M/s. DAIMLERCHRYSLER AG, MUMBAI V. DDIT (IT)-1(2), MUMBAI

ITA 3817/MUM/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6234 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 23-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Advance ruling
• Section: 5(2); 234B

Judgement Text

1 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) I II IN THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH L LL L MUMBAI MUMBAI MUMBAI MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI N V VASUDEVAN, JM & SHRI N V VASUDEVAN, JM & SHRI N V VASUDEVAN, JM & SHRI N V VASUDEVAN, JM & SHRI SHRI SHRI SHRI R R R R K PANDA, AM K PANDA, AM K PANDA, AM K PANDA, AM ITA NO. 3817/MUM/2008 ITA NO. 3817/MUM/2008 ITA NO. 3817/MUM/2008 ITA NO. 3817/MUM/2008 (ASSESSMENT YEAR 2004-05 ) M/S DAIMLER CHRYLER AG C/O S R BATLIBOI & CO CHARTERED ACCOUNTANTS IST FLOOR, JALAN MILLS COMPOUND 95 GANPATRAO KADAM MARG, LOWER PAREL, MYMBAI 13 VS THE DIRECTOR OF INCOME TAX(I.T) 1(2), MUMBAI (APPELLANT) (RESPONDENT) PAN PAN PAN PAN AABCD2354C AABCD2354C AABCD2354C AABCD2354C ITA NO. 4325/MUM/2008 ITA NO. 4325/MUM/2008 ITA NO. 4325/MUM/2008 ITA NO. 4325/MUM/2008 (ASSESSMENT YEAR 2004-05 ) THE DIRECTOR OF INCOME TAX(I.T) 1(2), MUMBAI VS M/S DAIMLER CHRYLER AG C/O S R BATLIBOI & CO CHARTERED ACCOUNTANTS IST FLOOR, JALAN MILLS COMPOUND 95 GANPATRAO KADAM MARG, LOWER PAREL, MYMBAI 13 ASSESSEE BY: SHRI RAJAN R VORA REVENUE BY: SHRI KESHAV SAXENA O OO O R RR R D DD D E EE E R RR R PER PER PER PER R RR R K PANDA K PANDA K PANDA K PANDA: :: : THESE ARE CROSS APPEALS THE FIRST ONE BY THE ASSE SSEE AND THE SECOND ONE BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDER D ATED 27.3.2008 RELATING TO ASSESSMENT YEAR 2004-05. FOR THE SAKE OF CONVENIENC E, THESE WERE HEARD TOGETHER AND ARE BEING DEPOSED OF BY THIS COMMON OR DER. 2 GROUNDS OF APPEAL 1 TO 3 BY THE ASSESSEE AND GROU NDS OF APPEAL NO. 3 & 4 BY THE REVENUE ARE AS UNDER: 2 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) GROUNDS OF APPEAL NO. 1 TO 3 BY THE ASSESSEE READ A S UNDER: (1) THE LD CIT(A) HAS ERRED IN HOLDING THAT DAIMLER CHRYSLER INDIA P LTD (DCIL) IS A DEPENDENT AGENT OF THE APPELLANT IN RES PECT OF SALE OF COMPLETELY BUILT UNIT (CBU) IN INDIA AND CONSTITUTE S A PERMANENT ESTABLISHMENT IN RESPECT OF SUCH SALES UNDER ARTICL E 5(5) OF THE INDIA GERMANY TAX TREATY AND CONSEQUENTLY HOLDING THAT IN COME FROM SUCH SALES WHICH IS ATTRIBUTABLE TO THE AFORESAID PERMAN ENT ESTABLISHMENT WOULD BE TAXABLE IN INDIA. (2) THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THE APPELLANT HAD EXPORTED/SOLD CBU ON PRINCIPAL TO PRINCIPAL BASIS T O DCIL AND DCIL HAD SOLD AND SERVICED THESE CARS ON ITS OWN ACCOUNT AND THER EFORE DCIL CANNOT BE TREATED AS DEPENDENT AGENT OF THE APPELLANT. (3) THE LD CIT(A) HAS ERRED IN HOLDING THAT DCIL IS A DEPENDENT AGENT OF THE APPELLANT IN RESPECT OF SALE OF CBU DIRECTLY TO CUSTOMERS IN INDIA GROUNDS OF APPEAL NO. 3 & 4 BY THE REVENUE READ AS UNDER: (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT DCIL CANNOT BE TREATE D AS AN AGENT OF ASSESSEE UNDER ARTICLE 5(5) R.W. ARTICLE 5(6) OF TH E DTAA. ( 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THAT THE ADDITION MADE BY THE ASSESSING OFFICER IN RESPECT OF PROFIT COMPUTED ON SALE OF RAW MATERIAL AND SPARE PARTS. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY IS INCORPORATED IN GERMANY AND IS PRIMARILY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING AUTOMOBILES AND AUTOMOBILE PARTS ALL ACROSS THE WORLD. IT WAS STATED THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS SOLD COMPLETELY BUILT UNIT (CBU) CARS BOTH TO DAIMLER CH RYSLER INDIA PVT LTD (DCIL) AS WELL AS TO CUSTOMERS IN INDIA DIRECTLY. FURTHER, A SSESSEE HAS ALSO SOLD RAW MATERIALS TO DCIL. DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE HAS SHOWN INCOME OF ` 72,324,070/- ON ACCOUNT OF ROYALTY AND FEES FOR TE CHNICAL SERVICES RECEIVED FROM DCIL. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSEE 3 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) WAS ASKED TO GIVE DETAILS OF ALL RAW MATERIALS, ROY ALTY, TECHNICAL SERVICE FEES, SALE OF CBU AND CKD KITS TO ANY PERSON IN INDIA. THE AS SESSEE FROM TIME TO TIME FILED THIS INFORMATION DURING THE COURSE OF ASSESSMENT PR OCEEDINGS. FROM THIS INFORMATION, ASSESSING OFFICER NOTED THAT DURING TH E YEAR, THE ASSESSEE HAS SUPPLIED THE FOLLOWING TO DCIL: RAW MATERIALS ` 1 ,663,635,611/- SALE OF CBU UNITS TO DCIL ` 183,546,803/- TOTAL ` . 1,347,182,414/- FURTHER, IT WAS SUBMITTED THAT DURING THE YEAR, THE ASSESSEE HAS MADE SALES OF EUROS 1,795,865(APPROX. ` 96,441,583/-) DIRECTLY TO INDIAN CUSTOMERS. 2.2 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE H AS NEVER CONTENDED THAT IT DOES NOT HAVE INCOME U/S 5 OF THE I T ACT OR BUSINE SS CONNECTION IN INDIA U/S 9 OF THE I T ACT1961. THE CONTENTION OF THE ASSESSEE IS THAT ITS BUSINESS PROFITS FROM INDIA ARE NOT TAXABLE IN VIEW OF THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND GERMANY. THE ASS ESSING OFFICER ANALYSED THE PROVISIONS OF SEC. 9(1)(I) AND SEC. 5(2) OF TH E I T ACT, 1961. HE ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF R D AGGARWAL AND CO REPORTED IN 56 ITR 20(SC). BASED ON THE ABOVE, HE W ENT ON TO CONSIDER AS TO WHETHER THE INCOME OF THE ASSESSEE IS TAXABLE WITHI N SEC. 5(2) OF THE I T ACT, 1961 AND WHETHER THE ASSESSEE HAS ANY BUSINESS CONN ECTION IN INDIA WITHIN THE MEANING OF SEC. 9(1) OF THE IT ACT, 1961. HE NOTED THAT THE BUSINESS OF THE ASSESSEE IS THAT OF MANUFACTURE AND SALE OF AUTOMOB ILES. THE ASSESSEE COMPANY HAS BEEN SUPPLYING CBU UNITS, ENGINES AND OTHER PAR TS TO DCIL. THE ASSESSEE 4 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) COMPANY HAS BEEN SELLING ITS CARS IN INDIA THROUGH DCIL. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS THE FOLLOWING AGREEMENT S WITH DCIL. I) GENERAL AGENCY AGREEMENT SIGNED ON 9.4.1995 II) GENERAL SUPPLY AGREEMENT SIGNED ON 24.7.1997 III) AGREEMENT ON TRANSFER OF TECHNICAL KNOW-HOW S INCE 21.12.1999 2.3 THE TERMS AND CONDITIONS OF GENERAL AGENCY AGRE EMENT CLEARLY PROVIDE THAT THE ASSESSEE HAS CONFERRED UPON DCIL THE EXCLU SIVE DISTRIBUTION RIGHTS FOR ALL MOTOR VEHICLES IN CBU VERSION. THEREFORE, HE WAS OF THE OPINION THAT THE ASSESSEE HAS INCOME, WHICH ACCRUES AND ARISES IN IN DIA U/S 5 OF THE I T ACT, 1961. WITHOUT PREJUDICE TO THIS, HE FURTHER NOTED THAT TH E ASSESSEE HAS ALSO A BUSINESS CONNECTION IN INDIA U/S 9(1) OF THE I T ACT, 1961. HE REJECTED THE SUBMISSIONS OF THE ASSESSEE THAT BUSINESS PROFITS OF THE DCAG ARE NOT TAXABLE IN INDIA DUE TO THE REASON THAT IT DOES NOT HAVE A PERMANENT ESTABLISHM ENT (PE) IN INDIA SINCE IT IS NOT COVERED BY ANY OF THE CLAUSES OF ARTICLE 5 OF T HE INDIA-GERMANY DTAA. 2.4 REJECTING THE EXPLANATIONS GIVEN BY THE ASSESSE E AND RELYING ON A COUPLE OF DECISIONS, THE ASSESSING OFFICER HELD THAT DCIL CONSTITUTES A PE OF DCAG UNDER THE VARIOUS PROVISIONS OF ARTICLE 5 INCLUDIN G 5(2)(A) 5(2)(B), 5(2)(C), 5(2)( G), 5(2)(1); 5(5)(A), 5(5)(B) & 5(50( C). HE ESTIMATED THE BUSINESS PROFITS OF DCAG AS PER RULE 10 OF THE I T RULES, 1962 @ 2.75% BASED ON THE WORLDWIDE PROFIT RATE TAKEN AS PER ASSESSMENT ORDER FOR AY 20 03-04. HE FURTHER ESTIMATED THAT ONLY 30% OF THE NET PROFITS ARISE IN INDIA A ND 70% ARE ATTRIBUTABLE TO ACTIVITIES OUTSIDE INDIA. 5 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) 3 IN APPEAL, THE CIT(A) HELD THAT DCIL CANNOT BE TR EATED AS AN AGENT OF ASSESSEE UNDER ARTICLE 5(5) READ WITH SEC. 5(6) OF DTAA. HE FURTHER HELD THAT DCIL IS DEPENDENT AGENT OF THE ASSESSEE IN RESPECT OF SALE OF CBU IN INDIA AND CONSTITUTES A PE IN RESPECT OF SUCH SALES UNDER ART ICLE 5(5) OF THE DTAA. CONSEQUENTLY, HE HELD THAT THE INCOME FROM SUCH SAL ES, WHICH IS TAXABLE TO THE AFORESAID PE, WOULD BE TAXABLE IN INDIA. 4 AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL I SSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE DURING THE ASSE SSMENT YEARS 2001-02 AND 2002-03, WE FIND THE TRIBUNAL AFTER EXTENSIVELY D ISCUSSING THE ISSUE VIDE ITA NOS.9211/M/2004 AND 8520/MUM/2004 FOR AY 2001-02 AN D 6718/MUM/2006 AND 6574/MUM/2006 FOR AY 2002-03 VIDE ORDER 31.3.2010 AT PARAS 29 TO 32 HAS HELD AS UNDER: 29. FIRST IT HAS TO BE ESTABLISHED THAT DCIL IS A PERMANENT ESTABLISHMENT AS CONTEMPLATED IN THE DTAA BETWEEN I NDIA AND WEST GERMANY AND IF SO, THE PROFITS ATTRIBUTABLE TO THE ACTIVITIES OF SUCH PERMANENT ESTABLISHMENT IN THE TRANSACTIONS UNDER C ONSIDERATION WILL HAVE TO BE DETERMINED WHICH WILL BE TAXABLE IN INDIA. W HILE ARRIVING AT THE PROFITS OF THE PE, THE EXPENSES INCURRED IN EARNING THE PROFITS WOULD ALSO BE DEDUCTED THEREFROM IN ARRIVING AT THE TAXABLE PR OFITS OF PE. 30. NOW THE ACTIVITY OF DCIL ARE TWOFOLD. (1) MANUF ACTURE OF CARS USING CKD PACKS AND OTHER COMPONENTS. (2) ACT AS COMMUNIC ATION EXCHANGE IN RESPECT OF DIRECT SALE OF CBUS BY THE ASSESSEE DIRE CTLY TO THE CLIENTS IN INDIA. EVEN THOUGH THE COMMISSION RECEIVED BY DCIL FOR HELPING THE SALE OF CBUS, IT IS OBVIOUS THAT THEIR MAIN ACTIVITY IS THAT OF MANUFACTURE OF CARS. ACTING AS COMMUNICATION CONDUIT IS NOT THEIR MAIN BUSINESS. FURTHER THE DEPT HAS NOT ESTABLISHED THAT DCIL ACTIVELY CAN VASSES ORDERS FOR CBUS OF ASSESSEE OR IS ACTIVELY ENGAGED IN NEGOTIATING A ND CONCLUDING CONTRACTS. IF AND WHEN CLIENTS APPROACH DCIL OR TH EIR AGENTS EVIDENCING INTEREST TO BUY CBUS FROM THE APPELLANT DCIL PASSES ON COMMUNICATION BOTH SIDES. NEGOTIATIONS OF PRICE, SPECIFICATIONS E TC WERE CONCLUDED BY THE 6 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) APPELLANT. THE SALE TO THE CUSTOMER WAS ON PRINCIP LE TO PRINCIPLE BASIS. THE RISK OF DIMINISHING IN VALUE OR DAMAGES TO THE CARS IS TO THE ACCOUNT OF CUSTOMERS RIGHT FROM THE PORT OF SHIPMENT AT THE M ANUFACTURING END. THE CARS WERE CLEARED THROUGH CUSTOMS IN INDIA FOR AND ON BEHALF OF THE ULTIMATE CUSTOMERS. THUS, DCIL HAD NO ROLE TO PLAY FROM THE SALE OR IN ANY ACTIVITY IN PROMOTING THE SALE TO THE ASSESSEE DIRE CTLY TO THE CUSTOMERS IN INDIA. THEY ARE ONLY COLLECTION OF INFORMATION AND ACTIVITIES OF PREPARATORY OR AUXILIARY IN NATURE. THE PRICES OFFERED TO THE C LIENTS ARE AS PER THE LIST PRICE NOTIFIED BY THE ASSESSEE. DCIL HAS NO AUTHORI TY TO CONCLUDE ANY DEAL. THUS THE MERE ACTING AS POST OFFICE BETWEEN THE ASS ESSEE AND THE CLIENT WILL NOT RENDER DCIL AS A DEPENDENT AGENT. DCIL CAN NOT BE CONSIDERED AS HABITUALLY PROCURING ORDERS FOR THE ASSESSEE. IN FA CT, DCIL THEMSELVES ARE MANUFACTURING AND SELLING THE CARS AND PROCUREMENT OF ORDERS FOR DIRECT SHIPMENT OF CARS BY THE ASSESSEE WOULD IN FACT BE C ONTRARY TO AND AGAINST THE INTEREST OF THE DCIL IN ITS MANUFACTURING ACTIV ITY. DCIL BY PASSING ON COMMUNICATION FROM ASSESSEE TO THE CLIENT AND VICE VERSA, ARE MERELY RENDERING A VERY INSIGNIFICANT AUXILIARY/ PREPARATO RY SERVICE IN THE SALE OF CBUS BY THE ASSESSEE TO INDIAN CLIENTS. THEREFORE D CIL DOES NOT CONSTITUTE A DEPENDENT AGENT OF THE ASSESSEE. THE PRICES OFFER ED TO THE INDIAN CLIENTS ARE AS PER LIST PRICE NOTIFIED AND SO WHETHER DCIL IS INVOLVED OR NOT THE PRICE CHARGED TO THE CUSTOMER WOULD BE THE SAME. NO PROFITS CAN BE ATTRIBUTED TO THE SERVICES OF DCIL IN INDIA. IN FAC T BY ENGAGING THE SERVICES OF DCIL, THE PROFIT OF THE ASSESSEE IS REDUCED TO T HE EXTENT OF THE COMMISSION PAID TO DCIL. 31. THE FOLLOWING DECISIONS CITED BY THE ASSESSEE C AN BE EXTRACTED FOR THIS PURPOSE. THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF DIT V MORGAN STANLEY & CO INC 292 ITR 416 (REFER PAGE 555 , 556 & 565 OF PAPER BOOK VOLUME II), WHEREIN THE HONBLE APEX COU RT HAS OBSERVED THAT SINCE THE ASSESSEE DID NOT CONCLUDE A NY CONTRACTS ON BEHALF OF MORGAN STANLEY & CO. INC (MSCO), IT DID N OT HAVE AN AGENCY PE IN INDIA. SIMILAR VIEW HAS ALSO BEEN TAK EN BY THE SPECIAL BENCH OF DELHI TRIBUNAL IN CASE OF MOTOROLA INC & O THERS V DCIT (2005) 95 ITD 269 (REFER PAGE NOS.580, 589 & 591 OF PAPER BOOK VOLUME II) AND THE AUTHORITY FOR ADVANCE RULINGS IN CASE OF TVM LTD V CIT (1999) 237 ITR 230 (REFER PAGE 600 & 618 OF P APER BOOK VOLUME II). THE HONBLE DELHI TRIBUNAL HAS IN THE CASE OF WESTE RN UNION FINANCIAL SERVICES INC (104 ITD 34) (REFER PG 522 & 547 OF PAPER BOOK VOLUME II), OBSERVED THAT THERE IS NO EVIDENCE TO SHOW THAT THE EXTENT OF THEIR ACTIVITIES FOR THE ASSESSEE, CO MPARED TO ALL THEIR 7 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) ACTIVITIES, IS SO LARGE THAT IT CAN BE SAID THAT TH EY ARE DEPENDENT ON THE ASSESSEE FOR THEIR EARNINGS OR REVENUES. ACCOR DINGLY, THE AGENTS ARE NOT ECONOMICALLY DEPENDENT UPON THE ASSE SSEE. FURTHER, THERE IS NO AUTHORITY WITH THE AGENTS TO C ONCLUDE CONTRACTS. THE AGENTS ARE MERELY PERFORMING THEIR DUTIES AND N OT EXERCISING ANY AUTHORITY. BASED ON THE ABOVE, THE HONBLE TRI BUNAL CONCLUDED THAT THERE IS NO AGENCY PE IN INDIA. IN CASE OF KNOWERX EDUCATION (INDIA) P LTD (301 ITR 207) (REFER PG 619 & 632 OF PAPER BOOK VOLUME II), THE A UTHORITY FOR ADVANCE RULINGS HAS OBSERVED THAT SINCE THE APPLICA NT DOES NOT CONCLUDE ANY CONTRACT ON BEHALF OF THE FOREIGN COMP ANY, DOES NOT MAINTAIN STOCK OF GOODS/MERCHANDISE BELONGING TO TH E FOREIGN COMPANY AND ALSO CARRIES ON A VARIETY OF ACTIVITIES BESIDES PROMOTING EXAMINATIONS OF THE FOREIGN COMPANY, THE APPLICANT ENJOYS AN INDEPENDENT STATUS. ACCORDINGLY, THE APP LICANT CANNOT BE DEEMED TO BE A PE OF THE FOREIGN COMPANY IN INDIA. SIMILARLY, IN CASE OF SPECIALTY MAGAZINES (P) LTD ( 274 ITR 310) (REFER PG 633 & 644 OF PAPER BOOK VOLUME II), THE A AR RULED THAT SINCE 22% - 25% OF THE INCOME OF THE APPLICANT IS D ERIVED FROM OTHER CLIENTS, IT CANNOT BE SAID THAT ITS ACTIVITIE S ARE CARRIED OUT WHOLLY OR ALMOST WHOLLY FOR THE FOREIGN COMPANY. T HUS THE APPLICANT, BEING AN INDEPENDENT AGENT IS NOT COVERE D BY THE DEFINITION OF PE IN ARTICLE 5 OF THE DTAA. 32. FROM THE ABOVE IT CAN BE SEEN THAT MERELY ACTIN G FOR A NON RESIDENT PRINCIPAL WOULD NOT BY ITSELF RENDER AN AGENT TO BE CONSIDERED AS PE FOR THE PURPOSE OF ALLOCATING PROFITS TAXABLE IN THE HANDS OF THE PRINCIPAL. THERE SHOULD BE SOME DEFINITE ACTIVITY OF THE PE TO WHICH PROFITS CAN BE ATTRIBUTED. UNLESS IT IS SO ESTABLISHED, MERELY CA LLING A PERSON AS AGENT ACTING ON BEHALF OF FOREIGN NON-RESIDENT WOULD NOT BY ITSELF RENDER HIM TO BE CONSIDERED AS AN AGENCY PE AND PRO TANTO PART OF THE PROFITS OF THE NON- RESIDENT IS LIABLE TO BE TAXED IN INDIA. WE FIND T HAT THE REVENUE HAS NOT ESTABLISHED THAT DCIL HAD CARRIED OUT ANY ACTIVITY TO WHICH ANY PROFIT CAN BE ATTRIBUTED. DCIL WAS MERELY CARRYING OUT THE WOR K OF A POST OFFICE TRANSFERRING COMMUNICATION FROM ONE TO ANOTHER. TH EREFORE, WE ARE NOT CONVINCED THAT THE DEPARTMENT HAD ESTABLISHED THAT THE ACTIVITY OF DCIL, EVEN IF IT IS TO BE CONSIDERED AS PE HAS RESULTED I N ANY PROFITS TO THE ASSESSEE AND IN VIEW OF THE SPECIFIC PROVISIONS OF THE ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIAN AND GERMANY, NO PART OF THE PROFIT OF THE NON-RESIDENT ASSESSEE CAN BE ATTRIBUTED TO THE ACTIVITY WITH DCIL AND HENCE IS NOT TAXABLE IN INDI A. 8 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) 5 FOLLOWING THE ABOVE DECISION, WE FIND THE TRIBUNA L VIDE ITA NO.317/MUM/2007 FOR ASSESSMENT YEAR 2003-04 VIDE OR DER DATED 16.7.2010 HAS ALLOWED THE GROUNDS RAISED BY THE ASSESSEE AND DISM ISSED THE GROUNDS RAISED BY THE REVENUE ON IDENTICAL GROUNDS. SINCE THE FACTS OF THE CURRENT YEAR ARE IDENTICAL TO THE FACTS DECIDED BY THE TRIBUNAL IN T HE EARLIER YEARS IN ASSESSEES OWN CASE; THEREFORE, RESPECTFULLY FOLLOWING THE D ECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, THE GROUNDS RAISED BY THE ASSE SSEE ARE ALLOWED AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6 GROUNDS OF APPEAL NO.4 BY THE ASSESSEE READS AS U NDER: WITHOUT PREJUDICE TO THE ABOVE, THE LD CIT(A) HAS ERRED IN HOLDING THAT DCIL CONSTITUTES A BUSINESS CONNECTION OF THE APPEL LANT U/S 9 OF THE I T ACT, 1961 IN INDIA IN RESPECT OF SALES OF CBU AND CONSEQ UENTLY HOLDING THAT A PART OF THE INCOME OF THE APPELLANT FROM THE AFORES AID SALES IS TAXABLE IN INDIA. 7 AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUNA L IN ASSESSEES OWN CASE DURING ASSESSMENT YEAR 2001-02 AND 2002-03 VIDE CO NSOLIDATED ORDER DATED 31.3.2010 AT PARA 11 OF ITS ORDER HAS HELD AS UNDE R: 11. AFTER HEARING BOTH THE SIDES, WE FIND FORCE IN ASSESSEES ARGUMENTS. THE ASSESSEE MERELY SELLS THE RAW MATERIALS /CKD UN ITS TO DCIL. IT IS DCIL WHICH CARRIES OUT FURTHER ACTIVITY OF ASSEMBLING TH E SAME AND SELLING THE FINISHED CARS. THERE ARE NO FURTHER ACTIVITIES CARR IED OUT BY THE APPELLANT IN INDIA IN THIS CONNECTION. THIS TRANSACTION ENDS WIT H THE APPELLANT SELLING THE RAW MATERIALS / CKD. NO INCOME FROM SUCH SALE A CCRUES OR ARISES TO THE ASSESSEE IN INDIA. IN OTHER WORDS NO PART OF SUCH P ROFITS ACCRUES FROM OR CAN BE ATTRIBUTED TO ANY ACTIVITIES OF THE ASSESSEE OR HIS AGENT IN INDIA. THE APEX COURT IN THE CASE OF CIT VS HYUNDAI INDUST RIES LTD (291 ITR 482) HAS HELD THAT IN THE CASE OF AN AGREEMENT WITH A SO UTH KOREAN COMPANY 9 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) FOR FABRICATION AND INSTALLATION OF OIL EXPLORATION PLATFORM, THE PE ATTRIBUTABLE TO INSTALLATION AND COMMISSIONING CAME INTO EXISTENCE ONLY AFTER THE SUPPLY OF THE EQUIPMENT. THEREFORE, PROFI TS FROM SUPPLY OF THE PLATFORM DID NOT ACCRUE IN INDIA. SIMILARLY IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY IND. LTD V DIT (288 ITR 408), THE APEX COURT HELD THAT PROFIT WILL NOT ACCRUE IN INDIA IN RESPECT OF OFFSHORE SUP PLY OF EQUIPMENT. (THE SUBSEQUENT AMENDMENT TO SEC 9(1)(I) WILL NOT AFFECT THE DECISION ON PROFIT ARISING FROM SALE OF EQUIPMENT OFFSHORE). MERE SALE OF RAW MATERIALS/ COMPONENTS WILL NOT RESULT IN BUSINESS CONNECTION A ND EVEN IF IT DOES AS PER THE TERMS AND CONDITIONS OF THE CONTRACT BETWEE N THE ASSESSEE AND DCIL NO INCOME ACCRUES TO THE ASSESSEE ON THE BASIS OF ANY ACTIVITIES CARRIED OUT ON BEHALF OF THE ASSESSEE IN INDIA. THE REFORE IN OUR OPINION DCIL DOES NOT CONSTITUTE THE ASSESSEES BUSINESS CO NNECTION IN INDIA AND THUS, THE ASSESSEES INCOME FROM SALE OF RAW MATERI AL/ CKD UNITS TO DCIL WOULD NOT BE LIABLE TO TAX IN INDIA UNDER THE PROVI SIONS OF THE ACT. WE THEREFORE CONCUR WITH THE DECISION OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND NO. 1.(I) OF THE REVENUES APPEAL. 7.1 FROM THE ABOVE, IT IS CLEAR THAT THE TRIBUNAL H AS HELD THAT DCIL DOES NOT CONSTITUTE THE ASSESSEES BUSINESS CONNECTION IN I NDIA AND THUS THE INCOME FROM SALE OF RAW MATERIAL/CKD UNITS TO DCIL WOULD NOT BE LIABLE TO TAX IN INDIA UNDER THE PROVISIONS OF THE ACT. WE FURTHER FIND, THE TR IBUNAL IN ASSESSEES OWN CASE IN ITA NO.317/MUM/2007 ORDER DATED 16.7.2010 HAS ALSO ALLOWED THE GROUND OF THE ASSESSEE ON THIS ISSUE. RESPECTFULLY FOLLOWING THE CONSISTENT DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF A NY CONTRARY MATERIAL BROUGHT TO NOTICE, THE GROUND RAISED BY THE ASSESSEE IS ALL OWED. 8 GROUNDS OF APPEAL NOS 5 & 6 BY THE ASSESSEE READ AS UNDER: (5) WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) HAS ERRED IN ATTRIBUTING FURTHER PROFITS FROM SALES OF CBU IN INDIA TO THE A FORESAID AND PERMANENT ESTABLISHMENT IN INDIA. (6) WITHOUT PREJUDICE TO THE ABOVE, THE LD CIT(A) HAS ERRED IN HOLDING THE WORLDWIDE PROFITABILITY ATE OF DCAG AT 2.75 PERCENT INSTEAD OF 0.44 PERCENT 10 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) HOLDING THAT 30 PERCENT OF THE PROFITS FROM DIRECT SALES OF CBU ARE ATTRIBUTABLE TO THE AFORESAID PERMANENT ESTABLISHME NT IN INDIA. 9 AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL G ROUND WAS RAISED BY THE ASSESSEE IN AY 2001-02 AND 2002-03 AND THE TRIBUNAL IN ITS CONSOLIDATED ORDER PASSED ON 31.3.2010 DISMISSED THE GROUND RAISED BY THE ASSESSEE AS INFRUCTUOUS BY HOLDING AS UNDER: 33. AS WE HAVE HELD THAT NO PROFIT ACCRUING TO THE ASSESSEE ON SALE OF CBU CARS DIRECTLY TO INDIAN CUSTOMERS CAN BE ATTRIB UTED TO THE ACTIVITIES OF DCIL, WE ARE NOT DECIDING UPON THE CORRECTNESS OR O THERWISE OF THE PERCENTAGE OF PROFITS, ESTIMATED BY THE CIT(A), AS ATTRIBUTABLE TO THE ACTIVITIES OF PE IN INDIA. HENCE GROUND NO.3 RAISED BY THE ASSESSEE IS NOT DECIDED AS BEING INFRUCTUOUS. 10 WE FIND, FOLLOWING THE DECISION OF THE TRIBUNAL, THE TRIBUNAL IN ASSESSES OWN CASE FOR AY 2003-04 VIDE ORDER DATED 16.7.2010 DISMISSED THE GROUND RAISED BY THE ASSESSE BY HOLDING AS UNDER: 11 THE LD REPRESENTATIVES OF THE PARTIES CANVASSED THAT THIS GROUND IS ALSO DECIDED BY THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 & 2002-03. AFTER HEARING THE LD REPRESENTAT IVES OF THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE ITAT IN ASSES SMENT YEAR 2001-02 & 2002-03 HELD AS UNDER: 33. AS WE HAVE HELD THAT NO PROFIT ACCRUING TO THE ASSESSEE ON SALE OF CBU CARS DIRECTLY TO INDIAN CUSTOMERS CAN B E ATTRIBUTED TO THE ACTIVITIES OF DCIL, WE ARE NOT DECIDING UPON TH E CORRECTNESS OR OTHERWISE OF THE PERCENTAGE OF PROFITS, ESTIMATED B Y THE CIT(A), AS ATTRIBUTABLE TO THE ACTIVITIES OF PE IN INDIA. HENC E GROUND NO.3 RAISED BY THE ASSESSEE IS NOT DECIDED AS BEING INFR UCTUOUS. 12 SINCE THE ISSUE RAISED IN THIS APPEAL IS IDENTIC AL TO THAT OF ASSESSMENT YEAR 2001-02 AND 2002-03,W E RESPECTFULLY FOLLOW TH E DECISION OF ITAT IN THAT YEARS AND IN THE LIGHT OF THAT WE DISMISS THIS GROUND AS INFRUCTUOUS. 11 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) 11 IN VIEW OF THE DECISIONS OF THE TRIBUNAL IN ASSE SSEES OWN CASE FROM ASSESSMENT YEARS 2001-02 TO 2003-04, THE ABOVE TWO GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS 12 GROUNDS OF APPEAL NOS 7 & 8 READ AS UNDER: (7) THE LD CIT(A) HAS ERRED IN HOLDING THE FEES FO R SYMANTEC NORTION ANTIVIRUS SOFTWARE AS ROYALTY. (8) THE LD CIT(A) ERRED IN HOLDING THAT FEES AID BY DCIL TO THE APPELLANT FOR PURCHASE OF LICENSE OF SYMANTEC NORTON ANTIVIRU S SOFTWARE IS ROYALTY WITHOUT APPRECIATING THAT THE PURCHASE OF LICENSE O F THE SOFTWARE WAS AKIN TO PURCHASE OF GOODS AND THEREFORE PAYMENT OF THE S AME BY DCIL TO THE APPELLANT COULD NOT BE TREATED AS PAYMENT TOWARDS R OYALTY. 13 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE AY 2003-04, THE ASSESSEE HAD PROVIDED DCIL WITH LICENSES FOR THE RIGHT TO U SE SYMANTEC NORTON ANTIVIRUS SOFTWARE AND HAS EARNED ` 1,28,621/- FROM DCIL. IT WAS SUBMITTED BY THE ASSESSEE THAT THE FEE RECEIVED BY IT IS NOT TAXABLE IN INDIA BECAUSE LICENSE FEES RECEIVED FROM DCIL ARE NOT IN THE NATURE OF FEES FO R TECHNICAL SERVICES AS NO TECHNICAL SERVICE IS PROVIDED BY THE ASSESSEE IN RE LATION TO THE SAME. IT IS FURTHER STATED THAT THESE LICENSE FEES ARE ALSO NOT IN THE NATURE OF ROYALTY. 13.1 HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINC ED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THESE LICENSE FEES ARE IN THE NATURE OF ROYALTY WITHIN THE MEANING OF SEC. 9(1) (VII) OF TH E I T ACT, 1961 AND WITHIN THE MEANING OF ARTICLE 12 OF THE DTAA BETWEEN INDIA AND GERMANY. HENCE, HE 12 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) TAXED THE AMOUNT OF ` . 1,28,621/- AS ROYALTY @ 10% AS PROVIDED UNDER ART ICLE 12 OF THE DTAA BETWEEN INDIA AND GERMANY. 13.2 BEFORE THE CIT(A), IT WAS SUBMITTED THAT DCIL IS MERELY GRANTED THE RIGHT TO OPERATE THE SOFTWARE PROGRAM FOR ITS OWN BUSINESS P URPOSES. IT WAS SUBMITTED THAT THE LICENSE DOES NOT ALLOW DCIL TO MODIFY, REV ERSE ENGINEER, DECOMPILE OR DISASSEMBLE THE SOFTWARE SUPPLIED. IT WAS FURTHER S UBMITTED THAT NO INFORMATION REGARDING THE SOURCE CODES/FORMULAE/ALGORITHMS IN T HE UNDERLYING PROGRAMS WAS PROVIDED BY DCAG/ THE SOFTWARE PROVIDER TO DCIL AND ACCORDINGLY, NO RIGHT TO COMMERCIALLY EXPLOIT THE SOFTWARE BY DEVELOPMENT OR DISTRIBUTION OF IT IS TRANSFERRED TO DCIL. ACCORDINGLY, IT WAS SUBMITTED THAT THE CONSIDERATION EARNED BY THE ASSESSEE WAS NEITHER FOR TRANSFER OF ANY RIG HT, WHOLLY OR IN PART, IN RESPECT OF A COPYRIGHT BY THE ASSESSEE TO DCIL NOR ANY LICE NSE HAS BEEN GIVEN BY THE ASSESSEE TO DCIL IN RESPECT OF THE COPYRIGHT. IT WA S FURTHER SUBMITTED THAT THE PAYMENT BY DCIL TO THE ASSESSEE WAS FOR THE SUPPLY OF SOFTWARE, WITHOUT ANY RIGHTS IN COPYRIGHT, WHICH WOULD BE TREATED AS PROV ISIONS OF COPYRIGHTED ARTICLE AND HENCE, CANNOT BE TAXED AS ROYALTY. ACCORDINGLY , IT WAS SUBMITTED THAT THE FEES RECEIVED BY THE ASSESSEE CANNOT BE QUALIFIED A S ROYALTY AND ARE NOT TAXABLE IN INDIA. VARIOUS DECISIONS WERE ALSO CITED BEFORE THE CIT(A). 13.3 HOWEVER, THE CIT(A) WAS NOT CONVINCED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF THE AO BY HOL DING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE S UBMISSIONS OF THE APPELLANT. THE APPELLANT HAD ONLY SUBMITTED A COPY OF THE INVOICE RAISED BY IT ON DCIL. THE SAID INVOICE DID NOT DESCRIBE TH E TRANSACTION NOR DID IT 13 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) SPECIFY THE TERMS OF THE TRANSACTION. THUS TO EXAMI NE THE ISSUE, THE APPELLANT WAS REQUIRED TO PRODUCE THE SAID SYMANTEC NORTON ANTIVIRUS SOFTWARE AGREEMENT OF THE APPELLANT WITH DCIL. HOWE VER, THE SAID AGREEMENT WAS NOT PRODUCED BEFORE ME DESPITE SPECIF IC AND SEVERAL OPPORTUNITIES IN THIS REGARD. IN THIS REGARD, THE C ASE RECORDS OF THE APPELLANT WERE ALSO EXAMINED AND IT WAS SEEN THAT T HE APPELLANT HAD NOT FURNISHED THE SAID AGREEMENT EVEN BEFORE THE AO. IN A LETTER TO THE AO DATED DEC 7, 2006 THE APPELLANT STATED AT SERIAL NO .4 OF THE SAID LETTER THAT THERE IS NO AGREEMENT BETWEEN DCAG AND DC INDIA IN RESPECT OF NORTON THERE IS NO AGREEMENT BETWEEN DCAG AND DC INDIA IN RESPECT OF NORTON THERE IS NO AGREEMENT BETWEEN DCAG AND DC INDIA IN RESPECT OF NORTON THERE IS NO AGREEMENT BETWEEN DCAG AND DC INDIA IN RESPECT OF NORTON ANTIVIRUS SOFTWARE. ANTIVIRUS SOFTWARE. ANTIVIRUS SOFTWARE. ANTIVIRUS SOFTWARE. HENCE, IN ABSENCE OF THE SAID AGREEMENT IT IS NOT P OSSIBLE TO ASCERTAIN THE NATURE OF TRANSACTION OR THE TERMS OF PAYMENTS BETW EEN THE APPELLANT AND DCIL AND IN ABSENCE OF THIS PRIMARY EVIDENCE IT CAN NOT BE CONCLUDED THAT THE RECEIPT OF THE LICENSE FREES BY THE APPELLANT F ROM DCIL IN RESPECT OF THE GRANT OF RIGHT TO DCIL OPERATE THE SYMANTEC NORTON ANTIVIRUS SOFTWARE PROGRAMME FOR ITS OWN BUSINESS DOES NOT AMOUNT TO R OYALTY WITHIN THE MEANING OF ARTICLE 12(3) OF THE DTAA. IT IS ACCORD INGLY HELD THAT THE AO WAS JUSTIFIED IN TREATING THE RECEIPTS OF RS. 1,28, 621/- OF THE APPELLANT ON ACCOUNT OF LICENSE FEES RECEIVED FROM DCIL AS ROYAL TY. THE ADDITION ON THIS GROUND IS THEREFORE UPHELD. APPEAL OF THE APPELLANT ON THIS GROUND IS THEREFORE DISMISSED. 14 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL HERE BEFORE US. 15 THE LD COUNSEL FOR THE ASSESSEE WHILE RELYING TH E FOLLOWING DECISIONS SUBMITTED THAT FEE PAID BY DCIL TO THE ASSESSEE FOR PURCHASE OF LICENSE FOR SYMANTEC NORTON ANTIVIRUS SOFTWARE IS NOT ROYALTY. I) DCIT VS ALCATEL USA INTERNATIONAL MKTG INCTIOL 7330 ITAT-MUM) II) SONATA INFORMATION TECHNOLOGY LTD 106 TTJ (BANG) 797 III) WIPRO LTD 94 ITD 9 IV) SAMSUNG ELECTRONICS CO LTD 94 ITD 91 V) MOTOROLA INC 95 ITD 269(DEL(SB) VI) NEYVELI LIGNITE CORPN LTD 243 ITR 459(MAD) VII) DELL INTERNATIONAL SERVICES P LTD 305 ITR 37(AAR) VIII)LUCENT TECHNOLOGIES INTERNATIONAL INC 120 TTJ 929(DEL) IX) METAPATH SOFTWARE INTERNATIONAL LTD 9 SOT 305 (DEL) X) SHERATON INTERNATIONAL 106 TTJ 620(DEL) XI) HEWLETT PACKARD (INDIA) P LTD 5 SOT 660) XII KANSAI NEROLAC PAINTS LTD V ADI 43 DTR 385 14 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) 15.1 ON THE OTHER HAND, THE LD DR SUPPORTED THE ORD ER OF THE AUTHORITIES BELOW. 16 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS D ECISIONS CITED BEFORE US. WE FIND THE TRIBUNAL IN THE CASE OF KANSAI NEROLAC PAI NTS LTD, (WHERE ONE OF US (ACCOUNTANT MEMBER) IS A PARTY) AFTER CONSIDERING V ARIOUS DECISIONS ALLOWED THE GROUND OF THE ASSESSEE BY HOLDING AS UNDER: IN THE DEFINITION OF ROYALTY UNDER THE ACT, THE PH RASE INCLUDING THE GRANTING OF A LICENCE IS FOUND. THAT DOES NOT MEAN THAT EVEN A NON- EXCLUSIVE LICENCE PERMITTING USER FOR IN-HOUSE PURP OSE WOULD BE COVERED BY THAT EXPRESSION. ANY AND EVERY LICENCE IS NOT WH AT IS CONTEMPLATED. IT SHOULD TAKE COLOUR FROM THE PRECEDING EXPRESSION T RANSFER OF RIGHTS IN RESPECT OF COPYRIGHT. APPARENTLY, GRANTING OF LIC ENCE HAS BEEN REFERRED TO IN THE DEFINITION OF DISPEL THE POSSIBLE CONTROVERS Y A LICENCE WHATEVER BE ITS NATURE, CAN BE CHARACTERISED AS TRANSFER. IN VI EW OF THE ABOVE DECISIONS, WE ARE OF THE CONSIDERED OPINION THAT A COMPUTER SOFTWARE WHEN PUT INTO A MEDIA AND SOLD BECOMES GOODS IT BEC OMES GOODS LIKE ANY OTHER AUDIO CASSETTE OR PAINTING ON CANVASS OR BOOK . IN VIEW OF THE DECISIONS CITED ABOVE, WE ARE OF THE CONSIDERED OPI NION THAT THE AMOUNT PAID BY THE ASSESSEE TOWARDS PURCHASE OF IXOS-ECON FOR R/3. 50 USERS CANNOT BE TREATED AS PAYMENT OF ROYALTY TAXABLE IN INDIA UNDER ARTICLE 12 OF THE DTAA BETWEEN INDIA AND SINGAPORE. 17 IN VIEW OF THE ABOVE DECISION AND IN VIEW OF TH E VARIOUS DECISIONS CITED BY THE LD COUNSEL FOR THE ASSESSEE AS WELL AS THE CON SISTENT VIEW OF THE COORDINATE BENCH OF THE TRIBUNAL ON THIS ISSUE, WE HOLD THAT T HE FEES PAID BY DCIL TO THE ASSESSEE FOR PURCHASE OF LICENSE FOR SYMANTEC ANTI VIRUS SOFTWARE AS NOT IN THE NATURE OF ROYALTY. THE GROUND RAISED BY THE ASSESS EE IS ACCORDINGLY ALLOWED. 15 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) ITA NO. 4325/MUM/2008 ( BY THE REVENUE) ITA NO. 4325/MUM/2008 ( BY THE REVENUE) ITA NO. 4325/MUM/2008 ( BY THE REVENUE) ITA NO. 4325/MUM/2008 ( BY THE REVENUE) 17 GROUNDS OF APPEAL NO.1 BY THE REVENUE READS AS U NDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT THE ASSESSEE DOES NOT HAVE ANY BUSINESS CONNECTION IN INDIA REGARDING THE BUSINESS OF SALE OF SPARE PARTS AND RAW MATERIAL. 18 AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND IDENTICAL GROUND HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2001-02 AND 2002-03 ORDER DATED 31 .3.2010 WE FIND TRIBUNAL DISMISSED THE GROUND RAISED BY THE REVENUE BY HOLDI NG AS UNDER: 11. AFTER HEARING BOTH THE SIDES, WE FIND FORCE IN ASSESSEES ARGUMENTS. THE ASSESSEE MERELY SELLS THE RAW MATERIALS / CKD U NITS TO DCIL. IT IS DCIL WHICH CARRIES OUT FURTHER ACTIVITY OF ASSEMBLING TH E SAME AND SELLING THE FINISHED CARS. THERE ARE NO FURTHER ACTIVITIES CARR IED OUT BY THE APPELLANT IN INDIA IN THIS CONNECTION. THIS TRANSACTION ENDS WIT H THE APPELLANT SELLING THE RAW MATERIALS / CKD. NO INCOME FROM SUCH SALE A CCRUES OR ARISES TO THE ASSESSEE IN INDIA. IN OTHER WORDS NO PART OF SUCH P ROFITS ACCRUE FROM OR CAN BE ATTRIBUTED TO ANY ACTIVITIES OF THE ASSESSEE OR HIS AGENT IN INDIA. THE APEX COURT IN THE CASE OF CIT VS HYUNDAI INDUSTRIES LTD (291 ITR 482) HAS HELD THAT IN THE CASE OF AN AGREEMENT WITH A SOUTH KOREAN COMPANY FOR FABRICATION AND INSTALLATION OF OIL EXPLORATION PLA TFORM, THE PE ATTRIBUTABLE TO INSTALLATION AND COMMISSIONING CAME INTO EXISTEN CE ONLY AFTER THE SUPPLY OF THE EQUIPMENT. THEREFORE, PROFITS FROM SU PPLY OF THE PLATFORM DID NOT ACCRUE IN INDIA. SIMILARLY IN THE CASE OF ISHIK AWAJIMA HARIMA HEAVY IND. LTD V DIT (288 ITR 408), THE APEX COURT HELD T HAT PROFIT WILL NOT ACCRUE IN INDIA IN RESPECT OF OFFSHORE SUPPLY OF EQUIPMENT . (THE SUBSEQUENT AMENDMENT TO SEC 9(1)(I) WILL NOT AFFECT THE DECISI ON ON PROFIT ARISING FROM SALE OF EQUIPMENT OFFSHORE). MERE SALE OF RAW MATER IALS/ COMPONENTS WILL NOT RESULT IN BUSINESS CONNECTION AND EVEN IF IT DO ES AS PER THE TERMS AND CONDITIONS OF THE CONTRACT BETWEEN THE ASSESSEE AND DCIL NO INCOME ACCRUES TO THE ASSESSEE ON THE BASIS OF ANY ACTIVIT IES CARRIED OUT ON BEHALF OF THE ASSESSEE IN INDIA. THEREFORE IN OUR OPINION DCIL DOES NOT CONSTITUTE THE ASSESSEES BUSINESS CONNECTION IN INDIA AND THU S, THE ASSESSEES INCOME FROM SALE OF RAW MATERIAL/ CKD UNITS TO DCIL WOULD NOT BE LIABLE TO 16 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) TAX IN INDIA UNDER THE PROVISIONS OF THE ACT. WE T HEREFORE CONCUR WITH THE DECISION OF THE CIT(A) ON THIS ISSUE AND DISMISS TH E GROUND NO. 1.(I) OF THE REVENUES APPEAL. 19 WE FIND FOLLOWING THE ORDER OF THE TRIBUNAL, THE TRIBUNAL IN ASSESEES OWN CASE IN ITA NO.317/MUM/2007 ORDER DATED 16.7.2010 FOR ASSESSMENT YEAR 2003-04 HAS ALSO ALLOWED THE CLAIM OF THE ASSESSEE AND DISMISSED THE GROUND RAISED BY THE REVENUE. IN VIEW OF THE CONSISTENT D ECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 20 GROUNDS OF APPEAL 2 BY THE REVENUE READS AS UNDE R: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT THE ASSESSEE DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA WITHIN THE MEANING OF ARTICL E 5(2)(A), (B) ( C) AND (G) OF THE DTAA. 21 AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND IDENTICAL GROUND HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2001-02 AND 2002-03 ORDER DATED 3 1.3.2010 . WE FIND THE TRIBUNAL DECIDED THE ISSUE AND DISMISSED THE GROU ND RAISED BY THE REVENUE BY HOLDING AS UNDER: 16. IN OUR OPINION MERE EXISTENCE OF SUBSIDIARY DO ES NOT BY ITSELF CONSTITUTE THE SUBSIDIARY COMPANY A PE OF THE PAREN T. THE MAIN CONDITION FOR CONSTITUTION OF PE IS CARRYING ON OF BUSINESS I N INDIA, AND AS REGARDS SALE OF PARTS/CKD NO OPERATIONS IN RESPECT OF THE M ANUFACTURE AND SALE OF PARTS IS CARRIED OUT BY THE ASSESSEE IN INDIA. FUR THER THE ASSESSEE DOES NOT HAVE A RIGHT TO USE OF DCILS PREMISES. FURTHER DCIL DOES NOT CONSTITUTE A PLACE OF MANAGEMENT OF THE ASSESSEE IN INDIA AS THE MANAGEMENT OF THE ASSESSEES BUSINESS IS BY THE BOA RD OF DIRECTORS AT 17 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) GERMANY. THE MD AND ED ACTUALLY BECOME ON DEPUTATI ON AS EMPLOYEES OF DCIL AND WORK UNDER THE DIRECTIONS AND CONTROL OF THE BOARD OF DCIL. 17. AS REGARDS SALE OF PARTS/CKD SUCH SALES ARE MAD E BY THE ASSESSEE TO DCKIL ON PRINCIPAL TO PRINCIPAL BASIS AND ON SAL E SUCH PARTS/CKD BECOME THE PROPERTY OF DCIL. HENCE DCIL DOES NOT C ONSTITUTE SALES OUTLET/WAREHOUSE OF THE ASSESSEE. HENCE WE ARE OF THE OPINION THAT THE ASSESSEE DOES NOT CARRY OUT ANY OPERATIONS IN INDIA IN RESPECT OF SALE OF PARTS/CKD TO DCIL AND THEREFORE CANNOT QUALIFY TO H AVE A PE IN THIS RESPECT UNDER ARTICLE 5(1) AND 5(2) OF THE TREATY. THEREFO RE WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS GROUND NO. (I) & (II) RAISED BY THE REVENUE. 18. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. 22 WE FURTHER FIND FOLLOWING THE ORDER OF THE TRIBU NAL, THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.317/MUM/2007 ORDER DA TED 16.7.2010 FOR ASSESSMENT YEAR 2003-04 HAS ALLOWED THE CLAIM OF T HE ASSESSEE AND DISMISSED THE GROUND RAISED BY THE REVENUE. IN VIEW OF THE CO NSISTENT DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE RE VENUE IS DISMISSED. 23 GROUNDS OF APPEAL 5 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN RELYING UPON THE FINDINGS OF CIT(A) THAT INTEREST U/S 234B OF THE ACT WAS NOT CHARGEABLE IN THIS CASE AS INCOME O F THE ASSESSEE WAS LIABLE TO DEDUCTION OF TAX AT SOURCE U/S 195 OF THE I T ACT 1961. 24 AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES THE TRIBUNAL IN ASSESEES OWN CASE IN ITA NO.317/MUM/20 07 ORDER DATED 16.7.2010 FOR ASSESSMENT YEAR 2003-04 HAS DISCUSSED THE ISS UE AND HAS HELD THAT CHARGING OF INTEREST U/S 234B IS CONSEQUENTIAL IN N ATURE AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO CALCULATE THE INTEREST ACC ORDINGLY. IN VIEW OF THE 18 ITA NO. 3817/MUM/2008 ITA NO. 4325/MUM/2008 (AY 2004-05) DECISION OF THE TRIBUNAL, THIS GROUND OF THE REVENU E IS ALLOWED FOR STATISTICAL PURPOSE. 25 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE ORDER PRONOUNCED ON THE 30 TH , DAY OF NOV 2010. SD/- SD/- ( (( ( N V VASUDEVAN N V VASUDEVAN N V VASUDEVAN N V VASUDEVAN ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 30TH NOV 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI