TDK Electronics AG (formerly known as EPCOS AG), Nashik V. Assistant Commissioner of Income-tax, (Intl. Taxation), Circle - 2, Pune

ITA 160/PUN/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3401 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 12-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH ‘C’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपीऱ सं. / ITA No.160/PUN/2021 निर्धारण वषा / Assessment Year : 2016-17 TDK Electronics AG (Formerly known as EPCOS AG) C/o EPCOS India Pvt. Ltd., Plot No.E 22-25, MIDC, Satpur, Nashik – 422007 PAN: AAACE9787H Vs. ACIT, (International Taxation), Circle-2, Pune Appellant Respondent आयकर अपीऱ सं. / ITA No.172/PUN/2022 निर्धारण वषा / Assessment Year : 2017-18 TDK Electronics AG (Formerly known as EPCOS AG) C/o EPCOS India Pvt. Ltd., Plot No.E 22-25, MIDC, Satpur, Nashik – 422007 PAN: AAACE9787H Vs. ACIT, (International Taxation), Circle-2, Pune Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : These two appeals by the assessee are directed against the final assessment orders passed u/s 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter also called `the Assessee by Shri Siddhesh Chaugule Revenue by Shri Mohit Jain, CIT Date of hearing 27-04-2022 Date of pronouncement 28-04-2022 ITA No.160/PUN/2021 ITA No.172/PUN/2022 2 Act’) in relation to the assessment years 2016-17 and 2017-18. Since both the appeals are based on similar facts and identical grounds, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. A.Y. 2016-17 2. Tersely stated, the facts of the case are that the assessee is a tax resident of Germany. Return of income was filed declaring total income at Rs.30,52,26,440/-, which was offered for taxation at 10% under the Double Taxation Avoidance Agreement between India and Germany (DTAA). The income consisted of Income from Support services in relation to Information Technology, Marketing and Sales amounting to Rs.22.88 crore; Royalty of Rs. 1.40 crore; and Interest of Rs.6.23 crore received on ECB loans from its Indian subsidiary. The Assessing Officer (AO) held in draft order that the assessee was having a Permanent establishment (PE) in India in the form of its Indian subsidiary, namely, M/s EPCOS India Private Ltd. (EIPL). This view was canvassed on the basis of similar decision taken by him in earlier years. In the final analysis, he held that because of the assessee’s PE in India, the first two items of income, namely, Support services offered by the assessee as Fees ITA No.160/PUN/2021 ITA No.172/PUN/2022 3 for technical services and Royalty were liable to tax at 10% on gross basis. The Dispute Resolution Panel (DRP) approved the action of AO in treating the assessee’s Indian subsidiary as its PE. There is no dispute on the Interest earned on ECB loans amounting to Rs.6.23 crores, for which necessary relief was granted by the DRP. The assessee is aggrieved by treating EIPL as its permanent establishment in India. 3. We have heard the rival contentions and gone through the relevant material on record. The DRP has discussed this issue at page 28 of its directions by observing that the facts for the instant year are in pari materia with those for the earlier years starting from A.Y. 2006-07 to A.Y. 2014-15, for which the Tribunal has decided this issue in favour of assessee. It however, upheld the decision of the AO in the draft order on the raison d’etre that the Revenue would be otherwise left without any remedy as no appeal by the Revenue lies before the Tribunal against the incorporation in the final assessment order of the directions given by the DRP. It is seen that the Tribunal, right from the A.Y. 2003-04 up to the A.Y. 2014- 15, has decided the issue in favour of the assessee by holding EIPL does not constitute PE of the assessee in India. The ld. DR candidly ITA No.160/PUN/2021 ITA No.172/PUN/2022 4 admitted that there is no change in the facts and circumstances of the instant year vis-à-vis the earlier years. Respectfully following the precedent, we hold that the EIPL does not constitute the assessee’s PE in India. This issue is therefore, decided in favour of assessee. 4. The only other ground is against considering Reimbursement from the Indian subsidiary as income. On perusal of the details, the AO observed that the assessee short reflected income of Rs.29,50,806. On being called upon to explain the reasons, the assessee submitted that the receipt was in the nature of reimbursement of expenses. The AO has given break-up of such amount at page 25 of the draft order. On going through the corresponding Debit notes, he observed that mark-up of 1% was added to the cost of services. He, therefore, held that Rs.29.50 lakhs was liable to tax in India at 10%, being, the rate applied by him on FTS/Royalty. The DRP accorded its imprimatur to the view point of the AO, which led to the making of the addition in the final assessment order. 5. Having heard the rival submissions and perused the relevant material on record, it is found as an admitted position that the sum ITA No.160/PUN/2021 ITA No.172/PUN/2022 5 of Rs.29.50 lakh charged by the assessee is inclusive of 1% mark-up to the actual costs incurred by the assessee. The ld. AR however, contended that only mark-up of 1% should be brought to tax and not the full amount. We are unable to countenance the proposition propounded by the ld. AR for the obvious reason that the sum of Rs.29.50 lakh is admittedly not reimbursement as it has a mark-up added to it. Once a particular receipt is not reimbursement and also includes mark-up, it becomes chargeable to tax in the gross taxation regime. On a specific query, the ld. AR submitted that the sum of Rs.29.50 lakh is otherwise in the nature of Fees for Technical Services considered by the assessee as first item in its computation of income. We, therefore, uphold the view point of the AO on this score. A.Y. 2017-18 6. There is a delay of 30 days in presenting the appeal before the Tribunal. The ld. AR requested for the condonation, which was not seriously objected to by the ld. DR. We, ergo, condone the delay and admit the appeal for hearing. 7. Both the sides are consensus ad idem that the facts and circumstances of the appeal for this year are mutatis mutandis ITA No.160/PUN/2021 ITA No.172/PUN/2022 6 similar to those for the A.Y. 2016-17. In fact, both the sides adopted arguments made for the preceding year as relevant for the year under consideration. Following the view taken hereinabove, we hold that the assessee was not having any PE in India in the form of its subsidiary EIPL and further that the amount of Rs.32,58,713 claimed by the assessee as reimbursement, which admittedly, has mark-up in this year as well, has been rightly included in the total income. 8. In the result, both the appeals are partly allowed. Order pronounced in the Open Court on 28 th April, 2022. Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 28 th April, 2022 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; 2. प्रत्यर्थी / The Respondent; 3. The CIT(DRP-3), Mumbai-1 4. 5. 6. The CIT(IT&TP), Pune DR, ITAT, ‘C’ Bench, Pune ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune ITA No.160/PUN/2021 ITA No.172/PUN/2022 7 Date 1. Draft dictated on 27-04-2022 Sr.PS 2. Draft placed before author 28-04-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *