THE LUBRIZOL CORPORATION, USA, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), RANGE-3(1)(2), MUMBAI

ITA 5350/MUM/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2427 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 17-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Application of stay; Permanent establishment
• Section: 5(2); 234B; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ITA NO. 5350 / MUM/20 1 8 ( ASSESSMENT YEAR : 2014 - 15 ) SA NO.452/MUM/2018 (ASSESSMENT YEAR: 2014 - 15) M/S. LUBRIZOL ADVANCED MATERIAL INDIA PVT. LT D., C/O.LUBRIZOL ADVANCED MATERIAL INDIA PVT. LTD., 6 TH & 7 TH FLOOR, JASWANTI LANDMARK, MEHRA INDUSTRIAL ESTATE, LBS MARG VIKHROLI (W), MUMBAI 400079 VS. DCIT (INTL. TAXATION) RANGE 3(1)(2) MUMBAI PAN/GIR NO. AAACT2758F ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI ALIA SGER RAMPURAWALA / SHRI KHANJAN VISARIA REVENUE BY SHRI SAMUEL DARSE DATE OF HEARING 15 / 10 /201 8 DATE OF PRONOUNCEMENT 13/11 /201 8 / O R D E R PER R.C.SHARMA (A.M) : ITA NO.5350/MUM/2018 THIS IS AN APPEA L FILED BY THE ASSESSEE AGAINST THE ORDER OF AO PASSED U/S.143(3)/ 144C(13) OF THE IT ACT FOR THE A.Y.2014 - 15. 2. GRIEVANCE OF ASSESSEE RELATES TO DRPS CONCLUSION THAT ASSESSEE HAS PE IN INDIA UNDER ARTICLE 5 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT ITA NO. 5350/MUM/2018 & S.A.452/MUM/2018 THE LUBRIZOL CORPORATION, USA 2 BE TWEEN INDIA AND USA (TAX TREATY), THEREBY CHARGING THE TAX, THE BUSINESS PROFIT OF THE ASSESSEE IN INDIA UNDER ARTICLE 7 OF THE TAX TREATY. 3. AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS, WHEREIN EXACTLY SIMILAR GROUNDS WERE DECIDED IN FAVOUR OF THE ASSESSEE. 4. OUR ATTENTION WAS ALSO INVITED TO THE ORDER PASSED BY AO PAGE 3 PARA 9, WHEREIN AO HAS ALSO QUOTED THAT ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL FOR THE A.Y.2004 - 05, 2005 - 0 6 AND 2008 - 09, AFTER OBSERVING THAT REVENUE HAS FILED APPEAL AGAINST THE SAID ORDER OF THE TRIBUNAL BEFORE THE HIGH COURT, THEREFORE, TO HAVE A CONSISTENCY, CONDITION OF THE ASSESSEE WAS NOT ACCEPTED. 5. PRECISE OBSERVATION OF AO WAS AS UNDER: - THE ASSESS EE HAD FURTHER SUBMITTED THAT THE ABOVE IS SQUARELY COVERED BY THE LORDERS OF THE INCOME TAX APPELLATE TRIBUNAL ('ITAT) DATED 3 JUNE 2011 (ITA NO. 7420/MUM/2010) FOR AY 2006 - 07 AND ORDER DATED 18 JANUARY' 2013 (ITA NO. 6443, 6444 AND 6445/MURN/2012) FOR AY 2004 - 05, 2005 - 06 AND 2008 - 09 ARID ORDER ELATED 13 JULY 2016 (ITA NO. 1247/MUM/2014) FOR AY 2006 - 07 AND ORDER . DATED 6' H MARCH 2017 (ITA NO. 508,509/MUM/2017) FOR AY 2010 - 11 & 2012 - 13, WHEREIN THE 1TAT HAS HELD THAT THE ASSESSEE DOES NOT HAVE PE IN INDIA AND IS NOT TAXABLE FOR SALES WHICH HAVE BEEN MADE FROM OUTSIDE INDIA. THE POSITION HAS ALSO BEEN FOLLOWED BY THE DISPUTE RESOLUTION PANEL ('DR P ) IN SIMILAR FACTS OF THE EASE FOR AY 2011 - 12. HOWEVER, THE REVENUE DEPARTMENT HAS PREFERRED AN APPEAL BEFORE THE BOMBAY HIGH COURT AGAINST THE I TAT ORDERS AND BEFORE THE ITAT AGAINST THE DRP DIRECTIONS AND THEREFORE, FROM A CONSISTENCY PERSPECTIVE THIS SUBMISSION OF THE ASSESSEE IS NOT CONSIDERED . 6. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL FOR THE A.Y.2006 - 07 DATED 03/06/2011 WHEREIN T HE COORDINATE BENCH HELD THAT ITA NO. 5350/MUM/2018 & S.A.452/MUM/2018 THE LUBRIZOL CORPORATION, USA 3 THE ASSESSEE DID NOT HAVE PERMANENT ESTABLISHMENT IN INDIA IN THAT YEAR WITH THE FOLLOWING OBSERVATIONS: 21.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 INTERPRETED 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%, THEREFO RE, THE ASSESSEE HAD NO CONTROLLING OWNERSHIP IN LIPL. IT IS FURTHER SUBMITTED THAT 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 SUBMITTE D 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 AR TICLES 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 CONSIDERING THE RELEVANT MATERIAL AND THE RELEVANT ASPECTS, IT IS NOTED THAT THE LIPL HAS CARRIED OUT AN IN DEPENDENT 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 CR ORES AND COMMISSION RECEIVED FROM THE ASSESSEE IS RS. 0.756 CRORES WHICH CONSTITUTES ONLY 0.18% OF THE SALES. THE ASSESSEE ALSO SOLD PRODUCTS TO INDIAN CUSTOMERS FOR WHICH LIPL RENDERED CERTAIN SERVICES. THE ASSESSEE SOLD THE PRODUCTS DIRECTLY TO THE INDIA N 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 CUSTOMER, THE ASSESSEE SENDS THE PRODUCTS IN THE NAME OF INDIAN ITA NO.4726 /MUM/2 017 THE LUBRIZOL CORPORATION, USA 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 CUSTOMERS AND COMMUNICATES INFORMATION IN RELATION TO TENDERS AND COMPE TITIVE 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 O PERATION IN RESPECT OF MANUFACTURE OR SALE OF PRODUCT CARRIED OUT IN INDIA. SALES ARE MADE BY THE ASSESSEE TO LIPL ON PRINCIPAL ITA NO. 5350/MUM/2018 & S.A.452/MUM/2018 THE LUBRIZOL CORPORATION, USA 4 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 W AS 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 T HE 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 HAVE 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 TH E AO BEING A PROFIT MARGIN OF 5% ON THE SALES MADE BY THE ASSESSEE, IS NOT SUSTAINABLE. THE SAID 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 FOL LOWED IN ASSESSEE S 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) C) A Y 2010 - 11 & 2012 - 13 (ITA NOS. 508 & 509/MUM /2017) ORDER DATED 06.03.2017 8. SINCE THE COORDINATE BENCHES HAVE TAKEN CONSISTENT VIEW ON THIS MATTER AND THERE BEING NO CHANGE IN FACTS, BY FOLLOWING ORDERS PASSED BY ITA NO. 5350/MUM/2018 & S.A.452/MUM/2018 THE LUBRIZOL CORPORATION, USA 5 THE COORDINATE ITA NO.4726 /MUM/2017 THE LUBRIZOL CORPORATION, USA BENCHES, WE HOLD TH AT THE ASSESSEE DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE BY HIM FOR THE YEAR UNDER CONSIDERATION RELATING TO PROFIT ESTIMATED ON THE SALES MADE BY THE ASSESSEE IN INDIA. 9. THE REM AINING ISSUE RELATING TO THE LEVY OF INTEREST U/S. 234B IS CONSEQUENTIAL IN NATURE, THE AO IS DIRECTED TO FOLLOW THE DEC ISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF DIT (IT) VS. NGC NETWORK ASIA LLC (2009) [22 CTR 85 (BOM)] AND THE LEVY OF PENALTY U/S. 271(1)(C) BECOMES INFRUCTUOUS AS WE HAVE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 10. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE PARIMATERIA, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS NARRATED ABOVE, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED BY THE AO AND THE DIRECTION GIVEN BY THE DRP. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. S.A.NO.452/MUM/2018 12. THIS S.A. AROSE OUT OF ITA NO.5350/MUM/2018. 13. AS WE HAVE ALREADY AL LOWED ASSESSEES APPEAL, THE STAY APPLICATION HAS BECOME INFRUCTUOUS. ITA NO. 5350/MUM/2018 & S.A.452/MUM/2018 THE LUBRIZOL CORPORATION, USA 6 14. IN THE RESULT, STAY IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 / 11 /201 8 SD/ - ( PAWAN SINGH ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 13 / 11 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6 . GUARD FILE. //TRUE COPY//