BOOZ & COMPANY (M.E) FZ-LLC THROUGH THE OFFICIAL LIQUIDATOR BUSINESS MIDDLE EAST, MUMBAI V. DDIT (IT) 3(2), MUMBAI

ITA 4063/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0782 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 01-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: DANESH BAFNA
• Keywords: Business income; Transfer pricing; Double taxation relief; Permanent establishment; Advance ruling; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 4063 /MUM/20 1 5 (ASSESSMENT YEAR 20 11 - 12 ) BOOZ & COMPANY (ME) FZ - LLC THROUGH THE OFFICIAL LIQUIDATOR BUSINESSI MIDDLE EAST C/O. BOOZ & COMPANY(INDIA) PRIVATE LIMITED (NOW KNOWN AS PWC STRATEGY INDIA P. LTD.) 252, 3 RD FLOOR, VEER SAVARKAR MARG, SHIVAJI PARK, DADAR MUMBAI - 400 028. PAN NO. AAFCB0624F VS. DDIT(INTERNATIONAL TAXATION) - 3(2) 1 ST FLOOR SCINDIA HOUSE N.M. ROAD BALLARD ESTA TE MUMBAI - 400 038. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI DANESH BAFNA & MS. CHANDNI SHAH DEPARTMENT BY SHRI M.V. RAJGURU DATE OF HEARING 09 . 1 1 . 201 7 DATE OF PRONOUNCEMENT 19 . 0 1 . 201 8 O R D E R PER B.R. BASKARAN (AM) : - THE APP EAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24.3.2015 PASSED BY THE LEARNED CIT(A) - 55, MUMBAI AND IT RELATES TO A.Y. 2011 - 12. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN UPHOLDING THE ASSESSMENT OF FEES RECEIVED BY THE ASSESSEE FROM ITS INDIAN AE AS BUSINESS INCOME OF THE ASSESSEE. 2. FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. THE ASSESSEE - COMPANY BELONGS TO BOOZ GROUP. IT IS ENGAGED IN THE BUSINESS OF PROVIDING MANAGEMENT AND TECHNICAL CONSULTANCY SERVICES. IT IS INCORPORATED IN UNITED ARAB EMIRATES (UAE) . DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE PROVIDED TECHNICAL/PROFESSIONAL PERSONNEL TO ITS INDIAN ASSOCIATED ENTERPRISE NAMED BOOZ & COMPANY INDIA PRIVATE LIMITED (BOOZ INDIA) . THE ASSESS EE RECEIV ED A FEE OF ` 112.83 LAKHS FROM BOOZ INDIA . THE ASSESSEE DID NOT OFFER THE SAME FOR BOOZ & COMPANY (ME) FZ - LLC 2 TAXATION. THE ASSESSEE CONTENDED THAT IT IS GOVERNED DTAA ENTERED BETWEEN INDIA AND UAE. THE SAID DTAA DOES NOT HAVE ANY SPECIFIC CLAUSE ON TAXABILITY OF FEES FOR TECHNICAL SE RVICES AND HENCE THE SAID RECEIPT IS TAXABLE AS BUSINESS INCOME. HOWEVER, SINCE IT DID NOT HAVE PERMANENT E STABLISHMENT (PE) IN INDIA, ABOVE SAID FEE IS NOT TAXABLE IN INDIA. 3. THE ASSESSING OFFICER NOTICED THAT THE BOOZ GROUP IS A GLOBAL NETWORK GROUP O F COMPANIES HAVING SUBSIDIARIES ALL OVER THE WORLD. HE NOTICED THAT SOME OF THE GROUP COMPANIES HAVE APPROACHED A UTHORITY FOR ADVANCE RULING (AAR) IN ORDER TO DETERMINE THE TAXABILITY OF THEIR RECEIPTS FROM INDIAN ENTITIES. THE AAR HAS GIVEN ITS RULING O N 14.2.2014 IN AAR NO. 1018 TO 1027 OF 2010 , WHEREIN THE AAR HAS HELD THAT THE ABOVE SAID COMPANIES ARE HAVING PERMANENT ESTABLISHMENT IN INDIA AND INCOME RECEIVED BY THEM FROM INDIAN COMPANIES ARE TAXABLE AS BUSINESS PROFIT UNDER ARTICLE 7 OF TAX AGREEM ENT OF INDIA AND RESPECTIVE COUNTRIES. THE GROUP OF COMPANIES WHICH OBTAINED AAR RULING INCLUDED M/S. BOOZ & COMPANY (ME). THE ASSESSING OFFICER N O T ICED THAT THE ASSESSEE HEREIN IS 100% SUBSIDIARY OF BOOZ & COMPANY (ME) LTD., HENCE THE AO, B Y FOLLOWING THE DECISION OF AAR, HELD THAT BOOZ INDIA (INDIAN AE) TO WHOM SERVICES WERE PROVIDED IS THE PE OF THE ASSESSEE . A CCORDINGLY THE AO HELD THAT THE INCOME OF ` 112.83 LAKHS IS TAXABLE AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSEE HAD CLAIMED EXPENSES TO THE TUNE OF ` 62.61 LAKHS. SINCE THE ASSESSEE DID NOT FURNISH SUPPORTING DOCUMENTS, THE ASSESSING OFFICER RESTRICTED DEDUCTION FOR EXPENSES TO THE TUNE OF ` 40 LAKHS. ACCORDINGLY, HE DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT ` 72.83 LAKHS. THE LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THE APPEAL BEFORE US. 4. THE LD A.R SUBMITTED THAT THE TAX AUTHORITIES HAVE MAINLY PLACED RELIANCE ON THE RULING GIVEN BY AAR IN RESPECT OF CERTAIN GROUP COMPANIES. HE SUBMITT ED THAT THE QUESTION OF AVAILABILITY OF PE HAS TO BE EXAMINED ON THE BASIS OF FACTS AVAILABLE IN THE PRESENT CASE AND HENCE THE TAX AUTHORITIES ARE NOT CORRECT IN MERELY PLACING RELIANCE ON THE RULING OF AAR WITHOUT EXAMINING BOOZ & COMPANY (ME) FZ - LLC 3 THE FACTS AVAILABLE IN THE PRE SENT CASE. HE FURTHER SUBMITTED THAT THE RULING GIVEN BY THE AAR IS BINDING ONLY ON THOSE PARTIES AND NOT ON OTHERS. EVEN IF IT IS CONSIDERED THAT THE SAME SHALL HAVE PERSUASIVE VALUE, A PERUSAL OF THE RULING WOULD SHOW THAT IT HAS BEEN GIVEN WITHOUT CON SIDERING MAIN ASPECTS, SUCH AS, THE FORM OF PE (WHETHER FIXED PLACE PE, SERVICE PE, AGENCY PE ETC.), RELEVANT PROVISIONS OF DTAA COUNTRY - WISE ETC . ALL THE APPLICANT COMPANIES BEFORE AAR WERE FROM DIFFERENT COUNTRIES, BUT THE AAR HAS GIVEN A COMMON RULING WITHOUT MAKING SPECIFIC REFERENCE TO THE PROVISIONS OF RESPECTIVE DTAA. ACCORDINGLY HE SUBMITTED THAT THE RELIANCE PLACED UPON THE RULING OF AAR IS NOT JUSTIFIED. 5. WE HEARD LD D.R ON THIS ISSUE AND PERUSED THE RECORD. WE FIND MERIT IN THE CONTENT IONS OF THE ASSESSEE. ACCORDINGLY WE HOLD THAT THE RULING GIVEN BY THE AAR IN THE GROUP CONCERNS CASE SHOULD NOT HAVE BEEN TAKEN BY THE TAX AUTHORITIES AS THE BASIS FOR DETERMINING THE EXISTENCE OR OTHERWISE OF PE OF THE ASSESSEE HEREIN. 6. THE LD A. R SUBMITTED THAT THE ASSESSEE HAS PROVIDED CERTAIN TECHNICAL/PROFESSIONAL PERSONNEL TO M/S BOOZ INDIA. REFERRING TO THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M/S BOOZ INDIA, THE LD A.R SUBMITTED THAT THE SAID PERSONNEL WERE PROVIDED ON PRINCIPAL TO PRINCIPAL BASIS AND FURTHER THEY SHALL NOT BE ENTITLED TO WORK FOR ANY OTHER PROJECTS. THE AGREEMENT FURTHER CLEARLY PROVIDES THAT NO SPECIFIC PART OF THE OFFICE PREMISES OF BOOZ INDIA OR THE PREMISES OF THE CLIENT OF BOOZ INDIA IS AT THE SPECIFIC DISPOS AL OF THE TECHNICAL/PROFESSIONAL PERSONNEL OF THE ASSESSEE. FURTHER BOOZ INDIA IS NOT UNDER AN OBLIGATION TO EARMARK OR PROVIDE A DEDICATED OFFICE OR ANY OTHER SPACE TO THE PERSONNEL OF THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THERE IS NO FIXED PLACE OF BUSINESS IN INDIA THROUGH WHICH THE BUSINESS OF ASSESSEE WAS CARRIED ON IN INDIA. ACCORDINGLY HE SUBMITTED THAT NONE OF THE CONDITIONS PRESCRIBED IN ARTICLE 5 OF THE INDIA - UAE TREATY ON PE SHALL BE APPLICABLE TO THE ASSESSEE HEREIN. IN THIS REGARD, TH E LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF E - FUNDS IT SOLUTIONS INC. (CIVIL APPEAL NO.6082 OF 2015 DATED 24 - 10 - 2017). BOOZ & COMPANY (ME) FZ - LLC 4 7. HE ALSO SUBMITTED THAT THE EMPLOYEES OF THE ASSESSEE HAS WORKED FOR ONLY 156 SOLAR DAYS ONLY AND HENCE THERE IS NO SERVICE PE ALSO IN TERMS OF ARTICLE 5 OF DTAA. HE FURTHER SUBMITTED THAT THE CONCEPT OF DEPENDENT AGENT PE IS ALSO NOT APPLICABLE SINCE THE INDIAN COMPANY (BOOZ INDIA) IS RECIPIENT OF SERVICES FROM THE ASSESSEE AND NOT PROV IDING ANY SERVICE TO THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THERE IS NOT PE IN INDIA AND HENCE THE INCOME RECEIVED BY THE ASSESSEE FROM BOOZ INDIA IS NOT TAXABLE IN INDIA. 8. ON THE CONTRARY, THE LD D.R STRONGLY SUPPORTED THE ORDER PASSED BY THE TAX AUTHORITIES. 9. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE FEES RECEIVED BY THE ASSESSEE FROM M/Z BOOZ INDIA FOR PROVISION OF TECHNICAL/PROFESSIONAL PERSONNEL ARE IN THE NATUR E OF BUSINESS RECEIPTS. AS PER ARTICLE 7 OF THE INDIAN - UAE DTAA, THE BUSINESS RECEIPTS ARE TAXABLE IN INDIA ONLY IF THE ASSESSEE HAS PE IN INDIA. WE HAVE EARLIER NOTICED THAT THE TAX AUTHORITIES HAVE HELD THAT THERE IS PE IN INDIA ONLY ON THE BASIS OF RU LING GIVEN BY AAR. IN THE EARLIER PARAGRAPH, WE HAVE HELD THAT THE RULING GIVEN BY AAR SHOULD NOT HAVE BEEN FOLLOWED BY THE TAX AUTHORITIES FOR THE REASON S FURNISHED BY THE LD A.R . 10. THE TERM PERMANENT ESTABLISHMENT IS DEFINED IN ARTICLE 5 OF THE TAX TREATY. AS PER ARTICLE 5(2)(I), THE PE INCLUDES THE FURNISHING OF SERVICES INCLUDING CONSULTANCY SERVICES BY AN ENTERPRISE OF A CONTRACTING STATE THROUGH EMPLOYEES OR OTHER PERSONNEL IN THE OTHER CONTRACTING STATE, PROVIDED THAT SUCH ACTIVITIES CONTI NUE FOR THE SAME PROJECT OR CONNECTED PROJECT FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 9 MONTHS WITHIN ANY TWELVE MONTH PERIOD. THE ASSESSEE HAS GIVEN WORKING OF MANDAYS OF EMPLOYEES PROVIDED BY THE ASSESSEE TO M/Z BOOZ INDIA AT PAGE 53 OF THE PAPER BOOK. AS PER THE SAID WORKING THE EMPLOYEES HAVE WORKED FOR AN AGGREGATE PERIOD OF 156 SOLAR DAYS (ON ALL PROJECTS TAKEN TOGETHER), MEANING THEREBY, THE PERIOD OF WORKING IS LESS THAN 9 MONTHS. HENCE THE ABOVE SAID CLAUSE SHALL NOT APPLY. BOOZ & COMPANY (ME) FZ - LLC 5 11. THE ASS ESSEE HAS ALSO STATED THAT IT DOES NOT HAVE ANY FIXED PLACE OF PE AND ALSO SHOWN M/S BOOZ INDIA HAS ALSO NOT EARMARKED ANY SPECIFIC PLACE UNDER THE CONTROL OR DISPOSAL OF THE ASSESSEE. HENCE IT CANNOT BE SAID THAT THE ASSESSEE DID CARRY ON ANY BUSINESS IN INDIA THROUGH THE FIXED PLACE OF BUSINESS. SINCE THE ASSESSEE HAS PROVIDED SERVICE TO M/S BOOZ INDIA AND DID NOT RECEIVE ANY SERVICE , THE QUESTION OF DEPENDENT AGENT PE ALSO DOES NOT ARISE IN INDIA. 12. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE O F THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THERE IS NO PE FOR IT IN INDIA, IN WHICH CASE, THE IMPUGNED RECEIPT IS NOT TAXABLE IN INDIA. ACCORDINGLY, W E SET ASIDE THE ORDERS PASSED BY THE TAX AUTHORITIES AND DIRECT THE AO TO DEL ETE THE ADDITION MADE BY HIM. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 19 . 1 .201 8 . SD/ - SD/ - (SANDEEP GOSAIN ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI ; DATED : 19 / 1 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI