT OR HAVE A CONTROLLING INTEREST IN THE PRINCIPAL NON-RESIDENT OR ARE SUBJECT TO THE SAME COMMON CONTROL AS THE PRINC IPAL NON-RESIDENT, HE SHALL NOT BE DEEMED TO BE A BROKER, GENERAL COMMISS ION AGENT OR AN AGENT OF AN INDEPENDENT STATUS. IF HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 9 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THAT THE AGENT HAD IMPORTANT ROLE IN CONCLUDING THE CONT RACT AND HAD AUTHORITY TO NEGOTIATE THE DEALING ON BEHALF OF THE NON- RESIDENT. ACCORDINGLY, THE ASSESSING OFFICER HAS HE LD THAT THERE EXISTS BUSINESS CONNECTION OF NON- RESIDENT IN INDI A BY OBSERVING THAT THE AGENT EXERCISES AUTHORITY TO CON CLUDE CONTRACT ON BEHALF OF THE NON-RESIDENT PRINCIPALS. FURTHER, PARA 33 OF ARTICLE 5 OF OEEDCOMMENTARY REA D AS UNDER: 'ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOP MENT (OECD) MODEL OF CONVENTION (MC), COMMENTARY 2010 ARTICLE 5, DESCRIBES SOME SITUATION WHERE THE AGENT MAY BE TREATED AS HAVING DEEMED AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE NO N RESIDENTS: FOR TAX TREATY PURPOSES, AN AGENT CAN BE SAID TO BE AUTHORIZED IF HIS ACTIONS ARE BELIEVED BY A THIRD PARTY TO BE BAS ED ON AUTHORIZATION. THAT BELIEF MAY BE INDUCED BY THE AG ENT'S POSITION IN THE PRINCIPAL'S ORGANIZATION AND CONDUC T OF THE PRINCIPAL. IF THE CONCLUSION OF A CONTRACT IS BASED ON SUCH BELIEF THE PRINCIPAL IS OBLIGED TO RESPECT IRRESPECTIVE OF WHETHER OR NOT THE AGENT HAS BEEN SPECIFICALLY AUTHORIZED OR OCCUP YING SPECIFIC POSITION IN THE PRINCIPAL ORGANIZATION. LACK OF ACT IVE INVOLVEMENT BY AN ENTERPRISE IN THE TRANSACTION MAY BE INDICATIVE OF THE GRANT OF AUTHORITY ON AN AGENT. THE EXPRESSION 'TO CONCLUDE CONTRACTS' HAS NOT BEEN DEFINED; WHETHER IT COULD MEAN NEGOTIATION OR SIGNING OR BOTH. IN DECIDING, WHAT IS TO BE SEEN WHERE CORE BUSINESS ACTIVITIES ARE PERFORMED. NORMALLY IT IS WHERE THE CONTRACT IS NEGOTIATED. IF SIGNING IS MERE FORM ALITY AND HAS NO MATERIAL INFLUENCE ON THE NEGOTIATED OBLIGATIONS, THEN CONCLUSION OF NEGOTIATIONS IS THE CONCLUSION OF A CONTRACT. THUS, A PERSON WHO IS AUTHORIZED TO NEGOTIATE ALL ELEMENTS AND DETAILS OF A CONTRACT IN A WAY BINDING ON THE ENTERPRISE CAN BE SAID TO BE EXERCISING HIS AUTHORITY IN THAT STATE, EVEN IF THE CONTRACT IS SIGNED BY ANOTHER PERSON IN STATE IN WHICH THE ENTERPRISE IS SITUATED OR IF THE FIRST PERSON HAS NOT FORMALLY BE GIVEN THE POWER TO REPRESENTATION. (SEE OECD COMMENTARY, ARTICLE 5, PARAGRAPH 33)' ACCORDINGLY, IT IS IMPORTANT TO ASCERTAIN AS TO WHET HER THE AGENT HAS AUTHORITY TO CONCLUDE THE CONTRACT PARTICULARLY IN VIEW OF OECD COMMENTARY WHICH SAYS THAT AUTHORITY TO NEGOTI ATE MAY BE TREATED AS DEEMED AUTHORITY TO CONCLUDE CONTRACT IN CERTAIN HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 10 CIRCUMSTANCES. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND WRITTE N SUBMISSION OF THE APPELLANT IN THIS REGARD. FOR EXIS TENCE OF A DEPENDENT AGENCY PERMANENT ESTABLISHMENT, THE AGENT MUST BE AUTHORIZED TO CONCLUDE CONTRACTS ON BEHALF OF THE F OREIGN ENTERPRISE. BUT, THAT AUTHORITY NEED NOT BE EXPLICIT - IT COULD BE EVEN IMPLIED. THE ASSESSING OFFICER HAS ALSO SUBSTANTIATED EXISTENC E OF AUTHORITY BY THE AGENTS TO NEGOTIATE THE CONTRACT I N ITS ORDER. THE APPELLANT COULD NOT SUBMIT ANY COGENT EVIDENCE AS TO NON- EXISTENCE OF AUTHORITY BY THE AGENTS TO NEGOTIATE AL L ASPECTS OF A CONTRACT IN A MANNER THAT EFFECTIVELY BIND THE PRIN CIPAL. THE ARGUMENT DERIVES SUPPORT FROM THE GENERAL RULE OF LAW OF EVIDENCE CODIFIED IN SECTION 106 OF THE EVIDENCE AC T, 1872, AS PER WHICH THE AUTHORITY OF THE AGENT IS A MATTER IN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE WHICH HE HAS TO PROVE AND DEMONSTRATE. AS PER THE PROVISIONS OF THE ACT, THE ONUS IS ON TH E APPELLANT TO PROVE THAT THE AGENTS ARE INDEPENDENT AGENT AND THE PRINCIPAL NEGOTIATED THE CONTRACT. THE BURDEN OF PROVING THE SAME ALWAYS LIES ON THE APPELLANT. ON GOING THROUGH THE SUBMISSI ONS FILED BY THE APPELLANT IT IS SEEN THAT THE APPELLANT HAS NOT PRODUCED ANY COGENT EVIDENCE TO SHOW THAT THE CONTRACT WAS NE GOTIATED BY THE NON-RESIDENT PRINCIPAL. NOW, COMING TO THE PLEA OF THE APPELLANT THAT THE A GENT IS AN INDEPENDENT AGENT, THE PREREQUISITE TO PROVE THAT A N AGENT IS INDEPENDENT, AGENT MUST NOT BE LEGALLY AND / OR ECO NOMICALLY DEPENDENT ON THE PRINCIPAL. IN OTHER WORDS, FOR EXISTENCE OF AN INDEPENDENT AGE NCY AND NO PERMANENT ESTABLISHMENT, THE AGENT MUST BE BOTH LEG ALLY AND ECONOMICALLY INDEPENDENT ON THE PRINCIPAL (THE FORE IGN ENTERPRISE). 8. IN ORDER TO DETERMINE INDEPENDENCE STATUS OF THE AGENT VIS-A- HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 11 VIS ITS PRINCIPAL, COMMENTARY ON ARTICLE 5 OF THE OECD MODEL CONVENTION 2014 NEEDS TO BE REFERRED. THE RELEVANT EXTRACT OF THE PARAGRAPH ARE AS UNDER: (38. WHETHER A PERSON IS INDEPENDENT OF THE ENTERPRISE REPRESENTED DEPENDS ON THE EXTENT OF THE OBLIGATIONS WHICH THIS PERSON HAS VIS-A-VIS THE ENTERPRISE. WHERE THE PERS ON'S COMMERCIAL ACTIVITIES FOR THE ENTERPRISE ARE SUBJEC T TO DETAILED INSTRUCTIONS OR TO COMPREHENSIVE CONTROL BY IT, SUCH PERSON CANNOT BE REGARDED AS INDEPENDENT OF THE ENTERPRISE . ANOTHER IMPORTANT CRITERION WILL BE WHETHER THE ENTREPRENEU RIAL RISK HAS TO BE BORNE BY THE PERSON OR BY THE ENTERPRISE THE PERSON REPRESENTS. 38.3 AN INDEPENDENT AGENT WILL TYPICALLY BE RESPONSIBLE TO HIS PRINCIPAL FOR THE RESULTS OF HIS WORK BUT NOT SUBJE CT TO SIGNIFICANT CONTROL WITH RESPECT TO THE MANNER IN WHICH THAT WORK IS CARRIED OUT. HE WILL NOT BE SUBJECT TO DETAILED INSTRUCTIONS FROM THE PRINCIPAL AS TO THE CONDUCT OF THE WORK. T HE FACT THAT THE PRINCIPAL IS RELYING ON THE SPECIAL SKILL AND KNOWLEDGE OF THE A GENT IS AN INDICATION OF INDEPENDENCE. 38.4 LIMITATIONS ON THE SCALE OF BUSINESS WHICH MAY BE CONDUCTED BY THE AGENT CLEARLY AFFECT THE SCOPE OF THE AGENT' S AUTHORITY. HOWEVER SUCH LIMITATIONS ARE NOT RELEVANT TO DEPEND ENCY WHICH IS DETERMINED BY CONSIDERATION OF THE EXTENT TO WHICH THE AGENT EXERCISES FREEDOM IN THE CONDUCT OF BUSINESS ON BEHALF OF THE PRINCIPAL WITHIN THE SCOPE OF THE AUTHORITY CONFERR ED BY THE AGREEMENT. FURTHER, THE RELEVANT EXTRACT OF US MODEL COMMENTARY ON ARTICLE 5 IS AS UNDER: 'WHETHER THE AGENT AND THE ENTERPRISE ARE INDEPENDE NT IS A FACTUAL DETERMINATION. AMONG THE QUESTIONS TO BE CONSIDERED ARE THE EXTENT TO WHICH THE AGENT OPERATES ON THE BASIS OF INSTRUCTIO NS FROM THE ENTERPRISE. AN AGENT THAT IS SUBJECT TO DETAILED INSTRUCTIONS REGARDING THE CONDUCT OF ITS OPERATIONS OR COMPREHE NSIVE CONTROL BY THE ENTERPRISE IS NOT LEGALLY INDEPENDEN T.' 10. BASED ON ABOVE, CRITERION FOR DETERMINAT ION OF LEGAL INDEPENDENCE OF THE AGENT WITH ITS PRINCIPAL CAN BE SUMMARIZED AS UNDER: 1. SIGNIFICANCE OF CONTROL BY THE PRINCIPAL ON THE AGE NT WITH RESPECT TO THE MANNER IN WHICH THE WORK IS CARRIED OUT; 2. EXTENT OF THE OBLIGATIONS WHICH THE AGENT HAS VIS-A -VIS THE PRINCIPAL WITH RESPECT TO THE WORK CARRIED OUT; 3. EXTENT TO WHICH THE ACTIVITIES OF THE AGENT ARE SUB JECT TO HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 12 DETAILED INSTRUCTIONS OF THE PRINCIPAL WITH RESPECT TO THE WORK CARRIED OUT; 4. RELIANCE ON THE SPECIAL SKILL AND KNOWLEDGE OF THE AGENT BY THE PRINCIPAL; 11. IN THIS REGARD, BEPS CONCERNS ARISING FROM ARTIFICIAL AVOIDANCE OF PE STATUS THROUGH COMMISSIONAIRE ARRAN GEMENT ST AND SIMILAR STRATEGIES NEED TO BE HIGHLIGHTED. IT W AS OBSERVED BY OECD THAT COMMISSIONAIRE ARRANGEMENT AND SIMILAR STRATEGIES WERE PUT IN PLACE PRIMARILY IN ORDER TO ERODE THE TAXABLE BASE OF THE STATE WHERE SALES TOOK PLACE. T HESE STRATEGIES SEEK TO AVOID THE APPLICATION OF ARTICLE 5(5) WHICH INVOLVES SITUATIONS WHERE CONTRACTS WHICH ARE SUBST ANTIALLY NEGOTIATED IN A STATE ARE NOT CONCLUDED IN A STATE BE CAUSE THEY ARE FINALIZED OR AUTHORIZED ABROAD OR WHERE THE PER SON THAT HABITUALLY EXERCISES AN AUTHORITY TO CONCLUDE CONTR ACTS CONSTITUTES AN 'INDEPENDENT AGENT' TO WHICH THE EXC EPTION OF ARTICLE 5(6) APPLIED EVEN THOUGH IT IS CLOSELY RELATED TO THE FOREIGN ENTERPRISE ON BEHALF OF WHICH IT IS ACTING. THEREFORE, AS A MATTER OF POLICY, IT WAS DECIDED IN THE OECD IN THE ACTION PLAN THAT WHERE THE ACTIVITIES THAT AN I NTERMEDIARY EXERCISE IN A COUNTRY ARE INTENDED TO RESULT IN THE REGULAR CONCLUSION OF CONTRACTS TO BE PERFORMED BY A FOREIG N ENTERPRISE, THAT ENTERPRISE SHOULD BE CONSIDERED TO HAVE A SUFFICIENT TAXABLE NEXUS IN THAT COUNTRY UNLESS THE INTERMEDIARY IS PE RFORMING THESE ACTIVITIES IN THE COURSE OF AN INDEPENDENT BU SINESS. IN THE PRESENT CASE, THE INDIAN AGENT DID NOT ACT IN ORDIN ARY COURSE OF BUSINESS OF AN INDEPENDENT AGENT BUT ACTED AS AN IN DIAN REPRESENTATIVE OF THE FOREIGN ENTERPRISE. THE ASSESSING OFFICER HAS SOUGHT INFORMATION U/S 13 3(6) OF THE IT ACT AND ALSO REPRODUCED REPLY RECEIVED FROM THE SAID AGENT TO SUBSTANTIATE THAT THE INDIAN AGENT DID NOT ACT IN O RDINARY COURSE OF BUSINESS OF AN INDEPENDENT AGENT WHEN REP RESENTING NON-RESIDENTS AS THEIR EXCLUSIVE OFFICIAL REPRESENT ATIVE. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 13 OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER INTER ALIA IS AS UNDER: 'THE ASSESSEE HAS SUBMITTED HIS REPLY DATED 07/04/2 016 AND FOLLOWING FACTS HAVE BEEN STATED BY THE ASSESSEE: 1. PLEASE FIND ENCLOSED HEREWITH THE COPY OF AGRE EMENT AGREEMENT WITH PT BARA JAYA UTAMA, INDONESIA AGREEMENT WITH BROOKLINE ENTERPRISE PTE. SINGAPORE AGREEMENT WITH AVANI RESOURCES PTE. LTD, SINGAPORE AGREEMENT WITH SUEK AG, SWITZERLAND ALL ABOVE AGREEMENTS ARE FOR STEAM COAL PURCHASE. FURTHER, THERE IS ADDITIONAL ONE IS QUOTATION FROM M/ S. ARTHA BUANA, INDONESIA FOR CONDUCTING QUALITY ANALYSIS AT LOAD PORT IN INDONES IA. 2. ALL ABOVE COAL PURCHASE CONTRACT HAS BEEN PLACED VIDE EMAIL AND FACILITATED BY A BROKER BASED IN INDIA. A SSIGNMENT TO ARTHA BUANA WAS GIVEN THROUGH BUSINESS REFERENCE. 3. AS PER OUR INFORMATION AND KNOWLEDGE NONE OF TH E ABOVE HAS OFFICE IN INDIA. WE HAVE EXCLUSIVELY COMMUNICATED DEALT WITH THEIR RE SPECTIVE ACCOUNT OFFICE. 4. ALL ABOVE COAL SELLING NON-RESIDENTS HAVE BEEN CONTACTED THROUGH BROKER M/S SOUTHERN PACIFIC ENERG Y PVT. LTD. GURGAON. 5. YES, AS ABOVE. M/S SOUTHERN PACIFIC ENERGY PVT. LTD., GURGAON, HARYANA. PAN: AARCS6495J 6. BROKER HAS FACILITATED THE TRANSACTION E.G. GET WELL NEGOTIATED PRICE FOR US SMOOTH EXECUTION OF AGREEMENT CHANNELIZING COMMUNICATION BETWEEN BOTH ENDS. THE ASSESSEE ITSELF ACCEPTED THAT ALL THE TRANSACTI ONS HAS BEEN MADE THROUGH A BROKER NAMED M/S SOUTHERN PACIF IC ENERGY PVT. LTD., GURGAON AND CONTRACT HAS BEEN PLACED BY EMAIL FACILITATED BY A BROKER BASED IN INDIA. ALL COAL SELLING NON-RESIDENTS HAVE BEEN CONTACTED THROUGH BROKER AN D THE BROKER WELL NEGOTIATED PRICE FOR THE ASSESSEE, ASSI STED TO SMOOTH EXECUTION OF AGREEMENT AND CHANNELIZE COMMUNICATION BETWEEN BOTH ENDS. ON THE BASIS OF THIS INFORMATION THE UNDERSIGNED ISS UED SHOW CAUSE NOTICE DATED 27.04.16, TO TREAT THE BROKER AS BUSINESS CONNECTION OF NON-RESIDENTS IN INDIA. THE REPLY OF THE ASSESSEE A LONG-WITH OTHER DOCUMENTS WAS RECEIVED ON 03.06.2016. THE ASSESSEE HAS ALSO SUBMITTED THE COPY OF MAIL CONVERSATION WITH THE BRO KER M/ S SOUTHERN PACIFIC ENERGY PVT. LTD., GURGAON. THE ASSESSEE HAS DESCRIBED THE PROCESS OF TRANSACTI ON IN HIS REPLY HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 14 AS UNDER: THE PROCESS FOLLOWED FOR PURCHASE OF IMPORTED COAL IS AS UNDER: I. THE REQUIREMENT OF GRADE AND QUANTITY OF COAL IS COMMUNICATED TO THE BROKER. II. THE BROKER ON RECEIVING THE OFFER FROM THE NON-RESI DENT SUPPLIERS FORWARDS THE SAME TO THE ASSESSEE FOR ACCEPTANCE. III. THE ASSESSEE ACCEPTS THE OFFER IF THE PRICE AND THE OTHER TERMS ARE ACCEPTABLE ELSE NEGOTIATES WITH THE NON-RESIDENT SU PPLIER WHO HAD GIVEN THE OFFER FOR BETTER TERMS. THIS COMMUNICATIO N IS DONE THROUGH THE BROKER; SINCE THE OFFER COMES THROUGH HIM. IV. AFTER THE PRICE AND OTHER TERMS ARE AGREED BETWE EN THE ASSESSEE AND THE NON-RESIDENT SUPPLIER A CONTRACT IS ENTERED INTO BETWEEN THE TWO PRINCIPALS I.E. NON RESIDENT SUPPLIER AND THE ASSESSEE FOR THE CONTRACTED QUANTITY OF IMPORTED COAL. V. ONCE THE CONTRACT IS SIGNED A LETTER OF CREDIT IS OPENED BY THE ASSESSEE IN FAVOUR OF THE RESPECTIVE NON-RESIDENT SUPPLIER IN TERMS OF THE CONTRACT AND THE GOODS ARE SHIPPED BY THE NO N-RESIDENT SUPPLIER. VI. THE NON-RESIDENT SUPPLIER SENT THE SHIPPING AND OTHER RELEVANT DOCUMENTS THROUGH BANK, TO THE BANK OF THE ASSESSEE FOR CLAIMING PAYMENT AGAINST THE SAID LETTER OF CREDIT VII. THE GOODS ARE SHIPPED AT BUYER'S RISK I.E. THE ASSE SSEE AND THE TITLE OF THE GOODS PASSES ON TO THE ASSESSEE ONCE T HE PAYMENT IS RECEIVED BY THE SAID NON-RESIDENT SUPPLIER. VIII. THE GOODS ARE RECEIVED BY THE ASSESSEE DIRE CTLY FROM THE NON- RESIDENT SUPPLIER. IX. ON RECEIPT OF SAID GOODS BY THE ASSESSEE THE CONTRA CT IS COMPLETE. COPIES OF EMAIL COMMUNICATION EVIDENCING THE FACTS AS MENTIONED HEREIN ABOVE ARE SUBMITTED SEPARATELY. FROM THE ABOVE REPLY OF THE ASSESSEE IT IS CLEAR THAT THE ASSESSEE APPROACHES TO THE BROKER AS PER HIS REQUIREMENT AND NEGOTIATED THE PRICE THROUGH THE BROKER ONLY. ALL T HE TERMS AND CONDITIONS HAVE BEEN FINALIZED THROUGH THE BROKER O NLY. THE ASSESSEE DID ALL THE CONVERSATION REGARDING FINALIZ ING THE ORDER AND CONCLUDING THE CONTRACT THROUGH BROKER ONLY. WH EN ALL THE TERMS AND CONDITIONS ARE FINALIZED AND PRICE OF THE PRODUCT HAS BEEN NEGOTIATED THROUGH THE BROKER, THE ASSESSEE EN TERED INTO CONTRACT WITH THE NON- RESIDENT. THE ASSESSEE ITSEL F ACCEPTED THAT COMMUNICATION IS DONE THROUGH THE BROKER, SINCE THE OFFER COMES THROUGH HIM. TO CONFIRM THE ROLE OF THE BROKER M/ S. SOUTHERN PACIFIC ENERGY PUT. LTD. GURQAON AND TO ESTABLISH HIM AS A BUSINESS CON NECTION AND PERMANENT ESTABLISHMENT OF NON-RESIDENT IN INDIA, T HE UNDERSIGNED HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 15 ISSUED A NOTICE U/ S. 133(6) OF THE ACT TO THE BROKER ON 12/07/2016 AND RAISED VARIOUS QUERIES. THE BROKER HAS FURNISHE D SOME IMPORTANT INFORMATION IN HIS REPLY BY WHICH IT MAY BE EASILY ESTABLISHED THAT HE IS WORKING AS BUSINESS CONNECTION AND PERMANENT ESTABLISHMENT OF NON-RESIDENT IN INDIA. T HE RELEVANT PORTION OF THE REPLY IS REPRODUCED AS UNDER: Q. WHAT WAS YOUR ROLE WHILE PROCURING ORDERS FOR HIND ENERGY & COAL BENEFICIATION (INDIA) PVT LTD BHOPAL ON BEHALF OF THE ABOVE MENTIONED 4NON-RESIDENTS? ANS. OUR STEP BY STEP CONVERSATION AS BELOW: I) ANY ENTITY, WHETHER RESIDENT OR NON-RESIDENT HAVING ANY REQUIREMENT OF COAL! CONSIGNMENT OF COAL TO OFFER, APPROACHES US FOR OUR SERVICES. WE DISCUSS AND SEND THE REQUIREMENT WITH VARIOUS PROB ABLE SUITORS OF SUCH REQUIREMENTS BASED ON OUR KNOWLEDGE ABOUT TH E SUPPLIER AND BUYERS. OUR COMMISSION IS FINALIZED FOR THE PARTICULAR CONSIGNMENT WITH THE PARTIES AT THE TIME OF OUR INITIAL DISCUSSIONS WITH THEM. II) ONCE FINALIZED, WE TRY TO IDENTIFY THE COUNTER PARTY/PARTIES WHO MAY BE INTERESTED IN THE DEAL AND THEN WE FORWARD THE SAID OFFER TO THE SAID IDENTIFIED PARTY/PARTIES AS RECEIVED FROM THE OFFERING PARTY IF OVER MAIL OR SIMPLY COMMUNICATE VERBALLY IN THE EVE NT OF A VERBAL INTIMATION FROM THE OFFERING PARTY. III) THE INTERESTED COUNTER PARTY SENDS/INTIMATES U S THEIR COUNTER OFFER SPECIFYING THEIR PRICE AND PREFERRED TERMS AND CONDITION WHICH IS AGAIN FORWARDED/ INTIMATED BY US TO THE BUYER OR SELLER IV) THE PROCESS CONTINUES UNTIL THE FINAL PRICE AND OTHER TERMS AND CONDITIONS ARE NEGOTIATED AND FINALIZED BETWEEN THE PARTIES. IN THE ENTIRE PROCESS OUR ROLE IS JUST OF PASSING THE OFFER AND COUNTER OFFER BETWEEN THE PARTIES AND NOWHERE CONCLU DE ANY BUSINESS DEALING ON BEHALF OF ANY PARTY. V) ONCE THE PRICE AND OTHER TERMS & CONDITIONS ARE FINALIZED A FINAL CONTRACT IS ENTERED DIRECTLY BETWEEN THE BUYER AND SELLER IN WHIC H NEITHER WE ARE A PARTY NOR A WITNESS. VI) AFTER THE CONTRACT IS SIGNED, VESSEL NOMINATION IS DONE BY THE RESPONSIBLE PARTY. THE VESSEL NOMINATION IS COMMUNICATED TO US AND WE FORWARD THE SAME AS RECEIVED TO THE COUNTER PARTY. VII) IN THE MEAN-TIME THE BUYER OPENS A LETTER OF C REDIT IN TERMS OF THE FINALIZED CONTRACT, IN FAVOUR OF THE SELLER AND IT IS SENT DIRECTLY BY THE LC ISSUING BANK TO THE SELLERS NOMINATED BANK. VIII) AFTER BEING 100% SATISFIED WITH THE LETTER OF CREDIT, ONLY THEN, THE SELLER LOADS THE CARGO AND IT IS INTIMATED TO THE BUYER THROUGH US. IX) POST LOADING OF THE VESSEL, THE DOCUMENTS RELAT ED TO CARGO LOADED IS PREPARED BY THE SELLER AND WITHIN THE PRESENTATION PE RIOD AS MENTIONED IN THE LC, THE SELLER SENDS THE DOCUMENTS DIRECTLY TO HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 16 BUYER'S BANK AND WITHIN THE DUE DATE, THE SELLER GETS ITS PAYMENT DIRECTLY FROM BANK AGAINST THE SAID LETTER OF CREDIT . X) ONCE THE TRANSACTION IS COMPLETE, WE RAISE OUR BILL FOR OUR BROKERAGE ON OUR CLIENT AND THE BROKERAGE IS RELEASED BY THE CLIENT AS AGREED BETWEEN US. (NOTE- FROM ABOVE SUBMISSION OF THE BROKER IT IS CLEAR THAT ALL THE PROCEDURE OF FINALIZING THE CONTRACT IS DONE BY ASSESSEE AND BROKER. ISSUING OFFER, PRICE NEGOTIATION AND FINALIZATION OF TERMS AND CONDITIONS ARE DONE BETWEEN THE ASSESSEE AND BROKER. ] Q. PLEASE SUBMIT THE COPY OF AGREEMENT EXECUTED BETWEEN YOU AND THE ABOVE MENTIONED 4 NON-RESIDENTS. ANS. WE HAVE A WRITTEN AGREEMENT ONLY WITH M/ S. SUEK AG SWITZERLAND AND THE AGREEMENT IS ENCLOSED REQUIRED. NO FORMAL AGREEMENT EXIST WITH OTHER 2 MENTIONED PARTIES. THE QUESTION OF HAVING ANY AGREEMENT WITH PT BARA JAYA UTAMA INDONE SIA DOES NOT AND CANNOT ARISE SINCE WE HAVE NEVER PROVIDED ANY SER VICES TO THE SAID NON-RESIDENT. (NOTE - THE BROKER HAS SUBMITTED THE COPY OF AGREEMENT WITH ONLY ONE NONRESIDENT. THE ASSESSEE HAS SUBMITTED HI S COMMON REPLY REGARDING ALL THE NON-RESIDENTS AND SU BMITTED A SIMILAR PROCEDURE FOLLOWED BY HIM IN ALL CASES. THE STATEMENT THAT THE BROKER DID NOT PROVIDED ANY SERV ICES TO PT BARA JAYA UTAMA INDONESIA, IS NOT ACCEPTABLE AS THE MAIL CONVERSATION BETWEEN THE ASSESSEE AND BROKER FOR TH IS NON- RESIDENT IS AVAILABLE ON RECORD.) BROKER M/S. SOUTHERN PACIFIC ENERGY PVT. LTD GURGAON HAS SUBMIT TED THE COPY OF AGREEMENT NO. SPEBAA-4458 WITH M/ S. SUEK: AG SWITZERLAND. THE FOLLOWING POINTS OF THE AGREEMENT ARE IMPORTANT AND REPRODUCE HEREUNDER: SUEK SEATS TO EXPAND COAL SALES TO INDIA AND WOULD LIKE TO APPOINT AGENT FOR THE PURPOSE OF EXPANDING ITS COAL SALES H AVING QUALITY PARAMETERS OF NOT LESS THAN 4500KCALL KG AS RECEIVE D BASIS AS GUARANTEED POINT VALUE (HEREINAFTER REFERRED TO AS SPECIFIED COAL) AND PROMOTE COMPANY PROFILE TO THE INDIAN MARKET. (NOTE- SUEK AG SWITZERLAND APPOINTED MIS SOUTHERN P ACIFIC ENERGY PVT LTD GURGAON AS AN AGENT IN INDIA TO EXPAND ITS COAL SALES.) SUEK APPOINTS THE AGENT AS ITS EXCLUSIVE REPRESENTATIVE AND AGENT AND AGENT HEREBY ACCEPTS SAID EXCLUSIVE APPOI NTMENT AS SUEK'S EXCLUSIVE REPRESENTATIVE AND AGENT, IN ORDER TO ASSIST SUEK IN THE FOLLOWING MATTERS CONCERNING PROMOTION OF SP ECIFIED COAL SALES IN INDIA AND ITS TERRITORIES (COLLECTIVELY 'INDIA' OR 'INDIAN MARKET'): 1.1 PROMOTION OF SUEKS SALES OF SPECIFIED COAL IN THE INDIAN MARKET USING AGENT'S EXISTING AND FUTURE BUSINESS RELATIONSHIPS WITH LOCAL HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 17 OFF TAKERS IN INDIA, FOR THE CALENDAR YEAR OF 2013 SUEK GUARANTEES SUPPLY OF THE AGGREGATE VOLUME OF MINIMUM 500,000 ( FIVE HUNDRED THOUSAND) METRIC TONS OF SPECIFIED COAL OF RUSSIAN ORIGIN ('Y2013 GUARANTEED V OLUME'), ANY EXTRA TONS OF SPECIFIED COAL OF RUSSIAN ORIGIN IN ADDITION TO THE Y2013 GUARANTEED VOLUME S HALL BE SUBJECT TO PARTIES MUTUAL AGREEMENT; 1.2 ARRANGEMENT OF TECHNICAL SUPPORT IN NEGOTIATION S BETWEEN SUEK AND RELEVANT OFF TAKER OF SPECIFIED COAL IN IN DIA, IF CONDUCTED WITH PARTICIPATION OF THE OFFICERS OF SUE K. 1.3 PROVISION OF INDIAN MARKET INTELLIGENCE, REGULA R REPORTING INCLUDING VESSEL TRACKING, SHORT, MEDIUM AND LONG TERM MARKET REPORTS FOR INDIA ON MONTHLY BASIS, IN RESPECT OF SPECIFIED COAL 1.4 PROMOTION OF SUEK'S INTERESTS IN CASE OF ANY DI SAGREEMENT OR DISPUTES IN RESPECT OF ANY CONTRACT ENTERED BETWEEN SUEK AND RELEVANT OFF-TAKER AS A RESULT OF THE AGENT'S PARTI CIPATION, WHETHER OR NOT REGARDING THE QUANTITY OR QUALITY OF THE COAL D ELIVERED. (NOTE- SUEK AG SWITZERLAND APPOINTED M/S SOUTHERN PACIFIC ENERGY PVT LTD GURGAON AS AN EXCLUSIVE AGENT IN INDIA AND HE AUTHORIZES THE BROKER TO NEGOTIATE BETWEEN SUEK AND THE RELEVANT PARTIES. HE ALSO GAVE THE VARIOUS RESPONSI BILITY TO THE BROKER RELATED WITH INDIAN MARKET.) EXCLUSIVTY, CONFLICT OF INTEREST 2.1 THE AGENT REPRESENTS AND WARRANTS TO SUEK THAT IT IS ABLE TO ACT AS SUEK'S EXCLUSIVE AGENT IN INDIA FOR THE SPECIFIED C OAL AND IS NOT CURRENTLY ACTING NOR WILL IT ACT IN FUTURE FOR ANY COMPETITOR OF SUEK IN RELATION TO SPECIFIED COAL DURING THE TERM OF THIS AGREEMENT, EXCEPT AS OTHERWISE AGREED HEREIN. 2.2 SUEK REPRESENTS AND WARRANTS TO THE AGENT THAT IN IT HAS NOT APPOINTED NOT WILL IT APPOINT ANY OTHER AGENT FOR MARKING AND PROMOTION OF THE SPECIFIED COAT IN INDIA DURING THE TERM OF THIS AGREEMENT, EXCEPT AS OTHERWISE AGREED HEREIN (NOTE SUEK AG SWITZERLAND APPOINTED M/S SOUTHERN P ACIFIC ENERGY PVT LTD GURGAON AS AN EXCLUSIVE AGENT IN INDIA AND HE ACCEPTED THAT HE WILL NOT APPOINT ANY OTHER AGENT F OR MARKING AND PROMOTION OF THE SPECIFIED COAL IN INDIA MEANS THE BROKER IS EXCLUSIVELY AND WHOLLY WORKING FOR THE NON. RESIDEN T. WHOLE AFFAIRS RELATED WITH INDIAN MARKET FOR THE NON RES IDENT HAVE TO MANAGE BY THE BROKER ONLY.) AS PER THE ABOVE DISCUSSION, IT MAY BE CONCLUDED THAT THE AGENT WAS FULLY INVOLVED DURING THE TRANSACTIONS AND PART S AN IMPORTANT ROLE WHILE MAKING DISCUSSION, NEGOTIATION , COMMUNICATION AND FINALIZING THE DEAL. IN THIS WAY THE AGENT IS DEEMED AUTHORIZED TO CONCLUDE THE CONTRACT ON BEHALF OF NON- RESIDENTS. AS THE AGENT HAS THE AUTHORITY TO NEGOTIATE THE TERMS, HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 18 CONDITIONS AND MAKING D ISCUSSION ON BEHALF OF NON-RESIDENT AND ALSO DOING COMMUNICATION ON BEHALF OF NON-RESIDENT, IT C AN BE GENUINELY SAID THAT HE HAS AUTHORITY TO CONCLUDE THE CONTRACT S ON BEHALF OF NON- RESIDENT. HENCE, HE IS WORKING AS A BUSINESS CONNECTION OF NON- RESIDENT IN INDIA.' THE PARTICIPATION OF AGENTS OR INDIAN REPRESENTATIV ES IN PHASES OF THE NEGOTIATION OR CONCLUSION OF CONTRACTS, FORM ALLY EXECUTED BY OTHER NONRESIDENT COMPANIES, SHOULD BE CONSIDERE D AS DEEMED AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF A FOREIGN COMPANY FOR THE PURPOSES OF ASSESSING THE EXISTENCE OF AN AGENCY PE OR BUSINESS CONNECTION IN INDIA. NEGOTIATION AND SUPERVISION OVER THE PERFORMANCE OF A CONTRACT BETWEEN A RESIDENT AND A NON-RESIDENT SHOULD NOT IN P RINCIPLE BE CONSIDERED AS AN INDEPENDENT ACTIVITY. ASSESSMENT REGARDING THE EXISTENCE OF THE ELEMENTS OF A PE BUSINESS CONNECTION IN INDIA, INCLUDING THAT OF DEPE NDENCE AND THAT OF THE AUTHORITY TO CONCLUDE CONTRACTS, SHOULD BE MADE ON THE BASIS OF THE SUBSTANCE RATHER THAN EXCLUSIVELY O N THE BASIS OF THE MERE LEGAL FORM OF THE BUSINESS TRANSACTIONS . 'OECD REVISED ITS COMMENTARY WITH REFERENCE TO PARA 41 , 42 AND 33 ON ARTICLE 5. OECD GAVE ITS OFFICIAL INTERPRETATIO N IN 2005 AMENDMENT TO THE ME FOR COMPANIES FORMING PART OF MULTINATIONAL GROUPS AND INTRA GROUP SERVICES RENDERED BY THEM WHILE EXAMINING APPLICABILITY OF ARTICLE 5(7) IN SUC H CASES IN THE BACKDROP OF PHILLIP MORRIS CASE. ARTICLE 5(5)- AGENCY PE:- UNDER ARTICLE 5(5) WHERE AN ENTERPRISE DOESN'T HAVE ITS OWN ESTABLISHMENT, IT COULD HAVE A PE THROUGH AN AGENT PR OVIDED THE FOLLOWING TESTS ARE SATISFIED. THE AGENT SHOULD BE AUTHORIZED TO CONCLUDE CONTRACTS ON BEHALF OF THE PRINCIPAL. THE AUTHORITY MAY BE GENERAL OR SP ECIFIC OR LIMITED. HOWEVER, IT SHOULD BE SUCH THAT THE AGENT' S ACTION WOULD BIND THE ENTERPRISE. THE AUTHORITY SHOULD BE WITH RESPECT TO BUSINESS OF THE ENTERPRISE. THE AUTHORIZATION SHO ULD BE CONSTRUED IN SUBSTANCE AND NOT IN FORM. THUS, IF AN AGENT HAS HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 19 THE AUTHORITY TO NEGOTIATE ALL PARTS OF THE CONTRACT IN A MANNER, WHICH IS BINDING ON THE PRINCIPAL BUT THE CONTRACT IS SIGNED OUTSIDE THE SOURCE COUNTRY, THE AGENT COULD BE SAID TO HAVE THE AUTHORITY TO CONCLUDE CONTRACT. ACCORDINGLY, PROVISO TO EXPLANATION (2) OF SECTION 9( L)(I) OF THE IT ACT WOULD NOT BE APPLICABLE AND ACCORDINGLY, CONTENTI ON OF THE APPELLANT THAT AGENTS ARE WORKING IN INDEPENDENT STATUS IS NOT ACCEPTED. 12. IN THE AAR'S RULING IN CASE OF 8002 & COMPANY (AUSTRALIA) PVT., IN RE [14TH FEBRUARY 2014 [2014J 42 TAXMANN.C OM 288 (AAR NEW DELHI); [2014J 265 CTR 449 (AAR - NEW DELH I) IS A GOOD EXAMPLE WHEREIN THE AGENT WAS FOUND TO BE DEPE NDENT UPON THE FOREIGN PRINCIPAL. IT HAS MADE REFERENCE TO THE CASE OF CIT V. R.D. AGGARWAL& CO. [1965J 56 ITR 20 (SC) WHICH HAS BEEN RELIED UPON BY THE AR IN HIS CONTENTIONS. THE RELEV ANT PARA OF THE SAID DECISION IS REPRODUCED HEREIN UNDER- 'IN CL'T V. R.D. AGGARWAL S: CO. [19651 56 ITR 20 (SC) , THE ESSENCE OF THE EXPRESSION IS BROUGHT OUT IN THE FOLLOWING OBSERVAT ION OF THE SUPREME COURT: 'THE EXPRESSION 'BUSINESS CONNECTION' POSTULATES A REAL AND INTIMATE RELATION BETWEEN THE TRADING ACTIVITY CURRIED ON OU TSIDE THE TAXABLE TERRITORIES AND THE TRADING ACTIVITIES WITHIN THE T ERRITORIES, THE RELATION BETWEEN THE TWO CONTRIBUTING TO THE EARNING OF INCO ME BY THE NON-RESIDENT IN HIS TRADING ACTIVITY'. HON'BLE MR . JUSTICE SHAH (AS HE THEN WA:,), FOR TH E PURPOSE OF SECTION 42 OF THE IT ACT, J 922, LAID DOWN, 'BUSINESS CONNECTION' CONTEMPLATED BY SECTION 42 INVOLVES A RELATION BETWEEN A BUSINESS CURRIED ON B Y A NON-RESIDENT WHICH YIELDS PROFITS AND GAINS AND SOME ACTIVITY IN THE TAXABLE TERRITORIES WHICH CONTRIBUTES DIRECTLY OR INDIRECTLY TO THE EAR NING OF THOSE PROFITS OR GAINS. IT PREDICATES AN ELEMENT OF CONTINUITY BETWE EN THE BUSINESS OF NON- RESIDENT AND THE ACTIVITY IN THE TAXABLE TERRITORIES, A STRA Y OR ISOLATED TRANSACTION NOT BEING NORMALLY REGARDED AS A BUSINE SS CONNECTION. ' THE REQUIREMENT OF CONTINUITY OF TRANSACTIONS TO FO RM 'BUSINESS CONNECTION' BETWEEN A NON-RESIDENT AND A RESIDENT WAS LAID DOWN BY THE SUPREME COURT AS LONG BACK IN 1952 IN ANGLO FRENCH TEXTILE CO. LTD. V. CIT (1953) 23 ITR 101 (HON'BLE SUPREME COURT). HON'BLE MR. JUS TICE MAHAJAN (AS HE THEN WAS), SPEAKING FOR THE COURT, OBSERVED, AN IS OLATED TRANSACTION BETWEEN A NON-RESIDENT AND A RESIDENT IN BRITISH IN DIA WITHOUT ANY COURSE OF DEALINGS SUCH AS MIGHT FAIRLY BE DESCRIBED AS A BUSINESS CONNECTION DOES NOT ATTRACT THE APPLICATION OF SECTION 42, BUT WHEN THERE IS A CONTINUITY OF BUSINESS RELATIONSHIP BETWEEN THE PERSON IN BRIT ISH INDIA WHO HELPS TO MAKE THE PROFITS AND THE PERSON OUTSIDE BRITISH IND IA WHO RECEIVES OR REALIZES THE PROFITS, SUCH RELATIONSHIP DOES CONSTI TUTE A BUSINESS HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 20 CONNECTION. THE RATIO DECIDING OF THE ABOVE DECISION IS SQUAREL Y APPLICABLE IN THE CASE ON HAND AS ON PERUSAL OF CASE RECORDS IT IS FOUND T HAT THERE IS CONTINUITY OF TRANSACTIONS BETWEEN AGENT IN INDIA AND NON-RESIDEN TS. 13. FURTHER TO THE ABOVE, ON VERIFICATION OF VARIOU S PARTIES, FROM VARIOUS INFORMATION AVAILABLE IN PUBLIC DOMAIN, FOLLOWING A DDITIONAL FACTS ARE REVEALED. A. SOEK AG, SWIZERLAND HAS AN OFFICE IN INDIA. B. FURTHER, FOR AVANI ENTERPRISES IT IS OBSERVED TH AT THE COMPANY IS OWNED BY INDIAN COMPANY. ACT FOR BOTH BUYER AND SELLER AS PER SECTION 182 OF INDIAN CONTRACT ACT, 1872. 16. THE SAID ARGUMENT OF THE APPELLANT HAS NO MERIT . SECTION 182 OF THE INDIAN CONTRACT ACT, DEFINES THE TERM 'A GENT' AND 'PRINCIPAL'. HOWEVER, WHILE DEFINING THESE TERMS, I T IS NO WHERE PROVIDED IN SECTION 182 OF INDIAN CONTRACT ACT, THA T THE AGENT CANNOT ACT FOR BOTH BUYER AND SELLER. ARRANGEMENT O F AGENT WITH BOTH BUYER AND SELLER ARE INDEPENDENT OF EACH OTHER AND CANNOT BE USED TO INTERPRET BUSINESS ARRANGEMENT WITH OTHE R PARTY. 17. HAVING TAKEN NOTE OF THE AO'S ORDER AND THE OBS ERVATIONS MADE IN HIS ORDER, I AM COMPLETELY IN AGREEMENT WIT H THE AO'S FINDING THAT INDIAN AGENT IS WORKING AS AN EXCLUSIV E AGENT FOR NON-RESIDENTS IN INDIA AND HAS AUTHORITY/DEEMED AUT HORITY TO CONCLUDE/NEGOTIATE THE TERMS AND CONDITIONS WITH TH E CUSTOMERS IN INDIA ON BEHALF OF NON-RESIDENTS. FURTHER, AS ME NTIONED ABOVE THE EXISTENCE OF PRESENCE OF THE OVERSEAS PARTIES I N INDIA AND THEIR BUSINESS CONNECTION IN INDIA CANNOT BE RULED OUT. ACCORDINGLY, I CONSIDER IT PROPER AND APPROPRIATE T O HOLD THAT THE REASONING ASSIGNED BY THE AO FOR CONCLUDING THAT NO N-RESIDENTS HAS BUSINESS CONNECTION IN INDIA BY VIRTUE OF EXPLA NATION 2(A) OF SECTION 9(1)(I) OF THE ACT AS WELL AS PERMANENT EST ABLISHMENT AS PER ARTICLE 5(1) AND 5(4)(A) OF THE DTAA IS JUSTIFI ED. ACCORDINGLY, THIS GROUND IS DISMISSED. 10. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBU NAL RAISING VARIOUS GROUNDS OF APPEAL. GROUND NO. 1(A) TO 1(F) CHALLENGES THE FINDING OF LD. CIT(A) CONFIRMING THE ACTION OF THE LD. A.O OF TREATING ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT THEREBY R AISING DEMAND OF RS.7,15,88,395/- (TAX RS.5,91,01,804/- + INT. RS. 1 ,24,86,591/-) HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 21 FOR NON DEDUCTION OF TAX AT SOURCE U/S 195 OF THE A CT FOR THE PAYMENT FOR IMPORT OF COAL TO THE NON-RESIDENT SUPP LIERS. GROUND NO.2 CHALLENGES THE FINDING OF LD. CIT(A) FOR UPHOL DING THE ACTION OF THE LD. A.O RAISING DEMAND OF RS.1,12,453/- ( TAX R S.87,854/- + INTEREST RS.24,599/-) FOR NON DEDUCTION OF TAX AT S OURCE U/S 195 OF THE ACT FOR PAYMENT OF INSPECTION CHARGES TOP NON-R ESIDENT TREATED IT AS FEES FOR TECHNICAL SERVICES. 11. DURING THE COURSE OF HEARING LD. COUNSEL FOR TH E ASSESSEE MADE APPLICATION UNDER RULE 29 OF THE I.T. ACT 1963 FOR SUBMISSION OF ADDITIONAL EVIDENCE AND SUBMITTED AS UNDER; 1. THAT THE ISSUE IN THE PRESENT CASE IS REGARDING APP LICABILITY OF SECTION 195 R/W SECTION 9 IN RESPECT OF IMPORTS OF COAL. THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ISSUED SUMMONS U/S 133(6) TO M/S SOUTHERN PACIFIC ENERGY P VT. LTD. AND SUBSEQUENTLY HELD THE SAID CONCERN TO BE A PE O F THE NON- RESIDENTS FROM WHOM COAL WAS PURCHASED BY THE APPEL LANT. THE SUBMISSION OF THE APPELLANT WAS THAT THE SAID C ONCERN M/S SOUTHERN PACIFIC ENERGY PVT. LTD. IS HAVING ITS OWN INDEPENDENT STATUS AND HAS BEEN ACTING PURELY AS A COMMISSION AGENT ACTING IN THE ORDINARY COURSE OF H IS BUSINESS AND APART FROM THE 4 ENTITIES FROM WHOM IM PORTS HAVE BEEN MADE BY THE APPELLANT, THE SAID CONCERN I S ACTING AS A COMMISSION AGENT FOR SEVERAL OTHER CONCERNS. 2. THAT THE APPELLANT HAS BEEN ABLE TO PERSUADE THE SA ID COMMISSION AGENT (WHO IS A INDEPENDENT THIRD PARTY OVER WHICH THE APPELLANT HAS NO DOMINION OR CONTROL) TO SHARE THE LIST OF PARTIES FROM WHOM IT HAS RECEIVED COMMISSION DURING THE FY 2014-15 AND ALSO A COPY OF ITS INTIMATION ORDER US/ 143(1). HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 22 BOTH THESE EVIDENCES ARE THIRD PARTY EVIDENCES WHIC H WERE NOT IN POSSESSION OF THE APPELLANT AND WHICH ARE OTHERW ISE ALSO NOT WITHIN THE DOMINION OR CONTROL OF THE APPELLANT AND THEREFORE COULD NOT BE FILED EARLIER. TRUE COPY OF I) THE FORWARDING EMAIL DATED 11/3/2019 RECEIVED FROM M/S SOUTHERN PACIFIC ENERGY PVT. LTD., II) CA CERTIFICA TE ABOUT THE PARTIES AND THE AMOUNT OF COMMISSION RECEIVED B Y M/S SOUTHERN PACIFIC ENERGY PVT. LTD AND III) COPY OF INTIMATION U/S 143(1) FOR FY 2014-15 (AY 2015-16) A RE ANNEXED HEREWITH AS ANNEXURE A/1, A/2 AND A/3 RESPECTIVELY. 3. THAT ANOTHER ISSUE RAISED BY THE LD. CIT(A) WAS THA T ONE OF THE EXPORTER BASED IN SWITZERLAND SUEK AG HAS AN OFFICE IN INDIA. THE APPELLANT HAS DOWNLOADED A COPY OF MASTER DATA OF SUEK AG FROM THE MCA PORTAL WHICH CATEGORICALLY SHOWS TH E SAID INDIA OFFICE TO BE A LIAISON OFFICE. THIS INFORMATI ON IS AVAILABLE IN PUBLIC DOMAIN AND SINCE THIS ISSUE WAS RAISED FO R THE FIRST TIME BY THE LD..CIT(A) THEREFORE THE APPELLANT COUL D NOT GET ANY OPPORTUNITY TO REBUT THE SAME AND THIS DOCUMENT IS THUS NOW BEING FILED AS ADDITIONAL EVIDENCE (ALTHOUGH SI NCE THE SAME IS AVAILABLE IN PUBLIC DOMAIN THEREFORE IN TRU E SPIRIT IT IS NOT ADDITIONAL EVIDENCE) BUT NEVERTHELESS IN ORDER TO COMPLY WITH THE TECHNICALITIES THE SAID DOCUMENT IS ALSO B EING FILED AS A PART OF THIS APPLICATION. TRUE COPY OF THE AFORESAID MCA PORTAL INFORMATION ABOUT SUEK AG IS ANNEXURE A/4. 4. IT IS, THEREFORE, PRAYED THAT THIS HONBLE TRIBUNAL BE PLEASE TO ALLOW THIS APPLICATION FOR TAKING ADDITIONAL EVIDEN CE & THE FOLLOWING 3 DOCUMENTS : I) CA CERTIFICATE ABOUT THE PARTIES AND THE AMOUNT OF COMMISSION RECEIVED BY M/S SOUTHERN PACIFIC ENERGY PVT. LTD II) COPY OF INTIMATION U/S 143(1) FOR FY 2014-15 (AY 2015-16) IN THE CASE OF M/S SOUTHERN PACIFIC ENERGY PVT. LTD. AND III) MCA PORTAL INFORMATION ABOUT SUEK AG HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 23 MAY KINDLY BE ALLOWED TO BE TAKEN ON RECORD AS ADDI TIONAL EVIDENCES IN THE LARGER INTEREST OF JUSTICE. THE RE ASONS FOR FILING THESE DOCUMENTS AT THIS STAGE HAVE BEEN ENUMERATED IN THE PRECEDING PARAGRAPHS AND ARE NOT BEING STATED AGAIN FOR THE SAKE OF BREVITY. 12. THE ABOVE STATED ADDITIONAL EVIDENCE MAINLY INC LUDES THE INTIMATION U/S 143(1) OF THE ACT FOR ASSESSMENT YEA R 2015-16 IN THE CASE OF SPEPL, MC PORTAL INFORMATION ABOUT SUEKAG S HOWING THAT IT HAS A LIAISON OFFICE IN INDIA, EMAIL DATED 19.3. 2019 RECEIVED FROM SPEPL ABOUT CERTIFICATE OF CHARTERED ACCOUNTANT AB OUT THE AMOUNT OF COMMISSION RECEIVED BY SPEPL FROM VARIOUS PARTIE S. SAME WERE CONFRONTED TO BY LD. DEPARTMENTAL REPRESENTATIVE. SINCE THESE ADDITIONAL EVIDENCE GOES TO THE ROOT CAUSE OF THE I SSUE AND SOME OF THEM ARE ON THE PUBLIC PORTAL IT WAS DECIDED TO ADM IT THE ADDITIONAL EVIDENCE IN ORDER TO ADJUDICATE THE ISSUES RAISED B EFORE US. WE THEREFORE ADMIT THESE ADDITIONAL EVIDENCE. 13. WE WILL FIRST TAKE UP GROUND NO.1(A) TO 1(F) TH ROUGH WHICH THE APPELLANTS SOLE GRIEVANCE IS AGAINST THE RAISING OF DEMAND OF RS.7,15,88,395/- FOR NON DEDUCTION OF TAX AT SOURCE ON THE ESTIMATED INCOME ON IMPORT OF COAL FROM NON-RESIDEN T SUPPLIERS. LD. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 24 COUNSEL FOR THE ASSESSEE REFERRED TO FOLLOWING WRIT TEN SUBMISSIONS PLACED BEFORE US DURING THE COURSE OF HEARING. GROUND NO.1(E) & 3 SOUTHERN PACIFIC DID NOT ACT AS AN AGENT OF PT BARA JAYA FOR THE PURPOSE OF IMPORT OF COAL BY THE APPELLANT. IN FACT, SOUTHE RN PACIFIC ACTED AS AN AGENT OF THE APPELLANT FOR PROCUREMENT OF COAL FROM PT BARA JAYA. FOR THE SAID SERVICES, THE APPELLANT PAID TOTAL AGENCY COMM ISSION OF RS. 33,80,112/- TO SOUTHERN PACIFIC FOR PROVIDING ASSIS TANCE IN PROCUREMENT OF COAL FROM PT BARA JAYA. THIS FACTUAL POSITION WA S NOT DISPUTED BY THE AO OR THE CIT(A). VIDE REPLY DT. 5 AUGUST 2016 AGAINST NOTICE U/S 133 (6) ISSUED BY THE AO (REFER EXHIBIT-32 PG. NO. 387-391 OF PB ), SOUTHERN PACIFIC HAS CATEGORICALLY CLARIFIED THAT IT HAD NEVER PROVIDED ANY SERVICES TO PT BARA JAYA. CA CERTIFICATE CERTIFYING PARTY-WISE BREAK-UP OF RE VENUE EARNED BY SOUTHERN PACIFIC DURING FY 2014-15 (REFER ANNEXURE A/2 OF APPLICATION FOR SUBMISSION OF ADDITIONAL EVIDENCE) SUBSTANTIATE S THE FACT THAT NO REVENUE WAS EARNED BY SOUTHERN PACIFIC FROM PT BARA JAYA. FURTHER, PAYMENT OF COMMISSION BY THE APPELLANT TO SOUTHERN PACIFIC PROVES THAT SOUTHERN PACIFIC HAS PROVIDED BROKERAGE SERVICES TO THE APPELLANT AND NOT TO PT BARA JAYA. IN VIEW OF THE ABOVE, TREATING SOUTHERN PACIFIC AS AN AGENT OF PT BARA JAYA THEREBY CONSIDERING SOUTHERN PACIFIC AS BUSIN ESS CONNECTION OF PT BARA JAYA IS FACTUALLY INCORRECT. THEREFORE, TDS DE MAND OF RS. 2,29,70,660/- IN RESPECT OF IMPORT FROM PT BARA JAY A SHOULD BE DELETED. GROUND NO.1(B), 1(D) & 3 STEP-BY-STEP PROCESS CARRIED OUT FOR IMPORT OF COAL THROUGH SOUTHERN PACIFIC IS SUMMARIZED BELOW: HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 25 A) THE APPELLANT APPROACHES SOUTHERN PACIFIC WITH REQU IREMENT OF GRADE AND QUANTITY OF COAL. B) SOUTHERN PACIFIC IDENTIFIES THE SUPPLIER HAVING REQ UISITE GRADE AND QUANTITY OF COAL AND THEN FORWARDS THE REQUIREMENT RECEIVED FROM THE APPELLANT TO THE SUPPLIERS. C) ON RECEIVING THE OFFER FROM THE SUPPLIERS, SOUTHERN PACIFIC FORWARDS THE SAME TO THE APPELLANT FOR ACCEPTANCE. D) THE APPELLANT ACCEPTS THE OFFER IF THE PRICE AND TH E OTHER TERMS ARE ACCEPTABLE AND COMMUNICATES THE SAME TO SOUTHERN PA CIFIC FOR FURTHER FORWARDING TO SUPPLIERS. E) IF THE TERMS AND CONDITIONS ARE NOT ACCEPTABLE, THE N THE APPELLANT COMMUNICATES THE SAME TO SOUTHERN PACIFIC, WHO IN T URN COVEYS THE SAME TO THE SUPPLIERS FOR REVISED OFFER. THE SUPPLI ER PROVIDES REVISED OFFER THROUGH SOUTHERN PACIFIC FOR ACCEPTANCE OF TH E APPELLANT. F) AFTER THE PRICE AND OTHER TERMS ARE AGREED BETWEEN THE APPELLANT AND THE SUPPLIER, A CONTRACT IS ENTERED BETWEEN THE SUP PLIER AND THE APPELLANT FOR THE SUPPLY OF COAL AS PER THE AGREED PRICE, GRADE AND QUANTITY. G) THEREAFTER, THE APPELLANT OPENS A LETTER OF CREDIT (LC) IN FAVOUR OF THE RESPECTIVE SUPPLIER AS PER THE TERMS OF THE CONTRAC T. H) THE SUPPLIER DISPATCHES THE COAL DIRECTLY TO THE AP PELLANT. I) THE SUPPLIER SENDS THE SHIPPING AND OTHER RELEVANT DOCUMENTS THROUGH THEIR LOCAL BANK TO THE BANK OF THE APPELLANT IN IN DIA FOR CLAIMING PAYMENT AGAINST THE SAID LC. J) THE SUPPLIER SHIPS GOODS ON FOB BASIS WHEREIN ALL R ISK PASSES TO THE BUYER I.E. THE APPELLANT IMMEDIATELY AFTER GOODS SE NT THROUGH SHIP AT FOREIGN PORT. FURTHER, THE TITLE OF THE GOODS PASSE S ON TO THE APPELLANT ONCE THE PAYMENT IS RECEIVED BY THE SUPPLIER. K) THE GOODS ARE RECEIVED BY THE APPELLANT DIRECTLY FR OM THE SUPPLIER. ON RECEIPT OF SAID GOODS BY THE APPELLANT, THE CONTRAC T IS COMPLETE. THE OECD COMMENTARY ON AGENCY PERMANENT ESTABLISHME NT (PE) EMPHASIZES ON AGENT HABITUALLY PLAYING THE PRINCIPA L ROLE LEADING TO THE CONCLUSION OF CONTRACTS. E-MAIL COMMUNICATIONS [REFER EXHIBIT-16 TO 18, PG. NO. 208 TO 308 OF PB] , SUBMITTED BEFORE THE CIT(A) VIDE LETTER DT. 2 AUGUS T 2017) BETWEEN THE APPELLANT AND SOUTHERN PACIFIC SUBSTANTIATE THAT SO UTHERN PACIFIC IS MERELY ACTING AS A FACILITATOR BETWEEN THE APPELLANT AND T HE NON-RESIDENT SUPPLIERS. SOUTHERN PACIFIC MERELY COMMUNICATES THE PRICING AN D OTHER TERMS AND HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 26 CONDITIONS OF THE OFFER TO THE OTHER PARTY WHEREBY THE OTHER PARTY COUNTER OFFERS THEIR PRICE AND TERMS AND CONDITIONS WHICH I S INTIMATED TO THE APPELLANT. ON PERUSAL OF THESE E-MAILS, IT CAN BE O BSERVED THAT THE CONTRACT COULD BE FINALIZED ONLY WHEN THE PRICING AND OTHER TERMS AND CONDITIONS ARE AGREED UPON BY THE APPELLANT AND THE NON-RESIDENT S UPPLIERS. IT IS WORTH NOTING THAT WHEN SOUTHERN PACIFIC FORWA RDED OFFER OF THE SUPPLIER TO THE APPELLANT, IT DISTINGUISHED COMMUNICATION FR OM SUPPLIER WITH SEPARATE PARA MARKED AS QUOTE REPRODUCING EXTRACT OF E-MAI L, WHICH IT RECEIVED FROM THE SUPPLIER. THEN SOUTHERN PACIFIC MARKED NEXT PAR A AS UNQUOTE AND WROTE WHATEVER IT WANTED TO COMMUNICATE FROM ITS SI DE. THIS CLEARLY DEMONSTRATES THAT SOUTHERN PACIFIC WAS NOT GIVING A NY OFFER FROM ITS SIDE BUT JUST FORWARDED WHAT WAS RECEIVED FROM THE SUPPLIER AND ACCORDINGLY, HAD NO AUTHORITY TO CONCLUDE CONTRACTS. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT SOUTHERN PACIFIC HAD NO AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE NON-RESIDENT SU PPLIERS. VIDE NOTICE U/S 133(6), THE AO ASKED SOUTHERN PACIF IC TO FURNISH REPLY TO VARIOUS QUERIES INCLUDING INTER-ALIA THE FOLLOWING: 5. HAVE YOU AUTHORIZED BY ANYONE OF THE ABOVE MENT IONED 4 NON- RESIDENTS TO NEGOTIATE THE BUSINESS DEALINGS WITH I NDIAN COMPANIES? 6. HAVE YOU AN AUTHORITY TO CONCLUDE CONTRACTS ON B EHALF OF THE ABOVE MENTIONED 4 NON-RESIDENTS? VIDE REPLY DT. 5 AUGUST 2016 AGAINST THE AFORESAID NOTICE U/S 133(6) ISSUED BY THE AO (REFER EXHIBIT-32 PG. NO. 387-391 OF PB ), SOUTHERN PACIFIC HAS CLARIFIED AS UNDER: QUERY NO. 5 WE ARE NOT AUTHORISED BY M/S BROOKLYN ENTERPRISES PTE. LTD., M/S AVANI RESOURCES PTE. LTD. AND M/S SUEK AG TO NEGOTIATE AN Y BUSINESS DEALINGS ON BEHALF OF THEM. QUERY NO. 6 WE HAVE NO AUTHORITY TO CONCLUDE CONTRACT ON BEHAL F OF M/S BROOKLYN ENTERPRISES PTE. LTD., M/S AVANI RESOURCES PTE. LTD . AND M/S SUEK AG. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 27 FURTHER, SOUTHERN PACIFIC HAS NOT PROVIDED ANY OTHE R SERVICES SUCH AS, SHIPPING, CUSTOM CLEARANCE ACTIVITIES AND CARGO HAN DLING ACTIVITIES ETC. FOR AVAILING SUCH OTHER SERVICES, THE APPELLANT ENGAGED VARIOUS OTHER SERVICE PROVIDERS TO COMPLETE THE IMPORT TRANSACTION. CLAUSE 2.4 OF THE AGREEMENT BETWEEN SOUTHERN PACIFI C AND SUEK AG SPECIFICALLY PROVIDE THAT SOUTHERN PACIFIC HAS NO A UTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF SUEK AG. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT SOUTHERN PACIFIC HAS NO AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF NON-RESIDENTS SUPPL IERS. AS PER OECD COMMENTARY, AN INDEPENDENT AGENT ACTS I N THE ORDINARY COURSE OF BUSINESS AND IS NOT SUBJECT TO SIGNIFICANT CONTR OL BY THE PRINCIPAL. SOUTHERN PACIFIC HAS PROVIDED CA CERTIFICATE CERTIF YING PARTY-WISE BREAKUP OF REVENUE EARNED DURING THE YEAR ENDED 31 MARCH 2015. AS PER THE SAID CERTIFICATE, SOUTHERN PACIFIC HAS EARNED REVENUE FR OM AS MANY AS 21 PARTIES (EXCLUDING THE APPELLANT) APART FROM BROOKLYN ENTER PRISE, AVANI RESOURCES AND SUEK AG. THE SAME SUBSTANTIATES THE FACT THAT S OUTHERN PACIFIC WAS ACTING AS AN INDEPENDENT AGENT. ON PERUSAL OF THE FINANCIAL STATEMENTS OF SOUTHERN PACIFIC FOR THE YEAR ENDED 31 MARCH 2015, IT CAN BE OBSERVED THAT ITS REVENUE FROM OPERATING ACTIVITY IS GENERATED BY PROVIDING BROKING SERVICES. AS SUCH, S ERVICES TO AVANI RESOURCES, BROOKLYN ENTERPRISE AND SUEK AG WERE PRO VIDED BY SOTHERN PACIFIC IN ITS ORDINARY COURSE OF BUSINESS. FURTHER , FROM THE SHAREHOLDING PATTERN OF SOUTHERN PACIFIC (AS PER ITS FINANCIALS) , IT CAN BE OBSERVED THAT NONE OF THE NON-RESIDENT SUPPLIERS HAS ANY CONTROL OVER IT. THE HONBLE MUMBAI ITAT IN THE CASE OF ADIT (IT)-3(2), MUMBAI V. BAY LINES (MAURITIUS) HAS CATEGORICALLY HELD THATFOR DETERMINING THE INDEPENDENCE, ONE SHOULD LOOK AT THE AGENT AND AS T O WHETHER THE AGENT HAS ONLY ONE PRINCIPAL FOR WHOM THE AGENT WORKS EXCLUSI VELY. THE FACT THAT THE PRINCIPAL HAS ONLY ONE AGENT IN INDIA WHO UNDERTAKE S ALL THE ACTIVITIES FOR THE PRINCIPAL IS NOT RELEVANT. THE DECISION RELIED ON BY THE AO IN THE CASE OF DHL OPERATIONS (SUPRA) WAS DISTINGUISHED BY DIT (INTERNATIONAL TAXATION) V. MORGAN STANLEY & CO . INC. [2007] 292 ITR 416/ 162 TAXMAN 165 (SC) . FURTHER, IN THE CASE OF DIT V. B4U INTERNATIONAL HOLDINGS LTD. [2012] 23 TAXMANN.C OM 372 (MUM.) MUMBAI ITAT HAS HELD THAT THE WORDINGS OF ARTICLE 5 .5 VIZ WHEN THE ACTIVITIES OF SUCH AN AGENT ARE DEVOTED EXCLUSIVELY OR ALMOST EXCLUSIVELY ON BEHALF OF THE ASSESSEE ENTERPRISES REFERRED TO THE ACTIVITIES OF AN AGENT AND ITS DEVOTION TO THE NON-RESIDENT AND NOT THE OTHER WAY ROUND. THE P ERSPECTIVE SHOULD BE FROM THE ANGLE OF THE AGENT AND NOT OF THE NON-RESIDENT. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 28 GROUND NO.1(B), 1(C) 1(D) & 3 VIDE LETTER DT. 20 MAY 2016 FILED BEFORE THE AO, SO UTHERN PACIFIC HAS CONFIRMED THE FOLLOWING: A) SOUTHERN PACIFIC IS NOT CONTROLLED BY ANY OF THE NO N-RESIDENT SUPPLIERS. B) SOUTHERN PACIFIC HAS NO AUTHORITY TO CONCLUDE CONTR ACTS ON BEHALF OF ANY SELLER OR BUYER. C) SOUTHERN PACIFIC HAS NO AUTHORITY TO TAKE POSSESSIO N OF THE GOODS ON BEHALF OF ANY SUPPLIER. D) SOUTHERN PACIFIC IS MERELY FACILITATING IN BRINGING THE PURCHASER AND SELLER OF COAL TOGETHER. BASED ON THE ABOVE, SOUTHERN PACIFIC HAS CLARIFIED ITS POSITION THAT IT IS NOT WORKING AS BUSINESS CONNECTION OF ANY NON-RESIDEN T IN INDIA. E-MAIL COMMUNICATIONS [REFER EXHIBIT-16 TO 18, PG. NO. 208 TO 308 OF PB] BETWEEN SOUTHERN PACIFIC AND APPELLANT SUBSTANTIATE THAT SOUTHERN PACIFIC IS MERELY ACTING AS A FACILITATOR BETWEEN THE APPELLAN T AND THE NON-RESIDENT SUPPLIERS. FURTHER, SOUTHERN PACIFIC DOES NOT MAINT AIN OR KEEP STOCK OF COAL ON BEHALF OF NON-RESIDENT SUPPLIER AND PROVIDE DELI VERY OUT OF THE SAME TO THE CUSTOMERS IN INDIA. THE SAME IS EVIDENT FROM TH E FINANCIAL STATEMENTS OF SOUTHERN PACIFIC FOR THE YEAR ENDED 31 MARCH 2015 ( REFER EXHIBIT-22, PG. NO. 316-349 OF PB ) WHEREIN NO INVENTORY IS APPEARING UNDER THE CURRE NT ASSETS. APART FROM PROCUREMENT OF ORDERS, SOUTHERN PACIFIC NEITHER PERFORMED NOR UNDERTAKEN TO PERFORM ANY SERVICE DIRECTLY OR INDIR ECTLY IN RESPECT OF DIRECT SALES OF COAL BY NON-RESIDENT SUPPLIERS TO THE APPE LLANT. ACTIVITIES OF SOUTHERN PACIFIC CANNOT LEAD TO ESTAB LISHMENT OF BUSINESS CONNECTION OF NON-RESIDENT SUPPLIERS SINCE NONE OF THE FOLLOWING CONDITIONS AS PER EXPLANATION (2) TO SECTION 9(1)(I) OF THE AC T ARE FULFILLED. I) HABITUALLY EXERCISING IN INDIA, AN AUTHORITY TO CON CLUDE CONTRACTS ON BEHALF OF THE NON-RESIDENT. II) HAVING NO SUCH AUTHORITY, BUT HABITUALLY MAINTAININ G IN INDIA A STOCK OF GOODS OR MERCHANDISE FROM WHICH IS REGULARLY DELIVE RED ON BEHALF OF THE NON-RESIDENT. HABITUALLY SECURING ORDERS IN INDIA, MAINLY OR WHOL LY FOR THE NON-RESIDENT GROUND NO.1(F) THE NON-RESIDENT SUPPLIERS ADEQUATELY REMUNERATED S OUTHERN PACIFIC FOR SERVICES RENDERED BY IT. FURTHER, THE AO OR THE CIT (A) HAVE NOT DOUBTED HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 29 AMOUNT OF ARMS LENGTH NATURE OF THE COMMISSION INC OME EARNED BY SOUTHERN PACIFIC IN INDIA FROM THESE NON-RESIDENTS. AS SUCH, NO FURTHER ATTRIBUTION OF PROFITS OF NON-RESIDENT SUPPLIERS IN INDIA IS WARRA NTED. THE HONBLE MUMBAI ITAT IN THE CASE OF DELMAS, FRANCE VS. ADIT (IT) [2012] 17 TAXMANN.COM 91 (MUM) HAS HELD THATONCE THE AGENT IS PAID AN ARMS LENGTH REMUNERATION FOR THE SERVICES RENDERED, NO F URTHER PROFIT CAN BE ATTRIBUTED TO THE PE. THE HONBLE BOMBAY HIGH COURT IN DIT(IT) V. DELMAS FRANCE (232 TAXMAN 401) DISMISSED THE REVENUES APPEAL AGAINST THE SAID ORDER OF THE HONBLE ITAT. THE AO AS WELL AS THE CIT(A) HAVE NOT AT ALL DEALT WITH THE AFORESAID ASPECT. 14. LD. COUNSEL FOR THE ASSESSEE RELIED AND REFERRE D FOLLOWING JUDGMENTS; 1. VARIAN INDIA PVT. LTD VS ADIT(IT), MUMBAI (AY 20 02-03 TO AY 2006-07) ITA NO. 4672/ MUM. / 2011, ORDER DT. 27 FEBRUARY 2013. 2. ADIT(IT) VS BAY LINES [2018] 91 TAXMANN.COM 110 (MUMBAI- TRIB) 3. DDIT(IT) VS B4U INTERNATIONAL HOLDINGS LTD. [201 2] 137 ITD 346 (MUMBAI) 4. DIT(IT) VS B4U INTERNATIONAL HOLDINGS LTD. [2015] 374 ITR 453 (BOM HC) 5. SPECIALITY MAGAZINES (P) LTD [2005] 144 TAXMAN 1 53 (AAR- NEW DELHI) 6. INTERNATIONAL GLOBAL NETWORKS BV VS ADIT (IT) [2 017] 84 TAXMANN.COM 188 (MUMBAI- TRIB) 7. AL NISR PUBLISHING VS CIT [1999] 105 TAXMAN 308 (AAR-NEW DELHI) 8. WESTERN UNION FINANCIAL SERVICES INCVS ADIT (IT) [2007] 104 ITD 34 (DELHI-TRIB) HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 30 9. DELMAS VS ADIT(IT) [2012] 49 SOT 719 (MUM- TRIB) 10. DIT(IT) VS DELMAS [2015] 232TAXMANN401 (BOMBAY HC) 11. HIRA MILLS LTD. VS ITO [1946] 14 ITR 417 (ALL- HC) 15. LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGU ED AND STRONGLY SUPPORTED THE FINDINGS OF BOTH THE LOWER A UTHORITIES CONTAINING THAT SPEPL HAS WORKED AS AN AGENCY OF NO N-RESIDENT SUPPLIERS WHICH CONSTITUTES PERMANENT ESTABLISHMENT IN INDIA AND THEREFORE THE ESTIMATED INCOME EMBEBBED IN THE TRAN SACTION FOR IMPORT OF COAL @10% IS SUBJECT TO DEDUCTION OF TAX AT SOURCES. RELIANCE PLACED ON FOLLOWING JUDGMENTS; (I) G V K INDUSTRIES LTD. V. ITO [1997] (228 ITR 56 4) (AP-HC) (II) ABDULLABHAI ABDUL KADAR V. CIT [1952] (22 ITR 241) (III) TVM LIMITED VS. CIT [1999] 102 TAXMAN 578 (AA R- NEW DELHI) (IV) ACIT VS. DHL OPERATIONS B.V [2005] 142 TAXMANN 1 (MUM) (V) BOOZ & COMPANY (AUSTRALIA) (P.) LTD. IN RE [201 4] 42 TAXMANN.COM 288 (AAR - NEW DELHI) 16. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1(A) TO 1(F) CHALLENGES THE FINDINGS OF LD. CIT(A) CONFIRMING THE ACTION OF THE LD. A.O OF TREATING THE ASSESSEE IN DEFAULT U/S 201(1) & HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 31 201(1A) R.W.S. 195 OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE ON THE PROFIT ELEMENT IN THE VALUE OF IMPORT OF THE CO AL TOTALING TO RS.8,60,70,58,733/- PURCHASED BY THE ASSESSEE FROM FOUR NON- RESIDENT SUPPLIERS NAMELY PT BARA JAYA UTAMA, INDON ESIA ('PT BARA JAYA'), BROOKLYN ENTERPRISE PTE. LTD., SINGAPORE (' BROOKLYN ENTERPRISE'), AVANI RESOURCES PTE. LTD., SINGAPORE ('AVANI RESOURCES') AND SUEK AG, SWITZERLAND ('SUEK AG'). BEFORE PROCE EDING TO ADJUDICATE THE FACTS WE WILL FIRST LIKE TO REFER TH REE RELEVANT SECTIONS NAMELY 195, 5(1), 9(1) OF THE ACT AND THE SAME ARE REPRODUCED BELOW; SECTION 195 195. (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RES IDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY I NTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC ) OR SECTION 194LD OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SU CH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER M ODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY THE GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANI NG OF CLAUSE (23D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF THAT CLAUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE IS SUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE : PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115-O . SECTION 5(1) HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 32 (1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDE S ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH- (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA I N SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR; OR (C) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING SUCH YEAR: PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARI LY RESIDENT IN INDIA WITHIN THE MEANING OF SUB- SECTION (6) OF SEC TION 6, THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CO NTROLLED IN OR A PROFESSION SET UP IN INDIA. SECTION 9(1) INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. 9. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRU E OR ARISE IN INDIA : (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTL Y OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, O R THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. EXPLANATION 1.FOR THE PURPOSES OF THIS CLAUSE (A) IN THE CASE OF A BUSINESS OF WHICH ALL THE OPE RATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINES S DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTAB LE TO THE OPERATIONS CARRIED OUT IN INDIA ; (B) IN THE CASE OF A NON-RESIDENT, NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO HIM THROUGH OR FROM OPERATIONS WHICH ARE CONFINED TO THE PURCHASE OF GOODS IN INDI A FOR THE PURPOSE OF EXPORT ; (C) IN THE CASE OF A NON-RESIDENT, BEING A PERSON ENGAGED IN THE BUSINESS OF RUNNING A NEWS AGENCY OR OF PUBLISH ING NEWSPAPERS, MAGAZINES OR JOURNALS, NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO HIM THROUGH O R FROM HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 33 ACTIVITIES WHICH ARE CONFINED TO THE COLLECTION OF NEWS AND VIEWS IN INDIA FOR TRANSMISSION OUT OF INDIA ; (D) IN THE CASE OF A NON-RESIDENT, BEING (1) AN INDIVIDUAL WHO IS NOT A CITIZEN OF INDIA ; OR (2) A FIRM WHICH DOES NOT HAVE ANY PARTNER WHO IS A CITIZEN OF INDIA OR WHO IS RESIDENT IN INDIA ; OR (3) A COMPANY WHICH DOES NOT HAVE ANY SHAREHOLDER WHO IS A CITIZEN OF INDIA OR WHO IS RESIDENT IN INDIA, NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN IND IA TO SUCH INDIVIDUAL, FIRM OR COMPANY THROUGH OR FROM OPERATIONS WHICH ARE CONFINED TO THE SHOOTING OF AN Y CINEMATOGRAPH FILM IN INDIA; (E) IN THE CASE OF A FOREIGN COMPANY ENGAGED IN THE BUSINESS OF MINING OF DIAMONDS, NO INCOME SHALL BE DEEMED TO AC CRUE OR ARISE IN INDIA TO IT THROUGH OR FROM THE ACTIVIT IES WHICH ARE CONFINED TO THE DISPLAY OF UNCUT AND UNASSORTED DIAMOND IN ANY SPECIAL ZONE NOTIFIED BY THE CENTRAL GOVERNMENT IN THE OFFICIAL GAZETTE IN THIS BEHALF. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT 'BUSINESS CONNECTION' SHALL INCLUDE ANY BUSINE SS ACTIVITY CARRIED OUT THROUGH A PERSON WHO, ACTING ON BEHALF OF THE NON- RESIDENT, (A) HAS AND HABITUALLY EXERCISES IN INDIA, AN AUTH ORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE NON-RESIDENT, U NLESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE NON-RESIDENT; OR FOLLOWING CLAUSE (A) SHALL BE SUBSTITUTED FOR THE EXISTING CLAUSE (A) OF EXPLANATION 2 TO CLAUSE (I) OF SUB-SECTION (1) OF SECTION 9 BY THE FINANCE ACT, 20 18, W.E.F. 1-4-2019 : (A) HAS AND HABITUALLY EXERCISES IN INDIA, AN AUTH ORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE NON-RESIDENT OR HABITUALLY CONCLUDES CONTRACTS OR HABITUALLY PLAYS THE PRINCIPAL ROLE LEADING TO CONCLUSION OF CONTRACTS B Y THAT NON- RESIDENT AND THE CONTRACTS ARE (I) IN THE NAME OF THE NON-RESIDENT; OR HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 34 (II) FOR THE TRANSFER OF THE OWNERSHIP OF, OR FOR THE GRANTING OF THE RIGHT TO USE, PROPERTY OWNED BY THAT NON-RES IDENT OR THAT NON-RESIDENT HAS THE RIGHT TO USE; OR (III) FOR THE PROVISION OF SERVICES BY THE NON-RES IDENT; OR (B) HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTAIN S IN INDIA A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULAR LY DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE NON- RESIDENT; OR (C) HABITUALLY SECURES ORDERS IN INDIA, MAINLY OR WHOLLY FOR THE NON-RESIDENT 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, GEN ERAL COMMISSION AGENT OR ANY OTHER AGENT HAVING AN INDEP ENDENT 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 REFERRED TO AS THE PRINCIPAL NON-RESIDENT) OR ON BEHALF OF SUCH NON-RE SIDENT AND OTHER NON-RESIDENTS WHICH ARE CONTROLLED BY THE PRI NCIPAL NON- RESIDENT OR HAVE A CONTROLLING INTEREST IN THE PRIN CIPAL NON- RESIDENT OR ARE SUBJECT TO THE SAME COMMON CONTROL AS THE PRINCIPAL NON-RESIDENT, HE SHALL NOT BE DEEMED TO B E A BROKER, GENERAL COMMISSION AGENT OR AN AGENT OF AN INDEPEND ENT STATUS. 17. THE ABOVE STATED FOUR NON-RESIDENT SUPPLIERS AR E FROM INDONESIA, SINGAPORE AND SWITZERLAND. IT IS WORTHW HILE ALSO TO GO THROUGH ARTICLE 5 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND INDONESIA, INDIA AND SINGA PORE AND INDIA HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 35 AND SWITZERLAND AND THE RELEVANT EXTRACT OF THE ART ICLE RELATING TO PERMANENT ESTABLISHMENT IS REPRODUCED BELOW; A. ARTICLE -5 OF INDIA INDONESIA DTAA: 1 TO 4. 5. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 A ND 2, WHERE A PERSON- OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHO M PARAGRAPH 7 APPLIES-IS ACTING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE D EEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST MENTIONED CONT RACTING STATE IN RESPECT OF ANY ACTIVITIES WHICH THAT PERSON UNDERTA KES FOR THE ENTERPRISE, IF SUCH A PERSON: (A) HAS, AND HABITUALLY EXERCISES, IN THAT STATE AN AUT HORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE, U NLESS THE ACTIVITIES OF SUCH PERSON ARE LIMITED TO THOSE MENT IONED IN PARAGRAPH 4 WHICH, IF EXERCISED THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THIS FIXED PLACE OF BUSINESS A PERMA NENT ESTABLISHMENT UNDER THE PROVISIONS OF THAT PARAGRAP H; OR (B) HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTAINS IN THE FIRST- MENTIONED STATE A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF O F THE ENTERPRISE. (C) HABITUALLY SECURES ORDERS IN THE FIRST- MENTIONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE ITSELF. 6. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, AN INSURANCE ENTERPRISE OF A CONTRACTING STATE SHALL, EXCEPT IN REGARD TO RE-INSURANCE, BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTH ER CONTRACTING STATE IF IT COLLECTS PREMIUMS IN THE TERRITORY OF THAT OT HER STATE OR INSURES RISKS SITUATED THEREIN THROUGH A PERSON OTHER THAN AN AGE NT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 7 APPLIES. 7. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT B E DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING ST ATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER CONTRACTING STATE THROUGH A BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN I NDEPENDENT STATUS, PROVIDED THAT SUCH PERSONS ARE ACTING IN THE ORDINA RY COURSE OF THEIR BUSINESS. HOWEVER, WHEN THE ACTIVITIES OF SUCH AN A GENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRIS E, HE WILL NOT BE HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 36 CONSIDERED AN AGENT OF AN INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAGRAPH. 8. THE FACT THAT A COMPANY WHICH IS A RESIDENT OF A CONTRACTING STATE CONTROLS OR IS CONTROLLED BY A COMPANY WHICH IS A R ESIDENT OF THE OTHER CONTRACTING STATE, OR WHICH CARRIES ON BUSINESS IN THAT OTHER STATE (WHETHER THROUGH A PERMANENT ESTABLISHMENT OR OTHER WISE), SHALL NOT OF ITSELF CONSTITUTE EITHER COMPANY A PERMANENT ESTABL ISHMENT OF THE OTHER. B. ARTICLE -5 OF INDIA SINGAPORE DTAA: 1 TO 7. 8. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 A ND 2, WHERE A PERSON - OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO W HOM PARAGRAPH 9 APPLIES - IS ACTING IN A CONTRACTING STATE ON BEHAL F OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE THAT ENTERPRISE SHALL BE DE EMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED STAT E, IF (A) HE HAS AND HABITUALLY EXERCISES IN THAT STATE AN AU THORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE, UNL ESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE ENTERPRISE ; (B) HE HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTAINS IN THE FIRST- MENTIONED STATE A STOCK OF GOODS OR MERCHANDISE FRO M WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF O F THE ENTERPRISE ; OR (C) HE HABITUALLY SECURES ORDERS IN THE FIRST- MENTIONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND OTHER ENTERPRISES CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT ENTERPRISE. 9. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT B E DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING ST ATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER STATE THROUGH A B ROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDE NT STATUS PROVIDED THAT SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. HOWEVER, WHEN THE ACTIVITIES OF SUCH AN AGENT ARE D EVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRISE ITSELF O R ON BEHALF OF THAT ENTERPRISE AND OTHER ENTERPRISES CONTROLLING, CONTR OLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT ENTERPRISE, HE WILL NO T BE CONSIDERED AN AGENT OF AN INDEPENDENT STATUS WITHIN THE MEANING O F THIS PARAGRAPH. 10. THE FACT THAT A COMPANY WHICH IS A RESIDENT OF A CONTRACTING STATE CONTROLS OR IS CONTROLLED BY A COMPANY WHICH IS A RESIDENT OF THE HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 37 OTHER CONTRACTING STATE, OR WHICH CARRIES ON BUSINE SS IN THAT OTHER CONTRACTING STATE (WHETHER THROUGH A PERMANENT ESTA BLISHMENT OR OTHERWISE), SHALL NOT OF ITSELF CONSTITUTE EITHER C OMPANY A PERMANENT ESTABLISHMENT OF THE OTHER. C. ARTICLE -5 OF INDIA SWITZERLAND DTAA: 1.. TO 4 5. A PERSON ACTING IN A CONTRACTING STATE FOR OR ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 6 APPLIES SHALL BE DEEMED TO BE A PERMANENT ESTABLISHMENT OF THAT ENTERPRISE IN THE FIRST-MENTI ONED STATE IF : (I) HE HAS AND HABITUALLY EXERCISES IN THAT STATE, AN A UTHORITY TO NEGOTIATE AND ENTER INTO CONTRACTS FOR OR ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE O F GOODS OR MERCHANDISE FOR THE ENTERPRISE; OR (II) HE HABITUALLY MAINTAINS IN THE FIRST- MENTIONED CONTRACTING STATE A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULAR LY DELIVERS GOODS OR MERCHANDISE FOR OR ON BEHALF OF THE ENTERP RISE; OR (III) IN SO ACTING, HE MANUFACTURES OR PROCESSES IN THAT STATE FOR THE ENTERPRISE GOODS OR MERCHANDISE BELONGING TO THE EN TERPRISE, PROVIDED THAT THIS PROVISION SHALL APPLY ONLY IN RE LATION TO THE GOODS OR MERCHANDISE SO MANUFACTURED OR PROCESSED. 6. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT B E DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING ST ATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER STATE THROUGH A B ROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDE NT STATUS, WHERE SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF T HEIR BUSINESS. HOWEVER, WHEN THE ACTIVITIES OF SUCH AN AGENT ARE DEVOTED WH OLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRISE OR FOR THE ENTERPRISE AND OTHER ENTERPRISES WHICH ARE CONTROLLED BY IT OR HAVE A CONTROLLING IN TEREST IN IT, HE WOULD NOT BE CONSIDERED AN AGENT OF AN INDEPENDENT STATUS WIT HIN THE MEANING OF THIS PARAGRAPH. 7. THE FACT THAT A COMPANY, WHICH IS A RESIDENT OF A CONTRACTING STATE CONTROLS OR IS CONTROLLED BY A COMPANY WHICH IS A R ESIDENT OF THE OTHER CONTRACTING STATE, OR WHICH CARRIES ON BUSINESS IN THAT OTHER CONTRACTING STATE (WHETHER THROUGH A PERMANENT ESTABLISHMENT OR OTHERWISE), SHALL NOT, OF ITSELF, CONSTITUTE FOR EITHER COMPANY A PER MANENT ESTABLISHMENT OF THE OTHER. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 38 18. FROM GOING THROUGH THE ABOVE SECTION 195, SECTI ON 5(1), SECTION 9(1) OF THE ACT AND ARTICLE 5 OF DTAA BETW EEN INDIA AND INDONESIA, INDIA AND SWITZERLAND AND INDIA AND SING APORE AND IN CONTEXT TO THE FACTS AND ISSUES RAISED BEFORE US CA N BE SUMMARIZED IN FOLLOWING STEPS:- (I) SECTION 195 COMES INTO ACTION WHEN ANY SUM CHA RGEABLE TO TAX UNDER THE PROVISIONS OF THIS ACT IS PAID TO NON-RES IDENT, WHICH IN THIS CASE IS THE PAYMENT MADE BY THE ASSESSEE TO TH E NON-RESIDENT EXPORTERS OF COAL. (II) THE SUM CHARGEABLE UNDER SECTION 195 OF THE AC T TAKES ITS COLOUR FROM SECTION 5(1) OF THE ACT WHICH REFERS TO THE SC OPE OF TOTAL INCOME OF A PERSON WHO IS RESPONSIBLE AND INCLUDES ALL INC OME DERIVED FROM WHATEVER SOURCES. SECTION 5(1)(B) TALKS OF THE INCO ME ACCRUES OR ARISES OR DEEMED TO ACCRUE AND ARISE IN INDIA DURIN G SUCH YEAR. (III) GOING MORE DEEPER THE PHRASE INCOME DEEMED T O ACCRUE OR ARISES IN INDIA GETS WIDER ATTENTION IN SECTION 9( 1) OF THE ACT. IN THE INSTANT CASE THE PAYMENT HAS BEEN MADE FOR IMPORT O F COAL DIRECTLY TO FOUR NON-RESIDENT SUPPLIERS THROUGH THE BROKER N AMED SPEPL. THE ISSUE BEFORE US IS THAT THE ACTIVITY UNDERTAKEN BY THE AGENT HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 39 SPEPL ON BEHALF OF THE NON-RESIDENT SUPPLIERS CAN B E TERMED AS A BUSINESS CONNECTION IN INDIA AS PROVIDED IN EXPLANATION 2 TO SECTION 9(1) OF THE ACT. (IV) EXPLANATION 2 TO SECTION 9(1) OF THE ACT MAINL Y FOCUS ON THE PHRASE THAT THE AGENT WORKS MAINLY OR WHOLLY ON BEHALF O F A NON- RESIDENT. (V) SIMILARLY IN RESPECT OF CLAUSE 7, CLAUSE-9 AND CLAUSE-6 OF ARTICLE 5 DTAA BETWEEN INDIA INDONESIA, SINGAPORE A ND SWITZERLAND AGAIN THE STRESS IS ON THE PHRASE ACTIVITY OF SUCH AN AGENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT E NTERPRISE. 19. NOW THE REVENUES CONTENTION IS THAT THE ALLEGE D AGENT NAMELY SPEPL IS WORKING MAINLY AND WHOLLY ON BEHALF OF THE NON-RESIDENT SUPPLIERS AND THEREFORE IT CONSTITUTES THE BUSINESS CONNECTION OF THE FOUR NON-RESIDENT COAL SUPPLIERS NAMELY PT BARA JAYA UTAMA, INDONESIA,BROOKLYN ENTERPRISES PTE. LTD, SINGAPORE, AVANI RESOURCES PTE. LTD, SINGAPORE AND SUEKAG, SWITZERLAND. THE R EVENUES FURTHER CONTENTION IS THAT SINCE THE ABOVE REFERRED FOUR NO N-RESIDENT SUPPLIERS OF COAL HAVE BUSINESS CONNECTION IN INDIA THROUGH THEIR AGENT SPEPL, THE INCOME ELEMENT IN THE EXPORT OF CO AL NEEDS TO BE TAXED IN INDIA AS INCOME DEEMED TO ACCRUED OR ARISE S IN INDIA. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 40 20. ON THE OTHER HAND THE ASSESSEES SUBMISSION SIN CE THE ASSESSMENT PROCEEDINGS HAS CONSISTENTLY REMAIN THE SAME WHEREIN IT HAS BEEN STATED THAT THE AGENT SPEPL IS AN INDEP ENDENT AGENT WORKING ON BEHALF OF THE VARIOUS EXPORTERS/IMPORTER S WHICH INCLUDES BOTH THE IMPORTER OF COAL IN INDIA AND EXPORTERS OF COAL BY NON- RESIDENT FROM OUTSIDE INDIA. IT HAS ALSO BEEN CONT ENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE AGENT SPEPL HAS N O AUTHORITY TO CONCLUDE CONTRACTS OR FINALIZE THE RATES OF COAL. SPEPL ONLY COMMUNICATES THE INFORMATION COMING FROM BOTH THE S IDES AND CHARGE ITS BROKERAGE ON THE COMPLETION OF THAT DEAL . LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE CASE OF THE AS SESSEE FALLS UNDER THE PROVISO TO EXPLANATION 2 OF SECTION 9(1) OF THE ACT WHICH SAYS THAT THE BUSINESS CONNECTION SHALL NOT INCLUDES BU SINESS ACTIVITY CARRIED OUT THROUGH A BROKER, GENERAL COMMISSION AG ENT OR ANY OTHER AGENT HAVING AN INDEPENDENT STATUS, IF SUCH BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT HAVE AN INDEPEN DENT STATUS IS ACTING IN ITS ORDINARY COURSE OF BUSINESS. 21. THEREFORE NOW WE ARE CONFINED TO ADJUDICATE THE ISSUE AS TO WHETHER THE AGENT SPEPL AND ITS ACTIVITIES AS AGENT CONSTITUTE THE BUSINESS CONNECTION FOR THE NON-RESIDENT SUPPLIERS OR NOT. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 41 22. BEFORE PROCEEDING TO EXAMINE THE FACTS OF THE C ASE AS TO WHETHER THE BUSINESS CONNECTION OF THE NON-RESIDENT SUPPLIERS IS ESTABLISHED IN INDIA OR NOT, WE WOULD LIKE TO GO TH ROUGH THE FACTS AND THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF CIT V/S R.D. AGGRAWAL & CO. 56 ITR 20 WHICH IN OUR VIEW SEEMS TO BE QUITE RELEVANT TO ADJUDICATE THE ISSUE BEFORE US:- ASSESSEE IS A REGISTERED FIRM HAVING THEIR PLACE O F BUSINESS AT AMRITSAR IN THE STATE OF PUNJAB. THE ASSESSEES CARRY ON BUSINES S AS IMPORTERS AND AS COMMISSION AGENTS OR NON-RESIDENT EXPORTERS WITH TW O OF WHOM WE ARE CONCERNED IN THESE APPEALS. THESE TWO NON-RESIDENT EXPORTERS COMPTOIRSLAINIERSOSTERIETHS.A. ANVERS (BELGIUM) AND FILATURAE TESSITURA DI TOLLENGNO BIELLA (ITALY) ARE EXPORTERS AND MANUF ACTURERS OF WORSTED WOOLLEN YARN. THE ASSESSEES COMMUNICATE ORDERS CANV ASSED BY THEM FROM DEALERS IN AMRITSAR TO THE NON-RESIDENTS FOR ACCEPT ANCE; IF A CONTRACT RESULTS AND PRICE FOR THE GOODS PURCHASED IS PAID B Y THE AMRITSAR DEALER TO THE NON-RESIDENT EXPORTER, THE ASSESSEES BECOME ENT ITLED TO COMMISSION VARYING BETWEEN 1 1/2 AND 2 1/2 % OF THE PRICE. BY LETTER DATED MARCH 24, 1951 THE ASSESSEES WERE A PPOINTED 'SOLE AGENTS' FOR THE ITALIAN COMPANY 'FOR SALE' OF WORST ED WOOLLEN YARNS IN THE INDIAN TERRITORIES TERMINABLE BY ONE MONTH'S NOTICE . THE ASSESSEES HAD TO 'MAINTAIN THE EXISTING CUSTOMERS' AND TO SECURE NEW CUSTOMERS 'CONFORMING TO THEIR GENERAL TERMS OF SALES', AND W ERE TO RECEIVE 21 PER CENT COMMISSION ON THE NET CASH AMOUNTS ARISING FRO M THE ACCEPTED BUSINESS 'CONCLUDED BY THE MEDIATION' OF THE ASSESS EES OR DIRECTLY BY THE ITALIAN COMPANY WITH THE CUSTOMERS. THE BELGIAN COM PANY APPOINTED THE ASSESSEES THEIR REPRESENTATIVES FOR THE WHOLE OF IN DIA ON CONDITION THAT THE LATTER DID NOT REPRESENT ANY OTHER BELGIAN MILL OR YARN PRODUCER AND DID NOT SELL BELGIAN YAM IN INDIA ON THEIR OWN ACCOUNT. IN PROCEEDINGS FOR ASSESSMENT OF TAX IN THE ASSESSM ENT YEAR 1952-53 THE INCOME-TAX OFFICER, 'C' WARD, AMRITSAR COMPUTED THE INCOME OF THE ASSASEES BY ADDING RS. 54,558 BEING 5% OF NET TOTAL VALUE OF YAM SOLD BY THE NON-RESIDENT COMPANIES TO INDIAN MERCHANTS IN T HE PREVIOUS YEAR, BECAUSE IN HIS VIEW THERE SUBSISTED BUSINESS CONNEC TIONS BETWEEN THE NON- RESIDENT EXPORTERS AND THE ASSESSEES. THE ORDE RS PASSED BY THE HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 42 INCOME-TAX OFFICER WERE CONFIRMED IN APPEAL BY THE APPELLATE ASSISTANT COMMISSIONER AND ALSO BY THE INCOME-TAX APPELLATE T RIBUNAL. THE INCOME-TAX APPELLATE TRIBUNAL SUBMITTED A STATE MENT OF CASE TO THE HIGH COURT OF PUNJAB ON THE FOLLOWING TWO QUESTIONS '(1) WHETHER THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE NON-RESID ENT FELL WITHIN THE MEANING OF THE EXPRESSION 'BUSINESS CONNECTION' AS USED IN S. 42(1) OF THE INDIAN INCOME-TAX ACT ? OBSERVATION OF THE HON'BLE SUPREME COURT THE HON'BLE SUPREME COURT HELD THAT MERELY PROCUREM ENT OF ORDERS BY NON- RESIDENT SUPPLIER THROUGH AN AGENT IN INDIA WITHOUT GIVING AN AUTHORITY TO SUCH AGENT TO CONCLUDE THE CONTRACT WOULD NOT LEAD TO CREATION OF BUSINESS CONNECTION OF NON-RESIDENT IN INDIA. THE RELEVANT E XTRACT OF THE DECISION IS REPRODUCED AS UNDER: TURNING TO THE FACTS OF THE PRESENT CASE, AS FOUND BY THE REVENUE AUTHORITIES, CONTRACTS FOR THE SALE OF GOODS TOOK P LACE OUTSIDE THE TAXABLE TERRITORIES, PRICE WAS RECEIVED BY THE NONRESIDENTS OUTSIDE THE TAXABLE TERRITORIES, AND DELIVERY WAS ALSO GIVEN OUTSIDE, T HE TAXABLE TERRITORIES. . NO OPERATION SUCH AS PROCURING RAW MATERIALS, MANUFACT URE OF FINISHED GOODS, SALE OF GOOD OR DELIVERY OF GOODS AGAINST PRICE TOO K PLACE WITHIN THE TAXABLE TERRITORIES : THE ASSESSEES MERELY PROCURED ORDERS FROM MERCHANTS IN AMRITSAR FOR PURCHASE OF GOODS FROM THE NON-RESIDEN T COMPANIES. THE ORDERS WERE OFFERS WHICH THE ASSESSEES HAD NO AUTHO RITY TO ACCEPT ON BEHALF OF THE NON-RESIDENTS. SOME COMMERCIAL ACTIVI TY WAS UNDOUBTEDLY CARRIED ON BY THE ASSESSEES IN THE MATTER OF PROCUR ING ORDERS WHICH RESULTED IN CONTRACTS FOR SALE BY THE NONRESIDENTS OF GOODS TO MERCHANTS AT AMRITSAR. BUT ON THIS ACCOUNT NO BUSINESS CONNECTIO N OF THE ASSESSEES WITH THE NON-RESIDENTS WITHIN THE TAXABLE TERRITORI ES RESULTED. THE ACTIVITY OF THE ASSESSEES IN PROCURING ORDERS WAS NOT AS AGE NTS OF THE NON- RESIDENTS IN THE MATTER OF SALE OF GOODS MANUFACTUR ED BY THE LATTER, NOR OF PROCURING RAW MATERIALS IN THE TAXABLE TERRITORIES FOR THEIR MANUFACTURING PROCESS. THEIR ACTIVITIES LED TO THE MAKING OF OFFE RS BY MERCHANTS IN THE TAXABLE TERRITORIES TO PURCHASE GOODS MANUFACTURED BY THE NON-RESIDENTS WHICH THE LATTER WERE NOT OBLIGED TO ACCEPT. THE EX PRESSION 'BUSINESS CONNECTION' POSTULATES A REAL AND INTIMATE RELATION BETWEEN TRADING ACTIVITY CARRIED ON OUTSIDE THE TAXABLE TERRITORIES AND TRAD ING ACTIVITY WITHIN THE TERRITORIES, THE RELATION BETWEEN THE TWO CONTRIBUT ING TO THE EARNING OF INCOME BY THE NON- RESIDENT IN HIS TRADING ACTIVITY . IN THIS CASE SUCH A RELATION IS ABSENT. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 43 23. HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE O F GVK INDUSTRIES LTD VS. ITO (1997) 228 ITR 564LAID DOWN THE FOLLOWING PRINCIPLES OF BUSINESS CONNECTION :- WHETHER THERE IS A BUSINESS CONNECTION BETWEEN AN INDIAN COMPANY AND A NON-RESIDENT (COMPANY) IS A MIXED QUESTION OF FAC T AND LAW WHICH HAS TO BE DETERMINED ON THE FACTS AND CIRCUMSTANCES OF EAC H CASE; (II) THE EXPRESSION 'BUSINESS CONNECTION' IS TOO WI DE TO ADMIT OF ANY PRECISE DEFINITION; HOWEVER IT HAS SOME WELL-KNOWN ATTRIBUT ES; (III) THE ESSENCE OF 'BUSINESS CONNECTION' IS THE E XISTENCE OF CLOSE, REAL, INTIMATE RELATIONSHIP AND COMMONNESS OF INTEREST BE TWEEN THE NRC AND THE INDIAN PERSON; (IV) WHERE THERE IS CONTROL OF MANAGEMENT OR FINANC ES OR SUBSTANTIAL HOLDING OF EQUITY SHARES OR SHARING OF PROFITS BY T HE NRC OF THE INDIAN PERSON, THE REQUIREMENT OF PRINCIPLE (III) IS FULFI LLED 24. THE CO-ORDINATE BENCH OF MUMBAI I.T.A.T. IN THE CASE OF BAY LINES (MAURITIUS) V/S ADIT MUMBAI (2018) 91 TAXMANN .COM 110 (MUMBAI-TRIB) CATEGORICALLY HELD THAT FOR DETERMINING THE INDEPENDENCE ONE SHOULD LOOK AT THE AGENT AND AS TO WHETHER THE AGENT ONLY ONE PRINCIPAL FOR WHOM THE AGENT WHO WOR KS EXCLUSIVELY. THE FACT THAT THE PRINCIPAL HAS ONLY ONE AGENT IN I NDIA WHO UNDERTAKES ALL THE ACTIVITIES FOR THE PRINCIPAL IS NOT RELEVANT 25. FURTHER IN THE CASE OF DIT (INTERNATIONAL TAXAT ION) V. MORGAN STANLEY & CO. INC (2007) 292 ITR 416/162 TAXMAN 165 (SC) & DIT HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 44 V B4U INTERNATIONAL HOLDINGS LTD (2012) 23 TAXMANN. COM 372 (MUM), MUMBAI I.T.A.T. HAS HELD THAT THE WORDINGS OF ARTICLE 5.5 VIZ WHEN THE ACTIVITIES OF SUCH AN AGENT ARE DEVOTED E XCLUSIVELY OR ALMOST EXCLUSIVELY ON BEHALF OF THE ASSESSEE ENTERP RISES REFERRED TO THE ACTIVITIES OF AN AGENT AND ITS DEVOTION TO THE NON-RESIDENT AND NOT THE OTHER WAY ROUND. THE PERSPECTIVE SHOULD BE FRO M THE ANGLE OF THE AGENT AND NOT OF THE NON-RESIDENT. . 26. NOW TO EXAMINE THE ISSUE WE NEED TO GO THROUGH THE PROCESS ADOPTED BY THE ASSESSEE IN COMPLETING THE CONTRACT OF IMPORT IN COAL FROM VARIOUS NON-RESIDENT SUPPLIERS. THE PROCESS O F PROCUREMENT OF IMPORT OF COAL AS EXPLAINED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES IS SUMMARIZED IN THE FOLLOWING STEPS; STEP PROCESS FOR PROCUREMENT OF IMPORT OF COAL 1 THE APPELLANT APPROACHES THE BROKER VIZ. SOUTHERN PACIFIC WITH REQUIREMENT OF GRADE AND QUANTITY OF COAL 2 THE'BROKER IDENTIFY THE SUPPLIER HAVING REQUISITE GRADE AND QUANTITY OF COAL AND THEN FORWARD THE REQUIREMENT RECEIVED FROM THE APPE LLANT TO THE SUPPLIERS 3 THE BROKER ON RECEIVING THE OFFER FROM THE SUPPLIER S FORWARD THE SAME TO THE APPELLANT FOR ACCEPTANCE 4 THE APPELLANT ACCEPTS THE OFFER IF THE PRICE AND TH E OTHER TERMS ARE ACCEPTABLE AND COMMUNICATE THE SAME TO TH E BROKER FOR FURTHER FORWARDING TO SUPPLIERS HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 45 5 IF THE TERMS AND CONDITIONS ARE NOT ACCEPTABLE, THE N THE APPELLANTCOMMUNICATE THE SAME TO THE BROKER, WHO IN TUM COVEY THE SAME TO THE SUPPLIERS FOR REVISED OFFER. THE SUPPLIER PROVIDE REVISED OFFER THROUGH BROKER FOR ACCEPTANCE OF THE APPELLANT. 6 AFTER THE PRICE AND OTHER TERMS ARE AGREED BETWEEN THE APPELLANT AND THE SUPPLIER, A CONTRACT IS ENTERED BETWEEN THE TWO PRINCIPALS I. E. SUPPLIER AND THE APPELLANT FOR THE SUPPLY OF COAL AS PER THE AGREED GRADE AND QUANTITY 7 THEREAFTER THE APPELLANT OPEN A LETTER OF CREDIT (L C) IN FAVOUR OF THE RESPECTIVE SUPPLIER AS PER THE TERMS OF THE CONTRACT. 8 SUPPLIER DISPATCHES THE COAL DIRECTLY TO THE APPELL ANT 9 SUPPLIER SENDS THE SHIPPING AND OTHER RELEVANT DOCU MENTS THROUGH THEIR LOCAL BANK TO THE BANK OF THE APPELLA NT IN INDIA FOR CLAIMING PAYMENT AGAINST THE SAID LC. 10 THE SUPPLICER SHIPPED GOODS ON FOB BASIS WHEREIN AL L RISK PASSES TO THE BUYER I.E. THE APPELLANT IMMEDIA TELY AFTER GOODS SENT THROUGH SHIP AT FOREIGN PORT. FURT HER, THE TITLE OF THE GOODS PASSES ON TO THE APPELLANT ONCE THE PAYMENT IS RECEIVED BY THE SUPPLIER. 11 THE GOODS ARE RECEIVED BY THE APPELLANT DIRECTLY FR OM THE SUPPLIER 12 ON RECEIPT OF SAID GOODS BY THE APPELLANT, THE CONT RACT IS COMPLETE. 27. WE HAVE ALSO GONE THROUGH THE PROCESS AND RAISI NG INVOICES AND CORRESPONDENCES BETWEEN THE ASSESSEE AND NON-RE SIDENT SUPPLIERS THROUGH THE AGENT SPEPL. DETAILS OF E-MA ILS EXCHANGED BETWEEN THE THREE PARTIES I.E. BUYERS, SELLERS AND THE AGENT IN ONE OF HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 46 THE PURCHASES FROM PT BARA JAYA VIDE INVOICE DATED 22.2.2014 FOR SUPPLY OF 54850 MT OF INDONESIAN STEAM COAL IS REPR ODUCED BELOW; SR. NO. DATE PARTICULARS 1 25.01.14 HIND ENERGY SENT A BID TO SOUTHERN PACIFIC WITH DETAILED REQUIREMENTS SUCH AS A. COMMODITY-NON COKING COAL IN BULK OF INDONESIA ORIGIN B. QUANTITY -50,000 MTS+/-10% C. PRICE-USC 27/MT 2 28.01.14 SOUTHERN PACIFIC FORWARDED A QUOTATION SENT BY PT BARA JAYA UTAMA TO HINGENGERGY STATING A PRICE AS USD 28.50/MT 3 28.01.14 HIND ENERGY REPL IED TO THE ABOVE - MENTIONED E - MAIL BIDDING A PRICE OF USC 28/MT. 4 29.01.14 PT BARA JAYA UTAMA SENT A REVISED QUOTATION TO SOUTHERN PACIFIC STATING A PRICE OF USD 28.50/MT 5 30.01.14 PT BARA JAYA UTAMA SENT A FINAL QUOTATION TO SOUTHERN PACIFIC STATING A PRICE OF USD 28.25/MT 6 30.01.14 SOUTHERN PACIFIC FORWARED A FINAL QUOTATION TO PT BARA JAYA UTAMA. THE PRICE OF USD 28.25/MT WAS QUOTED BY PT BARA JAYA. 7 31.01.14 HIND ENERGY REPLIED TO THE ABOVE - MENTIONED E - MAIL CONFIRMING THE PRICE OF USC 28.25/MT. 8 31.01.14 HIND ENERGY CONFIRMED THE SOUTHERN PACIFIC A LAY CAON (LAYDAYS CANCELLING) AS 9-19 FEBRUARY 2014 AND FURTHER ASKED TO CONFIRM THIS WITH PT BARA JAYA. 9 31.01.14 SOUTHERN PACIFIC INFORMED HING ENERGY THAT PT BARA JAYA CONFIRMED A LAYCAN AS 11-20 FEBRUARY 2014. 28. WITH REFERENCE TO ABOVE E-MAIL CORRESPONDENCES, LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE WHOLE TRANSACTI ON HAS TAKEN HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 47 PLACE BETWEEN PT BARA JAYA AND THE APPELLANT AND TH E BROKER/AGENT SOUTHERN PACIFIC HAS PLAYED THE ROLE OF INTERMEDIARY BETWEEN THE APPELLANT AND PT BARA JAYA AND THAT ALS O ONLY AT THE TIME OF NEGOTIATING PRICE. FURTHER, IT IS PERTINENT TO NOTE THAT SOUTHERN PACIFIC HAS FORWARDED PRICE QUOTATION AS I T IS RECEIVED FROM PT BARA JAYA WITH THE TEXT HEADING 'QUOTE' AND 'UNQUOTE'. THUS, IT IS PROVED BEYOND THE DOUBT THAT SOUTHERN PACIFIC HAS MERELY ACTED AS BROKER BETWEEN THE APPELLANT AND PT BARA JAYA AND NOT CONCLUDED PRICE AT THEIR END. 29. IT WAS FURTHER CONTENDED BY LD. COUNSEL FOR THE ASSESSEE THAT THE APPELLANT HAS DIRECTLY ENTERED INTO CONTRACT WI TH PT BARA JAYA FOR IMPORT OF 54,850 MTS COAL. FURTHER, PT BARA JAYA RAISED INVOICE ON THE APPELLANT. IT IS SUBMITTED THAT PT BARA JAYA HAS SHIPPED COAL ON FREE ON BOARD (FOB). THUS, RISK IN THE GOODS PASSED IN FAVOUR OF THE APPELLANT ONCE THE COAL IS SHIPPED AT LOADPORT. THEREAFTER, IT IS APPELLANT RESPONSIBILITY TO TAKE CARE OF DELIVERY OF COAL TILL IT REACHES FINAL DESTINATION. IN THIS REGARD, THE APPELLANT SUBMITS HEREWITH THE FOLLOWING DOCUMENTS RELATED TO IMPORT OF COAL FROM PT BARA JAYA. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 48 30. THE ABOVE STEPS AND THE E-MAIL CORRESPONDENCES SHOWS THE ASSESSEES TWO WAY COMMUNICATION BETWEEN THE ASSESS EE AND THE COAL SUPPLIERS THROUGH THE AGENT SPEPL. PRICES HAV E BEEN NEGOTIATED BUT IN SUCH NEGOTIATION THE NON-RESIDENT SUPPLIER HAS A VITAL AND FINAL ROLE. IT IS NOT COMING OUT FROM TH E STEPS MENTIONED ABOVE AND THE E-MAIL THAT THE AGENT SPEPL HAS FULL AUTHORITY TO NEGOTIATE AND FINALIZE THE RATE OF COAL. ANOTHER I MPORTANT FACT BROUGHT TO OUR NOTICE IS THAT THE AGENT SPEPL IS NO T HAVING ANY STOCK IN HAND AND THERE IS NO DIRECT SALES MADE BY IT. SPEPL HAS CHARGED COMMISSION OF RS.43,56,703/- FROM THE ASSES SEE FOR PROVIDING ASSISTANCE IN PROCUREMENT OF COAL FROM TH E TWO NON- RESIDENT PARTIES NAMELY PT BARA JAYA UTAMA, INDONES IA AND BROOKLYN ENTERPRISE PTE. LTD, SINGAPORE. THE SHARE HOLDING PATTERN OF SPEPL AS ON 31.3.2015 SHOWS THAT MR. VIVEK JINDA L AND MR. TIJO JOB ARE ONLY TWO SHARE HOLDERS HAVING 5000 EQUITY S HARES EACH. NAMES OF THE NON-RESIDENT SUPPLIERS OR THEIR REPRES ENTATIVES ARE NOT APPEARING IN THE SHARE HOLDING PATTERN NOR ANY PERSON AUTHORIZED BY THE NON-RESIDENT SUPPLIERS ARE ON THE PANEL OF DIRECTORS OF THE AGENT COMPANY SPEPL. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 49 31. IN THE ADDITIONAL EVIDENCE FILED BY THE ASSESSE E WHICH HAVE BEEN ADMITTED BY US, THERE IS A CERTIFICATE FROM CH ARTERED ACCOUNTANT SHOWING THE DETAILS OF COMMISSION RECEIV ED BY SPEPL FROM ITS CUSTOMERS FOR THE YEAR UNDER APPEAL. S. NO. NAME OF THE CLIENT AMOUNT (IN CRORE) 1 HIND ENGERGY& COAL BENEFICAION (I) LTD. INDIA 0.4 0 2 MAGNIFICO MINERALS PVT. LTD. INDIA 0.10 3 MOHIT MINERALS PVT. LTD. INDIA 0.24 4 SHAH COAL PVT. LTD. INDIA 0.85 5 OLDENDROFF CARRIERS GMBH & CO. KG, GERMANY 0.13 6 GOODLINK INTERNATIONAL LTD. HONG KONG 0.40 7 HANG TING LTD. HONG KONG 0.75 8 AGARWAL COAL CORPORATION (S) PTE LTD. SINGAPORE 3.80 9 ANGLO AMERICAN MARKETING LTD., SINGAPORE 3.99 10 AVANI RESOURCES PTE LTD. SINGAPORE 0.11 11 BROOKLYN ENTERPRISE PTE LTD. SINGAPORE 0.10 12 BS GLOBAL RESOURCES PVT. LTD. SINGAPORE 1.33 13 COALNERGY MINERALS PTE LTD. SINGAPORE 0.52 14 KCT GLOBAL PTE LTD., SINGAPORE 0.25 15 KNOWLEDGE INTERNATIONAL STRATGIC SYSTEMS PTE LTD. SINGAPORE 0.89 16 NOBLE RESOURCES INTERNATIONAL PTE LTD. SINGAPORE 2.90 17 SWISS SINGAPORE OVERSEAS ENTERPRISES PTE LTD. SINGAPORE 0.72 18 SUEK AG, SWITZERLAND 4.71 19 SEACONS TRADING LTD, BRITISH VIRGIN ISLANDS 2.6 9 20 PT ANTANGGUNUNGMERATUS, INDONESIA 0.16 21 PT ASTRI MINING RESOURCES, INDONESIA 1.22 22 PT BAYAN RESOURCES TBK, INDONESIA 0.65 23 PT PROLINDOCIPTA NUSANTARA, INDONESIA 1.22 24 SAMTAN CO. LTD. KOREA 0.85 25 J. ARON&COMPNAY, USA 1.31 TOTAL 27.29 HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 50 32. THE ABOVE TABLE MENTIONS THE NAMES OF 25 PARTIE S WHICH ALSO INCLUDES THE ASSESSEE AS WELL AS THREE ALLEGED NON- RESIDENT SUPPLIERS (EXCLUDING PT BARA JAYA). WHAT FIGURES FROM THE ABOVE TABLE IS THAT THE AGENT SPEPL IS NOT CONFINED TO PR OVIDE ITS AGENCY SERVICES TO THE NON-RESIDENT SUPPLIERS BUT IT PROVI DES ITS SERVICES TO VARIOUS OTHER PARTIES WITHIN INDIA AND OUTSIDE INDI A. SO IT CANNOT BE SAID THAT SPEPL IS AN EXCLUSIVE AGENT FOR ANY OF THE NON-RESIDENT SUPPLIER OF INDIA. 33. DURING THE COURSE OF HEARING LOWER AUTHORITIES THE STATEMENT OF THE AGENT SPEPL WAS TAKEN AND RELEVANT PORTION O F THE REPLY IS EXTRACTED BELOW; Q. WHAT WAS YOUR ROLE WHILE PROCURING ORDERS FOR HIND ENERGY & COAL BENEFICIATION (INDIA) PVT. LTD BHOPAL ON BEHALF OF THE ABOVE MENTIONED -L NON-RESIDENTS? ANS. OUR STEP BY STEP PROCUREMENT DETAILS AS BELOW: I.ANY ENTITY, WHETHER RESIDENT OR NON-RESIDENT HAVI NG ANY REQUIREMENT OF COAL/ CONSIGNMENT OF COAL TO OFFER, APPROACHES US FOR OUR SERVICES. WE DISCUSS AND SEND THE REQUIREME NT WITH VARIOUS PROBABLE SUITORS OF SUCH REQUIREMENTS BASED ON OUR KNOWLEDGE ABOUT THE SUPPLIER AND BUYERS. OUR COMMIS SION IS FINALIZED FOR THE PARTICULAR CONSIGNMENT WITH THE P ARTIES AT THE TIME OF OUR INITIAL DISCUSSIONS WITH THEM, II. ONCE FINALIZED, WE TRY TO IDENTIFY THE COUNTER PARTY/PARTIES WHO MAY BE INTERESTED IN THE ,DEAL AND THEN WE FORW ARD THE SAID OFFER TO THE SAID IDENTIFIED PARTY/PARTIES AS RECEIVED FROM HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 51 THE OFFERING PARTY IF OVER MAIL OR SIMPLY COMMUNICA TE VERBALLY IN THE EVENT OF A VERBAL INTIMATION FROM THE OFFERING PARTY. III. THE INTERESTED COUNTER PARTY SENDS/ INTIMATES US THEIR COUNTER OFFER SPECIFYING THEIR PRICE AND PREFERRED TERMS AND CONDITION WHICH IS AGAIN FORWARDED/ INTIMATED BY US TO THE BUYER OR SELLER AS THE CASE MAY BE IV) THE PROCESS CONTINUES UNTIL THE FINAL PRICE AND OTH ER TERMS AND CONDITIONS ARE NEGOTIATED AND FINALIZED B ETWEEN THE PARTIES. THE ENTIRE PROCESS OUR ROLE IS JUST OF PASSING THE OFFER AND COUNTER OFFER BETWEEN THE PARTIES AND NOW HERE CONCLUDE ANY BUSINESS DEALING ON BEHALF OF ANY PART Y. V. ONCE THE PRICE AND OTHER TERMS & CONDITIONS ARE FINALIZED A FINAL CONTRACT IS ENTERED DIRECTLY BETWEEN THE BU YER AND SELLER WHICH NEITHER WE ARE A PARTY NOR A WITNESS. VI AFTER THE CONTRACT IS SIGNED, VESSEL NOMINATION IS DONE BY THE RESPONSIBLE PARTY. THE VESSEL NOMINATION IS COM MUNICATED TO US AND WE FORWARD THE SAME AS RECEIVED TO THE CO UNTER PARTY. VII IN THE MEANTIME HE BUYER OPENS A LETTER OF CRED IT IN TERMS OF THE FINALIZED CONTRACT, IN FAVOUR OF THE SELLER AND IT IS SENT DIRECTLY BY THE LC ISSUING BANK TO THE SELLERS NOMI NATED BANK. VIII AFTER BEING 100% SATISFIED WITH THE LETTER OF CREDI T, ONLY THEN, THE SELLER LOADS THE CARGO AND IT IS INTIMATE D TO THE BUYER THROUGH US. IX POST LOADING OF THE VESSEL, THE DOCUMENTS RELATE D TO CARGO LOADED IS PREPARED BY THE SELLER AND WITHIN THE PRE SENTATION PERIOD AS MENTIONED IN THE LE, THE SELLER SENDS THE DOCUMENTS DIRECTLY TO BUYER'S BANK AND WITHIN THE DUE DATE, T HE SELLER GETS PAYMENT DIRECT FROM BANK AGAINST THE SAID LETTER OF CREDIT. X. ONCE THE TRANSACTION IS COMPLETE, WE RAISE OUR B ILL FOR OUR BROKERAGE ON OUR CLIENT AND THE BROKERAGE IS RELEAS ED BY THE CLIENT AS AGREED BETWEEN US. (NOTE- FROM ABOVE SUBMISSION OF THE BROKER IT IS CL EAR THAT ALL THE PROCEDURE OF FINALIZING THE CONTRACT I S DONE BY ASSESSEE AND BROKER. ISSUING OFFER, PRICE NEGOTIATI ON AND FINALIZATION OF TERMS AND CONDITIONS ARE DONE BETWE EN THE ASSESSEE AND BROKER.) HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 52 Q. PLEASE SUBMIT THE COPY OF AGREEMENT EXECUTED BET WEEN YOU AND THE ABOVE MENTIONED 4 NON-RESIDENTS. ANS. WE HAVE A WRITTEN AGREEMENT ONLY WITH M/S SUEK AG SWITZERLAND AND THE AGREEMENT IS ENCLOSED AND REQUI RED NO FORMAL AGREEMENT EXISTS WITH OTHER 2 MENTIONED PART IES. THE QUESTION OF HAVING ANY AGREEMENT WITH PT BARA JAYA UTTAMA INDONESIA DOES NOT AND CANNOT ARISES SINCE WE HAVE NEVER PROVIDED ANY SERVICES TO THE SAID NON-RESIDENT. 34. IT WAS FURTHER CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE AGENT SPEPL HAS STATED THAT IT PROVIDES SE RVICES TO VARIOUS NON-RESIDENT SUPPLIERS IN ITS NORMAL COURSE OF BUSI NESS AND INDEPENDENT SERVICE ARE PROVIDED FOR FACILITATING I NTERNATIONAL TRADE OF COAL. THAT SPEPL HAS PROVIDED SERVICES TO MORE T HAN ONE PARTY AND CHARGED BROKERAGE FROM ALL OF THEM. THAT SPEPL IS NOT CONTROLLED BY ANY OF THE ALLEGED NON-RESIDENT SUPPL IERS. THAT SPEPL MERELY RENDERS COAL ORDER PROCUREMENT SERVICES IN I NDIA AND HAS NOT PROVIDED ANY OTHER SERVICES IN RELATION TO IMPO RT OF COAL. THAT SPEPL IS NOT ENGAGED IN TRADING OF COAL. 35. LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO C IRCULAR NO.23 DATED 23.7.69 RELATING TO SALES BY NON-RESIDENT TO INDIAN CUSTOMERS OR THROUGH AGENT AND THE CONTENT OF THE CIRCULAR IS MENTIONED BELOW; HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 53 SALES BY A NON-RESIDENT TO INDIAN CUSTOMERS EITHER DIRECTLY OR THROUGH AGENTS.- (A) WHERE A NON-RESIDENT ALLOWS AN INDIAN CUSTOMER, FACILITIES OF EXTENDED CREDIT FOR PAYMENT, THERE WOULD BE NO ASSE SSMENT MERELY FOR THIS REASON PROVIDED THAT (I) THE CONTRA CTS TO SELL WERE MADE OUTSIDE INDIA AND (II) THE SALES WERE MADE ON A PRINCIPAL-TO- PRINCIPAL BASIS. (B) WHERE A NON-RESIDENTS SALES TO INDIAN CUSTOMER S ARE SECURED THROUGH THE SERVICES OF AN AGENT IN INDIA, THE ASSE SSMENT IN INDIA OF THE INCOME ARISING OUT OF THE TRANSACTION WILL B E LIMITED TO THE AMOUNT OF PROFIT WHICH IS ATTRIBUTABLE TO THE AGENT S SERVICES, PROVIDED THAT (A) THE NON-RESIDENT PRINCIPALS BUSI NESS ACTIVITIES IN INDIA ARE WHOLLY CHANNELLED THROUGH HIS AGENT, (B) THE CONTRACTS TO SELL ARE MADE OUTSIDE INDIA, AND (C) THE SALES ARE MADE ON A PRINCIPAL-TO-PRINCIPAL BASIS. IN THE ASSESSMENT OF THE AMOUNT OF PROFIT, ALLOWANCE WILL BE MADE FOR THE EXPENSES INC URRED, INCLUDING THE AGENTS COMMISSION, IN MAKING THE SALES. IF THE AGENTS COMMISSION FULLY REPRESENTS THE VALUE OF THE PROFIT -ATTRIBUTABLE TO HIS SERVICE, IT SHOULD PRIMA FACIE EXTINGUISH THE A SSESSMENT. (C) WHERE A NON-RESIDENT PRINCIPALS BUSINESS ACTIV ITIES IN INDIA ARE NOT WHOLLY CHANNELLED THROUGH HIS AGENT IN INDI A THE ASSESSMENT IN INDIA WILL BE ON THE SUM-TOTAL OF THE AMOUNT OF PROFIT ATTRIBUTABLE TO HIS AGENTS ACTIVITIES IN IN DIA AND THE AMOUNT OF PROFIT ATTRIBUTABLE TO HIS OWN ACTIVITIES IN IND IA, LESS THE EXPENSES INCURRED IN MAKING THE SALES. 36. NOW EXAMINING THE FACTS OF THE INSTANT APPEAL O N CONTEXT TO THE CIRCULAR NO.23 ISSUED BY CBDT REPRODUCED ABOVE, WE FIND THAT THE CONTRACT FOR SALE OF COAL WERE ENTERED BETWEEN THE ASSESSEE AND NON-RESIDENT ON PRINCIPAL TO PRINCIPAL BASIS. THE C ONTRACTS WERE EXECUTED OUTSIDE INDIA. NON-RESIDENT SUPPLIERS DIR ECTLY DELIVERED COAL FROM OUTSIDE INDIA TO THE APPELLANT WITHOUT RO UTING THROUGH THE HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 54 AGENT SPEPL. THAT APART FROM PROCUREMENT OF ORDER THERE IS NO ROLE OF SPEPL DIRECTLY OR INDIRECTLY IN RESPECT OF SALES , COAL SHIPMENT SERVICES, COLLECTION OF MONEY AND IMPORT DOCUMENTAT ION. 37. IT IS ALSO AN UNDISPUTED FACT THAT THE LD. A.O HAS NOT DOUBTED THE AMOUNT OF ARMS LENGTH AND NATURE OF COMMISSION INCOME EARNED BY SPEPL IN INDIA FROM THESE NON-RESIDENTS. 38. SINCE WE HAVE ENUMERATED THE FACTS EXTENSIVELY IN THE PRECEDING PARAS, BEFORE COMING TO THE CONCLUSION WE WILL FIRST LIKE TO COMPARE THE FACTS OF THE INSTANT APPEAL WITH THE FA CTS ADJUDICATED BY HON'BLE APEX COURT IN THE CASE OF CIT V/S R.D. A GRAWAL & CO 56 ITR 20 (SUPRA) . SR. NO. FACT OF THE CASE OF RD AGGARWAL& CO. FACTS OF THE APPELLANTS CASE 1 THE NON-RESIDENT SUPPLIERS HAVE APPOINTED THE ASSESSEE AS THEIR AGENT IN INDIA FOR PROCUREMENT OF ORDER FROM CUSTOMER IN INDIA IN THE PRESENT CASE, SOUTHERN PACIFIC ASSISTS NON-RESIDENT SUPPLIERS FOR PROCUREMENT OF ORDERS FROM INDIAN CUSTOMERS. 2 THE NON-RESIDENT SUPPLIER HAVE APPOINTED THE ASSESSEE AS THEIR AGENT IN INDIA FOR PROCUREMENT OF ORDER FROM CUSTOMERS IN INDIA IN THE PRESENT CASE, SOUTHERN PACIFIC ASSISTS NON-RESIDENT SUPPLIERS FOR PROCUREMENT OF ORDERS FROM INDIAN CUSTOMERS 3 THE ASSESSEE COMMUNICATE ORDERS CANVASSED BY THEM FORM DEALERS IN INDIA TO BE NON- RESIDENTS FOR ACCEPTANCE. FURTHER, NON-RESIDENTS WERE NOT OBLIGED TO ACCEPT THE OFFER TENDERED BY CUSTOMERS IN INDIA THROUGH THE ASSESSEE SOUTHERN PACIFIC IS ONLY ACTING AS COMMUNICATOR BETWEEN NON-RESIDENT SUPPLIER AND THE APPELLANT. SOTHERN PACIFIC IS NOT HAVING ANY AUTHORITY TO CONCLUDED CONTRACT ON BEHALF OF NON- RESIDENT SUPPLIERS. FURTHER, NON-RESIDENT SUPPLIERS WERE NOT OBLIGED TO ACCEPT THE OFFER TENDERED BY CUSTOMERS IN INDIA THROUGH SOUTHERN HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 55 PACIFIC 3 THE ASSESSEE PROVIDES AGENCY SERVICES TO VARIOUS NON-RESIDENTS. IN THE PRESENT CASE, SOUTHERN PACIFIC IS PROVIDING PROCUREMENT SERVICES TO MANY NON-RESIDENTS LOCATED VARIOUS PART OF THE WORLD AND NOT ACTING AS EXCLUSIVE AGENT SUPPLIER. KINDLY REFER LIST OF OVERSEAS CLIENTELE OF SOUTHERN PACIFIC IN THE ATTACHED LETTER MARKED AS ANNEXURE- J 4 IF THE CONTRACT IS RESULTED BETWEEN INDIAN BUYER AND NON-RESIDENT SUPPLIER AND PRICE FOR THE GOODS PURCHASED IS PAID BY THE INDIAN BUYER, AGENT WAS ENTITLED FOR COMMISSION IN THE PRESENT CASE, THE CONTRACT IS SIGNED BETWEEN THE APPELLANT AND NON- RESIDENT SUPPLIER 5 THE ASSESSEE WAS NEITHER DISTRIBUTOR/AGENT FOR SALE OF GOODS MANUFACTURED BY THE NON-GOODS MANUFACTURED BY THE NON-RESIDENT FOR PROCURING RAW MATERIAL IN INDIA FOR MANUFACTURING PROCESS OUTSIDE INDIA. IN THE PRESENT CASE ALSO, SOUTHERN PACIFIC WAS NOT ASSISTING NON-RESIDENT FOR SALE OF THEIR PRODUCT IN INDIA NOR HELPS IN PROCURING RAW MATERIALS IN INDIA FOR THEIR MANUFACTURING PROCESS OUTSIDE INDIA. 39. LD. CIT(A) RAISED QUESTION ABOUT ONE OF THE NO N-RESIDENT SUPPLIER NAMELY SUEK AG, SWITZERLAND OBSERVING THAT IT HAS AN OFFICE IN INDIA. IN THE ADDITIONAL EVIDENCE THE ASS ESSEE HAS PLACED COPY OF PORTAL OF MINISTRY OF CORPORATE AFFAIRS AT ANNEXURE A-IV. FROM GOING THROUGH THE SAME WE FIND THAT THOUGH SUE K AG IS REGISTERED BUT THE TYPE OF OFFICE IS LIAISON OFFIC E AND THUS IT CANNOT BE SAID TO BE AN OFFICE FOR CONDUCTING REGULAR ACTI VITIES IN INDIA. 40. FURTHER AS REGARDS THE REVENUES CONTENTION THA T THE AGENT SPEPL WORKS MAINLY AND WHOLLY ON BEHALF OF NON-RESI DENT AND IT IS CONTROLLED BY PRINCIPAL NON-RESIDENT, WE FIND THAT THE AGENT SPEPL IS NOT CONTROLLED BY THE PRINCIPAL NON-RESIDENT. PR INCIPAL NON- HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 56 RESIDENT HAVE NO CONTROL OF INTEREST. BROKER SPEPL HAS NO AUTHORITY TO CONCLUDE THE CONTRACT ON BEHALF OF THE NON-RESID ENT SUPPLIERS NOR IT HAS ANY ROLE LEADING TO CONCLUSION OF CONTRACTS. SPEPL DOES NOT MAINTAIN ANY STOCK OF GOODS OR MERCHANDIZE INFORMAT ION TO DELIVER ON BEHALF OF THE NON-RESIDENTS. THE FACT WHICH ENU MERATES FROM THE RECORDS ARE THAT THE SPEPL WORKS AS AN INDEPENDENT BROKER FOR BUYERS AND SELLERS OF COAL WITHIN AND OUTSIDE INDIA . 41. IT IS QUITE PRACTICAL THAT WHEN A PERSON WANT T O IMPORT COAL AT THE LOWEST PRICE AND BEST QUALITY FROM AROUND THE W ORLD IT IS NOT EASY NOR VIABLE FOR IT TO CONTACT RESPECTIVE SUPPLI ERS SCATTERED ACROSS THE GLOBE. THE SERVICES OF BROKER/AGENT ARE REQUIRE D WHO HAS THE DESIRED EXPERTISE AND INFORMATION AVAILABLE WITH HI M IN HIS CAPACITY AS A SERVICE PROVIDER. SIMILARLY THE SUPPLIERS SIT TING ACROSS THE GLOBE, IN ORDER TO MAKE EXPORTS ARE IN SEARCH OF GO OD BUYERS AND THEREFORE THEY ALSO TRY TO CONTACT SUCH BROKER/AGEN TS WORKING IN THIS FIELD. SPEPL IS ONE OF SUCH BROKER/AGENT WHO HAS A DATA BASE OF BUYERS AND SELLERS. WHENEVER ANY ENQUIRY IS COMM UNICATED TO IT BY EITHER SIDE THE PROCESS STARTS. CONCLUDING SUCH DEALS IS ALWAYS IN THE INTEREST OF THE AGENT, SINCE HIS COMMISSION IS LINKED TO SUCH DEALS. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 57 42. WE ALSO FIND THAT THE AGENT SPEPL DID NOT ACT A S AN AGENT OF PT BARA JAYA FOR THE PURPOSE OF IMPORT OF COAL BY T HE APPELLANT. SPEPL HAS CATEGORICALLY CLARIFIED IN ITS REPLY TO N OTICE U/S 133(6) OF THE ACT THAT IT HAD NEVER PROVIDED ANY SERVICES TO PT BARA JAYA, INDONESIA. AS REGARDS THE REMAINING THREE NON-RESI DENT SUPPLIERS SPEPL HAS NO AUTHORITY TO ENGAGE IN ANY BUSINESS DE ALINGS ON BEHALF OF THEM OR TO CONCLUDE CONTRACTS ON THEIR BE HALF. OTHER THAN PROVIDING THE AGENCY SERVICES SPEPL HAS NOT PROVIDE D ANY OTHER SERVICES TO IMPORT/EXPORT OF COAL SUCH AS SHIPPING, CUSTOMS CLEARANCE AND CARGO HANDLING ACTIVITIES. IT IS ALS O NOT DISPUTED THAT SPEPL HAS NO AUTHORITY TO TAKE POSSESSION OF THE GO ODS ON BEHALF OF ANY SUPPLIER AND ITS ROLE IS CONFINED TO FACILITATI NG IN BRINGING THE PURCHASER AND SELLER OF THE COAL TOGETHER. THE LD. A.O NOWHERE DOUBTED THE ARMS LENGTH NATURE OF THE COMMISSION I NCOME EARNED BY SPEPL FROM THE NON-RESIDENT SUPPLIERS AS WELL AS THE ASSESSEE. IN SIMILAR FACTS MUMBAI I.T.A.T. IN THE CASE OF DE LMAS FRANCE V/S ACIT (SUPRA) HAS HELD THAT ONCE AGENT IS PAID ARMS LENGTH FOR THE SERVICES RENDERED NO FURTHER PROFIT CAN BE ATTRIBUT ED TO THE PE. HON'BLE BOMBAY HIGH COURT IN THE CASE OF DIT (IT) V /S DELMAS HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 58 FRANCE (2015) 232 TAXMAN 401 DISMISSED THE REVENUE S APPEAL AGAINST THE SAID ORDER OF I.T.A.T., BOMBAY. 43. IN THE INSTANT CASE AFTER EXAMINING THE FACTS W E ARE OF THE CONSIDERED VIEW THAT SPEPL IS AN INDEPENDENT AGENT AND BY NO STRETCH CAN BE TERMED AS AN AGENT WHOLLY AND EXCLUS IVELY ASSOCIATED TO ANY PARTICULAR NON-RESIDENT SUPPLIER. THUS THE C ASE OF THE ASSESSEE SQUARELY FALLS IN THE PROVISO TO SECTION 9 (1) OF THE ACT WHICH PROVIDES THAT SUCH BUSINESS CONNECTION SHALL NOT INCLUDE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A BROKER/AGEN T COMMISSION AGENT OR ANY OTHER AGENT HAVING AN INDEPENDENT STAT US IF SUCH BROKER, AGENT, COMMISSION AGENT HAVING AN INDEPENDE NT STATUS IS COMING IN THE ORDINARY COURSE OF HIS BUSINESS. 44. WE ALSO OBSERVE THAT THE MUMBAI I.T.A.T. IN THE CASE OF DDIT(IT) V/S B4U INTERNATIONAL HOLDINGS LTD (2012) 137 ITD 346 (MUMBAI) HELD THAT ONE HAS TO LOOK ON THE ACTIVITIES OF THE AGENT AND ITS DEVOTION TO THE NON-RESIDENT PRINCIPAL AND NO T THE OTHER WAY AROUND I.E. PERSPECTIVE SHOULD BE FROM THE ANGLE OF THE AGENT AND NOT THAT OF THE NON-RESIDENT PRINCIPAL. THEREFORE IF A N AGENT EXCLUSIVELY WORKS FOR ONE PRINCIPAL HE MAY BE SAID TO BE DEPEND ENT AGENT RESULTING IN AGENCY PE BUT WHERE THE PRINCIPAL HAS A SOLE AGENT WHO HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 59 ALSO UNDERTAKES WORK AND UNDERTAKE SUCH WORK EXTENS IVELY FOR OTHER PRINCIPALS THE AGENCY AGENT CANNOT BE SAID TO BE DEPENDENT AND THERE CAN BE NO QUESTION OF CREATION OF AGENCY. 45. LD. DEPARTMENTAL REPRESENTATIVE WHO WAS RELIED ON THE DETAILED FINDING OF LD. CIT(A) AND HAVE ALSO PLACED RELIANCE ON JUDICIAL PRONOUNCEMENTS WILL NOT FIND ANY FAVOUR WI TH RESPECT TO THE INSTANT GROUND UNDER ADJUDICATION SINCE THE MAIN BA SIS OF THE REVENUE TREATING THE ASSESSEE IN DEFAULT FOR NON DE DUCTION OF TAX U/S 195 OF THE ACT IS THAT THE ALLEGED FOUR NON-RES IDENT SUPPLIERS OF COAL HAS A BUSINESS CONNECTION IN INDIA THROUGH THE AGENT SPEPL WHICH IN THE VIEW OF THE REVENUE WAS WHOLLY AND EXC LUSIVELY WORKING FOR THE NON-RESIDENT COAL SUPPLIERS. HOWEV ER AS PER OUR ABOVE DETAILED FINDING IN PRECEDING PARAS WE HAVE C AME TO THE CONCLUSION THAT THE AGENT SPEPL WAS WORKING AS AN I NDEPENDENT AGENT AND WAS NOT WHOLLY AND EXCLUSIVELY ASSOCIATED WITH THE NON- RESIDENT SUPPLIERS AND THEREFORE NO BUSINESS CONNE CTIONS OF THE NON-RESIDENT SUPPLIERS IS ESTABLISHED IN INDIA. SI NCE NO BUSINESS CONNECTION IS ESTABLISHED INCOME CANNOT BE DEEMED T O HAVE ACCRUED OR ARISES IN INDIA IN THE TRANSACTION OF EXPORT OF COAL TO THE ASSESSEE IN INDIA. JUDICIAL PRONOUNCEMENTS RELIED ON BY THE LD. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 60 DEPARTMENTAL REPRESENTATIVE ARE FOUND TO HAVE BEEN RENDERED IN ALTOGETHER DIFFERENT, LEGAL AND FACTUAL CONTEXT AND HENCE ARE DISTINGUISHABLE THEREFORE WILL NOT FIND ANY FAVOUR. 46. SINCE IN OUR VIEW THERE IS NO BUSINESS CONNECTION BETWEEN THE NON-RESIDENT AND SPEPL THEREFORE THERE WILL BE NO INCOME DEEMED TO HAVE ACCRUED OR ARISES IN INDIA OF THE AL LEGED NON- RESIDENT SUPPLIERS IN RELATION TO THE ROLE OF COAL PURCHASED BY THE ASSESSEE DURING THE YEAR TOTALING TO RS.86,07,05,87 3/-. SINCE NO BUSINESS CONNECTION IS ESTABLISHED OF THE NON-RES IDENT SUPPLIERS IN INDIA FOR THE PURPOSE OF COMPUTING INCOME AS PER SECTION 9(1) OF THE ACT THERE IS NO PERMANENT ESTABLISHMENT (PE) OF THE ALLEGED FOUR NON RESIDENT SUPPLIERS IN INDIA. ALSO WE ARE OF THE CONSIDERED VIEW THAT THE AGENT SPEPL IS AN INDEPENDENT AGENT AND IS NOT WHOLLY AND EXCLUSIVELY ASSOCIATED WITH THE ALLEGED NON RES IDENT SUPPLIERS. THUS THE ACTION OF THE LD. A.O OF ESTIMATING THE PR OFIT ON THE AMOUNT REMITTED AND SUBSEQUENTLY CALCULATING THE T DS DEFAULT @41.21% (GROSS) ON THE DEEMED PROFIT IS UNCALLED FO R. WE THEREFORE SET ASIDE THE FINDING OF LD. CIT(A) IN RELATION TO GROUND NO. 1(A) TO 1(F) AND DELETE THE DEMAND OF TAX DEDUCTED AT SOURC E AT RS.5,91,01,804/- CREATED BY LD. A.O FOR NON DEDUCTI ON OF TAX AT HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 61 SOURCE U/S 195 OF THE ACT ON THE ESTIMATED INCOME C ALCULATED @10% ON THE TOTAL AMOUNT OF PURCHASE OF COAL FROM F OUR NON- RESIDENT SUPPLIERS TOTALING TO RS.86,07,05,873/-. SINCE TDS DEMAND OF RS.5,91,01,804/- HAS BEEN DELETED BY US T HE INTEREST CHARGED U/S 201(1) OF THE ACT AT RS.1,24,86,591/- A LSO STANDS DELETED BEING CONSEQUENTIAL IN NATURE. 47. IN THE RESULT GROUND NO. 1(A) TO 1(F) OF THE AS SESSEES APPEAL STANDS ALLOWED. 48. APROPOS GROUND NO.2 FOR NON APPLICABILITY OF TD S ON PAYMENTS TOWARDS INSPECTION CHARGES. THE FACTS IN BRIEF ARE THAT THE ASSESSEE AVAILED SERVICES OF PT ARTH BUANA, IND ONESIA FOR OBTAINING INSPECTION REPORT FOR INSPECTION OF GRADE OF COAL AT THE TIME OF SHIPMENT AT PORT VIZ. MUARA PANTAI LOCATED AT INDONESIA. THE INSPECTION REPORT WAS OBTAINED TO SUBMIT THE SAME T O SHIPPING AGENT AT THE TIME OF SHIPMENT. PT ARTH BUANA WAS E NGAGED TO CARRY OUT INSPECTION TO VERIFY THE QUANTITY AND MEASUREME NT OF VARIOUS INGREDIENTS SUCH AS ASH, SULPHUR, FIXED CARBON ETC. TOTAL AMOUNT OF RS.2,55,586/- WAS REMITTED BY THE ASSESSEE. LD. A. O TREATED THIS AMOUNT AS FEES FOR TECHNICAL SERVICES LIABLE TO D EDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. LD. A.O GROSSED THAT AM OUNT TO HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 62 RS.3,41,181/- AND CALCULATED THE TDS @ 25.75% AT RS . 87,854/- AND ALSO LEVIED INTEREST AT RS.24,599/-. 49. AGAINST THE ORDER OF THE LD. A.O TREATING THE A SSESSEE IN DEFAULT FOR NON DEDUCTION OF TDS OF PAYMENT OF INSP ECTION CHARGES BY TREATING THEM AS FEES TECHNICAL SERVICES, ASSESS EE PREFERRED APPEAL BEFORE LD. CIT(A) BUT FAILED TO SUCCEED. LD . CIT(A) REFERRING TO ARTICLE 13(B)OF THE INDIA INDONESIA TAX TREATY H ELD THAT FROM PERUSAL OF THE INSPECTION REPORT IT TRANSMITS THAT IT IS TECHNICAL IN NATURE AND THEREFORE THE AMOUNT PAID IS FEES OF TEC HNICAL SERVICES. 50. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 51. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT PT ARTH BUANA HAS ONLY PROVIDED INSPECTION REPORT AND NO TECHNICA L KNOWLEDGE HAS BEEN PROVIDED TO THE APPELLANT. SUCH INSPECTION IS PROCESSED AND IS CONDUCTED AT THE END OF PT ARTH BUANA AND ONLY THE FINAL REPORT CONTAINING THE CONCLUSION IS GIVEN TO THE APPELLANT . SINCE THE SERVICES PROVIDED ARE NOT OF TECHNICAL IN NATURE NO TAX WAS LIABLE TO BE DEDUCTED. 52. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHE MENTLY ARGUED AND SUPPORTED THE ORDERS OF LOWER AUTHORITIE S. HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 63 53. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. ASSESSEES GRIEVANCE IN GROUND N O.2 IS AGAINST THE FINDING OF LD. CIT(A) CONFIRMING THE ACTION OF THE LD. A.O TREATING THE INSPECTION REPORT CHARGES PAID TO PT A RTH BUANA AS FEES OF TECHNICAL SERVICES. ASSESSEE BEFORE IMPO RTING THE COAL OBTAINED THE INSPECTION REPORT OF INSPECTION OF GRA DE OF COAL AT THE TIME OF SHIPMENT. ASSESSEE HAS NOT RECEIVED ANY TE CHNICAL SERVICES IN INDIA. IN THE ASSESSMENT ORDER AT PAGE-62 THE B ILL OF PT ARTH BUANA IS SCANNED. IN THE QUOTATION IT HAS BEEN MEN TIONED THAT AS PER TELECO DISCUSSION WITH YOU WE ARE PLEASED T O OFFER OUR INSPECTION FOR YOUR VESSEL AT MUARA PANTAI AND OUT SERVICE CHARGES FOR INSPECTION AND CERTIFICATE WILL BE 0.07 USD PER MT + 10% VAT. THE CONTENT OF THE QUOTATION ONLY REFERS TO THE INS PECTION CERTIFICATES I.E. BEFORE THE SHIPMENT STARTS FROM T HE PLACE OF ORIGIN INSPECTION REPORT IS TO BE FILED. THIS SERVICE IS SPECIFICALLY RELATED TO PROCUREMENT OF COAL. WE DO NOT SEE ANY TECHNICAL S ERVICES TO HAVE BEEN PROVIDED TO THE ASSESSEE IRRESPECTIVE OF THE F ACT THAT THE SERVICES ARE PROVIDED IN INDIA OR OUTSIDE INDIA. I T IS NOT THE CASE OF THE REVENUE THAT PT ARTH BUANA HAS A BUSINESS CONNE CTION OR PERMANENT ESTABLISHMENT IN INDIA. IN OUR VIEW THE SERVICE PROVIDED HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 64 ARE NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICE BUT ARE THE CHARGES FOR INSPECTING THE VESSEL, THEREFORE WE FIN D NO MERIT IN THE FINDING OF LD. A.O TREATING ASSESSEE IN DEFAULT FOR NON DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT ON THE ALLEGED PAY MENT OF RS.2,55,886/- TOWARDS INSPECTION CHARGES TO NON-RES IDENT. WE THEREFORE SET ASIDE THE FINDING OF LD. CIT(A) AND D ELETE THE ADDITION OF TDS AT RS.87,854/- AND INTEREST U/S 201(1) AT RS .2,559/- AND ALLOW GROUND NO.2 RAISED BY THE ASSESSEE. 52.. IN THE RESULT APPEAL OF THE ASSESSEE STANDS AL LOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21.08.20 19. SD/- (KUL BHARAT) SD/- (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER INDORE; DATED : 21/08/2019 /DEV COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUAR D FILE. BY ORDER ASSISTANT REGISTRAR HIND ENERGY & COAL BENEFICATION ITANO.107/IND/2019 65