THE LUBRIZOL CORPORATION . USA, MUMBAI V. DCIT (IT) RG 3(1)(2), MUMBAI

ITA 508/MUM/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8089 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 23-01-2017
• Court: TRIBUNAL
• Department Lawyers: JALBIR C HOUHAN
• Assessee Lawyers: FORUM MEHTA; ALIASGER RAMPURWALA
• Keywords: Business income; Application of stay; Permanent establishment
• Section: 143(3); 5(2); 234B

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHAKTIJIT DEY (JM) I.T.A. NO. 508/MUM/2017 (ASSESSMENT YEAR 2010 - 11) I.T.A. NO. 509 /MUM/ 2017 (ASSESSMENT YEAR 20 12 - 13 ) S.A. NO. 112/MUM/2017 IN I.T.A. NO. 508/MUM/20 17 (ASSESSMENT YEAR 2010 - 11) S.A. NO. 113/MUM/2017 IN I.T.A. NO. 509/MUM/2017 (ASSESSMENT YEAR 2012 - 13) THE LUBRIZOL CORPORATION USA C/O. LUBRIZOL ADVANCED MATERIALS PVT. LTD. 6 TH & 7 TH FLOOR JASWANTI LANDMARK MEHRA INDUSTRIAL ESTATE LBS MARG, VIKHROLI WEST MUMBAI - 400 079. VS. DCIT (IT) RANGE 3(1)(2) ROOM NO. 1605 AIR INDIA BUILDING NARIMAN POINT MUMBAI - 400 021. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACT2758F ASSESSEE BY SHRI ALIASGER RAMPURWALA & MS. FORUM MEHTA DEPARTMENT BY S HRI JALBIR C HOUHAN DATE OF HEARING 6 .3 . 201 7 DATE OF PRONOUNCEMENT 6 .3 . 201 7 O R D E R PER B ENCH : - THE STAY APPLICATIONS AS WELL AS THE APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THEY RELATE TO A.YS. 2010 - 11 & 2012 - 13. THE APPEALS HAVE BEEN FILED CHALLEN GING THE ASSESSMENT ORDERS PASSED U/S. 143(3) READ WITH SECTION 144C(13) OF THE ACT. THE LUBRIZOL CORPORATION USA 2 2. LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAD MADE ADDITIONS TO THE INCOME RETURNED BY THE ASSESSEE ON THE GROUND THAT THE ASSES SEE HAS GOT PERMANENT ESTABLISHMENT IN INDIA. LEARNED COUNSEL SUBMITTED THAT THE IDENTICAL ISSUE WAS CONSIDERED IN ASSESSEES OWN CASE IN A.Y. 2006 - 07, 2005 - 06, & 2008 - 09 AND ALSO IN A.Y. 2009 - 10 AND THE COORDINATE BENCHES HAVE HELD THAT THE ASSESSEE DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. HE FURTHER SUBMITTED THAT THERE IS NO CHANGE IN FACTS PREVAILING IN THE TWO YEARS UNDER CONSIDERATION. ACCORDINGLY HE SUBMITTED THAT THE ADDITIONS MADE BY THE AO IN IMPUGNED ASSESSMENT ORDER S ARE LIABLE TO BE DEL ETED . 3. LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT OBJECT TO THE FACTUAL ASPECTS PRESENTED BY LEARNED AR. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. T HE ASSESSEE IS A FOREIGN COMPANY INCORPORATED UNDER LAWS OF THE UNITED STATES OF AMERICA AND RESIDENT OF USA. IT IS ENGAGED IN THE BUSINESS OF MANUFACTUR E OF SPECIALTY ADDITIVES USE D IN TRANSPORTATION AND INDUSTRIAL LUBRICANTS. LUBRIZOL INDIA PVT. LTD. (LIPL) IS AN ASSOCIATE ENTERPRISE OF THE ASSESSEE, WHEREIN THE ASSESSEE HOLD S 50% OF SHARES AND THE REMAINING 50% OF SHARES ARE HELD BY INDIAN OIL CORPORATION. THE ASSESSING OFFICER NOTICED THAT THE ASSOCIATE ENTERPRISE , VIZ., LIPL IS NOT ONLY ENGAGED IN MANUFACTURING ACTIVITIES, BUT ALSO ENGAGED IN MARKETING OF PRO DUC TS MANUFACTURED BY THE ASSE SSEE. T HE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE FOLLOWING SALES IN INDIA DURING THE YEARS UNDER CONSIDERATION TO/THROUGH LIPL : - A.Y. 2010 - 11 - ` 101.68 CRORES A.Y. 2012 - 13 - ` 154.47 CRORES 5. THE ASSESSING OFFICER TREATED THE ASSOCIATE EN TERPRISE - LIPL AS PERMANENT E STABLISHMENT OF THE ASSESSEE AND ACCORDINGLY ASSESSED A PROFIT OF ` 5.08 CRORES AND ` 7.72 CRORES RESPECTIVELY IN A.Y. 2010 - 11 AND 2012 - 13. THE DRP HAS ALSO CONFIRMED THE SAME AND ACCORDINGLY THE ASSESSING OFFICER PASSED THE THE LUBRIZOL CORPORATION USA 3 FIN AL ASSESSMENT ORDER S IN BOTH THE YEARS UNDER CONSIDERATION . HENCE THE ASSESSEE HAS FILED THESE APPEALS BEFORE US. 6. WE NOTICED THAT THE ISSU E AS TO WHETHER THERE EXISTS ANY PERMANENT E STABLISHMENT OF ASSESSEE IN INDIA OR NOT, WAS CONSIDERED BY THE COORD INATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 7420/MUM/2010 RELATING TO A.Y. 2006 - 07, VIDE ITS ORDER DATED 3.6.2011. THE COORDINATE BENCH HELD THAT THE ASSESSEE DID NOT HAVE PERMANENT ESTABLISHMENT IN INDIA IN THAT YEAR WITH THE FOLLOWING OBSERVATIONS: - 2 1. THE MAIN ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US IS THAT THE ASSESSEE IS A TAX RESIDENT OF USA IT IS NEITHER HAVING ANY FIXED PLACE OF BUSINESS IN INDIA NOR ANY BUSINESS CONNECTION IN INDIA. HE WAS CONTENDED THAT THE AO HAS WRONGLY IN TERPRETED ARTICLE 5(1), 5(2) AND 5(4) OF THE INDIA - US TREATY. IT IS SUBMITTED THAT LIPL IS A JOINT VENTURE OF INDIAN OIL CORPORATION AND THE ASSESSEE, BOTH OWNING 50%, THEREFORE, THE ASSESSEE HAD NO CONTROLLING OWNERSHIP IN LIPL. IT IS FURTHER SUBMITTED TH AT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITIES IN INDIA AND IT DID NOT RENDER ANY SERVICES IN INDIA OR MADE ANY SALES IN INDIA AS ALL SUCH SALES WERE EXECUTED AND COMPLETED OUTSIDE INDIA, THE RISK AND TITLE IN SUCH GOODS ALSO PASSED TO THE CUSTOMERS OUTSIDE INDIA, AND SO THERE AROSE NO INCOME TAXABLE IN INDIA. IT IS ALSO SUBMITTED THAT THE AO HAS ALLEGED THAT THE SALES MADE BY THE ASSESSEE TO LIPL AND ALSO THOSE MADE TO THIRD PARTIES HAVE GIVEN RISE TO INCOME TAXABLE IN INDIA BY ALLEGING THAT THE ASSESSEE HAD A PE IN INDIA UNDER ARTICLE 5 OF THE INDIA - US TREATY. IT IS SUBMITTED THAT THE ON THE SALES MADE BY THE ASSESSEE TO LIPL AND THIRD PARTIES, THE AO COMPUTED A PROFIT MARGIN OF 5% AND MADE AN ADDITION OF RS . 2,29,26,152/ - TO THE INCOME OF THE ASSESSEE WHICH IS NOT WARRANTED. 22. THE LEARNED COUNSEL TOOK US THROUGH VARIOUS ARTICLES OF INDIA - US TREATY, WHICH ARE MENTIONED ABOVE IN THE ARGUMENTS OF LEARNED AR TO ESTABLISH THAT THE ASSESSEE DOES NOT HAVE PE IN INDIA. AFTER C ONSIDERING THE RELEVANT MATERIAL AND THE RELEVANT ASPECTS, IT IS NOTED THAT THE LIPL HAS CARRIED OUT AN INDEPENDENT BUSINESS OF MANUFACTURE OF VARIOUS PRODUCTS UNDER TECHNOLOGY TRANSFER AGREEMENT WITH THE ASSESSEE IN INDIA. IT IS HAVING ITS OWN MARKETING NETWORK FOR SALE OF VARIOUS PRODUCTS MANUFACTURED BY IT IN INDIA. THE TOTAL SALES OF LIPL ARE RS. 408.84 CRORES AND COMMISSION RECEIVED FROM THE ASSESSEE IS RS. 0.756 CRORES WHICH CONSTITUTES ONLY 0.18% OF THE SALES. THE ASSESSEE ALSO SOLD PR ODUCTS TO INDIAN CUSTOMERS FOR WHICH LIPL RENDERED CERTAIN SERVICES. THE ASSESSEE SOLD THE PRODUCTS DIRECTLY TO THE INDIAN CUSTOMERS. CONTRACT OF SALE IS CONCLUDED ONCE THE PURCHASE ORDER IS ACCEPTED BY THE ASSESSEE IN USA. ON CONFIRMATION OF THE ORDER AND RECEIPT OF DIRECT PAYMENT FROM INDIAN THE LUBRIZOL CORPORATION USA 4 CUSTOMER, THE ASSESSEE SENDS THE PRODUCTS IN THE NAME OF INDIAN CUSTOMER WITH THE INVOICES RAISED BY THE ASSESSEE DIRECTLY ON INDIAN CUSTOMERS. THE LIPL ASSISTS THE ASSESSEE IN THE DIRECT SALE OF PRODUCTS TO INDIAN CU STOMERS AND COMMUNICATES INFORMATION IN RELATION TO TENDERS AND COMPETITIVE BIDS FROM THE CUSTOMERS. THE LIPL DOES NOT HAVE AUTHORITY TO NEGOTIATE THE TERMS OF THE SALE OR CONCLUDE THE CONTRACT ON BEHALF OF THE ASSESSEE. THE FINAL DECISION REGARDING PRICE, TERMS AND CONDITIONS IS TAKEN BY THE ASSESSEE. THE ASSESSEE HAS NO OPERATION IN RESPECT OF MANUFACTURE OR SALE OF PRODUCT CARRIED OUT IN INDIA. SALES ARE MADE BY THE ASSESSEE TO LIPL ON PRINCIPAL TO PRINCIPAL BASIS. THE ASSESSEE ALSO DOES NOT HAVE A RIGHT TO USE LIPL PREMISES. HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE LEARNED COUNSEL HAS DEMONSTRATED BY THE ASSESSEE DOES NOT HAVE A PE IN INDIA. FOR THIS CONCLUSION, WE DERIVE SUPPORT FROM THE DECISION OF ITAT, MUMBAI, C THE CASE OF DDIT VS. DAIMLER CHRYSLER AG, GERMANY, 39 SOT 418 WHEREIN IT WAS HELD THAT ' THERE SHOULD BE SOME DEFINITE ACTIVITY OF THE PE TO WHICH PROFITS CAN BE ATTRIBUTED AND MERELY ACTING 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. IT IS FURTHER HELD THAT MERELY CALLING 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. 23. IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE RATIO LAID DOWN BY THE ITAT, MUMBAI IN THE CASE OF DAIMLER CHRYSLER (SUPRA), WE HOLD THAT THE ASSESSEE DID NOT HAV E PE IN INDIA IN THE YEAR UNDER CONSIDERATION IN TERMS OF ARTICLE 5(1), 5(2), 5(4) 86 5(5) OF THE INDO - US TREATY AND THE ADDITION OF RS. 2,29,26,152/ - MADE BY THE AO BEING A PROFIT MARGIN OF 5% ON THE SALES MADE BY THE ASSESSEE, IS NOT SUSTAINABLE. THE SAI D IS THEREFORE DELETED AND GROUND NOS. 1 TO 7 ARE ALLOWED. 7. WE FURTHER NOTICED THAT THE ABOVE SAID ORDER OF THE TRIBUNAL PASSED FOR A.Y. 2006 - 07 HAS BEEN FOLLOWED IN ASSESSEES OWN CASE FOR THE YEARS GIVEN BELOW : A) A.Y. 2004 - 05, 2005 - 06, 2008 - 09 (ITA NO. 6443 TO 6445/MUM/2012, ORDER DATED 18.1.2013) B) A.Y. 2009 - 10 (ITA NO. 1247/MUM/2014, ORDER DATED 13.7.2016) 8. SINCE THE COORDINATE BENCHES HAVE TAK EN CONSISTENT VIEW ON THIS MATTER AND FURTHER SINCE LEARNED AR SUBMITTED THAT THERE IS NO CHANGE IN FACTS, BY FOLLOWING ORDERS PASSED BY THE COORDINATE BENCHES, WE H O LD THAT THE ASSESSEE DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND ACCORDINGLY DIRECT THE AO THE LUBRIZOL CORPORATION USA 5 TO DELET E THE ADDITION MADE BY HIM IN BOTH THE YEARS UNDER CONSIDERATION RELATING TO PROFIT ESTIMATED ON THE SALES MADE THE ASSESSEE IN INDIA . 9. THE ASSESSEE HAS ALSO RAISED GROUNDS CHALLENGING LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. CHARGING OF INTEREST IS CONSEQUENTIAL IN NATURE AND THE AO IS DIRECTED TO FOLLOW THE DECISION RENDERED BY HO NBLE BOMBAY HIGH COURT IN THE CASE OF DIT(IT) VS. NGC NETWORK ASIA LLC (2009)(222 CTR 85)(BOM). 10 . SINCE, WE HAVE DISPOSED OF THE APPEALS FILED BY THE ASSESSEE, STAY APPLICATIONS FILED BY IT HA VE BECOME INFRUCTUOUS. ACCORDINGLY, WE DISMISS THE M. 1 1 . I N THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED AND BOTH THE STAY APPLICATIONS ARE DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 6 .3. 201 7. SD/ - SD/ - (SHAKTIJIT DEY ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 06 / 3 / 20 1 7 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// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI