DDIT (IT)-I, Pune V. EPCOS AG, Nashik

ITA 513/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76353 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Business income; Double taxation relief; Permanent establishment; Revised return
• Section: 12A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.513/PN/2013 (A.Y: 2007-08) DDIT (IT)-I, PUNE APPELLANT VS. EPCOS AG, C/O EPCOS INDIA PVT. LTD., PLOT NO.E.22-35, MIDC, SATPUR, NASHIK - 422007 PAN: AAACE9787H RESPONDENT APPELLANT BY : SHRI A.K. M ODI RESPONDENT BY : PRASHANT M AHESHWARI & BHAVIN SHAH DATE OF HEARING : 19.03.2014 DATE OF ORDER : 20.03.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-IT/TP, [SHOR T CIT(A)] PUNE, DATED 20.12.2012 FOR A.Y. 2007-08 ON THE FOLL OWING GROUNDS. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A)-IT/TP, PUNE ERRED IN HOLDING T HAT ASSESSEE DOES NOT HAVE A PERMANENT ESTABLISHMENT (P E) IN INDIA DE'HORS THE FINDING OF THE A.O. THAT THE FUNC TIONS OF EPCOS AG ARE PERFORMED THROUGH THE INDIAN SUBSIDIARIES BY ISSUANCE OF DIRECTIONS THROUGH EMAI LS ETC. AND THE ENTIRE SPECTRUM OF ACTIVITIES OF THE INDIAN SUBSIDIARIES ARE MONITORED BY THE ASSESSEE THUS HAV ING CONTROL AND MANAGEMENT OF INDIAN SUBSIDIARIES AND T HEREBY CONSTITUTING A PE IN INDIA. 2 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A)-IT/TP, PUNE ERRED IN LAW BY HO LDING THAT EVEN IF A PE EXISTS BUT IF THE RECEIPTS SOURCED FRO M INDIA ARE NOT ATTRIBUTABLE TO THE PE, THEN THE CASE OF THE AS SESSEE WOULD STILL FALL UNDER ART. 12(2) AND EXCLUSION CLA USE PROVIDED IN ART. 12(5) WOULD NOT BE INVOKED THEREBY NOT TRIGGERING ART. 7 OF THE TREATY FOR THE RATE PURPOS ES. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND/ALTER OR DELETE ANY GROUND OTHER THAN THE AFORESAID GROUND H EREIN IF ADVISED SO. 2. THE ASSESSEE IS A FOREIGN COMPANY HAVING HEAD OF FICE AT MUNICH, GERMANY. THE ASSESSEE DEVELOPS, MANUFACTUR ES AND MARKETS ELECTRONIC COMPONENTS AND MODULES, FOCUSING ON FAST GROWING LEADING-EDGE TECHNOLOGY IN MARKET. IT IS A LSO KNOWN FOR ITS ESTABLISHMENT PRODUCTS IN THE SEGMENT OF CAPACI TORS, CERAMIC COMPONENTS AND INDUCTORS. THE ASSESSEE COMPANY HAS TWO SUBSIDIARIES IN INDIA VIZ. EPCOS INDIA PRIVATE LIMI TED (EIPL) AND EPCOS FERRITES LIMITED, KOLKATA. THESE SUBSIDIARIE S WERE MERGED, WITH THE RESULT, THERE WAS ONLY ONE SUBSIDI ARY NAMELY EPCOS INDIA PRIVATE LIMITED, NASHIK (EIPL). DURING THE YEAR UNDER APPEAL, THE ASSESSEE HAS DECLARED RECEIPT OF INCOME 12,69,52,154/-. IT ALSO FILED REVISED RETURN SHOWI NG INCOME FROM KALYANI UNIT TOTALING TO 2,28,79,151/- WHICH WAS NOT SHOWN IN THE RETURN OF INCOME. THUS, THE TOTAL INCOME OF 14,92,60,305/- WAS DECLARED AS UNDER: SR NO PARTICULARS AMOUNT (RS) 1 RECEIPT OF ROYALTY 52,66,930 2 RECEIPT FROM INFORMATION TECHNOLOGY SERVICES 3,56,70,257 3 RECEIPT FROM PRODUCT MARKETING SERVICES 3,89,16,285 4 INTEREST RECEIVED ON ECB LOANS 4,70,98,682 5 INCOME FROM KALYANI UNIT 2,28,79,151 TOTAL 14,92,60,305 IN THE ASSESSMENT YEAR, THE ASSESSING OFFICER TAXED THE ABOVE AMOUNT OF 14,92,60,305/- U/S.115A (IN CASE OF INTEREST) 3 AND U/S.115A R.W.S. 44DA (IN CASE OF ROYALTY AND FT S) @ 20% WITHOUT ALLOWING ANY DEDUCTION IN RESPECT OF ANY EX PENDITURE OR ALLOWANCE UNDER ANY OF THE PROVISIONS FROM SECTIONS 28 TO 44C. THE ASSESSING OFFICER REACHED THIS CONCLUSION BY HO LDING THAT THE ASSESSEE COMPANYS PERMANENT ESTABLISHMENT (PE) IS LOCATED IN INDIA IN THE FORM OF EPCOS INDIA PRIVATE LIMITED. HE HELD THAT THE SUBSIDIARY IN INDIA IS ACTING AS DEPENDENT AGEN T OF ASSESSEES COMPANY. 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) OBSERVED THAT FOREIGN ENTITYS BUSINESS INCOME IN OTHER CONTRACTING STATE MAY BE TAXED UNDER THE TAX TREATY IF THE FOREIGN ENTITY HAS EITH ER FIXED PE OR HAS A PROJECT PE. THE QUESTION OF ASSESSEE HAVING A PROJECT PE OR A SERVICE PE IN INDIA WAS NEGATED BY CIT(A) CONSIDE RING THE NATURE OF BUSINESS CARRIED OUT BY ASSESSEE. THEREF ORE, THE SAME WAS EXAMINED AS TO WHETHER PE HAS OTHER FIXED PE OR DEPENDENT OR HAS BOTH PES IN INDIA OR NOT. THE FIXED PE REQU IRES A FIXED LOCATION IN INDIA FROM WHERE THE ASSESSEES BUSINES S WAS CARRIED ON. THE ITAT, PUNE IN ASSESSEES OWN CASE FOR A.Y. 2002-03 AND 2006-07 HAS HELD THAT THE ASSESSEE COMPANY DOES NOT HAVE A FIXED PE IN INDIA. HOWEVER, DURING A PARTICULAR YE AR, WHETHER PE EXISTED OR NOT IS A QUESTION OF FACT. DURING THE Y EAR UNDER APPEAL, THE ASSESSING OFFICER HAS NEITHER IDENTIFIED SUCH F IXED PLACE NOR BROUGHT MATERIAL ON RECORD TO SUGGEST THAT THE ASSE SSEES BUSINESS WAS CARRIED OUT IN INDIA THROUGH FIXED LOC ATION AND INCOME THEREBY TO SUCH PE FROM SUCH BUSINESS. IN T HE ABSENCE OF NEW FACTS DURING THE YEAR, THE DECISION OF ITAT WIL L HOLD GOOD AS HELD IN A.Y. 2002-03 AND 2006-07. ACCORDINGLY, THE CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE COMPANY DOES NOT HAS FIXED PE IN INDIA. A SIMILAR VIEW HAS BEEN TAKEN BY ITAT IN AS SESSEES OWN 4 CASE IN A.Y. 2008-09, WHEREIN, FOLLOWING 2006-07 AN D 2002-03 AS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVIN G AS UNDER: 9. CONSIDERING THE ABOVE, WE HAVE ALSO EXAMINED TH E COMPARABILITY OF THE FACTS OF THE CASE FOR THIS YEA R VIS-A- VIS THE ASSESSMENT YEAR 2003-04. IT IS A FACT THAT NEITHER THE AO, NOR THE DRP, NOR THE PRESENT CIT-DR WERE ABLE TO DEMONSTRATE AS TO WHETHER THE FACTS OF THE CURRENT YEAR ARE DIFFERENT IN ANY FORM WITH THAT OF ASSESSMENT YEAR 2003-04. MERELY, THE DR MENTIONED THAT NOBODY HAS GONE INTO THAT ISSUE, THEREFORE, TH E MATTER SHOULD BE SET ASIDE. WE ARE UNABLE TO APPRECIATE THIS LINE OF ARGUMENT OF THE CIT-DR FOR THE SIMPLE REASON THAT IT IS THE RESPONSIBILITY OF THE AO FIRST OF ALL TO FOLLOW THE JURISDICTIONAL DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE AY 2003-04. THE SAME WAS NOT FOLLOWED AND SURPRISINGLY, THEY HA VE NOT EVEN DISTINGUISHED. THEY SIMPLY IGNORED STATING THAT THE SAID ORDER- IS NOT ACCEPTED BY THE REVENUE AND THE MATTER IS PENDING BEFORE THE HON'BLE HIGH COURT OF BOMBAY. CONSIDERING THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO CASE FOR SENDIN G THE FILES TO THE REVENUE. IN FACT IT IS THE CASE OF THE ASSESSEE THAT THE FACTS ARE IDENTICAL VIS-A- L VIS THE FACTS OF THE ASSESSMENT YEAR 2003-04. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE DECIS ION COMPRISED IN PARA 41.2 IS EQUALLY RELEVANT FOR THE .YEAR UNDER CONSIDERATION IN RESPECT OF GROUND NO. 1. ACCORDINGLY, GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. 2.2 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE O N BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWI NG THE SAME REASONING, WE ARE NOT INCLINED TO CONCUR WITH THE F INDING OF DRP. WE ARE OF THE VIEW THAT THE ASSESSEE DID NOT HAVE ANY PE IN INDIA, MUCH LESS A PE TO WHICH SUBJECT ROYALT IES AND FEES FOR TECHNICAL SERVICES COULD BE ATTRIBUTED. I N TERMS OF INDIA-GERMAN DTAA, INDIA DOES NOT HAVE RIGHT TO TAX THESE RECEIPTS AS BUSINESS PROFIT UNDER ARTICLE 7. IN TH E LIGHT OF ABOVE FINDING THAT NO REVENUE EARNED BY THE ASSESSE E COULD BE SAID TO BE ATTRIBUTABLE TO PE, EVEN IF ONE WAS T O COME TO THE CONCLUSION THAT A PE EXISTED, NO TAXABILITY COU LD ARISE UNDER ARTICLE 7. THE ASSESSEE HAS OFFERED THE ROYA LTIES AND FEES FOR TECHNICAL SERVICES FOR TAXABILITY IN INDIA UNDER ARTICLE 12A AND TO THAT EXTENT, ADMITTED TAX LIABILITY EXIS TS. THIS APPROACH OF THE ASSESSING OFFICER WAS REJECTED BY T HE CIT(A) IN A.Y. 2006-07 FOR THE REASONS DISCUSSED ABOVE. ACCORDINGLY, THE ISSUE IN GROUND NO.1 IS ALLOWED AS DISCUSSED ABOVE. 5 4. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLED GE ON BEHALF OF REVENUE. IN VIEW OF ABOVE, WE ARE NOT IN CLINED TO INTERFERE WITH THE FINDING OF CIT(A), WHO HAS HELD THAT THE ASSESSEE DOES NOT HAVE PE IN INDIA. UNDER THE FACT S AND CIRCUMSTANCES, NO REVENUE EARNED BY ASSESSEE COULD BE SAID TO BE ATTRIBUTABLE TO PE, EVEN IF ONE WAS TO COME TO THE CONCLUSION THAT A PE, EVEN IF NO TAXABILITY COULD ARISE UNDER ARTIC LE 7. THE ASSESSEE HAS OFFERED THE ROYALTIES AND FEE FOR TECH NICAL SERVICES FOR TAXABILITY IN INDIA UNDER ARTICLE 12A AND TO THAT E XTENT, ADMITTED TAX LIABILITY EXISTS. THIS APPROACH OF ASSESSING O FFICER WAS REJECTED BY CIT(A) IN A.Y. 2006-07, WHICH WAS UPHEL D BY US. FOLLOWING THE SAME REASONING, WE UPHOLD THE ORDER O F CIT(A) ON THE ISSUE. 5. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 20 TH DAY OF MARCH, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YAD AV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH MARCH, 2014 GCVSR COPY TO:- 1. DEPARTMENT 2. ASSESSEE 3. THE CIT(A)-IT/TP, PUNE 4. THE CIT-IT, PUNE 5. THE DR, B BENCH, I.T.A.T., PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE