DDIT, New Delhi V. M/s. Western Union Financial Services Inc., Gurgaon

ITA 4532/DEL/2015

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7174 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 09-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S RANA
• Keywords: Double taxation relief; Permanent establishment; Non-deduction of tax
• Section: 234B

Judgement Text

ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.4532/DEL/2015 ASSESSMENT YEAR: 2011-12 DEPUTY DIRECTOR OF INCOME TAX, CIRCLE 3(1)(1), INTERNATIONAL TAXATION, NEW DELHI. VS M/S WESTERN UNION FINANCIAL SERVICES INC., C/O KPMG, BUILDING NO. 10, 8 TH FLOOR, TOWER-B, DLF CYBER CITY, PHASE-II, GURGAON-122002 APPELLANT RESPONDENT ASSESSEE BY : SHRI S.S. RANA, C.I. T. DR DEPARTMENT BY: SHRI TARANDEEP SINGH, CA DATE OF HEARING : 31.07.2018 DATE OF PRONOUNCEMENT : 28.09.2018 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THIS APPEAL IS PREFERRED BY THE DEPARTMENT AGAINST THE ORDER DATED 15.05.2015 PASSED BY THE LD. CIT(A)-43, NEW D ELHI FOR ASSESSMENT YEAR 2011-12. 2.0 BRIEFLY, THE RELEVANT FACTS ARE THAT THE ASSESS EE IS A NON- RESIDENT COMPANY REGISTERED IN USA. IT IS ENGAGED I N THE BUSINESS OF RENDERING MONEY TRANSFER SERVICES SINCE 1890. TH E BUSINESS OF THE ASSESSEE INCLUDES TRANSFER OF MONIES ACROSS INT ERNATIONAL ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 2 BORDERS. FOR THE PURPOSE OF CARRYING OUT ITS BUSINE SS IN INDIA, THE ASSESSEE HAS ENTERED INTO AGREEMENTS APPOINTING AGE NTS IN INDIA. THERE ARE FOUR TYPES OF AGENTS - THE DEPARTMENT OF POSTS, COMMERCIAL BANKS, NON-BANKING FINANCIAL COMPANIES A ND TOUR OPERATORS. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER (AO) FOU ND THAT THE ASSESSEE HAS A BUSINESS CONNECTION IN INDIA U/S 9 O F THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) AND TH AT THE ASSESSEE ALSO HAD A PERMANENT ESTABLISHMENT (PE) IN INDIA UN DER ARTICLE 5 OF THE INDO-US TAXATION AVOIDANCE AGREEMENT. THE AO OBSERVED THAT, ALTHOUGH, IN THE PAST THE ASSESSEE HAD THREE LIAISON OFFICES IN INDIA, HOWEVER SUCH OFFICES HAVE BEEN CLOSED W.E .F. 31 ST JULY 2005. THE AO, HOWEVER, HELD THAT ASSESSEE HAS AN AG ENCY PE AND A SOFTWARE PE IN INDIA BY OBSERVING AS UNDER: THE APPLICATION OF AFORESAID COMMENTARY IN THE ASS ESSEE CASE CLINCHES THE ISSUE OF PE AS THE AGENTS WHO ARE APPOINTED IN INDIA, HAVE BEEN PROVIDED WITH A SOFTW ARE TO ACCESS THE CONNECTIVITY AND THE APPLICATION SOFTWAR E INSTALLED IN STANDALONE MACHINES HAVING IN BUILT DIAL UP MODE MS AT VARIOUS BRANCHES & SUB AGENT LOCATIONS. THESE SYSTE MS ARE NOT ON THE AGENTS/BANKS NETWORK AND ARE DRIVEN BY A USER ID AND PASSWORD AND ARE VALIDATED BY A TERMINAL ID WHICH ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 3 AUTOMATICALLY CONNECTS TO THE INTERNATIONAL HOST SE RVER OF WESTERN UNION FOR MARKING OF TRANSACTIONS AS WELL A S STORAGE OF DATA. APART FROM THIS, WESTERN UNION HAS PROVIDE D SOFTWARE KNOWN AS VOYAGER 2.16 THAT GENERATES A COM PLETE SUMMARY OF TRANSACTIONS OF WESTERN UNION HANDLED BY THE AGENTS/BANK. THE STAND ALONE MACHINES WHERE WESTERN UNION FINANC IAL SERVICES INC. APPLICATION ARE INSTALLED AND DEDICAT ED TO THE BUSINESS OF MONEY TRANSFER CAN BE CONSTRUED AS FACI LITIES USED FOR THE CARRYING ON THE BUSINESS OF THE ENTERP RISE AS STATED IN THE COMMENTARY EVEN IF THE PREMISES, FACI LITIES ARE NOT OWNED OR RENTED BY THE ASSESSEE COMPANY BUT BEL ONG TO THE REPRESENTATIVE OF THE ASSESSEE IS INDIA DOES NO T MAKE ANY DIFFERENCE AS STATED IN THE ABOVE COMMENTARY. IN AL L THE REPRESENTATIVES PREMISES IN INDIA HAVING A DEDICAT ED MACHINE AS STATED ABOVE, A BOARD CONTAINING WESTERN UNION LOGO ITSELF ESTABLISHES THE IDENTITY OF THE COMPANY AND THE FACT THAT THE BUSINESS OF THE ASSESSEE COMPANY IS C ARRIED OUT THROUGH THAT PREMISES. WHEN ONE VISIT THE PREMISES OF ANY OF THE AGENTS HE WILL FIND A DISTINCT IDENTITY OF PRES ENCE OF THE ASSESSEE COMPANY, HE WILL FIND VIRTUAL PROJECTION O F THE ASSESSEE COMPANY. THIS ESTABLISHES THE EXISTENCE OF PERMANENT ESTABLISHMENT OF THE ASSESSEE ACCORDING T O THE COMMENTARY STATED ABOVE. THIS ASPECT OF FACT WAS NO T EXAMINED BY HONBLE TRIBUNAL IN THE ASSESSEE OWN CA SE FOR 2001-02, THEREFORE, RELIANCE PLACED BY THE ASSESSEE ON ITS ORDER FOR A.Y.2001-02 IS FOUND MISPLACED. .. . ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 4 GENERALLY THE APPOINTMENT OF THE AGENTS IS FOR A PE RIOD OF 5 YEARS IN THE BEGINNING AND CAN BE EXTENDED ANY NUMB ER OF TIMES FOR PERIODS OF ONE YEAR AT A TIME. THE AGENTS ARE REMUNERATED AT 30% IN THE CASE OF DEPARTMENT OF POS TS AND 25% IN THE CASE OF OTHERS, OF THE MONEY HANDED OVER BY THE AGENT IN INDIA. THE PERCENTAGE MAY BE REDUCED IF TH E ASSESSEE ASSUMES RESPONSIBILITY FOR ADVERTISING AND PROMOTION OF THE SERVICES IN INDIA OR ESTABLISHES A CUSTOMER SERVICE CENTER TO HANDLE TELEPHONIC QUERIES. ONE OT HER FEATURE OF THE AGREEMENT IS THAT THE MONEY IS TO BE FIRST P AID OUT BY THE AGENT IN INDIA AND THEREFORE HE WILL BE REIMBUR SED THE SAME TOGETHER WITH THE COMMISSION DUE TO HIM. ONE M ORE NOTICEABLE FEATURE OF THE AGREEMENT IS THAT THE AGE NT HAS BEEN GIVEN THE POWER TO APPOINT SUB-AGENTS / REPRESENTAT IVES. HOWEVER, IT IS THE RESPONSIBILITY OF THE AGENTS TO PAY THE SUB- AGENTS. THE ASSESSEE CAN ASK THE AGENT TO TERMINATE THE SERVICES OF A SUB-AGENT IF IT IS FOUND THAT THE SUB -AGENT IS ACTING IN MANNER PREJUDICIAL TO THE INTERESTS OF TH E ASSESSEE. THERE ARE THE USUAL CLAUSES PROVIDING FOR SECURITY AND CONFIDENTIALITY AND RESERVING THE INTELLECTUAL PROP ERTY RIGHTS OF BOTH THE PARTIES IN THE TRADE NAME, TRADEMARKS, COP YRIGHTS ETC. BELONGING TO THEM. THERE IS A CLAUSE WHICH ENJ OINS THE AGENT TO MAINTAIN RECORDS OF ALL THE TRANSACTIONS O F MONEY TRANSFER ROUTED THROUGH HIM. D.3 NOW WE EXAMINE THAT WHETHER THE AGENTS APPOINTE D ARE OF INDEPENDENT STATUS. THE OECD COMMENTARY ELABORAT ES THAT: .. ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 5 NOW TAKE AN EXAMPLE OF ONE OF THE AGENT M/S WALL ST REET FINANCE LTD. AS PER THE ANNUAL REPORT OF THE WALL S TREET FINANCES LTD. FOR THE PREVIOUS YEAR RELEVANT TO ASS ESSMENT YEAR 2004-05, OUT OF TOTAL INCOME OF 2296.86 LAKHS, THE COMMISSION RECEIVED FROM THE ASSESSEE COMPANY AMOUN T OF 950.30 LAKHS, IT SHOWED THAT 42% OF REVENUE OF THE AGENT OF THE ASSESSEE ACCOUNTED FROM THE COMMISSION RECEIVED FROM THE ASSESSEE COMPANY. THIS SHOWED THE ECONOMIC DEPENDENCE OF ONE OF THE AGENT OF THE ASSESSEE, THE SAME SITUATION WILL BE APPLICABLE FOR OTHER NBFC AND TOU R OPERATORS AGENTS APPOINTED IN INDIA. THEREFORE, IT CAN BE STA TED THAT MOST OF THE AGENTS ARE ECONOMICALLY DEPENDENT ON TH E ASSESSEE COMPANY. FURTHER, THE AGENTS APPOINTED IN INDIA DO NOT HAVE NECESSARY AND REQUISITE RESOURCES AND KNOW LEDGE TO HANDLE THE MONEY TRANSFER BUSINESS INDEPENDENTLY. T HEY REQUIRE CONSTANT SUPPORT AND ACTIVE ASSISTANCE FROM THE EMPLOYEE OF THE ASSESSEE COMPANY TO CARRY OUT TRANS BORDER MONEY TRANSFER BUSINESS. SINCE THEY DO NOT HAVE NEC ESSARY EXPERTISE AND TECHNOLOGY OF ITS OWN TO CARRY OUT TH E MONEY TRANSFER BUSINESS THEREFORE IT CANNOT BE SAID THAT THEY ARE ACTING IN THE NORMAL COURSE OF THEIR BUSINESS. ANOTHER IMPORTANT TEST OF INDEPENDENT AGENT IS TO W HETHER THEY ARE RESPONSIBLE TO HIS PRINCIPLE FOR THE RESUL T OF HIS WORK AND NOT SUBJECT TO SIGNIFICANT CONTROL WITH RESPECT TO THE MANNER IN WHICH THAT WORK IS CARRIED OUT. IN THE IN STANT ASE THE AGENTS APPOINTED IN INDIA ARE SUBJECT TO SIGNIF ICANT CONTROL FROM THE ASSESSEE COMPANY IN RESPECT OF MANNER IN W HICH MONEY TRANSFER BUSINESS IS CARRIED OUT. FIRST IT IS FULLY ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 6 DEPENDENT ON THE TECHNOLOGY PROVIDED BY THE ASSESSE E AND THE USE OF THE SOFTWARE AND THE MANNER IN WHICH IT SHOULD BE USED FOR ALL THESE WORKS IT IS DEPENDENT ON ITS PRI NCIPAL. FURTHER HOW THE ADVERTISEMENT IS TO BE DONE, AWAREN ESS TO BE CREATED, CALL CENTER TO BE OPENED IS ALL SUBJECT TO CONTROL FROM THE ASSESSEE COMPANY. THEREFORE THE AGENTS APP OINTED IN INDIA HAVE FAILED THE TEST OF BEING AN INDEPENDE NT AGENT AS PROVIDED IN ARTICLE 5(5) OF DTAA. FROM ABOVE, IT IS CLEAR THAT THEY ARE NOT AGENT OF INDEPENDENT STATUS THEN WHETHER THEY QUALIFY AS DEPENDENT AGENT PE AS PER THE ARTICLE 5(4) OF DTAA WHICH IS EXTRACTED BEL OW:- .. .. D.4 THE ASSESSEE HAS DEPENDENT AGENT PERMANENT ESTABLISHMENT IN INDIA DUE TO THE FOLLOWING FACTS:- D.4.1 THE AGENTS ARE WORKING WHOLLY AND EXCLUSIVELY FOR THE ASSESSEE COMPANY IN RESPECT OF TRANSBORDER MONE Y TRANSFER BUSINESS. AT PARA 5 OF THE AGREEMENT BETWE EN THE ASSESSEE AND WEIZMANN LTD., WHICH IS AVAILABLE ON L AST YEARS RECORDS, IT IS MENTIONED THE REPRESENTATIVE AGREES THAT IT WILL NOT DURING THE TERM OF AGREEMENT AND FOR SI X MONTHS AFTER THE TERMINATION OF THIS AGREEMENT ACT AS AN A GENT FOR OR REPRESENT OR OPERATE AS PRINCIPAL, ANOTHER PUBLIC M ONEY TRANSFER SERVICE OR ENGAGE DIRECTLY OR INDIRECTLY I N ANY MONEY TRANSFER BUSINESS OTHER THAN AS REPRESENTATIVE FOR WUN. THIS SHOWS THAT THE WEIZMANN LTD. AS WORKING WHOLLY AND EXCLUSIVELY FOR THE ASSESSEE. SIMILAR IS THE CASE W ITH OTHER AGENTS AS WELL AS THEREFORE WEIZMANN LTD. AND OTHER AGENTS ARE DEPENDENT AGENTS OF THE ASSESSEE. ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 7 D.4.2 THE AGENTS ARE WORKING ON BEHALF OF THE ASSES SEE AND ARE RENDERING SERVICES ON BEHALF OF THE ASSESSE E. THEY ARE INTERACTING WITH THE RECIPIENTS OF THE MONEY IN INDIA AS IN THE NAME OF WESTERN UNION AND ENTERING INTO SUBCONT RACTS ON BEHALF OF THE ASSESSEE. IN FACT THE COMMITMENT GIVE N BY WESTERN UNION TO THE SENDER IS CARRIED OUT IN INDIA BY ITS AGENTS. ALL THE ACTIVITIES OF THE AGENTS IN THE COU RSE OF THE BUSINESS ARE BINDING ON THE ASSESSEE. THEREFORE, TH E IMPORTANT TEST OF DEPENDENT AGENCY PLEA THAT THE AG ENT MUST HAVE THE AUTHORITY OR GIVE THIS IMPRESSION THAT IT HAS THE AUTHORITY TO BIND THE PRINCIPLE OF WHICH IT IS AN A GENT IS FULLY SATISFIED IN THE CASE OF THE ASSESSEE. WHEN THE REC IPIENT OF THE MONEY APPROACHES ANY AGENT, HE IN FACT GOES TO WESTERN UNION TO COLLECT THE MONEY. .. .. THE AGENTS OR REPRESENTATIVES APPOINTED IN INDIA BY THE ASSESSEE CONCLUDE THE CONTRACT ON BEHALF OF THE ASS ESSEE BY DELIVERING MONEY TO THE BENEFICIARY IN INDIA. THE A GENTS DELIVER THE MONEY TO THE BENEFICIARY ON PRODUCTION OF VALID IDENTITY CARD AND MONEY TRANSFER CODE. THE DECISION OF THE AGENTS TO DELIVER THE MONEY IS BINDING ON THE ASSES SEE COMPANY. THEREFORE, THE CONTRACT OF MONEY TRANSFER WHICH WAS INITIATED BY ANA GENT OF THE ASSESSEE OUTSIDE I NDIA WAS FINALLY CONCLUDED BY THE AGENT OF THE ASSESSEE IN I NDIA. THE DECISIONS OF THE AGEMTS WERE BINDING TO THE ASSESSE E. THE AGENTS OR REPRESENTATIVES WERE ALSO GIVEN AUTHORITY TO APPOINT SUBAGENTS OR SUB-REPRESENTATIVES. THIS FULFILS THE TST OF DEPENDENT AGENT PE AS STATED IN THE ABOVE COMMENTAR Y. ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 8 THEREFORE, THE ASSESSEE COMPANY HAD A DEPENDENT PE IN INDIA. THE AUTHORITY TO CONCLUDE SHOULD BE SEEN IN RESPECT OF BUSINESS PERSPECTIVE OF THE ASSESSEE. THE ASSESSEE COMPANY IS NOT ENGAGED IN THE SELLING OF MERCHANDISE / GOOD S SO THAT CONTRACT CAN BE CONCLUDED WITH CUSTOMERS LITERALLY. THE ASSESSEE IS ENGAGED IN MONEY TRANSFER SERVICE AND I T IS BASICALLY SERVICES INDUSTRY, SO THE TYPE OF CONTRAC T WHICH ARE REQUIRED TO BE ENTERED IN FOR THIS BUSINESS SHOULD BE RELEVANT AND WHETHER THESE CONTRACT WERE CONCLUDED BY THE AG ENTS IN INDIA SHOULD BE DETERMINATIVE TEST TO DECIDE AS TO WHETHER THEY HAVE AUTHORITY TO CONCLUDE THE CONTRACT OR NOT . IN THIS INDUSTRY THE TRANSFER OF MONEY TO BENEFICIARY IS TH E MAIN OBJECTIVE OF THE BUSINESS AND FOR THESE ACTIVITIES IT RECEIVES COMMISSION. THE AGENTS IN INDIA DO AGGRESSIVE MARKE TING AND EDUCATE THE SENDER / BENEFICIARY TO ENTER INTO CONT RACT FOR MONEY TRANSFER WHICH WILL BE CONCLUDED BY THEM. THE Y ALSO HAVE CALL CENTRE TO GUIDE PEOPLE. THEREFORE, THEY L ITERALLY ENTER INTO CONTRACT WHICH REQUIRE FOR THIS BUSINESS. THEY ALSO HAVE POWER TO APPOINT SUBAGENTS IN INDIA, SO THAT MARKET AND REACH OF THE ASSESSEE INCREASES. THESE A RE THE CONTRACT WHICH REQUIRES FOR MONEY TRANSFER AND AGEN TS HAVE AUTHORITY TO CONCLUDE THEM. THEEFORE THE HONBLE TR IBUNAL HAS NOT CORRECTLY APPRECIATED THE FACT OF THE CASE IN A .Y.2001-02, AND IT IS CLEAR THAT THEY HAVE AUTHORITY TO CONCLUD E THE CONTRACT. IT IS WELL SETTLED PRINCIPLE THAT THE SUB STANCE OF ACTIVITIES SHOULD DETERMINE THE ISSUE OF PE NOT THE FORMS WHICH IT SHOWN TO APPEARS. IN MONEY TRANSFER BUSINE SS THEY ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 9 ARE TOTALLY DEPENDENT ON THEIR PRINCIPAL AND THEY H AVE NO RESOURCE TO DO THIS BUSINESS INDEPENDENTLY. FURTHER, THE DEPARTMENT HAS NOT ACCEPTED THE FINDIN GS OF THE HONBLE ITAT IN CASE OF ASSESSEE FOR AY 2001-02 ON THE ISSUE OF PERMANENT ESTABLISHMENT. THE MATTER IS NOW PENDI NG BEFORE THE HONBLE DELHI HIGH COURT. IN VIEW OF THE SAME, THE ORDER OF HONBLE ITAT, ON WHICH RELIANCE HAS BEEN P LACED BY THE ASSESSEE, HAS NOT BEEN FOLLOWED. 2.1 BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL B EFORE THE LD CIT (A) AND THE LD. CIT (A) FOLLOWED THE ORDER OF T HE TRIBUNAL FOR THE AY 2001-02 IN ASSESSEES OWN CASE AND ALLOWED T HE APPEAL OF THE ASSESSEE. 2.2 NOW THE REVENUE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE FROM THE BUSINESS OF MONEY T RANSFER SERVICES IN RESPECT OF REMITTANCES MADE TO INDIVIDU ALS IN INDIA IS NOT LIABLE TO TAX IN INDIA. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE ASSESSEE DOES NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN I NDIA AND, THEREFORE, THE PROFITS ATTRIBUTABLE TO OPERATIONS I N INDIA ARE NOT LIABLE TO BE TAXED IN INDIA AS BUSINESS PROFITS IN TERMS OF ARTICLE 7 OF THE INDIA-USA DTAA. ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 10 2.1 WHETHER THE LD. CIT (A) HAS ERRED IN HOLDING TH AT THE SOFTWARE APPLICATIONS INSTALLED ON THE MACHINES IN THE PREMISES OF THE AGENTS AND DEDICATED TO THE BUSINES S OF THE MONEY-TRANSFER, DO NOT CONSTITUTE ASSESSEES PERMAN ENT ESTABLISHMENT IN INDIA. 2.2 WHETHER THE LD. CIT (A) HAS ERRED IN HOLDING TH AT THE REPRESENTATIVES OF THE ASSESSEE IN INDIA DO NOT CON STITUTE ITS DEPENDENT AGENT PE IN INDIA. 2.3 WHETHER THE LD. CIT (A) HAS ERRED IN NOT ATTRIB UTING ANY PROFITS AGAINST THE BUSINESS ACTIVITIES CARRIED BY IT THROUGH IT PE IN INDIA. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT LIABLE TO PAY INTEREST U/S 234B OF THE ACT, COMPLETELY OVERLOOKING THE OBSERVATIONS OF THE HONBLE HIGH COURT IN THE CASE OF M/S MITSUBISHI [330 ITR 5 78, DEL] THAT THE ROLE OF THE ASSESSEE/PAYEE/DEDUCTEE IN SHO RT- DEDUCTION OR NON-DEDUCTION OF TAX NEEDS TO BE ASCER TAINED BEFORE CLAIM REGARDING NON-LIABILITY TO INTEREST U/ S 234B OF THE ACT IS ACCEPTED. 4. THE LD. DR HEAVILY PLACED RELIANCE ON THE ASSESS MENT ORDER PASSED BY THE AO. 5. THE LD. AR PLACED RELIANCE ON THE DECISION OF TH IS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.4889/DEL/2004, ITA NO.1572- 74/DEL/2010 & CO. NO.163-165/DEL/2010, ITA NO.5551 & ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 11 5552/DEL/2010 AND IN ITA NOS 5649/DEL/2010 & 4956/DEL/2011 FOR AYS 2001-02, AY 2002-03, 2003-04 & 2005- 06, AY 2004-05 & 2009-10 AND 2007-08 & 2008-09 RESP ECTIVELY. HE FURTHER SUBMITTED THAT THERE IS NO CHANGE IN THE FACTS OF THE CASE AND EVEN THE ALLEGATIONS LEVIED BY THE AO ARE SAME. 6. THIS WAS NOT DISPUTED BY LD DR. IN CRUX BOTH THE PARTIES ADMIT BEFORE US THAT THE FACTS OF THE CASE FOR AY 2 011-12 ARE SIMILAR TO THE FACTS INVOLVED FOR THE EARLIER YEARS . 7. WE HAVE CAREFULLY CONSIDERED THESE FACTS IN THE LIGHT OF THE ORDERS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL FOR THE ASSESSMENT YEARS 2001-02, 2002-03, 2003-04, 2005-06 & 2004- 05, 2009-10. IN ITA NO.4889/DEL/2004 FOR THE AY 200 1-02, THE TRIBUNAL CONSIDERED THE ISSUES AT LENGTH AND REACHE D THE CONCLUSIONS THAT THOUGH THE ASSESSEE HAS A BUSINESS CONNECTION IN INDIA, IT HAD NEITHER FIXED NOR THE AGENCIES PE IN INDIA, AS SUCH IN THE ABSENCE OF ANY PE IN INDIA, THE PROFITS , IF ANY, ATTRIBUTABLE TO INDIAN OPERATIONS COULD NOT BE ASSE SSED AS BUSINESS PROFITS UNDER ARTICLE 7 OF THE TREATY. IT WAS ALSO HELD THAT THE AGENTS ENGAGED BY THE ASSESSEE IN THIS MAT TER ARE INDEPENDENT AGENTS UNDER ARTICLE 5(5) OF THE TREATY AND THEY DO NOT HABITUALLY EXERCISE THE AUTHORITY TO CONCLUDE T HE CONTRACTS ON ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 12 BEHALF OF THE ASSESSEE, AND, ON THAT PREMISE IT WAS HELD THAT THERE IS NO AGENCY PE OF THE ASSESSEE IN INDIA. THE SUM AND SUBSTANCE OF THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IS THAT THOUGH THE ASSESSEE HAD BUSINESS CONNECTION , IT DID NOT HAVE ANY FIXED PLACE PE OR AGENCY PLACE PE IN INDIA , AND, IN THE ABSENCE OF ANY PE IN INDIA, THE PROFITS, IF ANY, AT TRIBUTABLE TO INDIAS OPERATION COULD NOT BE ASSESSED AS BUSINESS PROFITS UNDER ARTICLE 7 OF THE TREATY. WE EXTRACT THE RELEVANT PO RTION OF TRIBUNAL ORDER FOR AY 2001-02 AS UNDER: (C) IS THE SOFTWARE 'VOYAGER' THE PE OF THE ASSESS EE? 26. THE DEPARTMENT HAS MADE OUT A CASE THAT THE SOF TWARE, WHICH AFFORDS ACCESS TO THE AGENTS TO THE ASSESSEE S MAINFRAME, COMPUTERS IN USA FOR THE PURPOSE OF FIND ING OUT THE MATCHING OF THE MTCN NUMBERS, HAS BEEN INSTALLE D IN THE PREMISES OF THE AGENTS AND HENCE TAKEN TOGETHER WIT H THE PREMISES CONSTITUTES THE PE. THE PREMISES OF THE AG ENTS ARE EITHER OWNED OR HIRED BY THEM. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE CAN AS A MATTER OF RIGHT ENTER AN D MAKE USE OF THE PREMISES FOR THE PURPOSE OF ITS BUSINESS . THE SOFTWARE IS THE PROPERTY OF THE ASSESSEE AND IT HAS NOT PARTED WITH ITS COPYRIGHT THEREIN IN FAVOUR OF THE AGENTS. THE AGENTS HAVE ONLY BEEN ALLOWED THE USE OF THE SOFTWARE IN O RDER TO GAIN ACCESS TO THE MAINFRAME COMPUTERS IN THE USA. MERE USE OF THE SOFTWARE FOR THE PURPOSE FROM THE PREMISES O F THE AGENTS CANNOT IN OUR OPINION LEAD TO THE DECISION T HAT THE ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 13 PREMISES-CUM-SOFTWARE WILL BE THE PE OF THE ASSESSE E IN INDIA. UNDER ARTICLE 5.2(J) AND INSTALLATION MAY AM OUNT TO A PE PROVIDED IT IS USED FOR THE EXPLORATION OF NATUR AL RESOURCES. THEREFORE, EVEN IF THE SOFTWARE IS TO BE CONSIDERED AS AN INSTALLATION, SINCE IT IS NOT USED FOR EXPLORATION OR EXPLOITATION OF NATURAL RESOURCES IT CANNOT PER SE BE TREATED AS A PE. . .. AGENCY PE: 28. THE STAND OF THE INCOME-TAX DEPARTMENT IS THAT THE AGENTS ARE NOT 'INDEPENDENT AGENTS' UNDER ARTICLE 5 .5 OF THE TREATY BUT ARE 'DEPENDENT AGENTS' UNDER ARTICLE 5.4 (A) OF THE TREATY. 29. (A) ARE THE AGENTS 'INDEPENDENT AGENTS'? 30. WE SHALL FIRST ADDRESS THE QUESTION WHETHER THE AGENTS ARE 'INDEPENDENT AGENTS' UNDER ARTICLE 5.4. THREE C ONDITIONS ARE REQUIRED TO BE SATISFIED IN ORDER THAT AN AGENT MAY BE SAID TO BE AN INDEPENDENT AGENT: (1) HE SHOULD BE A CTING IN THE ORDINARY COURSE OF HIS BUSINESS; (2) HIS ACTIVI TIES SHOULD NOT BE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THE FOREIGN ENTERPRISE FOR WHOM HE IS ACTING AS AGENT A ND (3) THE TRANSACTIONS BETWEEN THE FOREIGN ENTERPRISE AND THE AGENT SHOULD BE AT ARMS LENGTH. 31. THE ARGUMENT OF THE LEARNED CIT (DR) WAS THAT T HE AGENTS WERE NOT CARRYING ON THE ACTIVITY IN THE ORD INARY COURSE OF THEIR BUSINESS. WHAT IS 'BUSINESS' HAS BE EN EXPLAINED IN VARIOUS DECISIONS. IN THE LEADING CASE OF NARAIN SWADESHI WEAVING MILLS V. CEPT [1954] 26 ITR 772 TH E ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 14 SUPREME COURT EXPLAINED THAT BUSINESS CONNOTES SOME REAL, SUBSTANTIVE AND SYSTEMATIC COURSE OF ACTIVITY OR CO NDUCT WITH A SET PURPOSE. IN LIQUIDATORS OF PURSA LTD. V. CIT [1954] 25 ITR 265 , THE SUPREME COURT HELD THAT UNDERLYING THE EXPRESSION 'BUSINESS' IS THE FUNDAMENTAL IDEA OF CO NTINUOUS EXERCISE OF AN ACTIVITY. IN BARENDRA PRASAD RAY V. ITO [1981] 129 ITR 295 THE SUPREME COURT AGAIN HELD THAT THE WORD IS OF WIDE IMPORT AND MEANS AN A CTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PER SON BY THE APPLICATION OF HIS LABOUR AND SKILL WITH A VIEW TO EARNING INCOME. THEREFORE ANY ACTIVITY WHICH IS BEING SYSTE MATICALLY AND CONTINUOUSLY CARRIED ON WITH THE OBJECT OF EARN ING PROFITS IS A BUSINESS ACTIVITY. THAT WAY, THE ACTIVITY ENGA GED IN BY THE AGENTS OF PAYING THE MONIES TO THE BENEFICIARIE S OR CLAIMANTS IN INDIA, AFTER SATISFYING THEM- SELVES A BOUT THEIR IDENTITY AND AFTER ACCESSING THE MTCN NUMBER TO VER IFY THE GENUINENESS OF THE CLAIM, AMOUNTS TO CARRYING ON OF THE BUSINESS OF MONEY TRANSFER. THE AGREEMENT OF AGENCY IS INITI- ALLY FOR A PERIOD OF 5 YEARS AND TO BE RENEWED FOR SUCCESSIVE PERIODS OF ONE YEAR EACH. THE AGENTS COULD APPOINT SUB- AGENTS FOR CARRYING OUT THE ACTIVITY. THEY HAVE TO MAINTAIN RECORDS AND MEASURE UP TO THE STANDARDS SET BY THE ASSESSEE. THEY HAVE RECEIVED TRAINING FROM THE ASSE SSEE IN THE USE OF THE SOFTWARE AND IN THE COMMUNICATION SY STEMS. ALL THESE ARE ACTIVITIES WHICH ARE CARRIED ON SYSTE MATICALLY AND CONTINUOUSLY WITH A SET PURPOSE AND HENCE AMOUN T TO BUSINESS. ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 15 32. BUT THEN MR. RAJNISH KUMAR CONTENDED THAT THIS WAS NOT AN ACTIVITY IN THE 'ORDINARY COURSE OF THE BUSINESS ' OF THE AGENTS, AS THEIR ORDINARY BUSINESS IS IN LOCAL MONE Y TRANSFER IN THE CASE OF THE DEPARTMENT OF POSTS AND BANKS AN D NOT IN TRANS-BORDER MONEY TRANSFER AND THAT IN THE CASE OF NON- BANKING FINANCIAL COMPANIES AND TOUR OPERATORS APPO INTED AS AGENTS MONEY TRANSFER BUSINESS, WHETHER LOCALLY OR INTERNATIONALLY, IS NOT IN THEIR ORDINARY COURSE OF BUSINESS. IN THE CASE OF THE DEPARTMENT OF POSTS, IT IS WELL-KNO WN THAT THEY ACCEPT MONEY ORDERS FOR TRANSFER OF FUNDS WITH IN INDIA. ENGAGING THEMSELVES IN THE SAME TYPE OF BUSINESS WI TH INTERNATIONAL RAMIFICATIONS IS JUST AN EXTENSION OF THEIR BUSINESS. IT CANNOT BE SAID THAT IT IS NOT IN THE O RDINARY COURSE OF THEIR BUSINESS. THE SAME IS THE CASE WITH COMMERCIAL BANKS. THOUGH STRICTLY SPEAKING IT MAY N OT BE PART OF THEIR BANKING BUSINESS, AS THE EXPRESSION I S DEFINED IN THE BANKING REGULATION ACT, 1949 AND AS CONTENDED B Y MR. RAJNISH KUMAR, STILL IT IS NOBODYS CASE THAT IT IS NOT A LAWFUL ACTIVITY WHICH THEY HAVE EMBARKED UPON. IN FACT, TH EY HAVE OBTAINED THE APPROVAL FOR SUCH ACTIVITY FROM THE RB I UNDER SECTION 3(C) OF THE FEMA. THE APPROVAL GRANTED BY T HE RBI TO BANK OF PUNJAB LTD. HAS BEEN FILED IN THE PAPER BOO K. THOUGH THE APPROVAL IS ONLY FOR THE PURPOSE OF FEMA, AS RI GHTLY POINTED OUT BY THE LEARNED CIT(DR), THE ACTIVITY EN GAGED IN WOULD STILL, IN OUR OPINION, AMOUNT TO A BUSINESS, THOUGH NOT BANKING BUSINESS, BECAUSE IT HAS BEEN CARRIED ON SYSTEMATICALLY AND CONTINUOUSLY WITH THE OBJECTIVE OF EARNING COMMISSION. HAVING REGARD TO THE VARIEGATED SERVICE S ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 16 PROVIDED BY THE BANKS THESE DAYS, WHICH CANNOT BE I GNORED, ALL WITH A BUSINESS MOTIVE, IT SEEMS TO US TOO TECH NICAL AN OBJECTION TO SAY THAT THE ACTIVITY CARRIED ON BY TH E ASSESSEES AGENTS IN INDIA IS NOT A BUSINESS ACTIVITY IN THE O RDINARY COURSE OF THEIR BUSINESS. NON-BANKING FINANCIAL COM PANIES DEAL WITH MONEY BELONGING TO OTHERS AND THE ACTIVIT Y OF PAYING OUT MONIES ON BEHALF OF THE WESTERN UNION FI NANCIAL SERVICES INC., MUST BE VIEWED AS PART OF THEIR BUSI NESS ACTIVITY. IN THE CASE OF TOUR OPERATORS, ACTING AS AGENTS OF AN ESTABLISHED FIRM ENGAGED IN THE INTERNATIONAL MONEY TRANSFER BUSINESS MAY BE CONDUCIVE TO THEIR BUSINESS. A BROA D VIEW OF THE MATTER HAS TO BE TAKEN IN THESE MATTERS. WE ARE THEREFORE SATISFIED THAT THE OBJECTION OF THE DEPARTMENT CANN OT BE ACCEPTED. 33. THE SECOND QUESTION TO BE CONSIDERED IS WHETHER THE ACTIVITIES OF THE AGENT ARE WHOLLY OR ALMOST WHOLLY DEVOTED TO THE ASSESSEE. SO FAR AS THE DEPARTMENT OF POSTS AND COMMERCIAL BANKS ARE CONCERNED, THE OBJECTION OF TH E DEPARTMENT CANNOT BE COUNTENANCED AT ALL. THE DEPAR TMENT OF POSTS, AS NOTED EARLIER, FUNCTIONS UNDER THE AEG IS OF THE CONCERNED MINISTRY OF THE GOVERNMENT OF INDIA. ITS MAIN ACTIVITY IS TO SERVE THE PUBLIC IN INDIA IN THE MAT TER OF SENDING/RECEIVING LETTERS, PARCELS, PACKETS ETC. WI THIN OR TO/FROM OUTSIDE INDIA, MONEY ORDERS WITHIN INDIA, MAINTAINING SMALL SAVINGS ACCOUNT IN SEVERAL FORMS SUCH AS SAVINGS CERTIFICATES, TIME-DEPOSIT ACCOUNTS, POSTAL LIFE INSURANCE ETC. THEY HAVE A VAST NETWORK THROUGHOUT THE COUNTRY. THEY ARE A SERVICE ORGANIZATION FOR THE BE NEFIT OF THE ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 17 GENERAL PUBLIC AND IT WOULD BE A MISNOMER TO SAY TH AT THEIR ACTIVITIES ARE WHOLLY OR ALMOST WHOLLY DEVOTED TO T HE WESTERN UNION FINANCIAL SERVICES INC., OF THE USA. THE INCO ME-TAX AUTHORITIES HAVE NOT BROUGHT OUT ANY DATA, AS THEY OUGHT TO HAVE, TO SHOW THAT THE ACTIVITIES UNDERTAKEN BY THE DEPARTMENT OF POSTS ON BEHALF OF THE ASSESSEE HEREI N CONSTITUTE SUCH A LARGE PART OF THEIR ACTIVITIES TH AT IT CAN BE SAID THAT THE DEPARTMENT OF POSTS ARE DEPENDENT ON THE ASSESSEE FOR THEIR REVENUES. THE POSITION IS THE SA ME IN THE CASE OF COMMERCIAL BANKS, NON-BANKING FINANCIAL COM PANIES AND TOUR OPERATORS APPOINTED AS THE AGENTS OF THE A SSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE EXTENT OF THE IR ACTIVITIES FOR THE ASSESSEE, COMPARED TO ALL THEIR ACTIVITIES, IS SO LARGE THAT IT CAN BE SAID THAT THEY ARE DEPENDENT ON THE ASSESSEE FOR THEIR EARNINGS OR REVENUES. THE AGENTS IN THE P RESENT CASE HAVE NOT BEEN SHOWN TO BE ECONOMICALLY DEPENDENT ON THE ASSESSEE. THE INCOME-TAX AUTHORITIES HAVE STATED TH AT THE AGENTS HAVE NOT ACTED IN THAT CAPACITY FOR ANY OTHE R ENTITY ENGAGED IN THE MONEY TRANSFER BUSINESS AND THEREFOR E THEIR ACTIVITIES ARE WHOLLY OR ALMOST WHOLLY DEVOTED TO T HE ASSESSEE. WE DO NOT SEE HOW THIS CONCLUSION FOLLOWS . THE AGENTS, AS WE HAVE SEEN EARLIER, HAVE THEIR OWN BUS INESSES OR ACTIVITIES AMOUNTING TO BUSINESS. THEY ARE NOT C ARRYING ON THE ACTIVITY FOR THE ASSESSEE, AS AGENTS, IN EXCLUS ION OF THEIR OTHER BUSINESSES OR ACTIVITIES. IN THIS SITUATION, JUST BECAUSE THEY ARE NOT ACTING AS AGENTS FOR ANY OTHER COMPANY CARRYING ON MONEY TRANSFER BUSINESS IT CANNOT BE SAID THAT T HEIR ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 18 ACTIVITIES ARE WHOLLY OR ALMOST WHOLLY DEVOTED TO T HE ASSESSEE. 34. THE LEARNED CIT(DR) HAS DRAWN OUR ATTENTION TO PARAGRAPHS 36 TO 38.8 OF THE REVISED COMMENTARY ON THE OECD MODEL AND HAS RELIED ON THE SAME IN SUPPORT OF HIS ARGUMENT THAT THE AGENTS IN THE PRESENT CASE ARE NO T INDEPENDENT AGENTS WITHIN THE MEANING OF ARTICLE 5. 5 OF THE DTAA. THE COMMENTARY DISCUSSES WHAT IN GENERAL ARE THE TESTS TO BE APPLIED TO ASCERTAIN WHETHER THE AGENT IS AN INDEPENDENT AGENT OR NOT. THE EXTENT OF LEGAL DEPEN DENCE OR CONTROL, THE UNDERTAKING OF RISKS, THE FACT WHETHER THE AGENT IS SUBJECT TO THE CONTROL OF THE PRINCIPAL FOR THE MAN NER IN WHICH THE WORK IS TO BE CARRIED OUT ETC. HAVE BEEN DISCUS SED. MUCH OF THE DISCUSSION LOSES RELEVANCE TO THE CONTROVERS Y BEFORE US WHERE WE HAVE TO APPLY ARTICLE 5.5 WHICH REQUIRES T HAT THE ACTIVITIES OF THE AGENT MUST BE WHOLLY OR ALMOST WH OLLY DEVOTED TO THE FOREIGN ENTERPRISE. THIS IS THE TEST LAID DOWN IN THE ARTICLE. EVEN ON THIS ASPECT, PARAGRAPH 38.6 OF THE REVISED COMMENTARY HAS THIS TO SAY: 'ANOTHER FACTOR TO BE CONSIDERED IN DETERMINING INDEPENDENT STATUS IS THE NUMBER OF PRINCIPALS REPRESENTED BY THE AGENT. INDEPENDENT STATUS IS LES S LIKELY IF THE ACTIVITIES OF THE AGENT ARE PERFORMED WHOLLY OR ALMOST WHOLLY ON BEHALF OF ONLY ONE ENTERPRISE O VER THE LIFETIME OF THE BUSINESS OR A LONG PERIOD OF TI ME. HOWEVER, THIS FACT IS NOT BY ITSELF DETERMINATIVE. ALL THE FACTS AND CIRCUMSTANCES MUST BE TAKEN INTO ACCOUNT TO DETERMINE WHETHER THE AGENTS ACTIVITIES CONSTITUTE AN AUTONOMOUS BUSINESS CONDUCTED BY HIM IN WHICH HE BEARS RISK AND RECEIVES REWARD THROUGH THE USE OF H IS ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 19 ENTREPRENEURIAL SKILLS AND KNOWLEDGE. WHERE AN AGEN T ACTS FOR A NUMBER OF PRINCIPALS IN THE ORDINARY COU RSE OF HIS BUSINESS AND NONE OF THESE IS PREDOMINANT IN TE RMS OF THE BUSINESS CARRIED ON BY THE AGENT LEGAL DEPENDENCE MAY EXIST IF THE PRINCIPALS ACT IN CONCE RT TO CONTROL THE ACTS OF THE AGENT IN THE COURSE OF HIS BUSINESS ON THEIR BEHALF.' WHAT WE THUS UNDERSTAND FROM THE LANGUAGE USED IN A RTICLE 5.5 IS THAT THE AGENTS ACTIVITIES FOR THE FOREIGN ENTERPRISE MUST CONSTITUTE A LARGE CHUNK OF ALL HIS ACTIVITIES TAKEN TOGETHER SO THAT IT CAN BE SAID THAT HE IS ECONOMIC ALLY DEPENDENT LARGELY ON THE ACTIVITY. NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THIS. EVEN IF YOU TAKE THE RIS K FACTOR, THE 'TO SEND' SPECIMEN FORM WHICH WAS FILED BEFORE US I N THE COURSE OF THE HEARING WHILE EXPLAINING THE TRANSACT ION MAKES IT CLEAR ON THE REVERSE THAT THE ASSESSEE WILL BE L IABLE TO REFUND THE PRINCIPAL AMOUNT OF A MONEY TRANSFER (AT THE APPLICABLE RATE OF EXCHANGE AT THE TIME THE REFUND IS MADE) UPON THE WRITTEN REQUEST OF THE SENDER IF PAYMENT T O THE RECIPIENT IS NOT MADE WITHIN 30 DAYS EXCLUDING SUND AYS AND HOLIDAYS AND THAT THE SAME WILL BE THE CASE OF THE FEES CHARGED. IT GOES ON TO SAY THAT THE ASSESSEE OR HIS AGENT WILL IN NO CASE BE LIABLE FOR DAMAGES FOR THE DELAY, NON -PAYMENT OR UNDERPAYMENT OF THE MONEY TRANSFER. THE AGENT IS NOT THEREFORE LIABLE TO ANY RISK ON THIS ACCOUNT. 35. WE NOW PROCEED TO CONSIDER THE QUESTION WHETHER THE TRANSACTIONS BETWEEN THE AGENTS AND THE ASSESSEE AR E UNDER ARMS LENGTH. THE AGREEMENTS FILED BEFORE US SHOW T HAT THE 'BASE COMPENSATION' IS 30 PER CENT IN THE CASE OF T HE ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 20 DEPARTMENT OF POSTS AND 25 PER CENT IN THE CASE OF OTHERS. IT MAY BE REDUCED UNDER CLAUSE 6.2 OF THE AGREEMENT WI TH THE DEPARTMENT OF POSTS IF THE ASSESSEE WERE TO ASSUME RESPONSIBILITY FOR THE ADVERTISING AND PROMOTION OF THE SERVICES OR TO ESTABLISH A CUSTOMER SERVICE CENTRE TO HANDLE CUSTOMER QUERIES. THE REDUCTION SHALL NOT EXCEED 10 PER CENT OF THE GROSS REVENUES EARNED BY THE AGENT CONCERNED FROM THE MONEY TRANSFER BUSINESS DONE BY IT IN THE RELEVANT YEAR. IN THE CASE OF BANKS APPOINTED AS AGENTS, THE AMOUNT O F REDUCTION IS LEFT TO THE DETERMINATION OF THE ASSES SEE. THERE IS NO MATERIAL TO SHOW THAT THE RATES OF COMPENSATION ARE HIGHER IN OTHER CASES SO AS TO INDICATE THAT THE AGENTS WE RE DISCRIMINATED AGAINST. THE HIGHER RATE OF COMPENSAT ION IN THE CASE OF THE DEPARTMENT OF POSTS IS PROBABLY BECAUSE ITS REACH IS MUCH WIDER COMPARED TO THE COMMERCIAL BANKS, NBF CS OR TOUR OPERATORS. THE TERMS OF APPOINTMENT OF SUB-AGE NTS ARE UNIFORM IN ALL CASES. THUS THERE SEEMS TO BE NO BAS IS FOR THE CHARGE THAT THE COMPENSATION PAID IS NOT ADEQUATE F OR THE SERVICES RENDERED BY THE AGENTS. THERE IS NO FINDIN G CONTRARY TO THE CLAIM MADE BY THE ASSESSEE THAT THE RATES OF COMPENSATION ARE UNIFORM THROUGHOUT THE WORLD. IN T HESE CIRCUMSTANCES, THERE IS NO MERIT IN THE CLAIM THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE AGENTS AR E NOT UNDER ARMS LENGTH. 36. THE RESULT IS THAT (1) THE AGENTS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS; (2) THEIR ACTIVITIES ARE NOT DEVOTED WHOLLY OR ALMOST WHOLLY TO THE FOREIGN ENTERPRISE A ND (3) THE ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 21 TRANSACTIONS ARE UNDER ARMS LENGTH. THEREFORE THE AGENTS ARE INDEPENDENT AGENTS UNDER ARTICLE 5.5 OF THE TREATY. 37. (B) ARE THE AGENTS 'DEPENDENT AGENTS'? 38. IT IS NOW WELL-SETTLED THAT MERELY BECAUSE THE AGENTS ARE NOT 'INDEPENDENT AGENTS' IT DOES NOT AUTOMATICALLY FOLLOW THAT THEY ARE 'DEPENDENT AGENTS' UNDER THE DTAA AND THAT THE QUESTION HAS TO FURTHER EXAMINED UNDER ARTICLE 5.4 OF THE DTAA. IN OTHER WORDS, EVEN IF THE AGENT IS SHOWN TO BE NOT AN INDEPENDENT AGENT, IT HAS TO BE FURTHER SHOWN THAT HE IS A DEPENDENT AGENT WITHIN ARTICLE 5.4 AND THAT IT MUST BE SHOWN THAT HE HAS AND HABITUALLY EXERCISES AN AUTHORITY I N INDIA TO CONCLUDE CONTRACTS IN THE NAME OF THE FOREIGN ENTER PRISE. IN TVM LTD. V. CIT [1999] 237 ITR 230 , A DECISION RENDERED BY THE AAR, IT HAS BEEN ACCEPTED THAT WHEN AN AGENT FAILED TO COME UP TO THE STANDARD OF INDEPEND ENCE REFERRED TO IN ARTICLE 5.5, THE ISSUE REGARDING PE IS NOT CLOSED BUT HAS TO BE RESOLVED IN TERMS OF ARTICLE 5.4. IT WAS FURTHER HELD THAT THE PRESENCE OF THE WORDS 'UNLESS HIS ACT IVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE ENTERPRISE' IN CLAUSES (I) AND (II) MAY SUGGEST A N ARROWER INTERPRETATION RESTRICTING THE ARTICLE TO AGENTS IN VOLVED IN SUCH ACTIVITY AND AS SAYING THAT MERE PURCHASE OR SPORAD IC SALE OF GOODS THROUGH AN AGENT WILL NOT BE SUFFICIENT TO ME RIT SUCH AN AGENT BEING CONSIDERED A PE, BUT THAT THIS IS NOT T HE CORRECT VIEW AS IT WOULD IGNORE THE GENERALITY OF THE PRECE DING WORDS OF THE PARAGRAPH MERELY BECAUSE EXCEPTIONS ARE CARV ED OUT IN THE LATTER PART OF THE AFORESAID CLAUSES ONLY IN RE SPECT OF A PARTICULAR CATEGORY OF AGENTS (VIZ., THOSE BUYING O R SELLING ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 22 GOODS). IT WAS HELD THAT PARAGRAPH 4 OF THE ARTICLE 'IS APPLICABLE IN ALL CASES WHERE THE ENTERPRISE IN A C ONTRACTING STATE HAS AN AGENT IN THE OTHER WHO DOES NOT HAVE A N INDEPENDENT STATUS. SUCH A PERSON WILL BE DEEMED TO BE A PERMANENT ESTABLISHMENT ONLY IF HE HAS, AND EXERCIS ES, THE AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE. BUT EVEN THE EXISTENCE OF SUCH AUTHORITY WILL NOT M AKE HIM A PERMANENT ESTABLISHMENT (I) IF HE IS A MERE AGENT F OR PURCHASE OF GOODS OR MERCHANDISE; OR (II) BEING AN AGENT FOR SALE OF GOODS OR MERCHANDISE IS ALLOWED TO HABITUAL LY TO MAINTAIN A STOCK OF THE GOODS OF THE ENTERPRISE AND EFFECT SALES THERE FROM. THE CONCLUSION SEEMS INEVITABLE T HAT EVEN A NON-INDEPENDENT AGENT CAN BE DEEMED TO BE A PERMANE NT ESTABLISHMENT ONLY IF HE CAN ACT INDEPENDENTLY IN T HE MATTER OF CONCLUDING CONTRACTS ON BEHALF OF THE PRINCIPAL, ON HIS OWN, FREELY AND WITHOUT CONTROL FROM THE LATTER...' (PAG ES 241-42 OF THE REPORT). IT IS THEREFORE NECESSARY TO EXAMINE W HETHER THE AGENTS IN THE PRESENT CASE HAVE AUTHORITY, OR HABIT UALLY EXERCISE AUTHORITY TO CONCLUDE CONTRACTS FOR THE AS SESSEE. HERE ALSO, THE OBSERVATIONS OF THE AAR IN THE ABOVE CASE ARE WORTH REPRODUCING: AT PAGE 242-43 IT WAS NOTED THAT PARAGRAPH 4 OF THE ARTICLE USES TWO EXPRESSIONS: 'H AS' AND 'HABITUALLY EXERCISES' THE AUTHORITY TO CONCLUDE CO NTRACTS ON BEHALF OF THE FOREIGN ENTERPRISE. IT WAS HELD THAT 'WHILE THE EXPRESSION 'HAS' MAY HAVE REFERENCE TO THE LEGAL EX ISTENCE OF SUCH AUTHORITY ON THE TERMS OF THE CONTRACT BETWEEN THE PRINCIPAL AND AGENT, THE EXPRESSION 'HABITUALLY EXE RCISES' HAS CERTAINLY REFERENCE TO A SYSTEMATIC COURSE OF CONDU CT ON THE ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 23 PART OF THE AGENT. IF, DESPITE THE SPECIFIC PROVISI ON OF THE SOLICITING AGREEMENT, IT IS FOUND, AS A MATTER OF F ACT THAT TVI IS HABITUALLY CONCLUDING CONTRACTS ON BEHALF OF TVM WI THOUT ANY PROTEST OR DISSENT, PERHAPS IT COULD BE PRESUMED EI THER THAT THE RELEVANT PROVISIONS OF THE AGENCY CONTRACT ARE A DEAD LETTER IGNORED BY THE PARTIES OR THAT THE PRINCIPAL HAS AGREED IMPLICITY TO TVI EXERCISING SUCH POWERS NOTWITHSTAN DING THE TERMS OF THE 'CONTRACT'. THE AAR HAS FURTHER OBSERV ED THAT THIS VIEW IS REINFORCED BY THE COMMENTARY ON THE OE CD MODEL OF DOUBLE TAX CONVENTIONS AS WELL AS THE VIEW S OF TEXT BOOK WRITERS LIKE KLAUS VOGEL AND BAKER. 39. IN LINE WITH THE ABOVE, WE HAVE TO EXAMINE THE FACTS OF THE CASE TO FIND OUT FIRST WHETHER THE AGENTS HAVE THE AUTHORITY TO CONCLUDE CONTRACTS (ON BEHALF OF THE A SSESSEE). THERE IS NO EXPRESS AUTHORITY GIVEN TO THEM IN THE AGREEMENT AND OUR ATTENTION WAS NOT DRAWN TO ANY CLAUSE THERE IN TO THAT EFFECT. ALL THAT THE INCOME-TAX AUTHORITIES HAVE ST ATED IS THAT (A) THAT THE AGENTS CARRY OUT IN INDIA THE COMMITME NT GIVEN BY THE ASSESSEE TO THE REMITTER OF THE MONEY ABROAD AN D (B) THAT THE AGENTS HAVE THE POWER TO APPOINT SUB-AGENTS TO DO THEIR WORK. FROM THESE FACTS, TAKEN SINGLY OR TOGETHER, I T CANNOT BE INFERRED THAT THE AGENTS EITHER HAVE THE AUTHORITY TO CONCLUDE THE CONTRACTS OR HAVE HABITUALLY EXERCISE THE AUTHO RITY WITHOUT ANY PROTEST FROM THE ASSESSEE. IN PARAGRAPH 33 OF THE COMMENTARY REFERRED TO IN THE PRECEDING PARAGRA PH, UNDER THE HEADING 'AUTHORITY TO CONCLUDE CONTRACTS' , IT HAS BEEN STATED: 'THE AUTHORITY TO CONCLUDE CONTRACTS M UST COVER CONTRACTS RELATING TO OPERATIONS WHICH CONSTITUTE T HE BUSINESS ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 24 PROPER OF THE ENTERPRISE. IT WOULD BE IRRELEVANT, F OR INSTANCE, IF THE PERSON HAD AUTHORITY TO ENGAGE EMPLOYEES FOR TH E ENTERPRISE TO ASSIST THAT PERSONS ACTIVITY...'. TH IS PARAGRAPH HAS BEEN QUOTED APPROVINGLY BY THE AAR IN TVM LTD. S CASE (SUPRA) (PAGE 244 OF THE REPORT). THUS THE FACT THA T THE AGENTS (IN THE PRESENT CASE) HAVE THE AUTHORITY TO APPOINT SUB-AGENTS DOES NOT MEAN THAT THEY (AGENTS) HAVE THE AUTHORITY TO CONCLUDE CONTRACTS. THE TERMS OF APPOINTMENT OF SUB -AGENTS GIVEN AT PAGE 22 OF THE PAPER BOOK AS ATTACHMENT TO THE CONTRACT OF AGENCY WITH KARNATAKA BANK LTD. LISTS T HE DUTIES AND RESPONSIBILITIES OF THE SUB-AGENTS REGARDING MO NEY TRANSFER SERVICE REQUIREMENTS, ADVERTISING AND PROM OTION, EXCLUSIVITY, LOCATIONS AND HOURS OF OPERATIONS, PAY MENT FOR THE SERVICE, DELIVERY STANDARDS, MAINTENANCE OF REC ORDS, SECURITY AND CONFIDENTIALITY, ACCOUNTING, USE OF SO FTWARE, INDEMNITY, CONDITIONS OF TERMINATION ETC. NOWHERE I N THE SUB- AGENCY AGREEMENT HAS ANY AUTHORITY TO CONCLUDE CONT RACTS HAS BEEN GIVEN TO THEM. IN FACT, WHEN THE AGENTS TH EMSELVES HAVE NO SUCH AUTHORITY UNDER THEIR AGREEMENT, THEY CANNOT DELEGATE THE SAME TO THEIR SUB-AGENTS (DELEGATUS NO N POTESTDELEGARE). 40. THERE IS ALSO NO MATERIAL TO HOLD THAT THE AGEN TS HAVE 'HABITUALLY' EXERCISED THE AUTHORITY TO CONCLUDE CO NTRACTS. AS ALREADY NOTED, THE AUTHORITY MUST BE TO CONCLUDE CO NTRACTS IN THE CONDUCT OF THE BUSINESS PROPER OF THE FOREIGN E NTERPRISE. THE FACT THAT THE AGENTS CONCLUDE IN INDIA THE COMM ITMENT OF THE ASSESSEE MADE ABROAD CANNOT BE CONSIDERED AS AN AUTHORITY TO CONCLUDE CON- TRACTS. THE CONTRACT IS BETWEEN THE ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 25 REMITTER ABROAD AND THE ASSESSEE. IT IS ENTERED INT O OUTSIDE INDIA. THE AGENTS ARE NOT PARTY THERETO. THE AGENTS MERELY CARRY OUT THE CONCLUDING STEP IN THE ARRANGEMENT EM BODIED IN THE CONTRACT. IN OTHER WORDS, THE ASSESSEE UNDERTAK ES OUTSIDE INDIA TO TRANSFER THE MONEY TO INDIA. IT IS ONLY TH E PAYMENT PART OF THE UNDERTAKING THAT IS EXECUTED BY THE AGE NTS IN INDIA. THE CONTRACT IS ALREADY CONCLUDED OUTSIDE IN DIA. THE AGENT HAS NO SAY OVER THE CONTRACT. HE HAS TO MEREL Y EXECUTE THE PAY- MENT PART, AFTER SATISFYING HIMSELF AS TO THE GENUINENESS OF THE TRANSACTION AND THE IDENTITY OF THE BENEFICIARY IN INDIA. BY EXECUTING THE LAST LEG OF THE CONTRACT WHICH HAS ALREADY BEEN CONCLUDED (OUTSIDE INDIA) HE IS NOT CONCLUDING THE CONTRACT FOR THE ASSESSEE, MUCH LESS HABITUALLY. THE APPOINTMENT OF SUB-AGENTS IS MERELY TO FACILITATE THE WORK OF THE AGENT. THAT APART, WHAT IS CONSIDERED TO BE A 'DUTY' CANNOT BE CONSIDERED TO B E AN 'AUTHORITY'. BY MAKING PAYMENT TO THE BENEFICIARY, THE AGENT IN INDIA IS ONLY PERFORMING HIS DUTY UNDER THE AGRE EMENT OF AGENCY, FOR WHICH HE IS REMUNERATED; HE IS NOT EXER CISING ANY 'AUTHORITY', CERTAINLY NOT AN AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ASSESSEE. THE WORDS 'DUTY' AND 'AUTHO RITY' ARE INCOMPATIBLE WITH EACH OTHER. THE DICTIONARY MEANIN G OF THE WORD 'DUTY' IS 'ASSIGNMENT/BURDEN/COMMITMENT THAT O NE IS OBLIGED TO DO BY LAW OR BY CALLING OF ONES BUSINES S'. IT CONNOTES AN OBLIGATION, WHICH A PERSON IS BOUND TO PERFORM. PER CONTRA, 'AUTHORITY' IN LAW BELONGS TO THE PROVINCE OF POWER (PAGE 124 OF K.J. AIYARS JUDICIA L DICTIONARY, 13TH EDITION, BUTTERWORTHS). ACCORDING TO ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 26 SALMOND (JURISPRUDENCE, 10TH ED., PAGE 243), 'THE A BILITY CONFERRED UPON A PERSON BY THE LAW TO ALTER, BY HIS OWN WILL DIRECTED TO THAT END, THE RIGHTS, DUTIES, LIABILITI ES OR OTHER LEGAL RELATIONS, EITHER OF HIMSELF OR OF OTHER PERSONS MU ST BE PRESENT AB EXTRA TO MAKE A PERSON AN AUTHORITY'. JUDGED BY THESE TESTS, THE FACT THAT THE AGENTS IN INDIA P AY OUT THE MONEY TO THE BENEFICIARIES OR CLAIMANTS, WHICH THEY ARE BOUND TO UNDER THE AGREEMENT WITH THE ASSESSEE FOR WHICH THEY ARE REMUNERATED DOES NOT APPEAR TO US TO BE A CASE OF EXERCISE OF ANY AUTHORITY. THUS, THE AGENTS DO NOT HABITUALLY EXERCISE THE AUTHORITY TO CONCLUDE THE CONTRACTS ON BEHALF OF THE ASSESSEE. 41. FOR THE ABOVE REASONS, WE ARE OF THE VIEW THAT THERE IS NO AGENCY PE OF THE ASSESSEE IN INDIA. IN THE ABSEN CE OF ANY PE IN INDIA, IT FOLLOWS THAT THE PROFITS, IF ANY, A TTRIBUTABLE TO THE INDIAN OPERATIONS CANNOT BE ASSESSED AS BUSINES S PROFITS UNDER ARTICLE 7 OF THE TREATY. 7.1 THE CONCLUSIONS REACHED BY THIS TRIBUNAL FOR TH E AY 2001- 02 HAS THEREAFTER ALSO BEEN FOLLOWED BY THE OTHER C O-ORDINATE BENCHES OF TRIBUNAL IN ASSESSMENT YEARS 2002-03, 20 03-04, 2004-05, 2005-06, 2007-08, 2008-09 AND 2009-10. FAC TS BEING SIMILAR FOR ALL THE YEARS INVOLVED IN THIS MATTER, WE FIND IT DIFFICULT TO REACH A DIFFERENT CONCLUSION AND WE ARE OF THE O PINION THAT THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL FOR ALL THE E ARLIER YEARS ITA NO. 4532/DEL/2015 ASSESSMENT YEAR : 2011-12 27 CANNOT NOT BE DISTURBED WITHOUT ANY COMPELLING REAS ON. WE, THEREFORE, HOLD THAT FINDINGS OF THE LD. CIT (A) CA NNOT BE INTERFERED WITH. GROUNDS 1, 2, 2.1 AND 2.2 ARE, ACC ORDINGLY, DISMISSED. 7.2 SINCE WE HAVE HELD THAT THERE IS NO PE IN INDIA , ISSUE OF ATTRIBUTION RAISED BY THE DEPARTMENT IN GROUND NO. 2.3 NEED NOT BE ADJUDICATED UPON. THIS GROUND IS THEREFORE DISMI SSED AS IN FRUCTUOUS . 7.3 SIMILARLY, GROUND NO. 3 WHICH CHALLENGES THE NO N-LEVY OF INTEREST U/S 234B ALSO IS DISMISSED AS HAVING BECOM E INFRUCTOUS . 8. IN THE FINAL RESULT, THE APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER, 2018. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVA STAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28TH SEPTEMBER, 2018 COPY FORWARDED TO: - 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT 5) DR TRUE COPY BY ORDER ASSTT. REGISTRAR