Appeal Details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 6385 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 5 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-07-2014
Appeal Filed By
Assessee
Bench Allotted
C
Next Hearing Date
02-01-2017
Assessment Year
2001-2002
Appeal Filed On
04-02-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.671/DEL/2011 ASSESSMENT YEAR : 2001-02 GE ENERGY PARTS INC., AIFACS BUILDING, 1, RAFI MARG, NEW DELHI. PAN: AACCG2798N VS. ADIT, CIRCLE-1(2), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEES BY : SHRI S. GANESH, SR. ADVOCATE, SHRI SACHIT JOLLY, SHRI RASHI DHIR, SHRI GAUTAM SWARUP, SHRI SIDHARTHA SINGH & SHRI RAHUL SATEEJA, ADVOCATES DEPARTMENT BY : SHRI SANJEEV SHARMA, CIT & SHRI ANUJ ARORA, CIT, DR DATE OF HEARING : 19.01.2017 DATE OF PRONOUNCEMENT : 27.01.2017 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 30.09.2010IN RELATION TO THE ASSESSME NT YEAR 2001-02. ITA NO.671/DEL/2011 2 2. AT THE OUTSET, IT IS IMPERATIVE TO MENTION T HAT THERE IS A BATCH OF 139 APPEALS BY THE GE GROUP OVERSEAS ENTITIES UNDER CON SIDERATION. THE GROUP HAS CHOSEN THE EXTANT AS THE LEAD CASE. IT HA S BEEN FAIRLY ADMITTED THAT THERE ARE FOUR BROADER ISSUES IN ALL OR SOME O F THE APPEALS. TWO ISSUES, NAMELY, EXISTENCE OF PE AND ATTRIBUTION OF PROFITS ARE COMMON IN ALL THE APPEALS; ISSUE OF REASSESSMENT IS SPECIFIC TO MORE THAN ONE HUNDRED APPEALS, WHEREVER THE ORDERS HAVE BEEN PASS ED U/S 147 READ WITH SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER ALSO CALLED `THE ACT) ; AND THE LAST ISSUE OF INTEREST U/S 234 B IS IN RELATION TO SOME OF THE APPEALS FOR THE A.YS. 2007-08 AND 2008-09.SU BMISSIONS WERE MADE BY BOTH THE SIDES ON ALL THE FOUR ISSUES IN TH IS LEAD CASE AND IT WAS CANDIDLY ADMITTED THAT THE OTHER APPEALS INVOLVE MUTATIS MUTANDIS SIMILAR ISSUES. IN FACT, THE SAME ARGUMENTS WERE AD OPTED BY BOTH THE SIDES AND NO SEPARATE SUBMISSIONS WERE MADE FOR THE REMAINING 138 APPEALS. AS SUCH, WE ARE ESPOUSING THE INSTANT APPE AL FOR CONSIDERATION AND EX CONSEQUENTI, THE DECISION TAKEN ON ALL THE FOUR ISSUES WILL APPL Y TO THE REMAINING 138 APPEALS TO THE RELEVANT EXTENT. ITA NO.671/DEL/2011 3 A. CHALLENGE TO REASSESSMENT 3. THE FIRST ASSAIL IS TO THE INITIATION OF RE-ASS ESSMENT PROCEEDINGS. SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE IS A COMPANY INCORPORATED IN THE UNITED STATES OF AMERIC A AND IS ALSO A TAX RESIDENT OF THE USA. THE ASSESSEE IS A PART OF THE GE GROUP, WHICH MAKES EQUIPMENTS TO THE CUSTOMERS IN INDIA RELATING TO OIL AND GAS BUSINESS, ENERGY BUSINESS, TRANSPORTATION BUSINESS AND AVIATION BUSINESS. NO RETURN OF INCOME WAS FILED BY THE ASSESSEE PRIOR TO THE INSTANT PROCEEDINGS. A SURVEY U/S 133A OF THE ACT WAS COND UCTED AT AIFACS PREMISES, BEING THE DELHI ADDRESS OF LIAISON OFFICE (LO) OF GENERAL ELECTRIC INTERNATIONAL OPERATIONS COMPANY INC. (GEI OC) ON 2.3.2007. CERTAIN INCRIMINATING MATERIAL/DOCUMENTS WERE FOUND , WHOSE PHOTOCOPIES WERE OBTAINED BY THE DEPARTMENT. STATE MENTS OF TWO PERSONS WERE ALSO RECORDED DURING THE COURSE OF SUR VEY. CERTAIN POST- SURVEY ENQUIRIES WERE CONDUCTED. ON THE BASIS OF TH E MATERIAL/INFORMATION GATHERED DURING THE SURVEY AND THE POST-SURVEY ENQUIRIES, THE AO ISSUED NOTICES U/S 148 OF THE ACT TO 24 ENTITIES OF THE ITA NO.671/DEL/2011 4 GE GROUP INCORPORATED IN UK, JAPAN, USA, GERMANY, C ANADA, ITALY, MAURITIUS, SINGAPORE, ETC. FOR DIFFERENT YEARS, INC LUDING THE ASSESSEE. NOTICE U/S 148 DATED 27.03.2008WAS SERVED ON THE AS SESSEE. A RETURN DECLARING NIL INCOME WAS FILED ON 30.06.2008.RELEVA NT PARTS OF THE REASONS RECORDED HAVE BEEN REPRODUCED ON PAGES 3-23 OF THE ASSESSMENT ORDER, WHICH WE WILL DEAL WITH A LITTLE LATER. THE ASSESSEE, AFTER FILING THE RETURN, REQUESTED THE AO ON 30.08.2008 TO FURNISH T HE REASONS, WHICH WERE DULY SUPPLIED. OBJECTIONS WERE FILED AGAINST S UCH REASONS ON 4.11.2008, WHICH CAME TO BE DISMISSED BY THE AO VID E HIS ORDER DATED 12.11.2008. IT IS A MATTER OF RECORD THAT NO WRIT PETITION WAS FILED BY THE ASSESSEE AGAINST SUCH REJECTION. 4. MAIN THRUST OF THE AOS OPINION IN INITIATING RE-ASSESSMENT WAS THAT THE ASSESSEE WAS MAKING SALES IN INDIA WITH THE INV OLVEMENT OF ITS PERMANENT ESTABLISHMENT (PE) IN INDIA AND, ACCORDIN GLY, THE PROFITS ATTRIBUTABLE TO SUCH PE WERE CHARGEABLE TO TAX. IN REACHING THIS CONCLUSION, THE AO HELD THAT THE ASSESSEE HAD, INTER ALIA , A FIXED PLACE PE AS WELL AS A DEPENDENT AGENT PE IN INDIA. HE DE EMED 10% OF THE ITA NO.671/DEL/2011 5 VALUE OF SUPPLIES MADE TO THE CLIENTS IN INDIA AS T HE PROFITS ARISING FROM SUCH SUPPLIES AND 35% OF SUCH PROFIT WAS ATTRIBUTED TO THE PE IN INDIA. IN A NUTSHELL, 3.5% OF THE TOTAL VALUE OF SUPPLIES MADE BY THE ASSESSEE TO THE CUSTOMERS IN INDIA WAS HELD TO BE THE INCOME AT TRIBUTABLE TO THE PE IN INDIA. AS TOTAL SALES MADE BY THE ASSESSEE IN IN DIA DURING THE YEAR AMOUNTED TO RS.19,98,06,676/-, PROFIT AT THE RATE O F 3.5% ON THE SAME, AMOUNTING TO RS.69,93,234/-, WAS HELD TO BE TAXABLE BUSINESS INCOME. THE ASSESSEES GROUNDS AGAINST THE RE-ASSESSMENT PR OCEEDINGS FAILED TO CONVINCE THE LD. CIT(A) AS WELL. NOW, THE ASSESSEE IS BEFORE US CHALLENGING THE INITIATION OF RE-ASSESSMENT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE DELVING INTO THE LEGALIT Y OR OTHERWISE OF THE INITIATION OF THE REASSESSMENT PROCEEDINGS, IT IS SINE QUA NON TO NOTE THE REASONS RECORDED BY THE AO BEFORE ISSUING THE NOTIC E U/S 148, WHICH ARE AS UNDER :- 'A SURVEY U/S 133A OF THE INCOME TAX ACT, 1961 ('AC T') WAS CARRIED OUT AT THE OFFICE PREMISES OF GENERAL ELECTRIC INTERNATION AL OPERATION COMPANY INC., INDIA LIAISON OFFICE ('GEIOC), LOCATED AT AI FACS, 1 RAFI MARG, NEW DELHI-L 10001 ON 02.03.2007. THE LIAISON OFFICE ('L O') OF GEIOC, USA ITA NO.671/DEL/2011 6 WAS STARTED IN INDIA FROM JULY 01, 1987. THE OFFICE WAS SET UP TO UNDERTAKE THE LIAISON ACTIVITIES. FROM THE INFORMATION AVAILA BLE IT IS SEEN THAT GEIOC HAS EMPLOYED VARIOUS PERSONS AND IS SENDING THESE E MPLOYEES ON ASSIGNMENTS TO GE ENTITIES LOCATED WORLDWIDE. FROM THIS PREMISES, OTHER ENTITIES, INCORPORATED IN INDIA AS WELL AS NON-RESI DENT ENTITIES OF THE GE GROUP ARE ALSO OPERATING. 2. DURING THE COURSE OF SURVEY STATEMENT OF SHRI RU PAK SHAH, WHO IS EMPLOYED WITH GE CAPITAL SERVICES, INDIA AS TAX MAN AGER, BUT HAVING EXTENDED RESPONSIBILITIES OF TAX MATTERS RELATING T O ALL COMPANIES OF GE GROUP IN INDIA WAS RECORDED. STATEMENT OF SHRI CHAN DAN JAIN, WORKING WITH GEIOC, WHO PROVIDES INTER FACE BETWEEN GE, USA AND GE BUSINESS IN LNDIA, WAS ALSO RECORDED. DURING THE COURSE OF S URVEY PHOTOCOPIES OF VARIOUS DOCUMENTS WERE OBTAINED AND THE SAME WERE I NVENTORIZED AS ANNEXURES 'A' TO 'G'. 3. THE GE GROUP (HEREINAFTER: 'ASSESSEE GROUP/ ASSE SSEE') WAS ALSO REQUESTED TO FURNISH VARIOUS INFORMATION VIDE SUMMO N U/S 131 OF THE ACT ISSUED ON 02.03.2007. THE ASSESSEE HAS FURNISHED TH E INFORMATION THROUGH ITS REPRESENTATIVE RSM & CO./PRICEWATERHOUSECOOPERS PVT. LTD. VIDE LETTER DATED 16.03.2007, 09.04.2007,27.02.2008, 24.03.2008 AND 26.03.2008. THE GE GROUP IS A DIVERSIFIED TECHNOLOGY, MEDIA AND FIN ANCIAL SERVICES COMPANY WITH PRODUCTS AND SERVICES RANGING FROM AIR CRAFT ENGINES, POWER GENERATION, AND WATER PROCESSING AND SECURITY TECHN OLOGY TO MEDICAL IMAGING, BUSINESS AND CONSUMER FINANCING, MEDIA CON TENT AND ADVANCED MATERIALS. GE SERVES CUSTOMERS IN MORE THAN 100 COU NTRIES AND EMPLOYEES MORE THAN 300,000 PEOPLE WORLDWIDE. GE HAS BEEN IN INDIA SINCE 1902. ALL OF GE'S GLOBAL BUSINESSES HAVE A PRESENCE IN INDIA AND THE GROUP HAS BECOME A SIGNIF ICANT PARTICIPANT IN A WIDE RANGE OF KEY SERVICES, TECHNOLOGY AND MANUFACT URING INDUSTRIES. EMPLOYMENT ACROSS INDIA EXCEEDS 12000. OVER DOLLAR 1BILLION OF EXPORTS FROM INDIA SUPPORT GE'S GLOBAL BUSINESS OPERATIONS AROUND THE WORLD. IT HAS SOURCED PRODUCTS. SERVICES AND INTELLECTUAL TALENT FROM INDIA FOR ITS GLOBAL ITA NO.671/DEL/2011 7 BUSINESSES. IT PIONEERED THE CONCEPT OF SOFTWARE SO URCING FROM INDIA AND IS ONE OF THE LARGEST CUSTOMERS FOR THE IT SERVICE IND USTRY OF INDIA. VARIOUS OPERATING COMPANIES OF THE GROUP IN INDIA A RE AS BELOW: A. FINANCE GROUP (I) GE CAPITAL SERVICES INDIA - A GURGAON BASED NO N-BANKING FINANCE COMPANY PROVIDES COMMERCIAL FINANCE IN INDIA. (II) GE COUNTRYWIDE FINANCIAL SERVICES - A GURGAON BASED NON- BANKING FINANCE COMPANY DEALING IN RETAIL FINANCE. (III) GE MONEY HOUSING FINANCE - A GURGAON BASED C OMPANY HAVING NHB LICENSE PROVIDES HOUSING LOANS. (IV) GE CAPITAL TRANSPORTATION FINANCIAL SERVICES LTD. - DEALS IN TRUCK LEASING AND CONSTRUCTION EQUIPMENTS FINANCING. (V) MARUTI COUNTRYWIDE AUTO FINANCE - GE GROUP HAS 37% EQUITY IN THE COMPANY ENGAGED IN FINANCING OF MARUTI CARS. (VI) GE CORPORATE FINANCIAL SERVICES - A NEWLY FOR MED NBFC OPERATING FROM GURGAON. (VII) GE STRATEGIC INDIA INVESTMENT - A NBFC HAVIN G PORTFOLIO EQUITY INVESTMENT IN INDIAN COMPANIES. (VIII) SBI CARDS & PROCESSED SERVICES PVT. LTD. - DEALS WITH SBI CREDIT CARDS AND GE OWNS 40% EQUITY OF THE COMPANY. (IX) GE BUSINESS PROCESS SERVICES MANAGEMENT PVT. LTD. - GE OWNS 60% EQUITY OF THE COMPANY WHILE BALANCE IS HELD BY SBI AND PROCESSES THE SBI TRANSACTIONS IN INDIA ONLY. B. INDUSTRIAL GROUP (I) WIPRO GE LTD. - GE OWNS 51% EQUITY WHEREAS BAL ANCE IS OWNED BY WIPRO AND IS ENGAGED IN MANUFACTURING AND LOCAL DIS TRIBUTION OF MEDICAL DIAGNOSTIC EQUIPMENTS. (II) GE-BEL LTD. - THE JOINT VENTURE COMPANY OF GE (74%) AND BHARAT ELECTRONICS LTD. (26%) AND IS ENGAGED IN THE MANUFA CTURED AND EXPORTS OF MEDICAL EQUIPMENTS. ITA NO.671/DEL/2011 8 (III) GE MEDICAL SERVICES PVT. LTD. - IT MANUFACTU RES PRODUCTS/ ENGINE DESIGN AND SOFTWARE FOR EXPORT AND IS ALSO IN HEALT HCARE BUSINESS OPERATES IN EOU/STEP. C. POWER SYSTEM (I) GE POWER SERVICES INDIA LTD. - ENGAGED IN THE BUSINESS OF REPAIR AND MAINTENANCE OF STEAM TURBINES AND 80% EQUITY OW NED BY GE. (II) BHEL-GE GAS TURBINE SERVICES LTD. - GE IS HOL DING 51% EQUITY, WHEREAS THE BALANCE IS HELD BY BHEL AND IS ENGAGED IN THE REPAIR AND SERVICES OF GAS TURBINES AND INSTALLATION OF TU RBINES IN INDIA. D. INFRASTRUCTURE (I) GE FANUC SYSTEMS - MANUFACTURES INDUSTRIAL MACH INERIES. (II) GE THERMOMETRIC INDIA - GE OWNS 75% EQUITY AN D MANUFACTURES VARIOUS INDUSTRIAL PRODUCTS IN BANGALORE. (III) GE INDIA INDUSTRIAL PVT. LTD. - IT HAS V ARIED BUSINESSES IN THE SECTORS OF PLASTIC, LIGHTING, ENERGY, POWER SYSTEM, TRANSPO RTATION ETC. PLASTIC BUSINESS IS IN BARODA, ENERGY IS IN DELHI AND MUMBA I, TRANSPORTATION BUSINESS DEALS WITH INDIAN RAILWAYS LOCOMOTIVE COMPONENTS. EMPLOYEES OF THIS COMPANY ALSO RENDER S ERVICES WITH REGARD TO SALES AND PROCUREMENT BY THE OVERSEAS ENT ITIES. IT ALSO PROVIDES MARKETING SUPPORT TO ENERGY DIVISION OF GE . IT MANUFACTURERS WATER FILTRATION EQUIPMENTS IN BANGAL ORE. IT ALSO HAS A TRAINING DIVISION WHICH CATERS TO THE TRAINING OF EMPLOYEES OF GE IN INDIA. IT ALSO HAS BUSINESS OF MANUFACTURING AND DISTRIBUTION OF INDUSTRIAL X-RAY SHEETS. E. SERVICES (I) GE INDIA EXPORTS - IT CONSISTS OF VARIOUS COMP ANIES IN STPS AND EOUS, ENGAGED IN SOFTWARE EXPORT. GE HAS INDIA INNO VATION CENTRES IN HYDERABAD AND BANGALORE. IT IS HAVING CARDS SERV ICES DIVISIONS IN HYDERABAD AND BANGALORE AND PROVIDES BACK OFFICE SU PPORT FOR TRANSACTION PROCESSING AND CALL CENTRES. THE HYDERA BAD TECHNOLOGY CENTRE PROVIDES SERVICES TO GE GROUP. ITA NO.671/DEL/2011 9 (II) GE INDIA TECHNOLOGY CENTRE - LOCATED IN BANGAL ORE. PROVIDES SOFTWARE/ENGINEERING DESIGNS FOR VARIOUS BUSINESSES GLOBALLY. (III) GE INDIA BUSINESS SERVICES PVT. LTD. - THE PA YROLL OF THIS COMPANY IS SUPPORTED BY ACT INDIA. IT PROVIDES SERVICES REL ATING TO EUROPEAN TREASURY, INTERNATIONAL TAX (TRANSFER PRICING), DOC UMENTATION AND IT SUPPORT SERVICES. (IV) GE GLOBAL SOURCING PVT. LTD. - OPERATING FROM AIFACS HOUSE IN RESPONSIBLE FOR PROCUREMENT FROM INDIA FOR GE GROUP . F. THE ASSESSEE VIDE LETTER DATED 16.03.2007 IN ANN EXURE 10 HAS SUBMITTED A LIST OF DIVISIONS OF GE BUSINESSES, WHI CH ARE NOT CONDUCTED EITHER WHOLLY OR PARTLY THROUGH GE SUBSID IARIES IN INDIA AND THESE ARE IN THE FOLLOWING BUSINESS LINES: INFRASTRUCTURE (OIL & GAS, ENERGY, RAIL, AIRCRAFT ENGINES AND AVIATION FINANCIAL SERVICES). INDUSTRIAL (EQUIPMENT SERVICES) HEALTHCARE (DIAGNOSTIC IMAGING, INFORMATION TECHN OLOGY, SERVICES AND BIO SCIENCES) 4. BEFORE DISCUSSING THE CONTENTS OF VARIOUS DOCUME NTS, IT IS APPROPRIATE TO STATE THAT, GE GROUP IS ENGAGED IN V ARIOUS SALES ACTIVITIES IN INDIA, FOR WHICH THE BUSINESS HEADS ARE GENERALLY E XPATS, WHO ARE APPOINTED TO HEAD INDIAN OPERATIONS, WITH THE SUPPORT STAFF P ROVIDED BY GE INDIA INDUSTRIAL PVT. LTD. AND ALSO BY VARIOUS THIRD PART IES. THESE EXPATS ARE ON THE PAYROLL OF GE INTERNATIONAL INC(HEREINAFTER: GE II)BUT WORKING FOR VARIOUS BUSINESSES OF GE GROUP. AFTER THESE BRIEF C OMMENTS, THE CONTENTS OF VARIOUS DOCUMENTS ARE DISCUSSED HEREUNDER: ANNEXURE 'A' THIS CONSISTS OF 125 PAGES AND MOSTLY DEALS WITH GE INFRA DIVISION PARTICULARLY OIL & GAS. PAGE 1 TO 16 IS A COPY OF MEMORANDUM OF UNDERSTANDI NG (MOU) FOR TECHNOLOGY TRANSFER AGREEMENT BETWEEN BHARAT HEAVY ELECTRICALS LTD. AND NUOVO PIGNONE S.P.A. FOR CENTRIFUGAL COMPRESSORS. T HE AGREEMENT ITA NO.671/DEL/2011 10 PROVIDES THAT BHEL AND NP HAD ENTERED INTO A LICENS E AGREEMENT, FOR THE TRANSFER OF KNOW-HOW ON CCS IN 1971 FOR THE LICENSE D TERRITORIES. THE MOU WOULD BE EFFECTIVE IN 2006 AND THE SAME IS A DR AFT WITH VARIOUS CORRECTIONS. IT IS UNSIGNED AND VARIOUS PRICE FIGUR ES ARE CROSSED AND NEW FIGURES ARE INSERTED. THE PRESENCE OF THIS DOCUMENT IN THE INDIAN OFFICE SHOWS THAT MR. RICARDO, HEAD OF OIL & GAS BUSINESS OF GE IN INDIA HAS THE ROLE IN DECIDING THE PRICES AND NEGOTIATING THE AGR EEMENT. PAGE 17 IS AN E-MAIL REGARDING LICENSING OF AD-SYST TO SUB JOINT VENTURE. PAGE 18 IS A CONFIDENTIAL MAIL FROM LA MOTTA OF GE INFRA & GAS TO VARIOUS EMPLOYEES OF GE INFRA OIL & GAS INCLUDING P ROCACCI RICCARDO REGARDING THE CC LICENSING TO BHEL. THIS MAIL REFER S TO 'YOU KNOW THE CASE OF BHEL, AS WE DISCUSSED IT, AND WHAT IS REPOR TED IN THE MOU REFLECTS THE CONTENT OF THE CONVERSATION WE HAD (ME , YOU AND RICCARDO) IN THE SECOND HALF OF AUGUST, WHEN WE WERE IN INDIA NE GOTIATING THE DEAL. THEN, YOU GAVE ME CONFIRMATION OF THE WAY TO INCLUD E AD-SYST WITH YOUR E-MAIL ON SEPTEMBER 28'. THIS MAIL AS AN EXAMPLE SH OWS THAT THE NEGOTIATING TEAM WAS IN INDIA AND THIS INCLUDED RIC CARDO ALSO. PAGE 19 TO 31 IS AGAIN THE DOCUMENT TITLED MEMORAND UM OF UNDERSTANDING FOR TECHNOLOGY TRANSFER AGREEMENT BET WEEN BHARAT HEAVY ELECTRICALS LTD. AND NUOVO PIGNONE S.P.A. FOR CENTR IFUGAL COMPRESSORS. THIS IS SIMILAR TO REFERRED IN PAGE 1 TO 16 WITH CH ANGES. PAGE 32 AND 33 DEALS WITH THIS MOU ONLY. PAGE 34 TO 38 IS THE E-MAILS RELATING TO GTC-OFFER AGAINST RELIANCE INDUSTRIES LTD. ('RIL') ENQUIRY. THESE ARE WRITTEN BY RAJENDRA SINGH OF RIL TO MAIRANO OF GE INFRA OIL & GAS WITH COPIES TO VARIOUS EMPLOYEES OF RIL AND PROCACCI RICCARDO, VIVEK VENKATACHALAM O F GE INFRA OIL & GAS, WHO ARE BASED IN INDIA. THIS MAIL IS WITH REGA RD TO SALE OF GAS TURBINE COMPRESSOR PACKAGE FOR COMPRESSOR STATION OF RIL, K GT-D-6 BLOCK, FIELD DEVELOPMENT PROJECT. PAGE 39 TO 56 IS A COPY OF EXPRESSION OF INTEREST F OR KG-D-6 BLOCK, FIELD ITA NO.671/DEL/2011 11 DEVELOPMENT PROJECT, SUBMITTED TO RIL BY GE OIL & G AS, GENERAL MANAGER AND PROVIDES INFORMATION ABOUT THE PRODUCTS AND BUSINESS OF THE COMPANY. THIS IS UNSIGNED LETTER. PAGE 57 IS A MAIL FROM FABIO TO MR. RAJENDRA WITH A COPY OF VENKATACHALAM AND RICCARDO REGARDING PRICING OF EXH AUST STACK EXTENSION. PAGE 58 TO 61 IS A COPY OF PURCHASE ORDER FOR EXHAU ST DUCTS PLACED BY HAK INTERNATIONAL CONTRACTORS ASIA FOR SUPPLY OF 14 UNITS OF EXHAUST STACK OF 30 METER HEIGHT FOR A VALUE OF USD 5,426,5 68. THIS IS ADDRESSED TO NUOVO PIGNONE S.P.A, ITALY. THIS IS ALSO UNSIGNE D AND A DRAFT ORDER ONLY. THE AVAILABILITY OF THIS DOCUMENT EVIDENCES T HE ROLE OF INDIAN OFFICE. PAGE 62 TO 69 IS AGAIN THE COPY OF MAILS RELATING T O RELIANCE PURCHASE ORDER. PAGE 71 IS A COPY OF MAIL FROM VIVEK VENKATACHALAM OF GE INFRA OIL & GAS, INDIA TO FABIO RELATING TO THE RELIANCE ORDER. PAGE 72 TO 100 IS THE DOCUMENTS (TECHNICAL PROPOS AL) WITH REGARD TO BINA REFINERY INDIA TO BHEL MADE ON 27.02.2007. THE CONTACT NAME SHOWN AS ARANITI. DANILA. PAGE 101 TO 122 IS A COPY OF COMMERCIAL PROPOSAL (PROPOSAL NO. 06.DW, 1056/F/O) WITH REGARD TO BINA REFINERY LTD. FOR BHEL. THIS IS GIVEN BY NUOVO PIGNONE S.P.A. IT PROVIDES THE SCOPE OF SUPPLY AND PRICE. PAGE 123 IS A FORWARDING LETTER TO THE BHEL REGAR DING THE COMMERCIAL PROPOSAL, WHICH MENTIONS THAT 'PLEASE NO TE THAT THE PRESENT PROPOSAL IS VALID ONLY UNDER THE COLLABORATION AGRE EMENT BETWEEN NUOVO PIGNONE S.P.A. AND BHEL UNDER FINALIZATION BETWEEN PARTIES. PAGE 124 AND 125 ALSO DEALS WITH THE COMMERCIAL/ TECHNICAL PROPOSAL ONLY, FOR WHICH COPIES ARE GIVEN TO VIVEK VENKATACHALAM AND PROCACCI RICCARDO OF GE INFRA OIL & GAS, WHO ARE LO CATED IN INDIA. ANNEXURE 'B' THIS HAS 107 PAGES. PAGE 1 & 2 IS A COPY OF E-MAIL FROM SUNNI KRISHNA N TO NALIN JAIN OF GE ITA NO.671/DEL/2011 12 TRANSPORT REGARDING EMERGING INDIAN AIRCRAFT/ ENGIN E MAINTENANCE, REPAIR AND OVERHAUL (MRO MARKET). THIS INDICATES THAT MR. NALIN JAIN IS LOOKING AFTER THE GE'S AVIATION BUSINESS IN INDIA. PAGE 3 TO 7 IS THE COMMERCIAL NOTES RELATING TO RIL ORDER. PAGE 8 HAD A DESCRIPTION OF TEAM FOR OIL & GAS BU SINESS WITH RICCARDO PROCACCI AS COUNTRY LEADER INDIA. VARIOUS EMPLOYEES SHOWN ARE J. LAL, ASSISTANT. VIVEK VENKATACHALAM, REGIONAL MANAGER, N EW UNIT SALES, UJJAWAL KUMAR, ECLP MARKET DEVELOPMENT, ASHOK RODGI , DEVEN SHUKLA COUNTRY MANAGER. PAGE 9 IS A PAGE OF COPY OF VISA OF RICCARDO, WHI CH SHOWS THAT HE IS EMPLOYED WITH GE INTERNATIONAL INC., NEW DELHI. PAGE 10 IS A DOCUMENT SHOWING THE OPPORTUNITIES F OR OIL & GAS BUSINESS IN EMERGING MARKETS, RESULTING FROM THE MEETING IN FLO RENCE. . PAGE 11 TO 21 IS AGAIN DRAFT COPY OF MOU FOR TECH NOLOGY TRANSFER AGREEMENT BETWEEN BHEL AND NUOVO. THIS DOCUMENT HAS THE WORKING FOR VARIOUS FIGURESGIVEN IN THE MOU. PAGE 22 TO 25 IS THE DOCUMENTS RELATING TO NUOVO PIGNONE GENERAL TERMS AND CONDITIONS FOR SALES. PAGE 26 IS A MAIL FROM VIVEK VENKATACHALARN TO PR AT KUMAR OF GE INFRA WITH A COPY TO RICCARDO REGARDING TALKING POINTS ON RELIANCE. PAGE 27 TO 31 IS A COPY OF LETTER OF AWARD FOR G AS TURBINE COMPRESSOR PACKAGE, DATED 31.07.2006 ISSUED BY HAK INTERNATIONAL CONTRACTORS ASIA FZE FOR A PRICE OF USD 132,385,553 FOR SUPPLY OF GAS TURBINE COMPRESSOR TRAIN 12 UNITS. THIS IS SIGNED B Y ANKUSH JINDAL AND PLACED ON NUOVO PIGNONE. PAGE 32 PERTAINS TO RELIANCE GCT ORDER. PAGE 33 TO 56 RELATES TO BHEL ORDER FOR BINA REFI NERY. THE PRICE FOR THE ENGINEERING DESIGNS, MATERIALS & TESTING ACTIVITIES AND COMMISSIONING ETC. IS GIVEN. PAGE 57 IS A COPY OF MAIL FROM PRAKASH OF BHEL TO PROCACCI RICCARDO REGARDING BHEL AND NP COOPERATION FOR BINA REFINERY COMPRESSOR. A PORTION OF THE MAIL READS AS: PLEASE REFER TO BHEL PURCHASE ORDER ON NP FOR SIMI LAR JOB IN PAST. THIS JOB WAS DEALT THROUGH YOUR SERVICE DEPT. THIS TIME WE WERE INFORMED THAT ITA NO.671/DEL/2011 13 PRESENT JOB SHALL BE DEALT WITH NEW SALES DEPT. AND PRICES SHALL BE COMPETITIVE. HOWEVER, CONTRARY THINGS HAPPENED. WIT H THIS, WE DO NOT SEE ANY CHANCES OF GETTING THE ORDER. WE DRAW YOUR ATTENTION TO THE FACT THAT IN LAST TWO YEAR EURO HAS APPRECIATED FROM 45 RS TO 58 RS WHILE OUR COMPETITO RS CURRENCY I.E. JAPANESE YEN IS STATIC FROM LAST TWO YEARS AT 0.4 R S. WE ONCE AGAIN REQUEST YOU TO REVISE YOUR OFFER FOR PRESENT JOB IN LINE WITH ENCLOSED PAST SIMILAR ORDER EITHER THROUGH YOUR NEW SALES DEPT. OR SERVICE DEPT. THIS WILL HAVE BEARING ONGOING COLLABORATION DISCUSSIONS OF NP & BHEL. PAGE 58 TO 63 IS THE COMMENTS ON DRAFT MOU FOR CO MPRESSORS SENT BY GE INFRA OIL & GAS VIDE E-MAIL DATED 22.09.2006 (AND C OUNTER COMMENTS FROM NP, OCTOBER 16, 2006). PAGE 64 TO 72 IS A POWER POINT PRESENTATION RELAT ING TO EWPL GAS PIPELINE PROJECT OF RELIANCE GAS PIPELINES LTD. THIS ALSO PR OVIDES THE DELIVERY SUMMARY. PAGE 73 TO 83 IS THE COMMERCIAL PROPOSAL RELATIN G TO BINA OMAN REFINERY. PAGE 84 AND 85 IS WITH REGARD TO GE INFRASTRUCTU RE MESSAGE FROM JOHN RICE. PAGE 86 IS A LIST OF 16 EMPLOYEES OF GE GLOBAL SOUR CING INDIA PVT. LTD. THIS ALSO SHOWS THE LIST OF PERSONS WHO ARE INVOLVE D IN OIL & GAS, AVIATION, RAIL AND POWER & SYSTEMS BUSINESS. THE OIL & GAS BU SINESS IS HEADED BY RICCARDO OF GEII WITH TWO PEOPLE FROM GE INDIA INTE RNATIONAL, AVIATION BUSINESS IS HEADED BILL BLAIR AND AIRCRAFT ENGINES BUSINESS IS LOOKED AFTER BY NALIN JAIN, AN EMPLOYEE OF GE INDIA INDUSTRIAL, DELHI AND AIRCRAFT BUSINESS IS LOOKED AFTER BY ASHISH SONAWALA. THE RA IL BUSINESS IS LOOKED AFTER ASHFAQ NAINAR AND KEN PEARSON, WORKING WITH G EII AND THE POWER SYSTEMS BUSINESS IS LOOKED AFTER BY LOCAL INDIAN EM PLOYEES. PAGE 87 IS HAVING THE LIST OF GE BUSINESSES. IN T HE INFRASTRUCTURE, COMMERCIAL FINANCE, INDUSTRIAL, HEALTHCARE AND CONS UMER FINANCE BUSINESS. PAGE 88 SHOWS THE DETAILS REGARDING HALDIA STATU TORY CLOSURE. PAGE 89 AND 90 DEALS WITH OPERATIONS REVIEW RELA TING TO HALDIA PROJECT AND EAST WEST PIPELINE PROJECT. EAST WEST P IPELINE PROJECT SHOWS ITA NO.671/DEL/2011 14 THAT INSTALLATION IS TO BEGIN IN 3 RD QUARTER OF 2007 FOR 10 SITES. HALDIA AND AHMEDABAD PROJECTS, DETAILS AVAILABLE ON PAGE 90. PAGE 91 IS BLANK. PAGE 92 DEALS WITH SBI ACCOUNT ...............LESSO NS LEARNED. PAGE 93 IS WITH REGARD TO HALDIA DOCUMENTS RETENTIO N. PAGE 94 AND 95 DEALS WITH CONTROLLERSHIP AND TAX UP DATE INDIA. PAGE 96 AND 97 DEALS WITH THE MARKET DYNAMICS AND 2 007 OUTLOOK. THIS PAGE SHOWS THE DIRECT ORDERS AND INFLUENCE ORDERS F ROM VARIOUS COMPANIES WORKING IN THE OIL & GAS SECTOR. KEY WINS INCLUDED RELIANCE, IOCL HALDIA AND PII THROUGH PUNJ LLOYD. THE DOCUMENT ALSO SHOWS THAT IN 2007 STRONG START ....... DOLLAR 136 MILLION + IN THE BAG AND REINFORCE SALES TEAM TO IMPROVE LONG TERM VISIBILITY AND RESOURCES PLANNING . PAGE 98 IS A LETTER FROM GE ENERGY OIL & GAS DATED 26.06.2006 TO RICCARDO PROCACCI FOR OFFERING HIM THE ROLE AS O&G INDIA LEADER. PAGE 99 TO 101 IS A STATUS REPORT ON 02.02.2007 REG ARDING BHEL-GE OIL & GAS CCS LICENSE UPDATE AND ALSO REFERS TO OBJECTI VES, RISKS AND TERMS OF AGREEMENT. PAGE 102 TO 106 IS A POWER POINT PRESENTATION 'THE SEVEN PILLARS OF GROWTH' AND SHOWS THE VARIOUS ADDITIONS TO THE INDI AN TEAM. PAGE 103 SHOWS THE DETAILS OF SOURCING ALONG WITH THE LIST O F SUPPLIERS AND THE SOURCED VOLUME ARE 17 MILLION, 35 MILLION AND 70 MI LLION IN 2006 TO 2008 RESPECTIVELY. PAGE 102 SHOWS THE REQUISITION ENGINE ERING COE AND NUMBER OF ENGINEERS RECRUITED. PAGE 104 PROVIDES DETAILS O F VARIOUS PARTNERSHIPS. PAGE 106 RELATING TO EXPAND SALES TEAMS REFERS TO ' DEVELOP QUALIFIED PIPELINE OF OPPORTUNITIES......EXPAND CUSTOMER BASE......TWO TOP TALENT ADDED. THE SEVEN PILLARS O F GROWTH REFERS TO: EXPAND SALES TEAM LOCALIZE ITO SUPPORT PARTNERSHIPS LOCAL SOURCING LOCALIZE SERVICE LEVERAGE LOCAL ENGINEERING COE MAXIMIZE INFRA SYNERGIES ITA NO.671/DEL/2011 15 PAGE 107 IS THE GME PROFILE AND COMPENSATION WORK SHEET OF RICCARDO PROCACCI ON 01.02.2007, WHO IS ON ASSIGNMENT WITH G E INFRA OIL & GAS. ANNEXURE 'C' THIS CONTAINS 49 PAGES AND HAS THE DETAILS OF EMPLO YEES WORKING IN AIFCAS BUILDING REGARDING THEIR NAMES, DESIGNATION, EMPLOYING LEGAL ENTITY, EMPLOYED SINCE, WORKING FOR THE COMPANY, JO B DESCRIPTION, REPORTING MANAGER, INCENTIVE COMPENSATION, APPRAISAL REPORT A ND EMPLOYMENT LETTER. IN RESPECT OF SOME EMPLOYEES, THE INFORMATION IS AS BELOW: PARTHA RANJAN DEY IS WORKING AS SITE LEADER AND R EPORTING TO RICCARDO PROCACCI AND THE JOB DESCRIPTION IS SOURCING. AMIT VERMA IS A JUNIOR BUYER AND IS ENGAGED IN SO URCING AND REPORTING TO RICCARDO PROCACCI. JAGDISH LAL IS THE SECRETARY AND REPORTING TO RI CCARDO PROCACCI. PRAVINNA YAGNAM BHAT IS EXECUTIVE ASSISTANT AND REPORTING TO PRAT KUMAR. UDIT GAURAV KACHRU IS REPORTING TO ASHFAQ NAINAR AND HIS JOB DESCRIPTION IS 'MANAGER IN COUNTRY SALES FOR ALL LO COMOTIVE PRODUCTS INCLUDING NEW LOCOMOTIVES, MODERNIZATION PARTS AND SERVICES AND H IS INCENTIVE IS BASED ON SALES TARGETS'. ASHOK SINGH, WORKING AS PROJECT MANAGER AND REPO RTS TO ASHFAQ NAINAR AND HIS JOB DESCRIPTION IS 'PROPOSALS FOR LO COMOTIVE PARTS SYSTEMS AND SALES'. YASHDEEP SULE IS RESPONSIBLE FOR SALES AND MARKE TING FOR SIGNALLING AND LOCOMOTIVE. PRITAM KUMAR IS REPORTING TO PIERRE CAMTE AND HIS JOB DESCRIPTION IS 'AS MARKET STRATEGY MANAGER FOR GE TRANSPORTATION, LOOK FOR OPPORTUNITIES FOR PRODUCTS LIKE LOCOMOTIVES, SIGNALLING AND ALSO SUGG EST STRATEGY TO ENTER THE MARKET, COME OUT WITH PRODUCT STRATEGY AND HELP SAL ES BID IN THE PROJECTS'. HIMALI ARORA, MANAGER FINANCE, REPORTING TO K. M CBRIDE. RAMKRISHNA KESHAV HAS ROTATIONAL ASSIGNMENTS OF S IX MONTHS EACH IN AVIATION BUSINESS. ITA NO.671/DEL/2011 16 NALIN JAIN, SALES DIRECTOR FOR AVIATION DIVISION REPORTS TO WIILIAM BLAIR AND HIS JOB DESCRIPTION IS 'MARKET INTELLIGENCE AND SUPPORT TO HEAD QUARTERS'. UDIT GAURAV KACHRU, WHO IS WORKING AS VICE PRESID ENT, ENTERPRISE SALES (REPORTING TO MR. PRAMOD BHASIN). IN THE ACCOMPLISH MENTS: '1.0 GECIS GLOBAL- BD FP & A 1.A CORE MEMBER OF FINANCE TEAM WORKING ON THE DIVE STMENT OF GECIS WHICH WAS THE LARGEST TRANSACTION IN THE ITES IN INDIA. (EMPHASIS BY THIS OFFICE) 1. B LED THE CREATION OF PRO FORMA FINANCIALS FOR T HE NEW COMPANY & RESOLVING SPECIFIC BANKER, INVESTOR AND CUSTOMER QU ERIES ON THE FINANCIAL POSITION& STRENGTH OF THE BUSINESS. 1.C LED CREATION & THE SOFT AUDIT (COMFORT LETTER) BY KPMG OF PRIOR YEAR FINANCIALS TO PREPARE FOR IPO REQUIREMENTS 1.D EVALUATED POTENTIAL SYNERGIES FOR FIRST ACQUISI TION FOR ACT FROM LIST CANDIDATES INCLUDING CREDITEK, (SINCE ACQUIRED).' 3.0 INDIA GROWTH TEAM - ENTERPRISE SALES (SEP 2005) 3.A HELPED DEFINE INDIA ENTERPRISES SALES STRATEGY (GO-TO-MARKET APPROACH &CORPORATE ACCOUNTS) 3.B ESTABLISHED STRONG LINKAGES ACROSS GE BUSINESSE S TO DRIVE PROJECTS 3.C GREW THE CORPORATE ES DEAL PIPELINE FROM $30MM TO IN EXCESS OF $ 800 MM. HAVE ESTABLISHED CROSS BUSINESS TEAMS TO ADDRES S EACH IDENTIFIED OPPORTUNITY (TATA STEEL, MEDICITY, RIL HEALTHCARE, CONTAINER CORP., ASHOK LEYLAND). 3.D LED THE FIRST GE CUSTOMER DAY IN INDIA WITH ASH OK LEYLAND & EIGHT GE BUSINESSES.' HE ALSO RECEIVED MANAGEMENT AWARD ( GECIS GLOBAL 2004). ANJALI SINHA, HIRED 25 STUDENTS FROM 14 MANAGEMEN T SCHOOLS AS PER TARGETS AND SHE IS MANAGER, HUMAN RESOURCES. PAGE NO. 49 IS A LIST OF EMPLOYEES WORKING IN THE AIFACS BUILDING. ANNEXURE 'D' THIS CONSISTS OF 52 PAGES. ITA NO.671/DEL/2011 17 PAGE 1 TO 3 IS A COPY OF LEASE DEAL WITH REGARD TO LEASING OF HOUSE I.E. 4, PANCHSHEEL MARG, CHANAKYA PURL, NEW DELHI FOR MR. S COTT R. BAYMAN OF GENERAL ELECTRIC COMPANY INC., LIAISON OFFICE FOR T HE PERIOD 01.07.2004 TO 30.06.2007 FOR ANNUAL RENTAL VALUE OF RS.L CRORE. PAGE 4 TO 9 IS A COPY OF HOUSE LEASE DEED DATED 0 1.07.2005 FOR LEASING OF HOUSE I.E. D-79, CITI APARTMENTS, VASUNDHARA ENCLAV E, BY MR. IQBAL SINGH TO GENERAL ELECTRIC INTERNATIONAL CO. INC. AT MONTH LY RENT OF RS.6,250/- PAGE 10 IS A COPY OF LETTER DATED 22.08.2003 FROM RBI, NEW DELHI FOR EXTENSION OF TIME OF THE PERMISSION U/S 6(6) OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 TO M/S GENERAL ELECTRIC INTERN ATIONAL OPERATION CO. INC. PAGE 11 & 12 IS A LETTER FROM PRICEWATERHOUSECOOP ERS PVT. LTD. RELATING TO CHANGE OF NODAL OFFICE FROM MUMBAI TO NEW DELHI WIT H REGARD TO GEIOC LIAISON OFFICE. PAGE 13 IS A LIST OF EMPLOYEES OF GEIOC, SHOWING NAMES, DEPARTMENT, GROSS SALARY AND CONSTITUENTS THEREOF. THE MOST OF THE EMPLOYEES ARE IN THE CAS AUDITOR DEPARTMENT. PAGE 14 MENTIONS THE NAMES OF THREE COMPANIES I.E. GE INTERNATIONAL OPERATION CO. INC., GE INTERNATIONAL INC. AND GE IN DIA INDUSTRIAL PVT. LTD. PAGE 15 IS A LETTER FROM RBI REGARDING EXTENSION OF TIME FOR PERMISSION UNDER SECTION 6(6) OF FEMA, 1999, FOR THE LIAISON O FFICE OF GENERAL ELECTRIC INTERNATIONAL OPERATIONS CO. INC., BY WHICH THE PER MISSION IS EXTENDED UP TO 31.08.2009. PAGE 16 TO 32 IS A COPY OF BANK STATEMENT OF GE I NTERNATIONAL OPERATIONS CO. INC. WITH CITI BANK FOR THE PERIOD 31.12.2006 T O 31.01.2007 AND SHOWS VARIOUS WITHDRAWALS. PAGE 33 .& 34 IS RBI LETTER DATED 01.07.1987 REGARD ING ESTABLISHING A LIAISON OFFICE OF GENERAL ELECTRIC INTERNATIONAL OP ERATIONS CO. INC. AT BOMBAY & CALCUTTA FOR A PERIOD OF 2 YEARS FOR THE P URPOSE OF UNDERTAKING PURELY LIAISON ACTIVITIES I.E, TO ACT AS A COMMUNIC ATION CHANNEL BETWEEN HEAD OFFICE AND ITS CUSTOMERS IN INDIA. ITA NO.671/DEL/2011 18 PAGE 35 TO 37 IS A COPY OF LEASE AGREEMENT BETWEE N AIFACS (ALL INDIA FINE ARTS AND CRAFTS SOCIETY), RENEWING THE LEASE F OR THE PERIOD 01.03.2007 TO 28.02.2008, BY WHICH GEIOC HAS TAKEN AIFACS BUIL DING ON LEASE. THE RENTAL IS RS.3,139,620/- FOR ALL THREE FLOORS AND O THER SPACE. PAGE 38 TO 43 IS ANOTHER HOUSE LEASE DEAL FOR OBT AINING A HOUSE FOR USE AS A RESIDENCE FOR THE EMPLOYEE OF GEIOC. PAGE 44 TO 52 IS ANOTHER LEASE DEAL FOR OBTAINING A HOUSE FOR USE AS A RESIDENCE FOR THE EMPLOYEE OF GEIOC. ANNEXURE 'E' IT CONTAINS 125 PAGES. PAGE 1 & 2 IS A COPY OF E-MAIL FROM/TO RICCARDO PROCACCI, INDIA COUNTRY LEADER OF GE INFRASTRUCTURE OIL & GAS RELAT ING TO PRM SYSTEMS PROJECT AND REFERS TO THE STRATEGY RELATING TO THE GE BUSINESS. THE MAIL FROM LA MOTTA, GIUSEPPE DATED 23.11.2006, IS TO VARIOUS PERSONS INCLUDING PROCACCI RICCARDO, VIVEK VENKATACHALAM OF GE INFRA OIL & GAS AND RELATES TO PRM SYSTEMS PROJECT AND BHEL PROJECT AND THE RELEVANT PORTION, SHOWING THE PRESENCE OF SALES TEAM IN INDIA READS A S BELOW: 'DEAR ALL, IN ORDER TO PERFORM OUR SIMPLE EVALUATION I THINK W HAT WE NEED IS: FROM SALES TEAM (VIVEK AND RICCARDO) THE POTENTIAL NUMBER OF ORDERS YEAR-BY-YEAR (NUMBER OF ORDERS AND SINGLE AMOUNT).. ......... PAGE 3 HAS THE MAIL FROM PRASHANT DESHPANDE OF L& T MUMBAI REGARDING THE ENQUIRY RELATING TO ITS CLIENT IOCL, BARODA; TH E ENQUIRY WAS GIVEN TO MR. VIVEKVENKATACHALAM, NEERAJ SAXENA (GEMS, INDIA) AND MR. PROCACCI RELATING TO RECIPROCATING COMPRESSORS OF HYDROGEN G ENERATION UNIT FOR IOCL, BARODA. PAGE 4 TO 7 RELATES TO THE ENQUIRY OF RECIPROCATI NG COMPRESSORS FOR IOCL, BARODA. PAGE NO. 7 IS A MAIL FROM J.K. KHANDELWAL, VICE PRESIDENT-SALES & MARKETING TO MR. NICOLA OF GE INFRA OIL & GAS AND COPY TO OTHER PERSONS OF GE INFRA OIL & GAS INCLUDING JAGDISH J. REQUESTING A AUTHORITY LETTER INDICATING M/S GENERAL ENERGY MANAGEMENT SYS TEMS PVT. LTD., NEW DELHI AS THE AUTHORIZED REPRESENTATIVE OF GE INFRA OIL & GAS. IT MENTIONS THAT NUOVO PIGNONE HAS REGULARLY PARTICIPATING IN T HE VARIOUS PIPELINE PROJECTS. ITA NO.671/DEL/2011 19 PAGE 8 & 11 IS A COPY OF MAIL FROM RICCARDO PROCA CCI, IN WHICH HE IS INTRODUCING HIMSELF AS THE NEWLY APPOINTED GE OIL & GAS. INDIA COUNTRY LEADER BASED IN DELHI. PAGE 9 & 10 IS A COPY OF MAIL FROM SENIOR MANAGER OF BHARAT PUMPS AND COMPRESSORS LTD., ADDRESSED TO RAJESH GUPTA OF GE I NFRA OIL & GAS WITH A COPY TO VIVEK VEKATACHALAM AND HAS DETAILS REGARDIN G DRAFT OF MOU. RAJESH GUPTA HAS FORWARDED THIS MAIL TO RICCARDO PR OCACCI FIX HIS ATTENTION. PAGE 12 TO 17 ARE E-MAILS CONTAINING THE DRAFT MO U AND THE VARIOUS TERMS AND CONDITIONS RELATING TO BHARAT PUMPS AND COMPRES SORS LTD. REQUIREMENTS AND EVIDENCES THE INVOLVEMENT OF MR. P ROCACCI, RAJESH GUPTA AND VIVEK VENKATAEHALAM IN THE BUSINESS OF GE INFRA OIL & GAS IN INDIA. PAGE 18 TO 20 IS A COPY OF MAILS RELATING TO MOU FOR PUMPS FORT IOCL, MUNDRA - PANIPAT PIPELINE AND AGAIN SHOWS THE INVOL VEMENT OF GE INFRA OIL & GAS TEAM IN INDIA CONSISTING OF RICCARDO PROC ACCI, VIVEK VENKATACHALAM AND RAJESH GUPTA. THE MAIL FROM RAJES H GUPTA OF GE INFRA OIL & GAS ON PAGE 20 IS VERY IMPORTANT, WHICH EVIDENCES THE INVOLVEMENT OF THE INDIAN TEAM IN DECIDING THE PAYM ENT TERMS. PAGE 21 IS A COPY OF MAIL FROM ASHISH SETHI OF GE INFRA ENERGY TO RICCARDO PROCACCI. PAGE 22 & 23 IS A MAIL FROM RICCARDO PROCACCI REG ARDING POSSIBLE COOPERATION IN THE PMRS SEGMENT WITH NIRMAL. PAGE 24 TO 30 ARE THE E-MAIL CORRESPONDENCE RELAT ING TO POWER OF ATTORNEY GIVEN BY GE INFRA OIL & GAS TO RICCARDO PROCACCI AN D RAHUL V. THE POWER OF ATTORNEY IN RICCARDO AND RAHUL'S HANDS IS MODIFI ED ACCORDING TO THE RECOMMENDATION OF THE INDIAN CONSULTANT FROM RSM. I T ALSO REFERS TO ANOTHER POWER OF ATTORNEY IN THE NAME OF HARSHITA. COPY OF MAIL FROM RAHUL V. BHALINGE DATED 27.12.2006 IS VERY IMPORTAN T, WHICH IS SUPPORTED BY A MAIL FROM RAJEEV/PANKI OF RSM APPEARING AT PAG E 24. THE MAIL FROM RAHUL READS AS BELOW: 'TEAM PLS. SEE THE BELOW COMMENTS FROM RSM (GE CORPORATE TAX CONSULTANTS IN INDIA). TO AVOID ANY PERMANENT ESTABLISHMENT (PE) R ISK FOR THE PROJECT OFFICE (PO) THEY HAVE SUGGESTED THE NECESSARY CHANG ES TO OUR CURRENT POAS ITA NO.671/DEL/2011 20 AND LIMIT THE AUTHORIZATION TO MERELY BANK MANAGEME NT AND REPRESENTATION IN FROM OF REGULATORY BODIES. THIS HAS BEEN SUGGEST ED CONSIDERING THAT RICCARDO P, RAHUL B & HARSHITA S (GEIOC MF - AVAILA BLE OPTION) NEED TO BE THE SIGNING AUTHORITIES FOR THE BANK ACCOUNT AND THAT THEY ARE NOT DIRECTLY LINKED TO PO OPERATIONS. AGNESE, FIORELLA - NEED TO DO THE FOLLOWING ASAP: 1. NEED TO ISSUE FRESH POA TO RICCARDO, HARSHITA & MYSELF (BACKUP) AS PER THE COMMENTS BELOW 2. GET THE POAS CONSULARIZED BY INDIAN EMBASSY IN I TALY..... I JUST CONFIRMED THIS FROM THE BANK ABOUT THIS NEW REQUIRE MENT 3. FOR ANY ADDITIONAL RESPONSIBILITIES LIKE PROCURE MENT SALE OF OFFICE EQUIPMENT, SERVICES ETC. (BUSINESS TRANSACTIONS0 TH E SUGGESTION IS TO ONLY HAVE EMPLOYEES LINKED DIRECTLY TO THE PROJECT OFFIC E TO HAVE THE POA - WE MAY DECIDE ABOUT THIS ONCE WE HAVE THE GE RESIDENT ENGINEER IN AHMEDABAD 4. REVOKE THE CURRENT POAS FOR RICCARDO & RAHUL. WE WILL HAVE TO EXPEDITE THE ABOVE ACTIONS AS THE 3 PO BANK ACCOUNT S IN INDIA ARE W/O AUTHORIZED SIGNATORIES AND WE ARE NOT ABLE TO ISSUE ANY CHEQUES LOCALLY. PLS. LET ME KNOW IF THERE ARE ANY MORE QUERIES... THANKS RAHUL' PAGE 31 TO 85 - ME PHOTOCOPY OF EXCEL DOCUMENTS, SENT BY BARBARA TO RICCARDO, RELATING TO INDIA SALES FOR 2004, 2005 AN D 2006. THE SAME GIVES THE NAME OF CUSTOMER, CUSTOMER NUMBER, DATE OF INVO ICE, THE PLACE OF DELIVERY, ORDER NUMBER, AMOUNT, REGION, NAME OF MAN UFACTURER ETC. PAGE 86 & 87 IS AN E-MAIL FROM VIVEK (VENKATACHAL AM) TO CIAO RICCARDO, WHICH MENTIONS THAT 'I WOULD WANT YOU TO MAKE VITTORIO UNDERSTAND THAT WE CANNOT CHANGE THE PAYMENT TERMS COMPLETELY.....'. PAGE 88 TO 98 PERTAINS TO WHRU PROPOSAL OF RELIAN CE REGARDING TOTAL BASE SCOPE PRICE AND THE VALUE OF CONTRACT IS EURO 5,849,293 AND MENTIONS THE SCOPE OF SUPPLY, DELIVERIES, VARIOUS CLARIFICAT IONS AND THE MAILS ARE EVIDENCE OF INVOLVEMENT OF VIVEK AND RICCARDO IN TH E DEAL. PARTICULARLY A MAIL FROM R. BALAJI OF RELIANCE INDUSTRIES LTD. (PA GE 93) IS IMPORTANT AND THIS READS AS BELOW: ITA NO.671/DEL/2011 21 ' IS MOVING AWAY FROM VARIOUS COMMITMENTS AND ARE T ALKING IN DIFFERENT VOICES. THIS IS NOT THE ESSENCE OF OUR AGREEMENT. I WANT GE REPRESENTATIVES TO COME OVER AND DISCUSS THE MATTER AND SIGN-OFF. U NLESS THAT IS DONE GE WILL DO SHIFTING OF STANCES, AS THEY HAVE DONE NOW. THIS HAS TO HAPPEN FAST, BEFORE WE ISSUE THE CHANGE ORDER. I CAN SEE A LOT O F CHANGES FROM WHAT WE DISCUSSED RECENTLY WITH MR. RICCARDO AND MR. VIVEK AT DAKC .' PAGE 99 IS A ATTACHMENT 1 (UNIT PRICES FOR PRODUC TS TO LOA) RELATING TO RELIANCE PROPOSAL. PAGE 100 TO 104 IS A LETTER OF AWARD FOR WASTE HE AT RECOVERY UNITS FROM RELIANCE INDUSTRIES LTD. DATED DECEMBER 2006 TO M/S NUOVO PIGNONE SPA, ITALY. PAGE 105 TO 125 DEALS WITH THE TECHNICAL SERVICES AGREEMENT, COPY OF AGREEMENT AND THE CORRESPONDENCE RELATED THERETO. I N THESE DOCUMENTS THE ROLE OF VIVEK VENKARACHALAM, RICCARDO PROCACCI AND JAIMIN SHAH ARE CLEARLY BROUGHT OUT. THE CORRESPONDENCE ALSO SHOWS THAT THE GE HAS SIGNED SEVERAL CONTRACTS WITH RELIANCE FOR THE JAMNAGAR EX PANSION AND ASSOCIATED PLANS (THIS IS SEPARATE FROM THE PIPELINE ORDER). P AGE 124, A MAIL FROM VIVEK TO ROB REGARDING TECHNICAL SERVICES AGREEMENT - REQUEST CONFIRMATION TO THE DRAFT AGREEMENT, WHEREIN VIVEK WRITES THAT ' I WILL NOT BE AVAILABLE IN OFFICE FOR SOME DAYS.........JAIMIN WILL COORDINATE FOR SERVICES'. ANNEXURE 'F' IT CONTAINS 27 PAGES AND CONTAINS THE E-MAILS RELAT ING TO GE INFRA AVIATION BUSINESS. PAGE I TO 6 IS A COPY OF POWER OF ATTORNEY GRANTED BY CLAUDIO SANTIAGO PONSA, VICE PRESIDENT OF THE COMPANY NUOVO PIGNONE SPA TO RICCARDO PROCACCI WITH REGARD TO VARIOUS ACTS. IT ALSO STATE S THAT THE ABOVE POWERS AND FUNCTIONS SHALL BE EXERCISED ONLY WITHIN THE FR AME OF THE POLICIES AND DIRECTIONS ESTABLISHED BY THE COMPANY MANAGEMENT WI THIN THE LTSA CONTRACT - THE ARVIND MILLS REGARDING NARODA AND SA NTAGE PLANT IN AHMEDABAD. INDIA AND FOR THE O&M CONTRACT REGARDING HALDIA PETRO CHEMICAL CO-GENERATION LTD. PLANT. PAGE 7 & 8 IS THE WORKING OF 54 MILLION DOLLAR IN CREMENTAL REVENUE FOR GE IN NEXT 3 YEARS AND REVENUE FROM SELLING COMPRES SORS (44 MILLION), ITA NO.671/DEL/2011 22 REVENUE FROM SUPERVISION OF ASSEMBLY ON FOUNDATION AT CUSTOMER FACILITY (6 MILLION) AND REVENUE FROM SUPERVISION OF ASSEMBLY A ND TESTING OF COMPRESSOR AT THE PACKAGER FACILITY (4 MILLION). PAGE 9 IS A MAIL FROM RICCARDO PROCACCI TO ASHOK OF GE INFRA ENERGY, DATED 23.02.2007 ASKING THE NAME OF PEOPLE TO BE AD DED IN THE O&G INDIA DISTRIBUTION LIST. ASHOK WRITES THAT PROJECT RELATE D INFORMATION IS - ASHOK RODGI, BALASUBRAMANYAN, SUNDER RAJAN MB (GE INFRA, ENERGY) AND V.C. ARUNACHALAM(GE INFRA, ENERGY). PAGE 10 TO 14 RELATES TO TSA FOR GE SUPPLIED COMP RESSORS. THIS SHOWS THAT CHAINI, NITIN, GAKHAR, ASHWIN AND JAIMIN SHAH OF GE INFRA ENERGY ARE WORKING FOR THE GE INFRA BUSINESS IN INDIA. THE PUR CHASE ORDERS ARE ISSUED ON GE OIL & GAS LLC, USA, GE OIL & GAS THERMODYN, F RANCE AND GE OIL & GAS NUOVO PIGNONE SPA, ITALY. THE MAIL STATES THAT JAIMIN SHAH IS HANDLING ALL THE RECENT GE ORDERS. RAVI KUMAR OF RE LIANCE WRITES THAT 'WE DO NOT HAVE PROBLEM IN ISSUING 3 TSAS FOR THREE GE ENTITIES ' . THE COPY OF MAIL IS ALSO GIVEN TO RAJESH GUPTA OF GE INFRA OIL & GAS. PAGE 15 & 16 IS A MAIL FROM/TO NALIN JAIN, GE TRA NSPORTATION, AIRCRAFT ENGINES, SALES DIRECTOR SOUTH ASIA PACIFIC. PAGE 17 IS A MAIL FROM NALIN JAIN TO WILLIAM BLAI R OF GE INFRA, AVIATION, USA REGARDING JET-LH PARTNERSHIP. NALIN JAIN HAS AD DRESS OF AIFACS, 1 RAFI MARG, NEW DELHI, INDIA. PAGE 18 & 19 IS A MAIL FROM S.N. CHINHARA, SAWO, FOR DGCA TO JOHN CALVIN REGARDING RENEWAL OF APPROVAL OF GE AIRCRAFT ENGINE SERVICES LTD. MR. CALVIN JOHN OF GE INFRA AVIATION WRITES THAT TH E RENEWAL FEE WILL BE PAID LOCALLY BY GENERAL ELECTRIC REPRESENTATIVE IN INDIA MR. NALIN JAIN. LATER ON, MR. CALVIN JOHN WRITES THAT UNFORTUNATELY THE GE RAP IN INDIA WILL NOT BE ABLE TO PAY THE FEE. PAGE 20 TO 23 REGARDING THE ENGINE FOR AIR INDIA EXPRESS. PAGE 24 TO 26 IS REGARDING ENGINE NO. 874582 AND SHOWS THE INVOLVEMENT OF NALIN JAIN OF GE INFRA AVIATION IN INDIA. PAGE 27 IS THE LIST OF EMPLOYEES OF GE INTERNATIO NAL OPERATIONS CO. INC., GE INTERNATIONAL INC., GE INDIA INDUSTRIAL PVT. LTD . (TRAINING DIVISION), GE INDIA INDUSTRIAL PVT. LTD. (MARKETING & SUPPORT DIV ISION), GE INDIA INDUSTRIAL PVT. LTD. (TRANSPORTATION DIVISION). ITA NO.671/DEL/2011 23 ANNEXURE 'G' IT CONTAINS 31 PAGES . PAGE 1 TO 15 IS THE STATUTORY AUDIT REPORT FOR THE YEAR ENDED 31.12.2005 OF GENERAL ELECTRIC INTERNATIONAL OPERATIONS CO. INC. (INDIA LIAISON OFFICE). THIS SHOWS EXPENSES OF RS.367,200,008/- FOR THE YEA R ENDED 31.03.2005 AND EXPENSES OF RS.282,543,488/- FOR THE YEAR ENDED 31.03.2004. PAGE 16 RELATES TO LOCOMOTIVE PPP WITH INDIAN RAI LWAYS, WHICH PROVIDES THAT GE TO PROVIDE HIGH MARGIN PRODUCTS (THROUGH GE -MAJORITY OWNED FACILITIES) AS SUPPLY INPUTS INTO THE PPP. PAGE 17 & 18 GIVES A LIST OF 2006 KEY HIGHLIGHTS IN THE BUSINESS OF AVIATION, RAIL, OIL & GAS, ENERGY, EFS, GECAS, COMM ERCIAL FINANCE, CONSUMER FINANCE, HEALTHCARE AND ENTERPRISE IN INDI A. THE DETAILS OF CUSTOMERS, ACTIVITY AND SIZE OF THE DEAL. IT SHOWS THAT IN AVIATION SEGMENT BUSINESS OF 320 E NGINES FOR AIR INDIA, INDIAN, JET AIRWAYS, AIR SAHARA, SPICE JET A ND GO AIR TOOK PLACE. IN THE RAIL SECTOR LOCOMOTIVE PARTS AND 16 MARINE E NGINES, MMRDA BOOT PROJECT. IN THE OIL & GAS SECTOR 17 GAS TURBIN ES AND COMPRESSORS TO RELIANCE WERE GIVEN. IN ENERGY SERVICES FOR DABHOL, 2 X 9E + STEAM TURBI NE TO KERBALAPITYA SRI LANKA AND 6 GAS TURBINES TO RELIAN CE. IN CASE OF GECAS, AIRCRAFTS TO INDIGO AND GO AIRLIN ES. IN COMMERCIAL FINANCE, DEAL FOR SANGHI, DLF ETC. IN CONSUMER FINANCE, NUMBER 2 ISSUER OF CREDIT CARD S (SURPASSED HDFC, 3 MILLION CARDS). IN HEALTHCARE, BGS AND MANIPAL, GE HEALTHCARE APPRO ACH AND VARIOUS ACTIVITIES FOR THE FIRST TIME IN INDIA. IN THE ENTERPRISE BUSINESS GUJARAT DESALINATION, AI IMS AND MEDICITY. PAGE 19 & 20 GIVES THE DETAILS OF OPERATING PLAN OF OE IN INDIA FOR FEBRUARY, 2007, IN THE SECTORS OF HEALTHCARE, CONSU MER FINANCE, COMMERCIAL FINANCE, INDUSTRIAL AND INFRASTRUCTURE. PAGE 21 TO 23 IS A COPY OF E-MAIL FROM AASHISH SO NAWALA OF GECAS DATED 14.02.2007 TO CHANDAN JAIN (GE CORPORATE) ON THE SUBJECT GECAS GROWTH COUNCIL. PAGE 22 HAS ESTIMATED FINANCIALS OF GECAS FOR THE YEARS ITA NO.671/DEL/2011 24 2006 TO 2010. IN THIS SHEET THE DETAILS OF REVENUE, EXPOSURE, RETURN ON INCOME, RETURN ON EXPENDITURE AND NET INCOME ARE GI VEN. THE MAIL ALSO STATES THE REQUIREMENT OF AIRCRAFTS BY INDIAN AIRLI NES. PAGE 24 IS A MAIL FROM NALIN JAIN OF GE INFRA AVI ATION TO CHANDAN JAIN REGARDING NEWS RELEASE-INDIAN AIRLINES, CFM SIGN MR O JOINT VENTURE AGREEMENT. CFM INTERNATIONAL IS A JOINT VENTURE COM PANY. WHEREIN 50% IS HELD BY GENERAL ELECTRIC COMPANY. PAGE 25 IS A MAIL FROM AMAR NAVIN OF GE CORPORATE T O BADAL BAGRI AND CHANDAN JAIN OF GE CORPORATE AND RELATES TO AUTHORI TY TO SIGN HR RELATED DOCUMENTS FOR OIL & GAS. THIS SHOWS THAT ANJALI SIN HA HAS THE AUTHORITY TO SIGN THE HR RELATED DOCUMENTS AND SHE IS SUPPORTING THE HR OF GE OIL & GAS. SHE IS ALSO SIGNING THE HR DOCUMENTS FOR GE TR ANSPORTATION - RAIL, AVIATION AND SIGNALLING, TRAINING DIVISION (INCLUDI NG CORPORATE GROWTH SERVICES AND GLOBAL BUSINESS SOLUTIONS). PAGE 26 IS BLANK. PAGE 27 IS A MAIL FROM HARSHITA SABHARWAL OF GE C ORPORATE DATED 17.02.2007 TO CHANDAN JAIN REGARDING REPATRIATION O F SURPLUS FUNDS IN GEIBS. THE MAIL READS AS: 'THERE ARE SURPLUS FUNDS IN GEIBS WHICH NEED TO BE REPATRIATED TO US .. OUT OF THE VARIOUS OPTIONS AVAILABLE BUY BACK IS TH E MOST APPROPRIATE FROM A TAX PERSPECTIVE ... RUPAK HAS ENGAGED RSM FOR THIS ... FIRST TRANCE OF THE TRANSACTION NEEDS TO BE EXECUTED BY 31ST MARCH'07 . .. I AM WORKING ON THIS .. WANTED TO KEEP YOU INFORMED.' ANOTHER MAIL IS FROM HARSHITA SABHARWAL DATED 09.01 .2007 TO RUPAK SHAH, BHALLA MANOJ OF GE CORPORATE REGARDING REPATRIATION OF SURPLUS FUND AND READS AS BELOW: 'PLEASE REFER TO OUR DISCUSSIONS ON THE ABOVE SUBJE CT IN THE LAST BOARD MEETING. TOTAL SURPLUS FUNDS IN GEIBS AS ON 31/12/2 006INR 1,000 MM THE BEST OPTION OF REPATRIATING THE FUNDS WILL BE T HROUGH A SHARE BUY BACK AS IT DOES NOT HAVE ANY INCOME TAX IMPLICATIONS. TH E FLOW WILL BE AS UNDER: FY 2006-07 LIMITED TO THE EXTENT OF 25% OF PAID UP CAPITAL PLU S FREE RESERVES AND NUMBER OF SHARES ... THIS WILL BE INR 250 MM .. TO BE EXECUTED BY MARCH'07. ITA NO.671/DEL/2011 25 FY 2007-08 LIMITED TO THE EXTENT OF 25% OF PAID UP CAPITAL PLU S FREE RESERVES AND NUMBER OF SHARES ... THIS WILL BE INR 450 MM .. TO BE EXECUTED BY MARCH/OB. TOTAL REMITTANCE INR 700 MM PLEASE LET US KNOW YOUR VIEWS.. IT IS IMPORTANT THA T THE FIRST TRANCE CAN BE EXECUTED BEFORE MARCH'07 AS BUY BACK LIMITS FOR A F INANCIAL YEAR.' PAGE 28 & 29 IS A REPORT FROM BSR & CO. IN CONNECT ION WITH THE BUY BACK OF EQUITY SHARES BY GE INDIA BUSINESS SERVICES PVT. LTD. THE REPORT IS DATED 26.02.2007. PAGE 30 IS A STATUS OF CAS AUDIT FOR THE YEAR 2004 , 2005 AND 2006 FOR THE BUSINESSES LIKE HEALTHCARE. FINANCE, GE MONEY, CONS UMER AND INDUSTRIAL, INFRASTRUCTURE AND CAPITAL CORPORATE. PAGE 31 GIVES A LIST OF 26 LEGAL ENTITIES OF THE GE GROUP OPERATING IN INDIA. POST SURVEY ENQUIRIES DURING THE COURSE OF SURVEY IT WAS FOUND THAT VARIO US EMPLOYEES OF GE OVERSEAS ENTITIES ARE WORKING IN INDIA. SOME OF THE SE EMPLOYEES ARE ON THE PAYROLL OF GE INTERNATIONAL INC., USA. THESE ARE: DAN NALAWADE RICCARDO PROCACCI WLLLIAM BLAIR ASHFAQ NAINAR KENNETH PEIRSON SAMEER AGGARWAL PRAT KUMAR THESE PERSONS ARE WORKING FOR VARIOUS DIRECT BUSINE SSES OF THE GE GROUP IN INDIA, WHICH ARE NEITHER BEING CONDUCTED THROUGH A SUBSIDIARY OR JOINT VENTURE COMPANY. THESE PERSONS ARE INDIA HEAD OF DI FFERENT BUSINESSES AND ITA NO.671/DEL/2011 26 THEY ARE BEING SUPPORTED BY A TEAM OF PERSONS, WHO ARE EMPLOYED BY EITHER GE INDIA INDUSTRIAL PVT. LTD. OR OTHER GROUP CONCER N. THE EMPLOYEES WORKING ON THE PAYROLL OF GEIOC ARE ALSO SUPPORTING THE VARIOUS DIRECT BUSINESSES OF GE GROUP. THE ASSESSEE WAS ASKED TO S UBMIT THE INFORMATION REGARDING THE ABOVE EMPLOYEES PARTICULARLY THE COPY OF EMPLOYMENT (ASSIGNMENT) LETTERS, JOB RESPONSIBILITIES, SELF AP PRAISAL ETC., PART OF THIS INFORMATION WAS SUBMITTED BY THE ASSESSEE VIDE LETT ER DATED 16.03.2007/09.04.2007. A BRIEF OF VARIOUS BUSINESSE S NOT CONDUCTED THROUGH GE SUBSIDIARIES IN INDIA EITHER WHOLLY OR P ARTLY (SUBMITTED BY THE ASSESSEE AS ANNEXURE-L0 OF LETTER DATED 16.03.2007) , IS GIVEN BELOW: INFRASTRUCTURE OIL & GAS ENERGY RAIL AIRCRAFT ENGINES AVIATION FINANCIAL SERVICES INDUSTRIAL EQUIPMENT SERVICES HEALTHCARE DIAGNOSTIC IMAGING INFORMATION TECHNOLOGY SERVICES BIO SCIENCE THE ASSESSEE IN ANNEXURE-L2 OF THE LETTER DATED 16. 03.2007 HAS SUBMITTED A LIST OF THIRD PARTY AGENTS OF THE GROUP IN INDIA FO R CARRYING OUT THE BUSINESS AND THIS READS AS BELOW: 3 RD PARTY LIAISON AGENTS IN INDIA PRODUCTS/SERVICES COVERED BRIEF DESCRIPTION OF ALLOWED ACTIVITIES CLARKE ENERGY INDIA PRIVATE LIMITED JEN BACHER UNITS AND AFTERMARKET PARTS INTERMEDIARY WITH CUSTOMER (DELIVER PROPOSALS TO CUSTOMER ETC.). HAS NO LEGAL ITA NO.671/DEL/2011 27 AUTHORITY TO BIND GE. QUANTUM CONSULTANTS. PRIVATE LIMITED WIND GENERATION EQUIPMENT INTERMEDIARY WITH CUSTOMER (DELIVER PROPOSALS TO CUSTOMER ETC.). HAS NO LEGAL AUTHORITY TO BIND GE. GENERAL SALES CO. LTD OPTIMIZATION SERVICES - BENTLY NEVADA INTERMEDIARY WITH CUSTOMER (DELIVER PROPOSALS TO CUSTOMER ETC.). HAS NO LEGAL AUTHORITY TO BIND GE. PCL LIMITED NRPS-IED PRODUCTS- M&D. PORTABLE TEST INTERMEDIARY WITH CUSTOMER (DELIVER PROPOSALS TO CUSTOMER ETC.). HAS NO LEGAL AUTHORITY TO BIND GE. PRINCE CORPORATION POWER GENERATION PARTS REPAIR SERVICES, FIELD SERVICES. INTERMEDIARY WITH CUSTOMER (DELIVER PROPOSALS TO CUSTOMER ETC.). HAS NO LEGAL AUTHORITY TO BIND GE. THE ASSESSEE IN ANNEXURE-L1 OF THE LETTER DATED 16. 03.2007 HAS SUBMITTED THE JOB RESPONSIBILITIES OF 5 PERSONS NAMELY PRATYU SH KUMAR, GE INFRASTRUCTURE LEADER, INDIA, DAN NALAWADE, GE EQUI PMENT SERVICES, KENNETH PEIRSON, GE TRANSPORTATION, WILLIAM L. BLAI R, GE AVIATION (AIRCRAFT ENGINE/ TRANSPORTATION), SAMEER AGARWAL, GE WATER PROCESS & TECHNOLOGY. THE JOB RESPONSIBILITIES OF ASHFAQ NAIN AR, REGIONAL MANAGING DIRECTOR, ASIA WERE SUBMITTED AS ANNEXURE-4 OF THE LETTER DATED 09.04.2007. THE DETAIL OF JOB RESPONSIBILITIES AND WORK ATTENDED BY RICCARDO PROCACCIIS ALREADY DISCUSSED. ASHFAQ NAINA R, IN HIS SELF APPRAISAL DATED 09.03.2007 (WHICH WAS SUBMITTED AS ANNEXURE-5 OF THE LETTER DATED ITA NO.671/DEL/2011 28 09.04.2007), HAS GIVEN THE DETAILS OF WORK ATTENDED BY HIM FOR GE BUSINESS IN INDIA. THE ASSESSEE IN THE ANNEXURE-13 TO THE LETTER DATED 16.03.2007 HAS SUBMITTED THE NAMES OF EMPLOYEES OF GE INDIA INDUST RIAL PVT. LTD., WHO ARE WORKING FOR OTHER GE GROUP ENTITIES/ BUSINESS IN IN DIA. THESE ARE 43 EMPLOYEES, WHO ARE WORKING FOR OTHER GROUP ENTITIES AND THESE ARE NAND KUMAR DHEKNE, SUJOY GHOSH, PRAMOD JOSHI, ALPANA KHE RA, FAIZI MOHISINI, NINNALA MURTHY, JAIMIN SHAH, BALDEEP SING H, SHANNILA BARATHAN, RAVI ANAND, ANAND BANSAL, HARIDAS' MENON, CHANDAN GUHA,ANAND AWASTHY, RAMGOPAL YADAVALLI, NARENDRAN M ANNAZHI, ASHISH MALHOTRA, SRINIVAS K. MARELLA, TARAK B. CHAYYA, N. GURUPRASAD, DEVEN SHUKLA, HITANGSHU MAJUMDAR, SIDDHARTHA GHOSAL, MANI SH NARULA, N. NAGRAJ, SUDIPTA SAHA, NEERAJ BHARGAVA, SHANTANU CHA KRABORTY, SHASHANK NAIK, PARAG NAG. SRIKANTH THORAPALLI VENUGOPAL, SAN JEEV KUMAR, HEMLATA SINGH, ARCHANA SINGH, ASIM BOSE, GEETA TANEJA, SUMA N NAG, NALIN JAIN, SANJEEV KAKKAR, MANGAL DEV, VIVEK VENKATACHALAM, RA JESH GUPTA AND AMIT VERMA. FROM THE INFORMATION AVAILABLE DURING THE SURVEYOR AFTERWARDS. IT IS CLEAR THAT VARIOUS EMPLOYEES OF GE INDIA INDUSTRIAL PVT. LTD. ARE WORKING WITH THE EXPATRIATES SO AS TO CONSTITUTE INDIAN TEAMS LO OKING AFTER THE GE OVERSEAS ENTITIES BUSINESSES. THE DETAIL OF SUCH EM PLOYEES IS ALSO AVAILABLE IN ANNEXURE-C, DISCUSSED EARLIER. THE ASSESSEE WAS ASKED TO SUBMIT THE COPY OF SELF A PPRAISAL OF THE 7 EMPLOYEES OF THE GE GROUP, WHO ARE ON THE PAYROLL O F GE INTERNATIONAL INC. THE SAME IS REPLIED VIDE PARA 3.4 OF THE LETTER DAT ED 16.03.2007 AND SELF APPRAISAL OF KENNETH PEIRSON WAS SUBMITTED AS ANNEX URE-16 OF THE LETTER. 6. ON THE BASIS OF VARIOUS FACTS/INFORMATION COLLE CTED DURING THE SURVEY AND AFTERWARDS, IT IS CLEAR THAT VARIOUS GE GROUP ENTITIES ARE CARRYING OUT THE BUSINESS IN INDIA. THE DETAILS OF SUCH BUSI NESSES AND THE SALES MADE BY VARIOUS ENTITIES DURING THE PERIOD 01.04.2000 TO 31.03.2006 (FINANCIAL YEAR WISE) ARE SUBMITTED BY THE ASSESSEE VIDE LETTE R DATED 24.03.2008. ITA NO.671/DEL/2011 29 FURTHER INFORMATION IS FURNISHED ON 26.03.2008. THE GROUP HAS MADE SALES IN THE ENERGY, TRANSPORTATION, AVIATION, OIL & GAS SECTORS DURING ALL THESE YEARS. THE NAMES OF VARIOUS COMPANIES MAKING THE SA LES ARE AVAILABLE IN THESE LETTERS DATED 27.02.2008, 24.03.2008 AND 26.0 3.2008 AND ARE ANNEXED AS EXHIBIT 'A', 'B' AND 'C'. SUCH COMPANIES AND THE LINE OF BUSINESS RELEVANT TO INDIA ARE SUMMARIZED AS UNDER: S. NO. NAME OF THE COMPANY COUNTRY BUSINESSES ENERGY BUSINESS 1 GE JAPAN LIMITED JAPAN POWER GENERATION 2 GE POWER SYSTEMS INC. USA ...DO... 3 GE JENBACHET GMBH AUSTRIA ...DO... 4 GE COMPANY USA ...DO... 5 GEWE, GMBH GERMANY ...DO... 6 GE ENERGY (USA) LLC USA ...DO... 7 BENTLEY NEVADA LLC USA OC/ EQUIPMENT 8 GE HARRIS ENERGY CONTROL SYSTEMS LLC USA NBPS 9 GE CANADA CANADA ...DO... 10 GE COMPANY USA ...DO... 11 GE ENERGY PARTS INC. USA CS/ EQUIPMENT/ SERVICES 12 GE PACKAGED POWER INC. USA ...DO .. 13 GE ENERGY PARTS INC.. USA - TRANSPORTATION 14 GE TRANSPORTATION PARTS, LLC USA . AVIATION 15 GE COMPANY USA GE LEGAL ENTITIES - SUPPLIES J 16 GEES DISTRIBUTION LLC ...DO... 17 GE INTERNATIONAL INC. USA GE LEGAL ENTITIES - SERVICES 18 ELANO USA ...DO... 19 GARRETT AVIATION SERVICES USA ...DO... ITA NO.671/DEL/2011 30 INC. 20 GE ACCESSORY SERV ICES - GRAND PRAIRIE, INC. USA ...DO... 21. GE STRUCTURED SERVICES USA ...DO... 22 GE AVIATION MATERIALS LP USA ...DO... 23 GE CALEDONIAN LTD. UK ...DO... 24 GE ENGINE SERVICES, INC. USA ...DO... 25 GE ENGINE SERVICES MALAYSIA MALAYSIA ...DO... 26 GE ENG INE SERVICES MCALLEN USA ...DO... 27 GE AIRCRAFT SERVICES LTD. UK ..DO... 28 TRI-REMANUFACTURING INC. USA ...DO... 29 GE AVIATION SERVICES OPERATION PTE. LTD. SINGAPORE ...DO... 30 GE ON WING SUPPORT KOREA KOREA ..DO... 31 MRA SYSTEMS INC USA --DO 32 AIRCRAFT PARTS CORPORATION USA DO. 33 UNISON USA ..DO... OIL & GAS - PARTS &EQUIPMENTS 34 NUOVO PIGNONE SPA ITALY THE INFORMATION ABOUT OIL & GAS BUSINESS, SHOWING B Y NUOVO PIGNONE SPA, ITALY DURING F.YS. 2000-01 TO 2005-06 WERE SUB MITTED BY PRICE WATERHOUSE COOPERS PVT. LTD. ON 27.02.2008. THE INFORMATION SUBMITTED REVEALS THAT THE GE GROUP ENTITIES HAVE MADE SALES OF EQUIPMENT/PARTS IN ENERGY BUSINESS, TRANSP ORTATION BUSINESS AND AVIATION BUSINESS. SOME OF THE COMPANIES HAVE ALSO RENDERED SERVICES TO THE CUSTOMERS IN INDIA. 6.1 GENERAL ELECTRIC INTERNATIONAL OPERATION CO. IN C., INDIA LIAISON OFFICE (GEIOC), HAS ON ITS PAYROLL MORE THAN 50 EMPLOYEES AND THE DESIGNATION OF SUCH EMPLOYEES IS CAS. THE ASSESSEE HAS EXPLAINE D THAT EMPLOYEES ARE ITA NO.671/DEL/2011 31 DEPUTED TO VARIOUS GE COMPANIES AND THEY WORK AS TH EIR EMPLOYEES AND SUCH EMPLOYEES REMAIN ON THE PAYROLL OF GEIOC TILL THE SAME ARE TRANSFERRED TO OTHER ENTITIES. AS PER THE APPLICATI ON MADE TO RBI AND PERMISSION OBTAINED, THE LIAISON OFFICE WAS TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE HEAD OFFICE AND THE CUSTOMERS I N INDIA. HOWEVER, THE COMPANY INSTEAD OF UNDERTAKING THE PERMITTED ACTIVI TIES IS EMPLOYING VARIOUS PERSONS AND PROVIDING THE SERVICES OF SUCH PERSONS TO THE GE GROUP ENTITIES WORLDWIDE. THE COMPANY PERFORMS ALL THE FUNCTIONS RELATING TO SUCH EMPLOYEES, INCLUDING THEIR EMPLOYMENT, PAYR OLL ADMINISTRATION, THE ACTIVITIES RELATING TO DEPUTATION ETC. AND SUCH ACTIVITIES CONSTITUTES BUSINESS ACTIVITIES BEING CARRIED OUT IN INDIA. THE EXPENSES INCURRED BY SUCH OFFICE ARE REIMBURSED BY THE HEAD OFFICE WITHO UT ANY MARGIN. INDEPENDENT THIRD PARTIES PROVIDING SUCH SERVICES W ILL CERTAINLY EARN PROFITS ON THE ACTIVITIES. THE ACTIVITIES INDICATE THAT THE GEIOC IS CARRYING OUT BUSINESS IN INDIA THROUGH A PERMANENT ESTABLISH MENT (PE) AND THE INCOME ATTRIBUTABLE TO SUCH PE IS TAXABLE IN INDIA. THE COMPANY HAS NOT FILED RETURN OF INCOME FOR ANY YEAR. 7. THE BUSINESS OF VARIOUS GE GROUP NON-RESIDENT CO MPANIES IN INDIA IS BEING CONDUCTED BY THE EXPATRIATE EMPLOYEES OF GE G ROUP (WHO ARE EMPLOYED BY GE GROUP COMPANY AND DEPUTED TO INDIA A S INDIA HEAD OF THE SPECIFIC BUSINESS LIKE OIL & GAS, ENERGY, AVIAT ION, TRANSPORTATION ETC.), WITH THE SUPPORT AND HELP OF EMPLOYEES DRAWN FROM G E INDIAN ENTITIES. SUCH EXPATRIATES ARE RESPONSIBLE AND LOOK AFTER THE BUSINESS OF GE GROUP AS A WHOLE IRRESPECTIVE OF THE ANY GE GROUP COMPANY MAKING SALES IN INDIA. THE BIFURCATION OF SALES BY VARIOUS ENTITIES IS DECIDED BY THE GE MANAGEMENT, AS IS EVIDENCED BY THE RELIANCE ORDER R EFERRED ABOVE. THESE EXPATS AND THEIR TEAM HAVE AT THEIR DISPOSAL A FIXE D PLACE OF BUSINESS IN THE FORM OF OFFICE PREMISES AT AIFACS, 1 RAFI MARG, NEW DELHI. THIS OFFICE PREMISE IS TAKEN ON LEASE BY GEIOC FROM AIFACS (ALL INDIA FINE ARTS AND CRAFT SOCIETY) AND HAS BEEN UNDER LEASE FROM TH E PERIOD PRIOR TO 01.04.2000. THE INFORMATION REGARDING THE EMPLOYEES OF GE IN INDIA PRIOR TO THE PRESENT EXPATS IS NOT GIVEN BY THE GE GROUP, HOWEVER, THERE HAVE BEEN THE PERSONS WORKING FOR SUCH SALES THROUGHOUT THE PERIOD 01.04.2000 TO TILL DATE. TO SUMMARIZE, THE EX PATS DEPUTED IN INDIA FOR UNDERTAKING THE ITA NO.671/DEL/2011 32 MARKETING ACTIVITIES INCLUDING PRICE NEGOTIATION, S UPERVISION, ADMINISTRATION, SALE FUNCTIONS AND AFTER SALES ACTI VITIES AND THEIR TEAM WERE CONTINUOUSLY CARRYING OUT THE BUSINESS OF VARIOUS E NTITIES OF THE GE GROUP, WHICH MADE SALES IN INDIA FROM THE ABOVE STATED OFF ICE PREMISES IN DELHI AND OTHER PLACES OF BUSINESSES IN INDIA. SINCE: A PLACE OF BUSINESS IS AVAILABLE AT DISPOSAL OF T HE GE GROUP ENTITIES IN INDIA. THE PLACE OF BUSINESS WAS FIXED AND THE BUSINESS WAS CARRIED OUT THROUGH THAT PLACE OF BUSINESS. SOME EMPLOYEES OF THE GE GROUP INDIAN ENTITIES FORM ING PART OF THE SALES TEAM WERE ALSO CARRYING OUT THE BUSINESS THROUGH OT HER FIXED PLACE OF BUSINESS IN THE FORM OF OTHER OFFICES OF THE GE GRO UP IN INDIA. IN VIEW OF THE ABOVE. IT IS CLEAR THAT THE VARIOUS GE GROUP ENTITIES, BEING TAX RESIDENTS OF DIFFERENT COUNTRIES HAD FIXED PLAC E PE IN INDIA AS PER THE PROVISIONS OF RESPECTIVE TAX TREATIES. THE OFFICE A S WELL AS THE PREMISES USED AS A SALES OUTLET OR FOR RECEIVING OR SOLICITI NG ORDERS ALSO CONSTITUTES THE PE AS PROVIDED IN PARAGRAPH 2 OF ARTICLE 5 OF R ESPECTIVE TAX TREATIES. THE ACTIVITIES OF THE NON-RESIDENT GE GROUP ENTITIE S BEING CONDUCTED FROM THE FIXED PLACE OF BUSINESS REFERRED ABOVE ARE NOT OF THE PREPARATORY OR AUXILIARY CHARACTER. THE EMPLOYEES OF GE INDIA INDUSTRIAL PVT. LTD. FORM S THE SALES TEAMS OF THE GE ENTITIES, SUCH EMPLOYEES ALONG WITH THE EXPA TS HAVE HABITUALLY SECURED ORDERS IN INDIA, WHOLLY OR ALMOST WHOLLY FO R THE NON-RESIDENT GE GROUP ENTITIES. THE CORRESPONDENCE DISCUSSED ABOVE ALSO INDICATES THAT SUCH EMPLOYEES HAVE ALSO PARTICIPATED IN THE PRICE NEGOTIATIONS. THE VARIOUS DOCUMENTS IN THE FORM OF AGREEMENTS/PURCHAS E ORDERS/COPIES OF CONTRACTS ALSO PROVES THE ACTIVE INVOLVEMENT OF THE EMPLOYEES OF INDIAN COMPANY AND EXPATS IN THE CONCLUSION OF CONTRACTS O N BEHALF OF SUCH NON- RESIDENT GE GROUP ENTITIES, THEREFORE, GE INDIA IND USTRIAL PVT. LTD. ALSO CONSTITUTES THE AGENT OTHER THAN AN AGENT OF INDEPE NDENT STATUS OF THE NON- RESIDENT GE GROUP ENTITIES. THIS RESULTS INTO THE C REATION OF THE DEPENDENT AGENT PE AS PER THE PROVISIONS OF THE TAX TREATIES AND BUSINESS CONNECTION ITA NO.671/DEL/2011 33 AS PER THE PROVISIONS OF EXPLANATION 2 TO SECTION 9 (L)(I) OF THE INCOME TAX ACT, 1961. THE ACTIVITIES OF THE THIRD PARTIES WORK ING FOR THE GE GROUP AS MENTIONED ABOVE ALSO MAY CONSTITUTE AGENCY PE/ BUSI NESS CONNECTION OF THE GE GROUP ENTITIES. IT IS POSSIBLE THAT IN RESPECT OF VARIOUS PROJECTS RELATING TO RENDERING OF SERVICES/SUPERVISORY SERVICES, SUCH GE GROUP ENTITI ES WILL BE CONSIDERED TO HAVE THE PE AS PER THE OTHER PARAGRAPHS OF THE A RTICLE RELATING TO THE PE OF THE RESPECTIVE TAX TREATIES. 7.1 AFTER HAVING ESTABLISHED THAT VARIOUS GE GROUP ENTITIES WERE MAKING SALES IN INDIA WITH THE ACTIVE INVOLVEMENT OF THE P E OF SUCH ENTITIES IN INDIA, THEN, CONSIDERING THE PROVISIONS OF BUSINESS PROFIT ARTICLE OF THE RESPECTIVE TAX TREATIES, THE PROFITS OF THE ENTERPR ISE ARE LIABLE TO BE TAXED IN INDIA TO THE EXTENT ATTRIBUTABLE TO THE PE. THIS RU LE AS WELL AS THE RULES FOR ATTRIBUTION OF SUCH PROFITS ARE AVAILABLE IN THE RE SPECTIVE TAX TREATIES INDIA HAS SIGNED WITH DIFFERENT COUNTRIES OF WHICH SUCH G E GROUP ENTITIES ARE TAX RESIDENT. 7.2 CONSIDERING THE FACT THAT THE SALES ARE MADE T O INDIAN CUSTOMERS ON REGULAR BASIS AND SUCH GE GROUP ENTITIES ARE PHY SICALLY PRESENT IN SOME FORM OR THE OTHER IN INDIA AND SUCH PHYSICAL PRESEN CE HAS FULL ROLE IN THESE SALES. THEREFORE, THE INCOME ACCRUES OR ARISES TO S UCH GE GROUP COMPANIES IN INDIA. SUCH INCOME ACCRUING OR ARISING IS LIABLE TO BE TAXED IN INDIA AS PER THE PROVISIONS OF SECTION 5(2) OF T HE INCOME TAX ACT. 1961. 7.3 THE PRICEWATERHOUSECOOPERS PVT. LTD. VIDE LETTE R DATED 24.03.2008 HAS ALSO SUBMITTED THE LIST OF NON-RESIDENT GE GROU P COMPANIES, WHO HAVE RENDERED SERVICES IN INDIA AND THE PAYMENTS ARE MAD E BY INDIAN COMPANIES. THE PAYMENTS RECEIVED BY SUCH COMPANIES FROM INDIAN RESIDENT IS INCOME ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE IN INDIA AS PER THE PROVISIONS OF SECTION 5(2) R.W.S. 9( 1) OF THE INCOME TAX ACT, 1961. EVEN IF SERVICES ARE RENDERED FROM OUTSI DE INDIA, SUCH PAYMENTS WILL BE INCOME DEEMED TO ACCRUE OR ARISE I N INDIA AS PER THE ITA NO.671/DEL/2011 34 PROVISIONS OF SECTION 9(1 )(VII) OF THE INCOME TAX ACT, 1961. SUCH AMOUNTS WILL ALSO BE TAXABLE AS FEES FOR TECHNICAL SERVICES OR BUSINESS INCOME DEPENDING UPON THE FACTS OF THE CASE AND THE RESPECTIVE TAX TREATY. SUCH ENTITIES ARE LISTED UNDER THE BUSINESS HEAD AV IATION AND FROM S. NO. 3 TO 17. THESE COMPANIES HAVE NOT FILED RETURN OF INC OME, THOUGH THEIR INCOME FOR VARIOUS ASSESSMENT YEARS WAS CHARGEABLE TO TAX IN INDIA. 8. THE AUTHORISED REPRESENTATIVE, PRICEWATERHOUSECO OPERS PVT. LTD. HAS CONFIRMED THAT THE NON-RESIDENT ENTITIES, OF WHICH DETAILS ARE FILED VIDE LETTER DATED 24.03.2008 AND 26.03.2008, HAVE NOT FI LED RETURN OF INCOME IN INDIA EXCEPT IN THE CASE OF NUOVO PIGNONE SPA, ITAL Y, WHICH HAS FILED RETURN OF INCOME WITH INCOME TAX OFFICER, WARD 1(3) , AHMEDABAD. 9. THE NON-RESIDENT GE GROUP COMPANY, NAMELY GE ENE RGY PART INC., USA HAS MADE A SALE OF USD 21,83,146/- DURING F.Y. 2000-01 IN INDIA. AS MENTIONED ABOVE, THE ASSESSEE HAS BUSINESS CONNE CTION AS WELL AS THE PE IN INDIA AS PER THE PROVISIONS OF ARTICLE 5 OF THE TAX TREATY BETWEEN BOTH THE COUNTRIES AND THE INCOME ATTRIBUTABLE TO T HE PE/ BUSINESS CONNECTION IS TAXABLE IN INDIA. SINCE THE ASSESSEE HAS NOT FILED RETURN OF INCOME IN INDIA TO THAT EXTENT THE INCOME CHARGEABL E TO TAX HAS ESCAPED ASSESSMENT. ON THE BASIS OF MATERIAL COLLECTED DURI NG OR AFTER SURVEY OPERATIONS AND DISCUSSED ABOVE, I HAVE REASON TO BE LIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A. Y. 2001-02. THIS BELIEF IS FORMED ON THE BASIS OF FACT THAT ASSESSEE HAS NOT F URNISHED RETURN OF INCOME ALTHOUGH ITS INCOME EARNED IN INDIA DURING T HE PREVIOUS YEAR WAS CHARGEABLE TO INCOME TAX. CONSIDERING THE QUANTUM O F SALES MADE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX, WH ICH HAS ESCAPED ASSESSMENT AMOUNTS TO OR IS LIKELY TO AMOUNT TO MOR E THAN RS.1 LAKH FOR THE YEAR. IN THIS CASE, NOT MORE THAN 6 YEARS HAVE ELAPSED FR OM THE END OF RELEVANT ASSESSMENT YEAR (I.E. A.Y. 200-0) AND INCOME OF MOR E THAN RS. 1 LAKH HAS ESCAPED, ASSESSMENT, THEREFORE, THE NOTICE U/S 148 R.W.S. 147 OF THE INCOME TAX ACT, 1961 SATISFIES THE TIME LIMIT FOR I SSUE OF NOTICE AS PROVIDED IN SECTION 149 OF THE INCOME TAX ACT, 1961 . ITA NO.671/DEL/2011 35 IN THIS CASE, AS MENTIONED ABOVE, ASSESSEE HAS NOT FILED RETURN OF INCOME AND NO ORDER U/S 143(3) OR SECTION 147 HAS BEEN MAD E AND MORE THAN 4 YEARS HAVE EXPIRED FROM THE END OF RELEVANT ASSESSM ENT YEAR, THEREFORE, THE SATISFACTION OF THE ADDL. COMMISSIONER IS REQUI RED. THEREFORE, THE SAME IS PUT UP FOR NECESSARY ACTION. 6. THE LD. SR. AR FERVENTLY ARGUED, AND RIGHTLY SO, THAT THE VALIDITY OF REASSESSMENT CAN BE TESTED ONLY ON THE BASIS OF THE REASONS RECORDED BY THE AO BEFORE ISSUING THE NOTICE U/S 148 AND NO COG NIZANCE CAN BE TAKEN OF ANY OTHER MATERIAL SUPPLEMENTING OR JUSTIFYING T HE REASSESSMENT. WE FULLY ENDORSE THIS ARGUMENT AND WILL RESTRICT OURSE LVES ONLY TO THE REASONS RECORDED FOR EVALUATING THE VALIDITY OF THE INITIATION OF REASSESSMENT. I. FACTUAL ASPECTS 7. FOLLOWING POINTS WERE RAISED ON BEHALF OF THE ASSESSEE TO CONTEND THAT THE REASSESSMENT BE SET ASIDE, WHICH WE WILL D EAL WITH IN SERIATIM. I. NO NAME OF THE ASSESSEE, BUSINESS TRANSACTIONS AND THE RELEVANT YEAR APPEAR IN THE REASONS :- 8.1. THE LD. AR ARGUED THAT THE REASONS RECORDED B Y THE AO FOR INITIATING THE RE-ASSESSMENT PROCEEDINGS IN THE HAN DS OF THE ASSESSEE NEITHER CONTAIN THE NAME OF THE ASSESSEE NOR ITS BU SINESS TRANSACTIONS. ITA NO.671/DEL/2011 36 8.2. WE DO NOT FIND ANY FORCE IN THE ABOVE CONTEN TION EITHER QUA THE NAME OF THE ASSESSEE OR ITS BUSINESS TRANSACTIONS. IT CAN BE SEEN THAT THE TITLE OF REASONS CONTAINS THE NAME OF THE ASSESSEE AND THE RELEVANT YEAR, WHICH READS: REASONS RECORDED FOR ISSUE OF NOTICE U/S 148 OF THE INCOME-TAX ACT, 1961 IN THE CASE OF GE ENERGY PARTS INC., USA FOR ASSESSMENT YEAR 2001-02. IT IS EQUALLY UNDISPUTED THAT IN THE REASONS RECORDED FOR OTHER ENTITIES AND OTHER YEARS, THE NA ME OF THE RESPECTIVE ASSESSEE ALONG WITH THE CONCERNED ASSESSMENT YEAR, PROMINENTLY APPEAR IN THEIR TITLE. OUR ATTENTION HAS BEEN DRAWN TOWARD S PAGES 11 TO 13 OF THE DEPARTMENTAL PAPER BOOK NO.2, WHICH ARE THE THREE A NNEXURES TO THE ASSESSEES LETTER DATED 24.3.2008 ADDRESSED TO THE ADDL. CIT, GIVING YEAR-WISE AND ENTITY-WISE FIGURES OF SALES IN INDIA BY THE GE OVERSEAS ENTITIES ENGAGED IN ENERGY BUSINESS, TRANSPORTATION BUSINESS AND AVIATION BUSINESS. SUCH A LIST HAS BEEN REPRODUCED ON PAGE 20 OF THE ASSESSMENT ORDER, WHICH IS ALSO A PART OF THE REASO NS RECORDED BY THE AO AND SUPPLIED TO THE ASSESSEE. NAME OF THE ASSESSEE APPEARS AT SL. NOS.11 AND 13 OF THIS LIST UNDER THE BROADER CATEGORY OF ` ENERGY BUSINESS. IN ITA NO.671/DEL/2011 37 FACT, NAME OF THE ASSESSEE APPEARS NOT LESS THAN SI X TIMES IN THE REASONS (INCLUDING TWO TIMES IN THE EXHIBITS, WHICH ARE PAR T OF THE REASONS). 8.3. BE THAT AS IT MAY, WE FIND THAT THE SEVEN EXP ATRIATES FROM GEII, REPEATEDLY REFERRED TO IN THE REASONS, WERE POSIT IONED IN INDIA TO HEAD THE BUSINESS OPERATIONS OF THE GE OVERSEAS (REFERRI NG TO ALL THE GE OVERSEAS ENTITIES COLLECTIVELY, AS DESCRIBED BY THE ASSESSEE ITSELF BEFORE THE AO).THEY WERE NOT DEPUTED FOR THE BUSINESS OF A SPECIFIC GE GROUP COMPANY, BUT, FOR THE WORLDWIDE GE GROUP COMPANIES IN ONE OF THE THREE SECTORS, THAT IS, INFRASTRUCTURE (OIL & GAS, ENERGY, RAIL, AIRCRAFT ENGINES AND AVIATION FINANCIAL SERVICES); INDUSTRIA L (EQUIPMENT SERVICES); AND HEALTHCARE (DIAGNOSTIC IMAGING, INFORMATION TEC HNOLOGY, SERVICES AND BIO SCIENCES). ON A POINTED QUERY, IT WAS CANDI DLY ADMITTED ON BEHALF OF THE ASSESSEE THAT ALL THE BUSINESS INTERE STS OF GE OVERSEAS ENTITIES INVOLVED IN THE INSTANT BATCH OF 139 APPEA LS WERE LOOKED AFTER BY ANY OF SUCH SEVEN EXPATS AND THERE WAS NO BUSINESS OF GE OVERSEAS ENTITIES IN INDIA LEFT OUT WHICH WAS HEADED BY SOME PERSON OTHER THAN THE ABOVE SEVEN. THIS FACT IS FURTHER CORROBORATED FROM PAGES 2 AND 3 OF THE ITA NO.671/DEL/2011 38 SECOND PAPER BOOK OF SURVEY DOCUMENTS, WHICH IS A C OMMUNICATION BETWEEN P. RICCARDO AND OTHERS INCLUDING SHAH JAIMI N AND P. ROBERT. THE E-MAIL ON PAGE 2 FROM MIKE HOSFORD TO P. RICCAR DO, SHAH JAIMIN AND COPY TO VIVEK VENKATACHALAM, RECORDS THAT: WE WILL HAVE UNITS FROM AC (SCREW COMPRESSORS AND CCS) NP (RECIPS) AN D TD (CC). THIS E-MAIL SHOWS THAT THE BUSINESS OF GE GROUP WAS TRANSACTED BY EXPATS AND OTHER STAFF FROM INDIA NOT FOR A PARTICU LAR ENTITY, BUT, ON THE BASIS OF NATURE OF BUSINESS. ONCE A PROJECT WAS ACQ UIRED, THE SUPPLIES WERE, ACCORDINGLY, TO BE MADE BY THE RELEVANT ENTIT IES DEALING WITH SUCH PRODUCTS. IN THE ABOVE E-MAIL, SCREW COMPRESSORS AN D CCS WERE TO BE SUPPLIED BY AC, RECIPS BY NP AND CCS BY TD. AC, NP AND TD ARE ADMITTEDLY ABBREVIATIONS OF THE NAME OF THREE DIFFE RENT COMPANIES OF GE GROUP, WHO WERE TO MAKE SUPPLIES IN RESPECT OF THIS CONTRACT WITH RELIANCE INDUSTRIES. 8.4. THE FACT THAT GE INDIA (REPRESENTING EXPATRI ATE EMPLOYEES OF GE INTERNATIONAL INC. LOCATED IN INDIA AND EMPLOYEES O F GE INDIA INDUSTRIAL PRIVATE LIMITED I.E. GEIIPL ENGAGED IN PROVIDING MA RKETING SUPPORT SERVICES FOR OFFSHORE SALES INTO INDIA, AS DESCRIBE D BY THE ASSESSEE ITSELF ITA NO.671/DEL/2011 39 IN CORRESPONDENCE WITH THE AO), WERE NOT WORKING FO R INDIVIDUAL GE ENTITIES BUT FOR ONE OR MORE OF THE ABOVE THREE LI NES OF BUSINESSES OF GE IN INDIA IN A COMBINED MANNER, IS FURTHER PROVED FR OM PAGE 240 OF THE SURVEY DOCUMENTS PAPER BOOK, WHICH REVEALS THE PERS ONNEL HIERARCHY OF `INFRASTRUCTURE BUSINESS OF GE. AT THE TOP IS P. RICCARDO (DESIGNATED AS COUNTRY LEADER, INDIA). HE IS FROM GEII. THEN, TH ERE ARE THREE PERSONS ON THE LEVEL BELOW HIM, NAMELY, VIVEK VENKATACHALAM , AN EMPLOYEE OF GEIIPL (DESIGNATED AS REGIONAL MANAGER, NEW UNIT SA LES), UJWAL KUMAR (DESIGNATED AS ECLP MARKET DEVELOPMENTS) AND DEWAN SHUKLA AGAIN FROM GEIIPL (DESIGNATED AS COUNTRY MANAGER - SERVICES, SALES). THERE ARE OTHER PERSONS IN THE HIERARCHY BELOW THEM . ABOVE DISCUSSION BELIES THE ASSESSEES CONTENTION THAT ITS NAME OR I TS BUSINESS TRANSACTIONS DO NOT APPEAR IN THE REASONS. 8.5. IT WAS ALSO ARGUED BY THE LD. AR THAT THE R EASONS DO NOT REFER TO ANY MATERIAL RELATING TO THE ASSESSMENT YEAR UNDER CONSIDERATION LEADING TO THE ESCAPEMENT OF INCOME. EVEN IF SOME MATERIAL EXISTS FOR A SUBSEQUENT YEAR, THE LD. AR ARGUED THAT THE SAME CA NNOT BE CONSIDERED ITA NO.671/DEL/2011 40 FOR INITIATING REASSESSMENT FOR AN EARLIER YEAR. FO R THIS PROPOSITION, HE RELIED ON CERTAIN JUDGMENTS INCLUDING CIT VS. GUPTA ABHUSHAN (P) LTD. (2009) 312 ITR 166 (DEL) AND SGS INDIA PVT. LTD. VS. ACIT & ANR. (2007) 292 ITR 93 (BOM) . THE LD. AR ALSO PLACED A GREAT DEAL OF EMPHASIS ON THE FACT THAT SEVEN EXPATS WERE NOT POS ITIONED IN INDIA DURING ALL THE YEARS UNDER CONSIDERATION AND HENCE THERE WAS LACK OF SUFFICIENCY OF REASONS FOR SUCH YEARS IN WHICH THEY WERE NOT IN INDIA. IT WAS URGED THAT IN THE ABSENCE OF ANY OTHER MATERIAL EVIDENCING PRESENCE OF THE GE OVERSEAS ENTITIES IN INDIA, IT COULD NOT BE SAID THAT ANY BUSINESS WAS CARRIED OUT IN INDIA AT LEAST FOR SUCH YEARS. T HIS WAS COUNTERED BY THE LD. DR, WHO TOOK US THROUGH SOME MATERIAL TO DE CIPHER THAT THIS CONTENTION IS NOT CORRECT. 8.6. HAVING GONE THROUGH THE ABOVE REFERRED TWO JUDGMENTS, IT IS PATENT THAT THERE MUST BE SOME MATERIAL TO INDICATE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A PART ICULAR YEAR. IF MATERIAL IN THE POSSESSION OF THE AO DIVULGES ESCAP EMENT OF INCOME FOR YEAR A, NO INFERENCE CAN BE DRAWN, DE HORS SOME OTHER RELEVANT ITA NO.671/DEL/2011 41 MATERIAL, THAT SIMILAR INCOME ESCAPED ASSESSMENT FO R YEAR B AS WELL. IN THE CASE OF GUPTA ABHUSHAN (P) LTD. (SUPRA), SOME RENOVATION WAS CARRIED OUT IN THE EARLIER YEARS AND ON THE PRESUMP TION THAT SUCH RENOVATION MUST HAVE BEEN DONE IN THE LATER YEARS A S WELL, THE AO INITIATED REASSESSMENT. THE HONBLE HIGH COURT APP ROVED THE VIEW TAKEN BY THE TRIBUNAL THAT THE ESCAPEMENT OF INCOME BY MEANS OF RENOVATION CARRIED OUT IN LATER YEARS WAS NOT BORNE OUT FROM THE MATERIAL ON RECORD. SIMILARLY, IN THE CASE OF SGS INDIA PVT. LTD. (SUPRA), THE ASSESSEE INCURRED RESEARCH AND DEVELOPMENT EXPENSES IN THE YEAR ONE, WHICH WERE DISALLOWED BECAUSE OF THE TRANSFER PRICI NG ADJUSTMENT AND THE AOS INFERENCE OF ESCAPEMENT OF SIMILAR INCOME FOR THE EARLIER YEAR, WAS HELD TO BE NOT SUSTAINABLE. IN OUR CONSIDERED OPINION, THE POSITION AS STATED ON BEHALF OF THE ASSESSEE IS TRITE, WHICH CANNOT BE INTERFERED WITH. 8.7. HOWEVER, ON THE FACTS AND CIRCUMSTANCES OF T HE INSTANT CASE, WE FIND THAT THESE JUDGMENTS HAVE NO APPLICATION. IT IS PERTINENT TO NOTE THAT IN THE POST-SURVEY ENQUIRIES, BUT, PRIOR TO THE ISS UE OF NOTICE, THE ASSESSEE ITA NO.671/DEL/2011 42 GROUP, VIDE ITS LETTER DATED 16.3.2007, PROVIDED NA ME OF SEVEN EXPATS OF GEII WHO WERE WORKING FOR GE OVERSEAS IN INDIA. S UCH PERSONS, AS PER THEIR ASSIGNMENT LETTERS, WERE DEPUTED IN INDIA FOR LOOKING AFTER THE BUSINESS OPERATIONS OF GE OVERSEAS ENTITIES IN INDI A FOR A SPECIFIC PERIOD RANGING FROM 2-5 YEARS. THE AO HAS NOTED IN PARA 7 OF THE REASONS THAT THE INFORMATION REGARDING THE EMPLOYEES OF GE IN IN DIA PRIOR TO THE PRESENT EXPATS WAS NOT GIVEN BY THE GE GROUP, BUT, THERE WERE PERSONS WORKING FOR SUCH SALES THROUGHOUT THE PERIOD 1.4.20 00 TO TILL DATE. 8.8. THE LD. AR VEHEMENTLY ARGUED THAT THE AO WR ONGLY RECORDED IN PARA 7 OF THE REASONS THAT THE INFORMATION REGARDIN G THE EMPLOYEES OF GE IN INDIA PRIOR TO THE PRESENT EXPATS WAS NOT GIVEN BY THE GE GROUP. IT WAS STATED THAT SUCH INFORMATION WAS NEVER DEMANDED AND, HENCE, THERE WAS NO OCCASION OF GIVING IT AS WELL. THIS WAS OPPO SED BY THE LD. DR WHO SUBMITTED THAT SEVERAL ROUNDS OF MEETINGS TOOK PLACE POST SURVEY OPERATIONS BETWEEN THE DEPARTMENT AND THE ARS OF TH E ASSESSEE GROUP AND SOME INFORMATION INCLUDING THE INSTANT ONE WAS ORALLY DEMANDED. THIS WAS SOUGHT TO BE FORTIFIED BY THE FACT THAT TH OUGH, VIDE SUMMONS ITA NO.671/DEL/2011 43 DATED 2.3.2007, WRITTEN REQUIREMENT WAS MADE FOR GI VING FIGURE OF SALES OF GE ENTITIES IN INDIA FROM 1.4.2003 ONWARDS, BUT, THE ACTUAL INFORMATION SUPPLIED BY THE ASSESSEE ALSO COVERED T HE PERIOD 1.4.2000 TO 31.3.2003 IN ADDITION TO THE INFORMATION AS REQUIRE D IN WRITING FOR THE PERIOD 1.4.2003 ONWARDS, WHICH WAS ORALLY DEMANDED DURING SUCH POST SURVEY MEETINGS. THE LD. DR SUBMITTED THAT THE INFO RMATION ABOUT THE EXPATS WORKING IN INDIA PRIOR TO THE SEVEN EXPATS W AS ALSO ORALLY DEMANDED AS WAS APPARENT FROM THE REASONS RECORDED BY THE AO. 8.9. THE MOOT QUESTION WHICH LOOMS LARGE BEFORE U S IS TO DECIDE IF ANY INFORMATION ABOUT THE EMPLOYEES OF GE IN INDIA PRIO R TO THE PRESENT SEVEN EXPATS WAS CALLED FOR. IF THE ANSWER IS IN A FFIRMATIVE AND THE SAME WAS NOT GIVEN, IT WILL LEAD TO AN INFERENCE THAT OT HER EXPATS WERE WORKING IN INDIA FOR THE GE OVERSEAS ENTITIES DURING THE PE RIOD STARTING FROM 1.4.2000 ONWARDS, THEREBY, PRIMA FACIE CONSTITUTING PE OF SUCH GE ENTITIES IN INDIA AND VICE VERSA . IN THIS REGARD, IT IS RELEVANT TO NOTE THAT THE AO CATEGORICALLY RECORDED IN PARA 7 OF THE REAS ONS DATED 26.3.2008 THAT SUCH INFORMATION WAS DEMANDED, BUT, NOT GIVEN BY THE GE GROUP, ITA NO.671/DEL/2011 44 WHICH DEMONSTRATED THAT THERE WERE OTHER EXPATS WOR KING/MAKING SALES OF GE OVERSEAS THROUGHOUT THE PERIOD 1.4.2000 ONWAR DS. THE ASSESSEE RAISED OBJECTIONS TO THE REASONS RECORDED BY THE AO VIDE ITS LETTER DATED 7.10.2008, WHOSE COPY IS AVAILABLE ON PAGES 1-16 OF THE ASSESSEES FOURTH PAPER BOOK. IT IS VIVID THAT THE ASSESSEE DI D NOT CONTROVERT THIS FACT. THE ASSESSEE HAS TAKEN SEVERAL LEGAL OBJECTIO NS AGAINST THE INITIATION OF REASSESSMENT, BUT DID NOT DENY CORRECTNESS OF FA CTUAL ASSERTIONS IN THIS REGARD IN THE REASONS. THE LD. AR RELIED ON A PARA ON PAGE 14 OF THE OBJECTIONS TO BUTTRESS HIS CONTENTION THAT THE ASSE SSEE WAS NEVER CALLED UPON TO FURNISH THE DETAILS OF EXPATS FOR THE EARLI ER PERIOD. THIS PARA READS AS UNDER:- AS IS APPARENT, THE ROLE OF GEIIPL IS LIMITED TO P ROVIDING LOCAL AND ROUTINE MARKETING SUPPORT SERVICES, WITH ALL CRITIC AL FUNCTIONS (INCLUDING KEY DECISION MAKING ACTIVITIES) WITHIN T HE VALUE CHAIN BEING PERFORMED BY THE COMPANY OUTSIDE INDIA. THE R OLE OF GEIIPL IN THE LIFE-CYCLE OF EQUIPMENT' SALE IS PREPARATORY, I NCIDENTAL AND INSIGNIFICANT. THIS IS BECAUSE THE GE ENERGY BUSINE SS IN OPERATES UNDER A HIGHLY HEAD QUARTER CENTRIC APPROACH WITH T HE CONTRIBUTION OF GEEIPL PERSONNEL BEING LIMITED TO PROVIDING LOCAL I NPUTS/INSIGHTS WITHOUT ANY AUTHORITY TO CONCLUDE CONTRACTS ON BEHA LF OF THE COMPANY OR OTHERWISE BIND THE COMPANY. ITA NO.671/DEL/2011 45 8.10. A PLAIN READING OF THIS PARA SIGNIFIES THAT THERE IS NO DENIAL OF THE ASSERTION RECORDED BY THE AO IN PARA 7 OF THE REASO NS IN THIS REGARD. NOTWITHSTANDING THE FACT THAT THE REASONS WERE RECO RDED ON 26.3.2008 AND THE ASSESSEE DID NOT RAISE ANY OBJECTION ABOUT THE SAID ASPECT OF THE MATTER AND ACCEPTED THE SEPARATE ORDER PASSED BY TH E AO REJECTING SUCH OBJECTIONS, THE ASSESSEE DID NOT EVEN CHALLENGE THI S ASPECT BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL . 8.11. AT THIS STAGE, IT IS RELEVANT TO NOTE THAT THE HONBLE SUPREME COURT IN GKN DRIVE SHAFTS (INDIA) LTD. VS. ITO AND ORS (2003 ) 259 ITR 19 (SC) , HAS LAID DOWN A PROCEDURE TO BE FOLLOWED UPON THE ISSUANCE OF NOTICE U/S 148 OF THE ACT. IT HAS BEEN HELD THAT: THE PROPER COURSE OF ACTION FOR THE NOTICEE IS TO FILE RETURN, AND, IF H E SO DESIRES, TO SEEK REASONS FOR ISSUE OF NOTICES. THE AO IS BOUND TO F URNISH REASONS WITHIN A REASONABLE TIME. ON RECEIPT OF REASONS, THE NOTI CEE IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE AND THE AO IS BOUN D TO DISPOSE OF THE SAME BY PASSING A SPEAKING ORDER. IN A CASE BEFORE THE HONBLE BOMBAY HIGH COURT IN CROWN CONSULTANTS PVT. LTD. VS. CIT (2014) 362 ITA NO.671/DEL/2011 46 ITR 368 (BOM ), THE ASSESSEE, CHALLENGING THE ISSUANCE OF NOTICE OF REASSESSMENT U/S 148, CONTENDED THAT THE ALLEGED LO AN TRANSACTION IN THE REASONS WAS REFLECTED IN ITS FINANCIAL STATEMENTS A S MARGIN MONEY WHICH IT HAD RECEIVED FROM ITS DIRECTORS AND THEIR FAMILY MEMBERS WHICH WAS REFLECTED IN SCHEDULE A TO THE BALANCE SHEET. TH E HONBLE HIGH COURT REFUSED TO ACCEPT THIS SUBMISSION AS THE SAME WAS N OT TAKEN IN THE OBJECTIONS TO THE REASONS FOR REOPENING. IN VIEW O F THIS NEW STAND NOT TAKEN IN THE OBJECTIONS, BUT, TAKEN FOR THE FIRST T IME IN WRIT PETITION, THE HONBLE HIGH COURT HELD THAT THE ASSESSEE CANNOT TA KE UP FRESH OBJECTIONS WHICH THE AO HAD NO OCCASION TO DEAL WIT H BY LAYING DOWN THAT : ` JUST AS THE REVENUE CANNOT IMPROVE UPON ITS CASE FO R REOPENING BEFORE THE COURT AND BUT MUST STAND OR FALL BY THE REASONS RECORDED FOR REOPENING THE ASSESSMENT, THE SAME TEST WOULD BE AP PLICABLE IN CASE OF AN ASSESSEE I.E. IT MUST STAND OR FALL BY ITS OBJEC TION TO THE GROUNDS FOR REOPENING OF ASSESSMENT. IT IS NOT OPEN TO THE ASSESSEE TO URGE FRESH OBJECTIONS BEFORE THE COURT WHICH THE ASSESSING OFF ICER HAD NO OCCASION TO DEAL WITH, UNLESS OF COURSE THE NOTICE TO REOPEN IS EX FACIE WITHOUT JURISDICTION NOT REQUIRING CONSIDERATION OF ANY ARG UMENT SUCH AS BEYOND ITA NO.671/DEL/2011 47 LIMITATION. IN VIEW OF THIS JUDGMENT, IT IS CLEAR THAT THE ASSESSEE CANNOT RAISE A FRESH OBJECTION BEFORE THE TRIBUNAL WHICH W AS NOT TAKEN BEFORE THE AO. 8.12. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THOUGH THE AO CATEGORICALLY RECORDED THE FACT OF EXPATRIATES W ORKING IN INDIA PRIOR TO SEVEN EXPATS, THE ASSESSEE NEITHER CHALLENGED TH E CORRECTNESS OF THIS FACT RECORDED IN ITS OBJECTIONS BEFORE THE AO NOR B EFORE THE LD. CIT(A). IT IS FOR THE FIRST TIME THAT THE ASSESSEE RAISED T HIS PLEA BEFORE THE TRIBUNAL BY WAY OF A SHORT NOTE DATED 3.6.2014. TH IS SHOWS THAT THE OBJECTION WAS TAKEN FOR THE FIRST TIME AFTER EXPIRY OF SIX YEARS FROM THE RECORDING OF REASONS. AS THIS DENIAL IS CONTRARY TO THE FACTUAL RECORDING BY THE AO, WHICH REMAINED UNCHALLENGED BEFORE LOWER AUTHORITIES, WE ARE UNABLE TO ACCEPT SUCH DENIAL AT THIS LATER STAG E IN THE LIGHT OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN CROWN CONSULTANTS (SUPRA) . 8.13. BE THAT AS IT MAY, VERACITY OF SUCH RECORD ING BY THE AO CAN BE INFERRED FROM THE LD. DRS SUBMISSION THAT THE ASS ESSEE GROUP SUBMITTED ITA NO.671/DEL/2011 48 INFORMATION ABOUT THE SALES MADE BY THE OVERSEAS EN TITIES IN INDIA FOR THE PERIOD 1.4.2000 ONWARDS, FOR WHICH, AGAIN, THERE WA S NO WRITTEN REQUIREMENT. IT IS FURTHER NOTICED FROM PAGE 338 OF THE SURVEY DOCUMENTS PAPER BOOK, BEING, A LETTER FROM PRICE WATERHOUSE C OOPERS TO SOME PERSON OF THE GE GROUP AT AIFACS BUILDING, 1, RAFI MARG, NEW DELHI INTIMATING THE APPROVAL BY THE RBI OF CHANGE OF NOD AL OFFICE OF GEIOC FROM MUMBAI TO NEW DELHI VIDE ITS LETTER DATED 8 TH MARCH, 2000. IT IS THIS ADDRESS WHICH WAS SUBJECTED TO SURVEY PROCEEDI NGS IN 2007. PAGE 311 OF THE SURVEY DOCUMENTS PAPER BOOK IS A COPY OF THE LEASE AGREEMENT FOR THE OFFICIAL PREMISES OF THE LO WHICH SHOWS THAT THE LEASE AGREEMENT OF AIFCAS PREMISES WAS RENEWED FROM 1 ST DECEMBER, 2003. THE SAME PAGE INDICATES THAT THE EARLIER LEASE AGRE EMENT DATED 1 ST MARCH, 1994 CAME TO AN END ON 28 TH FEBRUARY, 2003. THESE TWO DOCUMENTS CORROBORATE THAT THE PREMISES, SUBJECTED TO SURVEY PROCEEDINGS ON WHICH BUSINESS ACTIVITIES OF GE OVERSEAS ENTITIES WERE FO UND TO BE CARRIED ON, WAS AT THEIR DISPOSAL FOR ALL THE YEARS UNDER CONSI DERATION. THESE TWO DOCUMENTS COUPLED WITH THE GE GROUP SUPPLYING INFOR MATION ABOUT THE ITA NO.671/DEL/2011 49 SALES MADE BY THE GE OVERSEAS ENTITIES FROM THE YEA R 2000 ONWARDS TILT THE BALANCE IN FAVOUR OF THE DEPARTMENT. 8.14. ABOVE DISCUSSION BOILS DOWN THAT THE SEVEN EXPATS WORKED IN INDIA FOR A PERIOD OF 2-5 YEARS COVERING SOME OF TH E YEARS AND FOR THE PRIOR PERIOD COVERED IN THIS BATCH OF APPEALS, SOME OTHER EXPATS WERE WORKING IN INDIA FOR THE GE OVERSEAS ENTITIES IN A SIMILAR MANNER. 8.15. TO SUM UP, WE JETTISON THE CONTENTION OF TH E LD. AR THAT THE REASONS FOR REOPENING DO NOT REFER TO THE NAME OF T HE ASSESSEE OR ITS BUSINESS ACTIVITIES FOR THE YEAR UNDER CONSIDERATIO N. II. NO ASSERTION IN REASONS THAT ANY PERSON IN IND IA ENTERED INTO CONTRACT ON BEHALF OF ASSESSEE. 9.1. THE LD. AR THEN CONTENDED THAT THERE IS NO ASSERTION IN THE REASONS THAT ANY PERSON IN INDIA ENTERED INTO CONTRACT ON B EHALF OF THE ASSESSEE AND HENCE THE REASSESSMENT BE SET ASIDE ON THIS SCO RE. AU CONTRAIRE, THE LD. DR TOOK US THROUGH THE RELEVANT PARTS OF THE RE ASONS TO FALSIFY THE CLAIM OF THE ASSESSEE. ITA NO.671/DEL/2011 50 9.2. WE DO NOT CONCUR WITH THE SUBMISSIONS PUT FO RTH ON BEHALF OF THE ASSESSEE IN THIS REGARD. SOME DOCUMENTS FOUND DURI NG THE COURSE OF SURVEY ZEROED IN THE POSSIBILITY OF THE GE OVERSEAS ENTITIES CONDUCTING FULL-FLEDGED BUSINESS IN INDIA, WHICH GOT FORTIFIED FROM POST-SURVEY ENQUIRIES DIVULGING MORE SPECIFIC INFORMATION ON TH E BUSINESS OF THE ASSESSEE CARRIED OUT FROM INDIA. PARA 4 OF THE REAS ONS CATEGORICALLY NOTES THAT THE SURVEY AND POST-SURVEY ENQUIRIES TRANSPIRE D THAT THE GE GROUP WAS ENGAGED IN VARIOUS SALES ACTIVITIES IN INDIA FO R WHICH SEVEN BUSINESS HEADS, VIZ., DAN NALAWADE, RICCARDO PROCACCI, WLLLI AM BLAIR, ASHFAQ NAINAR, KENNETH PEIRSON, SAMEER AGGARWAL AND PRAT. KUMAR, MOSTLY EXPATS FROM GEII, WERE APPOINTED TO HEAD INDIAN OPE RATIONS, WITH THE SUPPORT STAFF PROVIDED BY GEIIPL AND ALSO THIRD PAR TIES. THE ASSESSEE ALSO SUBMITTED PART INFORMATION REGARDING SUCH EMPL OYEES, BEING, THEIR ASSIGNMENT LETTERS, JOB RESPONSIBILITIES, SELF APPR AISAL ETC. THE GE GROUP/ASSESSEE, IN RESPONSE TO SUMMONS DATED 02.03. 2007, ALSO ADMITTED THAT ALL THE GE OVERSEAS ENTITIES IN THE LINE OF IN FRASTRUCTURE, INDUSTRIAL AND HEALTHCARE HAD PRESENCE IN INDIA. IT HAS BEEN N OTED IN PARA 7 OF THE REASONS THAT ` THE EXPATS WERE DEPUTED IN INDIA FOR UNDERTAKING TH E ITA NO.671/DEL/2011 51 MARKETING ACTIVITIES INCLUDING PRICE NEGOTIATION, S UPERVISION, ADMINISTRATION, SALE FUNCTIONS AND AFTER SALES ACTI VITIES AND THEIR TEAMS WERE CONTINUOUSLY CARRYING OUT THE BUSINESS OF VARI OUS ENTITIES OF THE GE GROUP, WHICH MADE SALES IN INDIA FROM THE ABOVE STATED OFFICE PREMISES IN DELHI AND OTHER PLACES OF BUSINESSES IN INDIA, W HICH CONSTITUTED PE OF SUCH GE OVERSEAS ENTITIES IN INDIA AS PER PARA 5 OF THE RESPECTIVE DTAA AND FURTHER SUCH ACTIVITIES WERE NOT OF THE PREPARA TORY OR AUXILIARY CHARACTER. THE AO, ON THE BASIS OF SUCH INFORMATION GATHERED DURING THE COURSE OF SURVEY AND POST-SURVEY ENQUIRIES, CAME T O CONCLUSION VIDE PARA 6 OF THE REASONS THAT VARIOUS GE GROUP ENTITIE S, SEPARATELY NAMED IN THE TABLE, WHICH COVERS ALL THE GE OVERSEAS ENTITIE S UNDER CONSIDERATION, WERE CARRYING ON BUSINESS AND EFFECTING SALES IN IN DIA. DETAILS OF BUSINESS AND THE SALES MADE BY SUCH ENTITIES DURING THE PERIOD 01.04.2000 TO 31.03.2006 FORM PART OF THE REASONS B Y WAY OF ANNEXURE. IT IS ERGO ABUNDANTLY CLEAR THAT THE AO HAS CLEARLY ASSERTED IN THE REASONS THAT GE INDIA CARRIED OUT FULL-FLEDGED BUSINESS ACT IVITIES AND MADE SALES IN INDIA FOR ALL THE GE OVERSEAS ENTITIES. THIS CON TENTION FAILS. ITA NO.671/DEL/2011 52 III. NO ASSERTION IN REASONS THAT INCOME ESCAPED AS SESSMENT BECAUSE OF FAILURE OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS 10.1. THE LD. AR ALSO CHALLENGED THE INITIATION O F REASSESSMENT BY CONTENDING THAT THERE WAS NO ASSERTION IN THE REASO NS THAT INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT BECAUSE OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR ASSESSMENT. RELIANCE WAS PLACED ON CERTAIN DECISION S TO BRING HOME THE POINT THAT THE REASSESSMENT NEEDS TO BE QUASHED IN THE ABSENCE OF A SPECIFIC ALLEGATION IN THE REASONS ABOUT THE FAILUR E OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT. THIS WAS STRONGLY REBUTTED ON BEHALF OF THE REVENUE . 10.2. WE ARE AGAIN NOT PERSUADED TO CONCUR WITH THE ARGUMENT OF THE ASSESSEE ON THIS ISSUE. IT IS SIGNIFICANT TO NOTE A T THIS STAGE THAT THE ASSESSEE DID NOT FILE ITS RETURN OF INCOME FOR ANY OF THE YEARS UNDER CONSIDERATION PRIOR TO NOTICE U/S 148 OF THE ACT. P ARA 6.1 OF REASONS RECORDS THAT THE ASSESSEE COMPANY HAD NOT FILED RET URN OF INCOME FOR ANY YEAR. PARA 8 FURTHER RECORDS THAT THE AUTHORISED RE PRESENTATIVE ITA NO.671/DEL/2011 53 CONFIRMED THAT THE NON-RESIDENT ENTITIES HAD NOT FI LED RETURNS OF INCOME IN INDIA EXCEPT IN THE CASE OF NUOVO PIGNONE SPA, I TALY, WHICH FILED RETURN OF INCOME WITH INCOME TAX OFFICER, WARD 1(3) , AHMEDABAD. 10.3. THE DECISIONS REFERRED TO BY THE LD. AR HAV E BEEN RENDERED IN THE CONTEXT OF PROVISO TO SECTION 147, THE RELEVANT PAR T OF WHICH PROVIDES THAT : `WHERE AN ASSESSMENT UNDER SUB-SECTION (3) O F SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT Y EAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOU R YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHA RGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE ON THE PART OF THE ASSESSEE .TO DISCLOSE FULLY AND TR ULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT Y EAR. AS THE ASSESSEE HAD NOT FILED ITS RETURN OF INCOME IN FIRST INSTANC E BEFORE ISSUE OF NOTICE U/S 148, THERE COULD NOT HAVE BEEN ANY WAY OF DISCL OSING FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 10.4. THE VIEW CANVASSED BY THE LD. AR THAT THE AO FAILED TO RECORD IN THE REASONS THAT INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT, IS ITA NO.671/DEL/2011 54 AGAIN FALLACIOUS. IT CAN BE SEEN THAT THE AO HAS CO NCLUSIVELY RECORDED THAT THE INCOME OF THE ASSESSEE WAS CHARGEABLE TO T AX BECAUSE OF THE INDIAN OPERATIONS OF THE GE OVERSEAS, WHICH ESTABLI SHED A BUSINESS CONNECTION UNDER THE ACT AND ALSO PE UNDER THE DTAA AND THE ABSENCE OF THE ASSESSEE TO FILE A RETURN OF INCOME LED TO T HE ESCAPEMENT OF INCOME. IN ADDITION, PARA 9 OF THE REASONS, WHICH H AS NOT BEEN SET OUT IN THE ASSESSMENT ORDER, POSITIVELY STATES: ` THE NON-RESIDENT GE GROUP COMPANY, NAMELY GE ENERGY PART INC., USA HAS MADE A SALE OF USD 21,83,146/- DURING F.Y. 2000-01 IN INDIA. AS MENT IONED ABOVE, THE ASSESSEE HAS BUSINESS CONNECTION AS WELL AS THE PE IN INDIA AS PER THE PROVISIONS OF ARTICLE 5 OF THE TAX TREATY BETWEEN B OTH THE COUNTRIES AND THE INCOME ATTRIBUTABLE TO THE PE/ BUSINESS CONNECT ION IS TAXABLE IN INDIA. SINCE THE ASSESSEE HAS NOT FILED RETURN OF I NCOME IN INDIA TO THAT EXTENT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASS ESSMENT. ON THE BASIS OF MATERIAL COLLECTED DURING OR AFTER SURVEY OPERATIONS AND DISCUSSED ABOVE, I HAVE REASON TO BELIEVE THAT INC OME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A. Y. 2001-02.THIS BELIE F IS FORMED ON THE BASIS OF FACT THAT ASSESSEE HAS NOT FURNISHED RETUR N OF INCOME ALTHOUGH ITA NO.671/DEL/2011 55 ITS INCOME EARNED IN INDIA DURING THE PREVIOUS YEAR WAS CHARGEABLE TO INCOME TAX. THUS, THE ARGUMENT THAT THERE IS NO ASSERTION IN RE ASONS THAT INCOME ESCAPED ASSESSMENT BECAUSE OF THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS, DOES N OT HOLD WATER. 11. FOREGOING DISCUSSION REVEALS THAT THE FOLLOWI NG BROADER POINTS EMERGE FROM THE REASONS RECORDED BY THE AO ALONG WI TH THE ANNEXURES TO SUCH REASONS. I. NEITHER THE ASSESSEE NOR ANY OTHER GE OVERSEAS ENTI TY, EXCEPT NUOVO PIGNONE SPA, ITALY, HAD FILED RETURNS OF INCO ME IN INDIA FOR ANY OF THE YEARS UNDER CONSIDERATION. II. SURVEY U/S 133A OF THE ACT CARRIED OUT AT AIFACS PR EMISES OF THE LO OF GEIOC IN DELHI SET UP TO UNDERTAKE ONLY T HE LIAISON ACTIVITIES DIVULGED THAT OTHER GE OVERSEAS ENTITIES WERE CARRYING ON FULL-FLEDGED BUSINESS FROM THERE. III. THE GE OVERSEAS ENTITIES IN THE LINES OF INFRASTRUC TURE (OIL & GAS, ENERGY, RAIL, AIRCRAFT ENGINES AND AVIATION FI NANCIAL SERVICES); INDUSTRIAL (EQUIPMENT SERVICES); AND HEA LTHCARE (DIAGNOSTIC IMAGING, INFORMATION TECHNOLOGY, SERVIC ES AND BIO SCIENCES) HAD PRESENCE IN INDIA. IV. THE GE OVERSEAS ENTITIES WERE ENGAGED IN VARIOUS SA LES ACTIVITIES IN INDIA, THROUGH EXPATS FROM GEII WITH THE SUPPORT STAFF PROVIDED BY GEIIPL AND ALSO THIRD PARTIES DUR ING ALL THE YEARS UNDER CONSIDERATION AND FURTHER THERE WAS INF ORMATION ABOUT ENTITY-WISE AND YEAR-WISE SALES MADE BY ALL O F THEM DURING THE PERIOD 01.04.2000 TO 31.03.2006. ITA NO.671/DEL/2011 56 V. THE EXPATRIATES WERE DEPUTED IN INDIA FOR UNDERTAKI NG THE MARKETING ACTIVITIES INCLUDING PRICE NEGOTIATION, S UPERVISION, ADMINISTRATION, SALE FUNCTIONS AND AFTER SALES ACTI VITIES OF THE OVERALL LINES OF BUSINESSES OF GE GROUP IRRESPECTIV E OF THE ANY SPECIFIC GE GROUP ENTITY. THEY CONSTITUTED PE OF GE OVERSEAS ENTITIES IN INDIA AND THEIR ACTIVITIES WERE NOT OF THE PREPARATORY OR AUXILIARY CHARACTER. VI. THESE EXPATS AND THEIR TEAMS HAD AT THEIR DISPOSAL AIFACS PREMISES, WHICH WAS APPARENTLY DECLARED AS A LO OF GEIOC. VII. EMPLOYEES OF GEIIPL ALONG WITH THE EXPATS FORMED SA LE TEAMS, WHICH HABITUALLY SECURED ORDERS IN INDIA FOR THE NO N-RESIDENT GE GROUP ENTITIES. THEREFORE, SUCH EXPATS AND EMPLOYEE S OF GEIIPL ALSO CONSTITUTED A DEPENDENT AGENT PE. VIII. THE ACTIVITIES OF THE THIRD PARTIES WORKING FOR THE GE GROUP ALSO CONSTITUTED AGENCY PE/ BUSINESS CONNECTION OF THE G E GROUP ENTITIES. IX. PROFIT OF VARIOUS GE OVERSEAS ENTITIES MAKING SALES IN INDIA WITH THE ACTIVE INVOLVEMENT OF THEIR PES, WAS LIABLE TO BE TAXED IN INDIA AS PER ARTICLE 7 READ WITH ARTICLE 5 OF RESPE CTIVE DTAA AND SUCH INCOME ACCRUING OR ARISING WAS ALSO LIABLE TO BE TAXED IN INDIA AS PER THE PROVISIONS OF THE ACT. X. THE ASSESSEE MADE SALES OF USD 21,83,146/- DURING THE F.Y. 2000-01 IN INDIA. THE ASSESSEE HAD BUSINESS CONNECTION AS WELL AS PE IN INDIA AND THE INCOME ATTRIBUTABLE TO THE PE/ BUSINESS CONNECTION WAS TAX ABLE IN INDIA. SINCE THE ASSESSEE HAD NOT FILED RETURN OF I NCOME IN INDIA, INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT TO THAT EXTENT. ITA NO.671/DEL/2011 57 12. NOW THE QUESTION ARISES WHETHER THE ABOVE EX TRACTED REASONS CITED BY THE AO JUSTIFY THE INITIATION OF REASSESSMENT PR OCEEDINGS. BOTH THE SIDES HAVE RELIED ON CERTAIN DECISIONS TO DRIVE THE IR RESPECTIVE VIEWS. 13. LEGAL POSITION ON THIS ISSUE IS THAT THE AO SHOULD HAVE PRIMA FACIE GROUNDS FOR FORMING A BELIEF THAT THERE IS SOME ESC APEMENT OF INCOME, WHICH IS A CONDITION PRECEDENT FOR INITIATING REASS ESSMENT. THE HONBLE SUPREME COURT IN RAYMOND WOOLLEN MILLS VS. ITO (1999) 236 ITR 34 (SC) HAS HELD TO THIS EXTENT BY LAYING DOWN THAT IF PRIMA FACIE SOME MATERIAL EXISTS ON THE BASIS OF WHICH THE DEPARTMEN T CAN REOPEN THE CASE, IT IS SUFFICIENT TO INITIATE REASSESSMENT. THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO BE CO NSIDERED AT THIS STAGE. THE SAME VIEW HAS BEEN REITERATED AGAIN BY THE HON BLE SUMMIT COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKER (P) LTD. (2007 ) 291 ITR 500 (SC). THE HONBLE APEX COURT HELD IN THIS LATER CASE THAT : IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEV E THAT INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO ITA NO.671/DEL/2011 58 SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL E VIDENCE OR CONCLUSION AT THAT STAGE THE FINAL OUTCOME OF THE PROCEEDING S IS NOT RELEVANT. IT FURTHER WENT ON TO HOLD THAT: AT THE INITIATION STAGE, WHAT IS REQUIRED IS REASON TO BELIEVE, BUT, NOT T HE ESTABLISHMENT OF FACT OF ESCAPEMENT OF INCOME . AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE . THE HONBLE JURISDICTIONAL HIGH COURT HAS ALSO LAID DOWN SIMILAR PROPOSITION IN SEVERAL JUDGMENTS INCLUDING AREVA T & D, SA VS. ASSTT. DIT (2012) 349 ITR 127. IN THIS CASE ALSO, NO RETURN OF INCOME WAS FILED BY THE PETITIONER, SIMILAR TO THE CASE BE FORE US. UPHOLDING THE INITIATION OF REASSESSMENT, THE HONBLE HIGH COURT HELD THAT: IN ANY CASE, IT IS WELL SETTLED THAT AT THIS STAGE ONLY PRIMA FACIE VIEW IS TO BE TAKEN TO DETERMINE AND DECIDE WHETHER THERE ARE REA SONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. WHETHER OR NOT ANY I NCOME OF THE PETITIONER IS CHARGEABLE TO TAX IN INDIA, WHETHER THE PETITIONER HAS A PERMANENT ESTABLISHMENT IN INDIA, ETC., ARE MATTERS OF MERITS WHICH ARE ITA NO.671/DEL/2011 59 TO BE DECIDED IN THE ASSESSMENT PROCEEDINGS. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN ROLLS ROYCE PLC VS. DIT (INTERNATIONAL TAXATION) (2011) 339 ITR 147 (DEL) UPHOLDING THE VIEW OF THE TRIBUNAL IN ROLLS ROYCE PLC VS. DIT 2007-TII-32-ITAT-DL-INTL, IN WHICH CASE, AGAIN, THE ASSESSEE HAD NOT FILED IT S RETURN OF INCOME PRIOR TO ISSUE OF NOTICE AND THE TRIBUNAL REJECTED THE AS SESSEES CHALLENGE TO THE INITIATION OF REASSESSMENT PROCEEDINGS BY HOLDI NG THAT THE AO AT THAT STAGE WAS REQUIRED ONLY TO FORM A PRIMA FACIE OPINION ABOUT THE ESCAPEMENT OF INCOME, WHICH CONDITION STOOD SATISFI ED. IN AN EARLIER DECISION, THE HONBLE DELHI HIGH COURT IN REACH CABLE NETWORKS LTD. VS. DDIT (2008) 299 ITR 316 (DEL) DISMISSED THE WRIT PETITION CHALLENGING THE INITIATION OF REASSESSMENT PROCEEDI NGS IN WHICH AGAIN THE ASSESSEE HAD NOT ORIGINALLY FILED THE RETURN OF INC OME. IN THE WORDS OF THE HONBLE DELHI HIGH COURT IN CONVERGYS CUSTOMER MANAGEMENT VS. ASSTT. DIT (2013) 357 ITR 177 (DELHI) : ` AT THE TIME OF ISSUANCE OF NOTICE S UNDER SECTION 148, THE ASSESSING OFFICER IS NOT EXPECTED TO FORM ANY DEFINITE OR CONCLUSIVE OPINION ABOUT THE TAXABI LITY OF THE DISPUTED ITA NO.671/DEL/2011 60 AMOUNTS AND THAT HE IS ONLY EXPECTED TO FORM A TENTATIVE OR PRIMA FA CIE BELIEF REGARDING THE ESCAPEMENT OF INCOME CHARGEABLE TO TAX. 14. A CURSORY LOOK AT THE ABOVE JUDGMENTS FAIRLY BRINGS OUT THAT THE INITIATION OF REASSESSMENT PROCEEDINGS REQUIRES THE AO TO FORM A PRIMA FACIE VIEW ABOUT THE ESCAPEMENT OF INCOME. THERE IS NO N EED TO CONCLUSIVELY ESTABLISH AT THAT STAGE THAT SUCH AND SUCH INCOME ESCAPED ASSESSMENT. IF IT EMERGES FROM THE REASONS RECORDE D, WHICH, IN TURN, ARE BASED ON SOME RELEVANT MATERIAL, THAT THE AO HAD PRIMA FACIE REASON TO BELIEVE ABOUT INCOME ESCAPING ASSESSMENT, THE MATTE R ENDS THERE INSOFAR AS THE INITIATION OF REASSESSMENT PROCEEDINGS IS CO NCERNED. NO FAULT CAN BE FOUND WITH THE JURISDICTION OF THE AO TO INITIAT E REASSESSMENT. 15. ADVERTING TO THE FACTS OF THE INSTANT CASE, W E FIND THAT THE SURVEY AND POST-SURVEY ENQUIRIES CONDUCTED BY THE AO BEFOR E ISSUE OF NOTICE U/S 148 GAVE SUFFICIENT MATERIAL FOR THE FORMATION OF A PRIMA FACIE BELIEF THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSM ENT. 16. THE LD. AR, CONTENDED THAT THE AO DID NOT PRIMA FACIE PROVE IN REASONS THE EXISTENCE OF PE OF THE ASSESSEE IN INDI A AND HENCE ITA NO.671/DEL/2011 61 REASSESSMENT BE SET ASIDE. TO BUTTRESS SUCH ARGUMEN T, HE SIMPLY FOCUSED ON SOME OF THE E-MAILS ETC. FOUND IN SURVEY, WHICH IN THEMSELVES DID NOT ESTABLISH THAT SOME REVENUE GENERATING ACTIVITY WAS CARRIED OUT FROM INDIA. IT IS TRUE THAT SUCH E-MAILS DO NOT ESTABLIS H THE EXISTENCE OF PE IN INDIA, BUT THE OTHER E-MAILS ALONG WITH THE REMAINI NG MATERIAL COLLECTED DURING THE COURSE OF SURVEY AND POST-SURVEY ENQUIRE S, WHICH WE WILL ELABORATELY DISCUSS LATER, PRIMA FACIE, COMPEL A PERSON, REASONABLY INSTRUCTED IN LAW, TO FORM A VIEW ABOUT THE EXISTEN CE OF PE OF THE ASSESSEE AND OTHER GE OVERSEAS ENTITIES IN INDIA. A S SUCH, WE ARE DISINCLINED TO ACCEPT THE CONTENTION OF THE ASSESSE E THAT THE AO WAS NOT JUSTIFIED IN INITIATING THE REASSESSMENT PROCEEDING S. 17. IT IS APT TO TAKE NOTE OF THE FACT THAT THE ASSESSEE HAD NOT FILED RETURN OF INCOME PRIOR TO THE ISSUE OF NOTICE U/S 148. EX PLANATION 2(A) TO SECTION 147 PROVIDES THAT WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME DURING TH E PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT, WHICH IS NOT CHARGEABL E TO INCOME-TAX, IT SHALL BE DEEMED TO BE A CASE WHERE INCOME CHARGE ABLE TO TAX HAS ITA NO.671/DEL/2011 62 ESCAPED ASSESSMENT. BUSINESS CARRIED ON BY THE GE OVERSEAS ENTITIES IN INDIA WAS NEVER DISCLOSED TO THE DEPARTMENT. BUSINE SS CONNECTION OF THE ASSESSEE IN INDIA, AS SET UP BY THE AO, HAS NOT BEE N DENIED. IN THAT VIEW OF THE MATTER AND THE FURTHER FACT THAT THE SALES W ERE MADE BY GE OVERSEAS IN INDIA THROUGH GE INDIA, THERE WAS INCOM E OF THE ASSESSEE CHARGEABLE TO TAX IN INDIA FOR WHICH THE RETURN OF INCOME OUGHT TO HAVE FILED AND THE BENEFIT OF DTAA, IF ANY, COULD HAVE B EEN CLAIMED AS WAS DONE PURSUANT TO THE NOTICE U/S 148. THE FACT THAT THE ASSESSEE HAD A PE IN INDIA AND NO RETURN WAS FILED PRIOR TO THE ISSUA NCE OF NOTICE U/S 148 ALSO BRINGS THE CASE WITHIN THE FOLD OF EXPLANATION 2(A) TO SECTION 147. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE FULLY S ATISFIED THAT THE AO WAS JUSTIFIED IN INITIATING REASSESSMENT PROCEEDING S. II. TP ADJUSTMENT NO OTHER INCOME ATTRIBUTION 18.1. THE LD. AR CONTENDED THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, NAMELY, 2001-02, THE PROVISIONS OF C HAPTER-X OF THE ACT WERE ALBEIT NOT APPLICABLE, BUT, IN THE SUBSEQUENT YEARS OF THI S ASSESSEE AND OTHER ASSESSEES, THE TRANSFER PRICING PROVISION S ARE APPLICABLE QUA ITA NO.671/DEL/2011 63 THE INTERNATIONAL TRANSACTION OF `MARKETING SUPPOR T SERVICES RENDERED BY GEIIPL TO GE ENTITIES PURSUANT TO AGREEMENT WIT H GEIOC. IT WAS PUT FORTH THAT GEIIPL INTIMATED THE INTERNATIONAL TRANSACTION OF RENDERING MARKET SUPPORT SERVICES TO VARIOUS AES, A ND THE AO ACCEPTED THE SAME AT ARMS LENGTH PRICE (ALP) WITHOUT REFERR ING IT TO THE TRANSFER PRICING OFFICER (TPO) FOR THE DETERMINATION OF ITS ALP FOR THE AYS 2002-03 AND 2003-04. IT WAS FURTHER STATED THAT THO UGH THE AO MADE A REFERENCE TO THE TPO FOR DETERMINING ALP OF THE INT ERNATIONAL TRANSACTION OF RENDERING OF MARKETING SERVICES BY G EIIPL FOR THE A.YS. 2004-05 AND 2005-06, BUT, THE TPO ACCEPTED THE TRAN SACTION AT ALP. FOR THE A.Y. 2006-07, THE TPO MADE CERTAIN TP ADJUSTMEN T, BUT, THE TRIBUNAL RESTORED THE MATTER TO THE TPO FOR A FRESH DETERMINATION WHICH WAS STILL PENDING. FOR THE A.Y. 2007-08, NO TP ADJU STMENT WAS STATED TO HAVE BEEN MADE IN THE HANDS OF GEIIPL AND THE TP AD JUSTMENT MADE FOR THE AY 2008-09 WAS PENDING CONSIDERATION BEFORE THE TRIBUNAL. COPIES OF THE ORDERS PASSED BY THE TPO FOR SUCH EARLIER YE ARS WERE PLACED ON RECORD. RELYING ON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN THE CASE OF DIT (I.T.) VS. MORGAN STANLEY & CO. INC. (2007) 292 ITR 416 ITA NO.671/DEL/2011 64 (SC), THE LD. AR CONTENDED THAT ONCE A TRANSFER PRICING ANALYSIS IS UNDERTAKEN, THERE IS NO FURTHER NEED TO ATTRIBUTE P ROFITS TO A PE. IT WAS CONTENDED THAT SIMILAR VIEW HAS BEEN TAKEN BY THE H ONBLE DELHI HIGH COURT IN ADOBE SYSTEMS INC. VS. ASSTT. DIT (2010) 240 TAXMAN 353 (DEL) AND IN DIT VS. BBC WORLDWIDE LTD. (2011) 203 TAXMAN 554 (D EL.) FOR THIS PROPOSITION, THE LD. AR ALSO RELIED ON ANOTHER JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN SET SATELLITE (SINGAPORE) PTE LTD. VS. DDIT (INTERNATIONAL TAXATION) (2008) 307 ITR 205 (B OM ). IT WAS THUS CONTENDED THAT DUE TO ACCEPTANCE OF THE ALP OF THE INTERNATIONAL TRANSACTION OF RENDERING MARKETING SERVICES IN THE HANDS OF GEIIPL, NO FURTHER INCOME COULD BE ATTRIBUTED DUE TO THE PE. T HIS ARGUMENT, IN THE OPINION OF THE LD. AR, PRIMA FACIE SHOWED LACK OF REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT. 18.2. SOUNDING A CONTRA NOTE, THE LD. DR CONTENDED THAT ALP OF PAYMENT MADE BY GEIOC FOR MARKETING SERVICES RENDERED TO GE OVERSEAS ENTITIES BY GEIIPL COULD NOT BE CONSIDERED AS DECISIVE INSOF AR AS THE ATTRIBUTION OF PROFITS TO THE PE IS CONCERNED. HE RELIED ON TH E JUDGMENT OF THE ITA NO.671/DEL/2011 65 HONBLE ALLAHABAD HIGH COURT DATED 5 TH AUGUST, 2014 IN LG ELECTRONICS INC. VS. ADDL. CIT , IN WHICH SIMILAR CONTENTION RAISED ON BEHALF OF T HE ASSESSEE WAS REJECTED AFTER CONSIDERING THE JUDGMEN T IN THE CASE OF MORGAN STANLEY (SUPRA) . 18.3. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE PROVISIONS OF CHAPTER X ARE NOT APPLICABLE TO THE A.Y. 2001-02, WHICH IS PRESENTLY UNDER CONSIDERATION IN THIS APPEAL. IN THAT VIEW OF THE MATTER, THIS CO NTENTION RAISED BY THE ASSESSEE FOR THE A.Y. 2001-02 DOES NOT STAND ANY MO RE. HOWEVER, SUCH AN ARGUMENT MERITS CONSIDERATION FOR OTHER YEARS OF THIS AND OTHER ASSESSEES. 18.4. SURVEY WAS CONDUCTED AT THE LO OF GEIOC WH ICH HAD ENTERED INTO A GLOBAL SERVICE AGREEMENT (GSA) WITH AN INDIA N COMPANY, NAMELY, GE INDIA INDUSTRIAL PVT. LTD. (GEIIPL) ON 1 6 TH JANUARY, 2001. A COPY OF THIS AGREEMENT IS AVAILABLE AT PAGES 271- 282 OF THE PAPER BOOK-1. IN TERMS OF THIS AGREEMENT, GEIOC REQUESTE D GEIIPL TO PROVIDE CERTAIN SERVICES. THE SERVICES TO BE PROV IDED BY GEIIPL UNDER ITA NO.671/DEL/2011 66 THIS AGREEMENT HAVE BEEN SET OUT IN CLAUSE 1 OF THE AGREEMENT, WHICH STATES THAT GEIIPL (EARLIER CALLED GE POWER INDIA) SHALL FROM TIME TO TIME PROVIDE THE FOLLOWING SUPPORT SERVICES TO GEIOC AND ITS AFFILIATE ENTITIES : - (I) IDENTIFY AND SEEK BUSINESS OPPORTUNITIES AND P ROVIDE INFORMATION RELATING TO PRODUCTS AND SERVICES OF GEIOC AND ITS AFFILIATE ENTITIES TO POTENTIAL CUSTOMERS IN INDIA; (II) ARRANGE APPOINTMENTS AND MEETINGS BETWEEN EXIS TING AS WELL AS PROSPECTIVE CUSTOMERS AND GEIOC/ITS AFFILIATE ENTIT IES AND PROVIDE NECESSARY SUPPORT IN CLIENT MEETINGS AND DISCUSSION S; (III) ACT AS A CHANNEL OF COMMUNICATION BETWEEN CU STOMERS AND GEIOC/ITS AFFILIATE ENTITIES; (IV) INVESTIGATE AND PROVIDE INFORMATION ON CURRENT TRENDS IN BUSINESS, STATUS OF COMPETING PRODUCTS, TECHNOLOGICAL DEVELOP MENTS, PRICING OF COMPETITORS, GOVERNMENT POLICIES AND OTHER DEVELOPM ENT, ETC., THAT WOULD BE OF INTEREST TO GEIOC/ITS AFFILIATE ENTITIE S; AND TO ITA NO.671/DEL/2011 67 (V) PROVIDE AN EFFECTIVE LINK BETWEEN GEIOC/ITS AF FILIATE ENTITIES AND VARIOUS REGULATORY AUTHORITIES FROM TIME TO TIME ON ALL BUSINESS MATTERS. 18.5. NATURE OF SUPPORT SERVICES TO BE PROVIDED B Y GEIIPL AS PER THIS AGREEMENT IS INCLUSIVE OF THE SERVICES PERMITTED BY THE RESERVE BANK OF INDIA TO GEIOC AT THE TIME OF SETTING UP OF ITS LO IN INDIA. THE PERMISSION WAS GRANTED BY THE RBI FOR THE PURPOSE O F UNDERTAKING PURELY LIAISON ACTIVITIES, VIZ., TO ACT AS A COMMUNICATION CHANNEL BETWEEN HEAD OFFICE AND ITS CUSTOMERS IN INDIA. THIS PERMISSION WAS GRANTED SUBJECT TO THE CONDITIONS THAT EXCEPT THE P ROPOSED LIAISON WORK, THE LO WILL NOT UNDERTAKE ANY OTHER ACTIVITY OF A TRADI NG, COMMERCIAL OR INDUSTRIAL NATURE OR IT SHALL NOT ENTER INTO ANY BUSINESS CONTRACTS IN ITS OWN NAME WITHOUT PRIOR PERMISSION OF THE RBI. IT WA S FURTHER DIRECTED BY THE RBI THAT THE LIAISON OFFICE WILL NOT CHARGE ANY COMMISSION/FEES FOR LIAISON ACTIVITIES AND THE ENTIRE EXPENSES OF T HE LO WILL BE MET EXCLUSIVELY OUT OF THE FUNDS RECEIVED FROM ABROAD T HROUGH NORMAL BANKING CHANNELS. IT WAS ALSO DIRECTED THAT THE LO SHALL NOT BORROW OR LEND ANY MONEY FROM/TO ANY PERSON IN INDIA WITHOUT PRIOR PERMISSION ITA NO.671/DEL/2011 68 AND IT SHALL NOT ACQUIRE, HOLD ANY IMMOVABLE PROPER TY, ETC., EXCEPT BY WAY OF A LEASE FOR A PERIOD NOT EXCEEDING FIVE YEAR S. 18.6. IT IS CLEAR THAT GEIIPL REPORTED INTERNATIONA L TRANSACTION OF RENDERING `MARKETING SERVICES TO GEIOC AND OTHER G E OVERSEAS ENTITIES, WHICH WAS LARGELY ACCEPTED AT ALP EXCEPT FOR SOME YEARS, THE PROCEEDINGS FOR WHICH ARE STILL NOT FINAL. WHEN WE CONSIDER THE SCOPE OF `MARKETING SERVICES AS PER THE AGREEMENT IN CONJUN CTION WITH THE PERMISSION GRANTED BY THE RBI, IT COMES TO THE FORE THAT THE SAME ARE RESTRICTED TO `MARKET SUPPORT SERVICES, SUCH AS, PROVIDING INFORMATION RELATING TO PRODUCTS AND SERVICES OF GEIOC AND ITS AFFILIATE ENTITIES TO POTENTIAL CUSTOMERS IN INDIA; PROVIDING NECESSARY S UPPORT IN CLIENT MEETINGS AND DISCUSSIONS; ACTING AS A CHANNEL OF CO MMUNICATION BETWEEN CUSTOMERS AND GEIOC/ITS AFFILIATE ENTITIES; PROVIDING INFORMATION ON CURRENT TRENDS IN BUSINESS ETC. THAT COULD BE OF INTEREST TO GEIOC/ITS AFFILIATE ENTITIES; AND PROVIDING AN EFFE CTIVE LINK BETWEEN GEIOC/ITS AFFILIATE ENTITIES AND VARIOUS REGULATORY AUTHORITIES FROM TIME TO TIME ON ALL BUSINESS MATTERS. ALL THESE LARGELY FALL IN THE REALM OF ITA NO.671/DEL/2011 69 `LIAISON ACTIVITIES, WHICH BY THEMSELVES DO NOT CO NSTITUTE PE IN INDIA. THE AUTHORITIES CONSIDERED THE AGREEMENT AND OTHER RELATED DOCUMENTS FOR DECLARING THAT THE ALP OF `MARKETING SUPPORT SE RVICES WAS BY AND LARGE AT ALP. HOWEVER, IT TURNED OUT ONLY DURING TH E COURSE OF SURVEY THAT THE SCOPE OF ACTUAL SERVICES BY GEIIPL FAR EXC EEDED THE MARKET SUPPORT SERVICES AS PROVIDED IN THE AGREEMENT. 43EM PLOYEES OF GEIIPL WERE FOUND TO BE INVOLVED IN THE ACTUAL CONDUCT OF BUSINESS OF GE OVERSEAS, EFFECTING SALES AND ACTING UNDER THE LEAD ERSHIP OF EXPATS, WHO WERE HEADING VARIOUS BUSINESS LINES OF GE IN INDIA. A CTUAL ACTIVITIES CARRIED OUT IN INDIA, FAR EXCEEDED WHAT WAS SANCTIONED BY THE RBI AND SUCH EXTRA ACTIVITIES ARE OF COMMERCIAL AND TRADING NATURE, WHICH ARE EXCEPTION TO THE RULE OF LIAISON OFFICE. IN ADDITION, THE PLACE OF GEIOC WAS BEING USED AS FIXED PLACE OF BUSINESS OF GE OVERSEAS. THUS IT IS LUCID THAT THE ACTUAL FUNCTIONS PERFORME D BY GEIIPL WERE MUCH MORE THAN THOSE PRESCRIBED IN THE AGREEMENT. 18.7. THE LD. AR VEHEMENTLY ARGUED THAT ONLY THE ACTIVITIES APPROVED BY THE RBI FOR ACTING AS A LIAISON OFFICE WERE CARR IED OUT IN INDIA AND THIS ITA NO.671/DEL/2011 70 WAS ESTABLISHED FROM THE FACT THAT THE PERMISSION S O GRANTED BY THE RBI WAS NOT REVOKED. HE RELIED ON AN ORDER PASSED BY TH E DELHI BENCH OF THE TRIBUNAL IN METAL ONE CORPORATION VS. DY.DIT (2012) 52 SOT 304 (DEL) IN WHICH IT HAS BEEN HELD THAT SINCE NO VIOLATION O F RBI CONDITION WAS SHOWN, THE LO WAS TO BE PRESUMED TO BE ENGAGED IN THE ACTIVITY AS PERMITTED. FOR THE SAME PROPOSITION, HE RELIED ON A NOTHER DECISION OF THE TRIBUNAL. THIS WAS OPPOSED BY THE LD. DR 18.8. IT IS FOUND AS AN ADMITTED POSITION THAT T HE RBI DID NOT REVOKE THE PERMISSION TO CARRY ON LO NOR ANY ADVERSE ACTION WA S TAKEN AGAINST THE GEIOC WHO WAS ALLOWED TO OPEN AN LO IN INDIA. UNDER SUCH CIRCUMSTANCES, A QUESTION ARISES IF NON-ACTION BY T HE RBI SHOULD LEAD TO A PRESUMPTION THAT ONLY THE DESIGNATED ACTIVITIES S ANCTIONED TO THE LO WERE CARRIED ON? IN NORMAL CIRCUMSTANCES, WHEN PER MISSION IS GRANTED FOR SETTING UP OF AN LO, AND THEN RENEWED BY THE RE SERVE BANK OF INDIA FROM TIME TO TIME, THE PRESUMPTION IS THAT ONLY THE SANCTIONED ACTIVITIES WERE CARRIED OUT. IF, HOWEVER, SOME DIRECT EVIDENCE SURFACES WHICH SHOWS THE ACTUAL CARRYING ON OF ACTIVITIES AT MUCH HIGHER DEGREE IN ITA NO.671/DEL/2011 71 QUALITATIVE TERMS THAN THOSE SANCTIONED, THEN THE R BIS SANCTION/CONTINUATION FOR AN LO LOSES THE CHARACTER OF CONCLUSIVENESS IN THIS REGARD. IN JEBON CORPORATION INDIA, LIAISON OFFICE VS. CIT (INTERNATIONAL TAXATION) AND ANOTHER (2011) 245 CTR 300 (KAR), LIAISON OFFICE OF A SOUTH KOREAN COMPANY WAS FOUND TO BE CARRYING ON COMMERCIAL ACTIVITIES OF IDENTIFYING THE BUYERS, NE GOTIATING WITH THE BUYERS, AGREEING TO THE PRICE, PROCURING PURCHASE O RDERS AND FORWARDING THE SAME TO THE HEAD OFFICE AND THE FOLLOW UP ACTIV ITIES RELATING TO REALIZATION OF PAYMENTS FROM THE CUSTOMERS. SUCH A CTIVITIES CARRIED ON BY THE LO WERE NOT CONFINED ONLY TO THE LIAISON WOR K. THE ASSESSEE TOOK A SIMILAR STAND AS HAS BEEN TAKEN BEFORE US THAT TH E RBIS PERMISSION PREVENTED THE LO FROM CARRYING ON COMMERCIAL ACTIVI TIES AND THE FACT THAT NO ACTION WAS INITIATED BY THE RBI AGAINST THE LO, THE DECISION OF THE AUTHORITIES THAT THE ASSESSEE WAS HAVING A PE I N INDIA, BE REVERSED. JETTISONING SUCH A CONTENTION, THE HONBLE HIGH COU RT HELD THAT: MERELY BECAUSE NO ACTION IS INITIATED BY RBI TILL TODAY WO ULD NOT RENDER THE FINDINGS RECORDED BY THE AUTHORITIES UNDER THE IT A CT AS ERRONEOUS OR ILLEGAL. IN VIEW OF THE DIRECT JUDGMENT OF THE HON BLE HIGH COURT ON THE ITA NO.671/DEL/2011 72 ISSUE, THE CONTRARY VIEW TAKEN BY THE TRIBUNAL DOES NOT HOLD GOOD TO THIS EXTENT. 18.9. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE SURVEY CONDUCTED ON AIFACS BUILDING SHOWED THAT GE INDIA W AS NOT MERELY ACTING AS A COMMUNICATION CHANNEL, PERMISSION FOR W HICH WAS ALSO ONLY WITH GEIOC AND NOT THE ASSESSEE, BUT, WAS ACTUALLY INDULGING IN COMMERCIAL ACTIVITIES. THIS ARGUMENT OF THE LD. AR , THEREFORE, FAILS. 18.10. WE COME BACK TO THE ASSESSEES PRIMARY ARGUM ENT FOR STRIKING DOWN THE INITIATION OF REASSESSMENT BECAUSE THE ARM S LENGTH ANALYSIS WAS ACCEPTED AND NO TRANSFER PRICING ADDITION WAS M ADE AND HENCE THERE COULD BE NO FURTHER ATTRIBUTION OF INCOME TO THE PE . THE TRUMP CARD OF THE LD. AR IS THE JUDGMENT IN THE CASE OF MORGAN STANLEY(SUPRA), WHICH HAS BEEN FOLLOWED IN THE SUBSEQUENT DECISIONS REFER RED TO BY THE LD. AR HEREINABOVE. IN THIS JUDGMENT, THE HONBLE APEX COU RT HAS HELD THAT ONCE A TRANSFER PRICING ANALYSIS IS UNDERTAKEN, THE RE IS NO FURTHER NEED TO ATTRIBUTE PROFITS TO A PE. THE HONBLE SUPREME COU RT COUNTENANCED THE RULING OF THE AAR IN PRINCIPLE INSOFAR AS AN AE, TH AT ALSO CONSTITUTED A ITA NO.671/DEL/2011 73 PE, WAS REMUNERATED AT ALP TAKING INTO ACCOUNT ALL THE RISK TAKING FUNCTIONS OF THE ENTERPRISE (EMPHASIS SUPPLIED BY THE HONBLE SUPREME COURT). THE HONBLE SUMMIT COURT FOUND THAT IN SUCH CASES NOTHING FURTHER WOULD BE LEFT TO BE ATTRIBUTED TO THE PE. IT, HOWEVER, HELD THAT: THE SITUATION WOULD BE DIFFERENT IF TRANSFER PRICI NG ANALYSIS DOES NOT ADEQUATELY REFLECT THE FUNCTIONS PERFORMED AND THE RISKS ASSUMED BY THE ENTERPRISE. IN SUCH A SITUATION, THERE WOULD BE A N EED TO ATTRIBUTE PROFITS TO THE PE FOR THOSE FUNCTIONS/RISKS THAT HAVE NOT B EEN CONSIDERED. THEREFORE, IN EACH CASE THE DATA PLACED BY THE TAX PAYER HAS TO BE EXAMINED AS TO WHETHER THE TRANSFER PRICING ANALYSI S PLACED BY THE TAX PAYER IS EXHAUSTIVE OF ATTRIBUTION OF PROFITS AND T HAT WOULD DEPEND ON THE FUNCTIONAL AND FACTUAL ANALYSIS TO BE UNDERTAKEN IN EACH CASE. FROM THE ABOVE OBSERVATIONS OF THE HONBLE SUPREME COURT IN MORGAN STANLEY (SUPRA) ITSELF, IT IS UNAMBIGUOUSLY BEYOND ANY SHADOW OF DO UBT THAT IF THE TRANSFER PRICING ANALYSIS DOES NOT ADEQUATELY R EFLECT THE FUNCTIONS PERFORMED AND THE RISKS ASSUMED, THERE WOULD BE A N EED TO ATTRIBUTE PROFITS TO THE PE FOR THOSE FUNCTIONS/RISKS WHICH H AVE NOT BEEN CONSIDERED. THE HONBLE ALLAHABAD HIGH COURT IN TH E CASE OF LG ITA NO.671/DEL/2011 74 ELECTRONICS INC. (SUPRA) REJECTED CONTENTION SIMILAR TO THE ONE MADE BEFORE US AFTER DULY NOTING THE JUDGMENT IN THE CAS E OF MORGAN STANLEY (SUPRA). THE POSITION WHICH, THEREFORE, FOLLOWS IS THAT ONL Y IF THE ALP HAS BEEN DETERMINED TAKING INTO ACCOUNT ALL RISKS A ND FUNCTIONS OF THE ENTERPRISE, NOTHING MORE CAN BE ATTRIBUTED TO THE P E. IF HOWEVER, THE FUNCTIONS OR RISKS ETC. ACTUALLY UNDERTAKEN ARE MOR E THAN THOSE SHOWN, THEN EXCEPTION TO THE RULE LAID DOWN IN THE MORGAN STANLEY (SUPRA) GETS ATTRACTED. THERE IS NO DISPUTE IN THE CASES RELIED BY THE LD. AR INCLUDING THOSE OF THE HONBLE DELHI HIGH COURT IN BBC WORLDWIDE LTD.(SUPRA) AND ADOBE SYSTEMS INC (SUPRA) THAT THE ALP THEREIN WAS DETERMINED BY CONSIDERING ALL THE FUNCTIONS AND RIS KS ACTUALLY UNDERTAKEN AND THERE WAS NO EXTRA FUNCTION PERFORME D OR RISK ASSUMED BY THE CONCERNED ENTERPRISE WARRANTING ANY FURTHER ATTRIBUTION OF INCOME. 18.11. WHEN WE REVERT TO THE FACTS OF THE INSTANT CASE, IT COMES OUT THAT THE ALP OF PAYMENT MADE BY GEIOC TO GEIIPL WAS DETE RMINED ONLY W.R.T. THE APPARENT SERVICES ELABORATED IN THE AGRE EMENT WHICH ARE MORE OR LESS OF LIAISON NATURE, NOT LEADING TO THE DOING OF SOME INCOME ITA NO.671/DEL/2011 75 GENERATING ACTIVITY. BUT IN REALITY, THE ACTUAL SER VICES RENDERED BY GEIIPL TO THE GE OVERSEAS ENTITIES UNDER THE LEADER SHIP OF EXPATRIATES FROM GEII IS ALIEN TO THE AGREEMENT. SUCH ACTIVITIE S PERFORMED BY GEIIPL BEYOND THE SCOPE OF THE SERVICE AGREEMENT HA VE LED TO THE CREATION OF THE PE OF THE ASSESSEE IN INDIA. SUCH SERVICES HAVE NOT BEEN REMUNERATED AT ALL. SINCE THE TRANSFER PRICING ANA LYSIS DID NOT REFLECT THESE FUNCTIONS PERFORMED BY GEIIPL, THERE IS A NEED TO ATTRIBUTE PROFITS TO THE PE FOR THOSE FUNCTIONS/RISKS THAT HAVE NOT B EEN CONSIDERED. FURTHER, IT CAME TO LIGHT DURING THE COURSE OF THE SURVEY AND THE POST- SURVEY PROCEEDINGS THAT THE PREMISES OF THE LO OF G EIOC WAS BEING USED AS A FIXED PLACE PE BY THE GE OVERSEAS ENTITIE S INCLUDING THE ASSESSEE, WHICH FACT WAS NEVER DISCLOSED TO THE DEP ARTMENT. OUR ATTENTION HAS NOT BEEN DRAWN TOWARDS ANY PAYMENT HA VING BEEN MADE BY THE GE OVERSEAS ENTITIES TO GEIOC ON THIS ACCOUNT. AS THIS INTERNATIONAL TRANSACTION WAS NOT REPORTED AT ALL, THERE WAS NO Q UESTION OF ANY TRANSFER PRICING ANALYSIS OF THE SAME. THESE FACTS DELINEATE THAT THE INSTANT CASES FALL UNDER THE EXCEPTION TO THE RULE LAID DOWN IN MORGAN STANLEY (SUPRA) ITA NO.671/DEL/2011 76 AS REITERATED IN LG ELECTRONICS (SUPRA). WE, THEREFORE, REJECT THIS CONTENTION RAISED BY THE LD. AR. III. SANCTION U/S 151 19.1. ON AN EARLIER OCCASION, THE ASSESSEE RAISED AN ADDITIONAL GROUND BEFORE THE TRIBUNAL, READING AS UNDER:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE PROCEEDINGS INITIATED UNDER SECTIONS 147/148 OF THE ACT ARE WITHOUT JURISDICTION BECAUSE THE MANDATORY SANCTION REQUIRE D UNDER SECTION 151(2) OF THE ACT HAS BEEN GRANTED BY THE ADDL. DIT IN A MECHANICAL MANNER AND WITHOUT APPLICATION OF MIND. 19.2. THE BENCH, VIDE ITS SEPARATE ORDER DATED 10 .06.2015, ADMITTED THE ADDITIONAL GROUND. AS SUCH, WE ARE NOW TAKING UP TH IS GROUND FOR ADJUDICATION ON MERITS. 19.3. THE LD. AR CONTENDED THAT THE SANCTION GRAN TED BY THE ADDL. DIT U/S 151(2) WAS WITHOUT APPLICATION OF MIND AND, HEN CE, THE PROCEEDINGS FLOWING FROM SUCH ILLEGAL SANCTION GIVEN IN A MECHA NICAL MANNER, BE SET ASIDE. TO BUTTRESS THIS SUBMISSION, THE LD. AR REL IED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN UNITED ELECTRICAL COMPANY P. LTD. VS. ITA NO.671/DEL/2011 77 CIT AND ORS (2002) 258 ITR 317 IN WHICH NOTICE ISSUED U/S 148 WAS QUASHED, INTER ALIA , ON THE GROUND THAT THE ADDL. CIT ACCORDED HIS APPROVAL MECHANICALLY AND WITHOUT APPLICATION OF MI ND. HE ALSO RELIED ON THE JUDGMENT OF THE HONBLE MP HIGH COURT IN ARJUN SINGH AND ORS VS. ASSTT. DIT AND ORS. (2000) 246 ITR 363 (MP) AND ANOTHER JUDGMENT DATED 14.10.2014 OF THE SAME HONBLE HIGH COURT, IN WHICH SANCTION GIVEN WITHIN 24 HOURS OF TIME WAS HELD TO BE WITHOU T APPLICATION OF MIND. THE LD. AR CONTENDED THAT IN THE EXTANT CASE ALSO THE SANCTION WAS GIVEN BY THE ADDL. DIT ON THE SAME DATE ON WHIC H THE REASONS WERE PLACED BEFORE HIM AND HENCE THE REASSESSMENT BE SET ASIDE. THESE ARGUMENTS WERE OPPOSED BY THE LD. DR, WHO CONTENDED THAT THE SANCTION WAS GIVEN BY THE ADDL. DIT AFTER DUE APPLICATION OF MIND. HE RELIED ON CERTAIN MATERIAL TO SHOW THAT ADDL. DIT WAS FULLY I N TOUCH WITH ALL THE GOINGS-ON IN THIS CASE MUCH PRIOR TO THE FORMAL PLA CING OF REASONS FOR SANCTION BEFORE HIM. ITA NO.671/DEL/2011 78 19.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. THE ADDL. DIT THOUGH ACCORDED SANCTION U/S 151 ON THE SAME DATE, BUT, RECORDED HIS SATISFACTION IN TH E FOLLOWING TERMS: DIT, RANGE-I, INTL. TAX, NEW DELHI . FOR THE REASONS RECORDED BY AO, I AM SATISFIED THAT IT IS A FIT CASE FOR ISSUE OF NOTICE U/S 148 OF THE ACT. ACCORDINGLY, A PPROVAL ENVISAGED, U/S 151(2) IS GRANTED. 19.5. IT IS APPARENT FROM THE RECORDING OF SATISFAC TION BY THE ADDL. DIT THAT THE SAME WAS NOT GRANTED IN A MECHANICAL MANNE R WITHOUT APPLICATION OF MIND. THE SATISFACTION WAS ACCORDED `FOR THE REASONS RECORDED BY AO. AT THIS JUNCTURE, IT IS IMPERATIVE TO NOTE THAT THE ADDL. DIT, WHO GAVE THE SANCTION U/S 151 OF THE ACT WAS A LREADY SEIZED OF THE MATTER, PRIOR TO THE ISSUANCE OF NOTICE U/S 148. TH IS IS BORNE OUT FROM THE FACT THAT THE REASONS RECORDED REFER TO THE INFORMA TION PROVIDED BY GEIOC, AT LEAST, VIDE ITS TWO LETTERS DATED 27.2.20 08 AND 24.3.2008 ADDRESSED BY THE GEIOC TO THE SAME ADDL. DIT. THES E LETTERS HAVE BEEN PLACED AT PAGES 7 AND 18 OF THE DEPARTMENTAL P APER BOOK. THE MATERIAL FOUND IN SURVEY AND POST-SURVEY ENQUIRIES IS ADMITTEDLY ITA NO.671/DEL/2011 79 COMMON TO GEIOC AND ALL THE GE OVERSEAS ENTITIES UN DER CONSIDERATION. THIS DEMONSTRATES THE DIRECT INVOLVEMENT OF THE ADD L. DIT IN THE ISSUE MUCH PRIOR TO THE PLACING OF REASONS BEFORE HIM FOR SANCTION. NOT ONLY THE TEXT OF SANCTION BUT ALSO THE EARLIER INVOLVEME NT OF THE ADDL. DIT IN THE PROCEEDINGS DEALING WITH SUCH REASONS, GO A LO NG WAY TO PROVE THAT HE DID NOT ACT IN A MECHANICAL MANNER. THUS, IT IS WHOLLY INCORRECT TO STATE THAT THE SANCTION WAS GRANTED BY THE ADDL. DI T WITHOUT APPLICATION OF MIND. 19.6. THE FACTS IN UNITED ELECTRICAL COMPANY (SUPRA) ARE THAT THE REASONS WERE DE HORS THE FACTS AVAILABLE ON RECORD, AND THERE WAS NO INFORMATION WHICH COULD PROVIDE FOUNDATION FOR THE AOS BELIEF THAT THE ASSESSEES TRANSACTIONS WITH A DISPUTED COMPANY WER E NOT GENUINE AND ITS INCOME HAD ESCAPED ASSESSMENT. THE HONBLE HIG H COURT HELD THAT THE ACTION OF THE AO WAS NOT SUSTAINABLE. IT WAS I N THIS BACKGROUND THAT THE HONBLE HIGH COURT FOUND: EVEN THE ADDL.CIT HAS ACCORDED THE APPROVAL FOR ACTION U/S 147 MECHANICALLY. IF THE A DDL. CIT HAD CARED TO GO THROUGH THE STATEMENT OF V.K. PERHAPS HE WOULD NOT HAVE GRANTED HIS ITA NO.671/DEL/2011 80 APPROVAL WHICH WAS MANDATORY IN TERMS OF PROVISO TO SUB-SEC TION (1) OF SECTION 151 AS THE ACTION U/S 147 WAS BEING INITIAT ED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IT IS MANIFEST THAT THE FACTS OF THAT CASE LIE IN AN ENTIRELY DIFF ERENT COMPASS VIS--VIS THE INSTANT CASE. WE ARE CONFRONTED WITH A SITUATION I N WHICH THE AO HAS GIVEN DETAILED REASONS RUNNING INTO MORE THAN 24 PA GES WHICH PRIMA FACIE SHOW ESCAPEMENT OF INCOME. IT IS IN THIS BACKGROUN D OF THE REASONS AND THE KNOWLEDGE OF THE ADDL.CIT OF THE ISSUE IN H IS OFFICIAL CAPACITY, THAT HE IS HELD TO HAVE GRANTED APPROVAL U/S 151(2) AFTER APPLYING HIS MIND. 19.7. SIMILAR IS THE POSITION AS REGARDS THE OTH ER JUDGMENT IN THE CASE OF ARJUN SINGH (SUPRA) . IN THAT CASE, THE HONBLE HIGH COURT DID NOT FIND ANY DEFINITE MATERIAL LEADING TO THE FORMATION OF BELIEF THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. TH E HONBLE HIGH COURT FOUND THAT : PRESENT IS A CASE WHERE THERE WAS NO SUCH MATERIAL OR EVIDENCE, WHATSOEVER, ON THE RECORD. THE DEPART MENT FAILED TO DISCLOSE ANY SUCH COGENT DEFINITE MATERIAL WHICH CA N BE THE BASIS FOR ITA NO.671/DEL/2011 81 REASONS TO BELIEVE AS PER THE REQUIREMENT OF LAW. IT IS IN THIS BACKDROP OF THE FACTS THAT THE HONBLE HIGH COURT FOUND THAT MERELY VAGUE, UNSPECIFIC CONJECTURES AND SURMISES STYLED AS REAS ONS TO BELIEVE WERE FORWARDED TO THE CIT AND NOT THE ALLEGED THREE REPO RTS ON WHICH THE AO IS SAID TO HAVE BASED HIS REASONS. THE CIT HAD NO OPPORTUNITY TO APPLY HIS MIND TO THE ACTUAL MATERIALS AND, ACCORDINGLY, SANCTION ACCORDED BY HIM IS VITIATED ONE. THE HONBLE COURT FOUND THAT THE CIT ACTED MECHANICALLY BY MERELY WRITING ON THE FORMAT YES, I AM SATISFIED. IT WAS INCIDENTALLY FOUND THAT THE EXERCISE OF GIVING SANCTION IN LESS THAN 24 HOURS OF TIME ALSO WENT ON TO INDICATE THAT HE D ID NOT APPLY HIS MIND AT ALL WHILE GRANTING SANCTION. AGAIN, WE ARE AT L OSS TO APPRECIATE AS TO HOW THIS JUDGMENT ADVANCES THE CASE OF THE ASSESSEE . THE SITUATION BEFORE US IS NOT THAT THE ADDL. CIT WAS NOT PROVIDE D WITH ACTUAL MATERIAL AND HE SIMPLY WROTE TWO-THREE WORDS BEFORE GIVING S ANCTION. APPLICATION OF MIND, AS EMANATING FROM HIS NOTING, GETS DULY ENDORSED WITH HIS EARLIER INVOLVEMENT IN THE MATTER. THE OBS ERVATIONS OF THE HONBLE MP HIGH COURT ABOUT 24 HOURS ARE TO BE SEEN IN THE CONTEXT IN WHICH THEY WERE MADE. THIS IS NOT A STATUTORILY PRO VIDED TIME LIMIT. THE ITA NO.671/DEL/2011 82 ESSENCE OF SUCH OBSERVATIONS IS THAT THE ADDL. DIT SHOULD NOT HURRIEDLY ACCORD SANCTION IN A MECHANICAL WAY BUT PROPERLY EX AMINE THE FACTS BEFORE GIVING APPROVAL. CRITERIA FOR EXAMINING VALI DITY OF A SANCTION IS THE GENUINENESS OF REASONS FOR RE-ASSESSMENT AND AP PLICATION OF MIND BY THE AUTHORITY BEFORE GRANTING SANCTION U/S 151 OF THE ACT. WE ARE SATISFIED THAT IN THE GIVEN CIRCUMSTANCES, THE ADDL .CIT COMMITTED NO MISTAKE IN GRANTING SANCTION U/S 151(2) OF THE ACT. THIS GROUND, THEREFORE, FAILS. B. PERMANENT ESTABLISHMENT 20. THE A.O. EXAMINED THE TAXABILITY OF INCOME OF GE OVERSEAS UNDER THE ACT AS WELL AS THE DOUBLE TAXATION AVOIDANCE AG REEMENT. HE DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE SALE CONSIDERATION WAS NOT TAXABLE IN INDIA AS THE TITLE IN RESPECT OF THE EQUIPMENTS WAS TRANSFERRED OUTSIDE INDIA AND THE PAYMENTS WERE ALS O RECEIVED OUTSIDE INDIA. HE HELD THAT A LOT OF ACTIVITIES RELATING TO MARKETING AND SALES TOOK PLACE IN INDIA. EXPATRIATES FROM GEII ALONG WITH TH E EMPLOYEES OF GEIIPL CONSTITUTING THE INDIAN TEAM (GE INDIA) WERE ALWAYS INVOLVED ITA NO.671/DEL/2011 83 AND PARTICIPATED IN THE NEGOTIATION OF PRICES. SUCH NEGOTIATIONS OF PRICES TOOK PLACE IN INDIA. THE INDIAN CUSTOMERS DISCUSSED MOU TERMS WITH THE INDIAN TEAM. THESE FACTS, IN THE OPINION OF THE AO, WERE CLEAR INDICATORS OF THE GE INDIA SECURING ORDERS FOR GE O VERSEAS. HE FURTHER FOUND THAT GE OVERSEAS, BY REMOTELY SITTING IN FORE IGN COUNTRIES, COULD NOT MAKE ANY SALES, WITHOUT THE ACTIVE INVOLVEMENT OF GE INDIA. THIS WAS HELD TO BE A BUSINESS CONNECTION OF GE OVERSEAS IN INDIA IN TERMS OF SECTION 9 OF THE ACT. THE AO, THEREFORE, HELD THAT ALL THE PROFITS DID NOT ACCRUE OR ARISE TO THE ASSESSEE IN THE FOREIGN SOIL , BUT PART OF SUCH PROFITS ARISING IN INDIA, CORRESPONDING TO THE ACTIVITIES C ARRIED OUT IN INDIA, WAS CHARGEABLE TO TAX UNDER THE ACT. CONSIDERING THE FA CT THAT SALES WERE MADE TO INDIAN CUSTOMERS ON A REGULAR BASIS AND THE GE OVERSEAS ENTITIES WERE PHYSICALLY PRESENT IN SOME FORM OR THE OTHER I N INDIA AND SUCH PHYSICAL PRESENCE HAD FULL ROLE IN THESE SALES, THE AO HELD THAT THE BUSINESS CONNECTION OF GE OVERSEAS WAS ESTABLISHED IN INDIA AND, CONSEQUENTLY, INCOME ACCRUED OR AROSE TO THEM IN IN DIA. SUCH INCOME ACCRUING OR ARISING WAS HELD TO BE LIABLE TO TAX AS PER THE PROVISIONS OF SECTION 5(2) OF THE ACT. SIMPLY PUT, THE AO HAS MAD E OUT A CASE THAT THE ITA NO.671/DEL/2011 84 GE OVERSEAS ENTITIES WERE HAVING BUSINESS CONNECTIO N UNDER THE ACT AS WELL AS PERMANENT ESTABLISHMENT UNDER THE DTAA IN I NDIA IN ALL THE YEARS UNDER CONSIDERATION. THE POSITION ABOUT THE T AXABILITY UNDER THE ACT HAS NOT BEEN CHALLENGED BY THE ASSESSEE BEFORE US INASMUCH AS THE LD. AR HAS ASSAILED ONLY THE EXISTENCE OF PE IN TER MS OF THE DTAA, MORE PARTICULARLY, THE ACTIVITIES CARRIED OUT IN IN DIA, WHICH IN HIS OPINION, WERE OF PREPARATORY OR AUXILIARY CHARACTER . 21. THE AO FINALLY HELD THAT ALL THE GE OVERSEAS ENTITIES HAD PE IN INDIA IN ALL THE YEARS UNDER CONSIDERATION IN TWO F ORMS, NAMELY, AIFACS PREMISES OF GEIOC, CONSTITUTING A `FIXED PLACE PE; `GE INDIA COMPRISING OF EXPATRIATES OF GEII AND EMPLOYEES OF GEIIPL CONSTITUTING `DEPENDENT AGENT PE. THE LD. AR ARGUED THAT NONE O F THE ACTIVITIES CARRIED OUT BY THE ASSESSEE IN INDIA LEAD TO THE CR EATION OF PE. WE WILL TAKE UP BOTH THE TYPES OF PE ONE BY ONE FOR CONSIDE RATION AND DECISION. I. FIXED PLACE P.E. 22. IN ORDER TO TEST THE CONSTITUTION OR OTHERWIS E OF A `FIXED PLACE PE OF THE ASSESSEE IN INDIA, WE WILL CONSIDER THE DOUB LE TAXATION ITA NO.671/DEL/2011 85 AVOIDANCE AGREEMENT WITH THE USA (HEREINAFTER CALLE D THE DTAA), WHICH APPLIES TO 17 ENTITIES. IN FACT, THIS IS THE ONLY DTAA WHICH HAS BEEN RELIED UPON BY BOTH THE SIDES IN SUPPORT OF TH EIR RESPECTIVE ARGUMENTS. NO REFERENCE HAS BEEN MADE TO ANY OTHER DTAA. IT IS, THEREFORE, PRESUMED THAT THE LANGUAGE OF ARTICLE 5 DEALING WITH PERMANENT ESTABLISHMENT OF THE OTHER RELEVANT DTAAS IS NO DIFFERENT FROM THE DTAA. PARAS 1 TO 3 DEAL WITH THE FIXED PLA CE PE. BEFORE EXAMINING THE RIVAL CONTENTIONS, WE CONSIDER IT APP OSITE TO SET OUT THE RELEVANT PARTS OF THESE PARAS, AS UNDER :- `1. FOR THE PURPOSES OF THIS CONVENTION, THE TERM PERMANENT ESTABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON . 2. THE TERM PERMANENT ESTABLISHMENT' INCLUDES ESPE CIALLY: (A) A PLACE OF MANAGEMENT; (C) AN OFFICE; (D) TO (L) 3. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, THE TERM PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE ANY ONE OR MORE OF THE FOLLOWING : (A) TO (D) ITA NO.671/DEL/2011 86 (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATI ON, FOR SCIENTIFIC RESEARCH OR FOR OTHER ACTIVITIES WHICH HAVE A PREPARATORY OR AUXILIARY CHARACTER , FOR THE ENTERPRISE. 23. PARA 1 OF ARTICLE 5 PROVIDES THAT THE TERM PE RMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE B USINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. PARA 2 G IVES CERTAIN ILLUSTRATIONS OF THE FIXED PLACE OF BUSINESS, SUCH AS, A PLACE OF MANAGEMENT, AN OFFICE, A FACTORY OR A WORKSHOP ETC. PARA 3 STARTS WITH A NON OBSTANTE CLAUSE QUA PARAS 1 AND 2 AND PROVIDES THAT THE TERM PERMANENT ESTABLISHMENT SHALL BE DEEMED NOT TO INCLUDE FIVE INSTANCES, INCLUDING CLAUSE (E), BEING, ACTIVITIES WHICH HAVE A PREPARATORY OR AUXILIARY CH ARACTER. IT IS ONLY CLAUSE (E), WHICH HAS BEEN RELIED UPON BY THE LD. A R FOR PUTTING FORTH THAT THE ASSESSEE DID NOT HAVE ANY FIXED PLACE PE I N INDIA. 24. ON A CONJOINT READING OF THE RELEVANT PARTS O F PARAS 1, 2 AND 3 OF ARTICLE 5, IT COMES OUT THAT A PERMANENT ESTABLISHM ENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON AND SUCH FIXED PLACE IS NOT MA INTAINED FOR ACTIVITIES OF A PREPARATORY OR AUXILIARY CHARACTER. TO SUM UP, THE FOLLOWING THREE ITA NO.671/DEL/2011 87 INGREDIENTS MUST BE CUMULATIVELY SATISFIED FOR BRIN GING A CASE WITHIN THE AMBIT OF A FIXED PLACE PE :- I) THERE SHOULD BE FIXED PLACE OF BUSINESS; II) BUSINESS OF FOREIGN ENTERPRISE SHOULD BE WHOLLY OR PARTLY CARRIED ON FROM SUCH FIXED PLACE; AND III) THE ACTIVITIES CARRIED OUT FROM SUCH FIXED PLACE SH OULD NOT BE IN THE NATURE OF A PREPARATORY OR AUXILIARY CHARACTER. 25. NOW, WE WILL SEE IF ALL THESE THREE CONDITIO NS ARE SATISFIED IN THE INSTANT CASE. 26.1. THE FIRST CONDITION IS THAT THERE SHOULD BE A FIXED PLACE OF BUSINESS. THE TERM FIXED PLACE OF BUSINESS ENVISA GES THAT THE PLACE SHOULD BE AT THE DISPOSAL OF THE ENTERPRISE WITH SO ME DEGREE OF PERMANENCE. A PLACE OCCUPIED JUST TEMPORARILY DOES NOT LEAD TO ESTABLISHMENT OF A FIXED PLACE PE. THE ENTERPRISE S HOULD BE IN A POSITION TO CONSTANTLY USE SUCH PLACE. WHAT IS RELEVANT FOR THE PURPOSE IS THE AVAILABILITY OF THE PLACE AT THE DISPOSAL OF THE EN TERPRISE IRRESPECTIVE OF ANY OWNERSHIP, LEASE OR OTHER OCCUPANCY RIGHTS. SO LONG AS A PLACE IS ITA NO.671/DEL/2011 88 AVAILABLE WITH SOME DEGREE OF PERMANENCE TO THE ENT ERPRISE FOR ITS USE, IT SATISFIES THE FIRST CONDITION FOR CONSTITUTING A FI XED PLACE PE. FURTHER, IT IS NOT NECESSARY THAT SUCH PLACE SHOULD BE EXCLUSIVELY USED FOR THAT PURPOSE. OECD COMMENTARY ON ARTICLE 5 OF THE MODEL TAX CONVENTION HAS DISCUSSED IN PARAS 4 TO 4.3 THAT THE TERM PLAC E OF BUSINESS COVERS ANY PREMISES, FACILITIES OR INSTALLATIONS USED FOR CARRYING ON THE BUSINESS OF THE ENTERPRISE WHETHER OR NOT THEY ARE USED EXCL USIVELY FOR THAT PURPOSE. SUCH PLACE OF BUSINESS CAN ALSO BE SITUATE D IN THE BUSINESS FACILITIES OF ANOTHER ENTERPRISE. PARA 4.3 GIVES AN EXAMPLE OF A FIXED PLACE PE, BEING, AN EMPLOYEE OF A COMPANY, WHO, FOR A LONG PERIOD OF TIME, IS ALLOWED TO USE AN OFFICE OF ANOTHER COMPAN Y. FURTHER, THE CHARACTER OF FIXED SHOULD BE ATTACHED TO SUCH A P LACE, WHICH MEANS THAT IT SHOULD BE USED WITH A CERTAIN AMOUNT OF PERMANEN CE. IN A NUTSHELL, IF A PLACE IS USED BY A FOREIGN ENTERPRISE FOR CARRYING ON ITS BUSINESS IN INDIA WITH SOME SORT OF REGULARITY OR PERMANENCE, IT SATI SFIES THE FIRST CONDITION OF A FIXED PLACE PE. 26.2. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT GE INDIA ALSO COMPRISING OF THE EXPATRIATES FROM GEII WERE P ERMANENTLY USING ITA NO.671/DEL/2011 89 THE LO PREMISES OF GEIOC AT AIFACS BUILDING. IT WAS FOUND DURING THE COURSE OF SURVEY, THAT THE EXPATRIATES WERE HAVING SPECIFIC CHAMBERS/ROOMS ALLOTTED TO THEM WITH THEIR NAME PLA TES AFFIXED AND THEY WERE OCCUPYING THE SAME. SECRETARIAL ASSISTANCE AND STAFF WAS ALSO PROVIDED TO THEM BY GEIIPL/GEIOC. THEIR LAPTOPS, C OMPUTERS AND BUSINESS RELATED DOCUMENTS WERE IN SUCH SPECIFICALL Y ALLOTTED ROOMS. THE ROOMS WERE AT THE CONSTANT DISPOSAL OF THESE EXPATS . THOUGH THE AIFACS PREMISES WAS TAKEN ON LEASE BY GEIOC, BUT, T HE SAME WAS ALSO BEING CONSTANTLY OCCUPIED BY THESE EXPATS, WHO, THO UGH ON THE PAY ROLL OF GEII, WERE WORKING IN INDIA FOR THE GE OVERSEAS ENTITIES. NOT ONLY THAT, AIFACS BUILDING WAS ALSO OCCUPIED BY THE EMPL OYEES OF GEIIPL WHO WERE WORKING UNDER THE DIRECT CONTROL AND SUPER VISION OF THE EXPATS, WHO, IN TURN, WERE WORKING FOR THE GE OVERS EAS ENTITIES. THIS POSITION ALSO GETS VOUCHED FROM PAGE 248 OF THE SUR VEY DOCUMENTS PB- I, WHICH IS THE ATTENDANCE SHEET OF THE PERSONS WOR KING IN AIFACS BUILDING AT THE TIME OF SURVEY, WHICH, INTER ALIA , RECORDS THE NAMES OF THESE EXPATS AND SOME EMPLOYEES OF GEIIPL WORKING W ITH THESE EXPATS. THE COLUMN `IN TIME ON THIS DOCUMENT SHOWS THE TIM E OF ENTERING ITA NO.671/DEL/2011 90 OFFICE, WHICH, IN MOST OF THE CASES IS CLOSE TO 9 A .M. THE FACT THAT THESE EXPATS AND EMPLOYEES OF GEIIPL WORKING UNDER EXPATS WERE WORKING IN AIFACS BUILDING, HAS NEVER BEEN DENIED BY THE ASSES SEE. THUS THE FIRST CONDITION IS SATISFIED. 27.1. NOW WE ESPOUSE THE SECOND CONDITION, VIZ., BU SINESS OF FOREIGN ENTERPRISE SHOULD BE WHOLLY OR PARTLY CARRIED ON FR OM SUCH FIXED PLACE. THIS SPECIFIES TWO THINGS. FIRST IS THAT THE BUSIN ESS OF FOREIGN ENTERPRISE SHOULD BE CARRIED ON FROM SUCH FIXED PLACE AND THE SECOND IS THAT THE CARRYING ON OF BUSINESS OF ENTERPRISE NEED NOT BE W HOLLY FROM HERE. EVEN IF BUSINESS IS PARTLY CARRIED ON FROM SUCH FIXED PL ACE, THE SAME WOULD CONSTITUTE A FIXED PLACE PE. 27.2. IT CAN BE SEEN THAT THE DDIT, PRIOR TO ISSU ING A NOTICE U/S 148, REQUIRED THE GE GROUP TO FURNISH EMPLOYMENT LETTERS OF ALL THE EMPLOYEES OF GE OVERSEAS GROUP COMPANIES WORKING IN INDIA ALONG WITH THEIR APPRAISAL REPORTS. THE ASSESSEE FURNISHED, VI DE ITS LETTER DATED 16.3.2007, A LIST OF EMPLOYEES OF GE INTERNATIONAL INC., US, WHO WERE WORKING IN INDIA, NAMELY, DAN NALAWADE, RICCARDO PR OCACCI, WILLIAM ITA NO.671/DEL/2011 91 BLAIR, ASHFAQ NAINAR, KENNETH PIERSON, SAMIR AGGARW AL AND PRAT KUMAR. PAGES 94 TO 115 OF THE DEPARTMENTAL PB NO.1 ARE THE ASSIGNMENT LETTERS OF THESE SEVEN EXPATRIATES. THES E ASSIGNMENT LETTERS ARE DATED FOR THE YEARS 2004, 2006 AND 2007. TENUR E IS FIXED, NAMELY, FIVE YEARS, THREE YEARS OR TWO YEARS, AS THE CASE M AY BE. SUCH ASSIGNMENT LETTERS INDICATE POSITION OF THESE EMPLO YEES OF GEII WORKING IN INDIA. WE WILL FIRSTLY DISCUSS THESE EXPATS IN T HE LIGHT OF THEIR ASSIGNMENT LETTERS, SELF APPRAISAL AND MANAGER ASSE SSMENT, WHEREVER PROVIDED. I. KENNETH PIERSON - A COPY OF THE ASSIGNMENT LETT ER OF KENNETH PIERSON HAS BEEN PLACED AT PAGE 104 OF THE PAPER BO OK, WHICH SHOWS HIS POSITION AS `SALES & MARKETING MANAGER OF GE TRANS PORTATION WITH THE ANTICIPATED START DATE OF ASSIGNMENT AS 1.5.2004 AN D THE TERM OF ASSIGNMENT AS THIRTY SIX MONTHS. KENNETH M. PIERSON ALSO GAVE SELF APPRAISAL REPORT, WHOSE COPY IS AVAILABLE AT PAGE 1 90 ONWARDS OF THE PAPER BOOK. UNDER THE HEAD ACCOMPLISHMENTS, HE C LAIMED TO HAVE MAINTAINED A CONSTANT FOCUS ON ORGANIC GROWTH IN EM ERGING MARKET. HE: ITA NO.671/DEL/2011 92 `LED THE GS TEAM THROUGH KEY ACTIVITIES SALES, CR OSS-APPROVAL, PARTNERSHIP APPROVALS, MARKETING AND RESOURCING. PAGE 192 OF THE PAPER BOOK IS MANAGER ASSESSMENT OF THE SELF APPR AISAL OF KENNETH M. PIERSON. IT HAS BEEN MENTIONED THAT: KEN IS COMMI TTED TO GROWING THE INDIA SIGNALING BUSINESS. ALTHOUGH HE MISSED THE ORDERS TARGET FOR THE YEAR, 2006 WAS A SIGNIFICANT YEAR AS HIS TEAM CLOSE D $6M IN ORDERS AND HAS POSITIONED THE BUSINESS TO WINNING MAJOR DEAL I N 2007. THIS SHOWS THAT KENNETH M. PIERSON WAS WORKING AS SALES AND M ARKETING MANAGER OF GE TRANSPORTATION. ALBEIT HE GOT A GOOD NUMBER O F ORDERS, BUT, MISSED THE SALES ORDER TARGET GIVEN TO HIM FOR THE YEAR. HIS JOB DESCRIPTION HAS BEEN GIVEN ON PAGE 209 OF THE PAPER BOOK, WHICH SHOWS THAT HE WAS TO : ` BUILD INDIA GLOBAL SIGNALLING TEAM INCLUDING SALES, MARKETING, ENGINEERING AND PROJECT MANAGEMENT ; FACILITATE THE SALES OF PRODUCTS AND SYSTEMS THROUGH THE PERMANENT INDIAN STAFF ; AND MANAGE RELATIONSHIPS WITH VARIOUS CUSTOMERS AND STAKEHOLDE RS INCLUDING INDIAN RAILWAYS, MUNICIPAL METRO SYSTEMS AND INSTALLER PAR TNERS. THIS POINTS OUT THAT KENNETH PIERSON, IN HIS CAPACITY OF SALES & MARKETING MANAGER, ITA NO.671/DEL/2011 93 WAS GIVEN SALES TARGET IN THE NORMAL COURSE OF HIS DUTIES, WHICH HE COULD NOT ACHIEVE. II. ASHFAQ NAINAR - A COPY OF THE ASSIGNMENT LETTER OF ASHFAQ NAINAR HAS BEEN PLACED AT PAGE 114 OF THE PAPER BOOK, WHIC H SHOWS HIS POSITION AS `TRANSPORTATION SOLUTIONS TEAM LEADER OF GE TRA NSPORTATION WITH THE ANTICIPATED START DATE OF ASSIGNMENT AS 1.7.200 6 AND THE TERM OF ASSIGNMENT AS THIRTY SIX MONTHS. NOW, WE TAKE UP TH E SELF APPRAISAL REPORT SUBMITTED BY THE GE GROUP OF ASHFAQ A. NAINA R TO THE AO, WHOSE COPY HAS BEEN PLACED AT PAGES 57 ONWARDS OF THE DEP ARTMENTAL PAPER BOOK. HE HAS BEEN DESIGNATED AS REGIONAL MANAGING DIRECTOR - ASIA HAVING AREA OF RESPONSIBILITY OF ALL ASIA EXCEPT F OR CHINA. IT HAS BEEN MENTIONED HERE THAT HE WORKED: WITH VARIOUS RAIL-R OAD CUSTOMERS IN THE REGION TO DEVELOP BUSINESS OPPORTUNITIESRESPONS IBLE FOR MARKET SEGMENTATION ANALYSIS AND IDENTIFYING NEW BU SINESS OPPORTUNITIES. HIS JOB RESPONSIBILITY HAS FURTHER BEEN MENTIONED TO COORDINATE ACTIVITIES OF THE MARKETING AND SALES TE AMS TO DEVELOP POTENTIAL SOLUTIONS. IDENTIFY CAPACITY ENHANCING SO LUTIONS FOR BOTTLENECKS ITA NO.671/DEL/2011 94 IN THE EXISTING RAIL INFRASTRUCTURE OF THE RAILWAYS . HIS FURTHER JOB RESPONSIBILITY HAS BEEN DEFINED ON THE SAME PAGE TO : `EVALUATE THE TEAMS PERFORMANCE AGAINST THE BUSINESS GOALS AND O BJECTIVES. PROVIDE ACTIVE COACHING AND MENTION THE TEAM AND PROVIDE FE EDBACK TO IMPROVE OVERALL TEAM PERFORMANCE. PAGE 58 SHOWS THAT HE HA S: EXCELLENT CUSTOMER NEGOTIATION AND DISPUTE RESOLUTION SKILLS . IN SELF APPRAISAL REPORT, WHOSE COPY IS AVAILABLE ON PAGE 61 OF THE P APER BOOK, HE MENTIONED UNDER THE HEAD ACCOMPLISHMENTS TO HAVE: LED ASIA TEAM TO $29M ORDERS & $20.6 M SALES BY CONTINUING DOUBL E DIGIT GROWTH. UNDER THE HEAD EXPERTISE, IT HAS BEEN MENTIONED T HAT HE: UTILIZED 13+ YEARS OF SALES EXPERIENCE AND MARKET INSTINCTS TO E NTER NEW GROWTH AREAS SUCH AS COMMUTER AND PROPULSION MARKETS IN INDIA. THEN, THERE IS THE `MANAGER ASSESSMENT ON PAGE 63, WHICH SHOWS THAT H E MADE SOLID PROGRESS IN 06 WITH ORDERS $27 AND SALES OF $19($ 13 + 12%). DETAILS EMANATING FROM HIS ASSIGNMENT LETTER, SELF APPRAISA L REPORT AND MANAGER ASSESSMENT SPEAK VOLUMES ABOUT HIS NATURE OF WORK E XTENDING TO MANAGING THE ENTIRE BUSINESS INCLUDING SALES AND MA RKETING, MATCHING WITH HIS DESIGNATION. ITA NO.671/DEL/2011 95 III. RICCARDO PROCACCI - A COPY OF THE ASSIGNMENT L ETTER OF RICCARDO PROCACCI HAS BEEN PLACED AT PAGE 97 OF THE PAPER BO OK, WHICH SHOWS HIS POSITION AS `OIL & GAS, INDIA COUNTRY LEADER OF GE ENERGY WITH THE ANTICIPATED START DATE OF ASSIGNMENT AS 1.8.2006 AN D THE TERM OF ASSIGNMENT AS FIVE YEARS. DESPITE SPECIFIC REQUEST BY THE AO, THE GE GROUP NEITHER SUPPLIED SELF APPRAISAL REPORT NOR TH E MANAGERS ASSESSMENT REPORT OF RICCARDO PROCACCI. AS AGAINST THE REQUIREMENT OF THE DDIT FOR TENDERING THE APPRAISAL REPORTS AND MA NAGER ASSESSMENT OF THE SEVEN EXPATS AND THE EMPLOYEES OF GEIIPL, TH E ASSESSEE FURNISHED SUCH REPORTS IN RESPECT OF ONLY TWO EMPLOYEES, NAME LY, KENNETH PIERSON AND ASHFAQ NAINAR, WHICH WE HAVE DISCUSSED ABOVE. F OR THE REMAINING FIVE EXPATS, THE ASSESSEE SUBMITTED THAT EITHER THE APPRAISAL REPORTS WERE NOT DUE OR WERE NOT COMPLETED. THIS INTIMATION WAS GIVEN BY THE ASSESSEE VIDE ITS LETTER DATED 16.3.2007. THE AO IS SUED NOTICE AFTER A GAP OF MORE THAN ONE YEAR FROM THE ASSESSEES ABOVE LET TER ON 26.3.2008 AND TILL THEN SUCH DETAILS WERE NOT FURNISHED. AS NO DI FFERENCE IN THE BUSINESS MODEL IN INDIA HAS BEEN BROUGHT TO OUR NOTICE IN RE SPECT OF ALL THE GE OVERSEAS ENTITIES, IN OUR CONSIDERED OPINION, THE R EVENUE RIGHTLY DREW ITA NO.671/DEL/2011 96 THE INFERENCE THAT OTHER EXPATS WERE ALSO DOING ACT IVITIES SIMILAR TO THOSE OF KENNETH M. PIERSON AND ASHFAQ NAINAR. IV. WILLIAM BLAIR - A COPY OF THE ASSIGNMENT LETTE R OF WILLIAM BLAIR HAS BEEN PLACED AT PAGE 100 OF THE PAPER BOOK, WHICH SH OWS HIS POSITION AS `COUNTRY DIRECTOR, GE INDIA, AVIATION & RAIL OF GE TRANSPORTATION WITH THE ANTICIPATED START DATE OF ASSIGNMENT AS 1. 1.2006 AND THE TERM OF ASSIGNMENT AS THIRTY SIX MONTHS. HIS JOB DESCRIPTIO N IS AVAILABLE ON PAGE 210 OF THE PAPER BOOK. IT MENTIONS THE SCOPE OF RES PONSIBILITIES INCLUDING: ORGANIZE LOCAL AVIATION TEAM INCLUDING COMMERCIAL AND MILITARY SALES LEADERS, TRACK PROGRESS VERSUS CUSTO MER COMMITMENTS AND DEVELOP PERSONNEL PLANS FOR TRAINING AND GROWTH; CO NDUCT COMPLIANCE RISK ASSESSMENTS, AUDITS AND SUPPORT TRAINING FOR A VIATION TEAM MEMBERS IN INDIA; DEVELOP AVIATION GROWTH STRATEGY FOR INDI A AND OBTAIN HQ SUPPORT FOR SAME. IT HAS BEEN FURTHER STATED THAT HE WILL: `DEVELOP AVIATION GROWTH STRATEGY FOR INDIAN AND OBTAIN HQ S UPPORT FOR SAME. THIS SHOWS THAT WHATEVER WAS REQUIRED TO BE DONE AT THE TOP LEVEL FOR BUSINESS OF GE OVERSEAS IN INDIA, WAS BEING DONE BY HIM. DESPITE ITA NO.671/DEL/2011 97 SPECIFIC REQUEST BY THE AO, THE GE GROUP NEITHER SU PPLIED SELF APPRAISAL REPORT NOR THE MANAGERS ASSESSMENT REPORT OF WILLI AM BLAIR. V. PRATYUSH KUMAR - A COPY OF THE ASSIGNMENT LETT ER OF PRATYUSH KUMAR HAS BEEN PLACED AT PAGE 111 OF THE PAPER BOOK , WHICH SHOWS HIS POSITION AS `LEADER, GE INFRASTRUCTURE, OPS-INDIA OF GE TRANSPORTATION WITH 1.6.2006 AS THE ANTICIPATED START DATE OF ASSI GNMENT AND THE TERM OF ASSIGNMENT AS FIVE YEARS. MAJOR ACTIVITIES DONE BY PRATYUSH KUMAR HAVE BEEN GIVEN ON PAGE 205 ONWARDS OF THE PAPER BOOK, W HICH SHOW THAT HE WAS `GE INFRASTRUCTURE LEADER IN INDIA, REPORTING DIRECTLY TO THE GLOBAL CEO OF GE INFRASTRUCTURE WITH SPECIFIC ROLE AND RES PONSIBILITIES TO: HELP GE INFRASTRUCTURE BUSINESS DEVELOP THEIR STRA TEGY IN INDIA; ALIGN GE SOLUTIONS WITH CUSTOMER NEED; PUT THE KEY SUCCES S FACTORS IN PLACE; HELP SHAPE POLICY TO REALIZE OPPORTUNITIES; AND FAC ILITATE BUSINESS DEVELOPMENT DISCUSSIONS. PAGE 207 OF THE PAPER BO OK SHOWS HIS MAJOR ACTIVITIES, WHICH, INTER ALIA, PROVIDE THAT HE: FACILITATED DIALOGE BETWEEN GE INFRASTRUCTURES ENERGY, OIL & GAS AND WATER BUS INESS TO DEVELOP CONSISTENT T&CS. THIS SHOWS THAT SHRI PRATYUSH KUM AR WAS LOOKING ITA NO.671/DEL/2011 98 AFTER GE INFRASTRUCTURE BUSINESS IN INDIA AT THE AP EX LEVEL, INTER ALIA, DEVELOPING BUSINESS STRATEGY IN INDIA AND ALSO FINA LIZING CONSISTENT BUSINESS TERMS AND CONDITIONS. DESPITE A SPECIFIC REQUEST BY THE AO, THE GE GROUP NEITHER SUPPLIED SELF APPRAISAL REPORT NOR THE MANAGERS ASSESSMENT REPORT OF PRATYUSH KUMAR. 27.3. THE ABOVE FACTS INDICATE TWO BROADER THINGS . FIRST IS THAT THESE EXPATS OF GEII, WHO ARE HIGHLY QUALIFIED AND SOME H AVE EVEN DOUBLE QUALIFICATIONS, WORKED IN INDIA FOR DIFFERENT BUSIN ESS INTERESTS OF GE GROUP AND THEIR ACTIVITIES WERE NOT CONFINED TO THE BUSINESS OF A PARTICULAR ENTITY. SECOND IS THAT THEY WERE HEADING THE OPERATIONS OF GE OVERSEAS ENTITIES IN INDIA. FROM THE JOB DESCRIPTIO NS AND APPRAISAL REPORTS WITH THE MANAGER ASSESSMENT, WHEREVER GIVEN , IT IS CRYSTAL CLEAR THAT THE EXPATS WERE INDIA COUNTRY HEADS OR WORKING AT THE TOP POSITIONS, MANAGING THE BUSINESS, SECURING ORDERS AND DOING EV ERYTHING POSSIBLE THAT COULD BE DONE HERE QUA THE INDIAN OPERATIONS OF GE OVERSEAS ENTITIES IN INDIA. IT HAS NOWHERE BEEN DENIED, AND RIGHTLY SO, THAT THE BUSINESS MODEL AND ROLE OF THE EXPATS OF GEII IS SI MILAR QUA ALL THE ITA NO.671/DEL/2011 99 BUSINESSES IN INDIA. THIS VIEW IS FURTHER STRENGTHE NED FROM THE FACT THAT THE EXPATS WERE NOT CONFINED TO A PARTICULAR GE ENT ITY BUT WORKING FOR ONE OF ITS THREE MAJOR BUSINESS LINES, VIZ., INFRAS TRUCTURE, INDUSTRIAL AND HEALTHCARE. 27.4. NOW, WE WILL DISCUSS THE ROLE OF THE EMPLO YEES OF GEIIPL IN ASSISTING THE EXPATS IN INDIAN OPERATIONS OF GE OVE RSEAS ENTITIES, AS UNFOLDING FROM THE SURVEY DOCUMENTS. I. NALIN JAIN - PAGES 247 AND 264 OF THE SURVEY D OCUMENTS PB CONTAIN PROFILE OF NALIN JAIN DULY SIGNED BY HIM WHICH SHOW S HIS DESIGNATION IN INDIA AS SALES DIRECTOR OF GE TRANSPORTATION, AIR CRAFT ENGINES. JOB DESCRIPTION HAS BEEN GIVEN AS MARKET INTELLIGENCE AND SUPPORT TO HEADQUARTERS. HE HAS INDICATED HIS REPORTING MAN AGER AS WILLIAM BLAIR, WHO IS ONE OF THE SEVEN EXPATS FROM GEII WOR KING IN INDIA FOR GE OVERSEAS. II. PRITAM KUMAR - PAGE 277 OF THE SURVEY DOCUMEN TS PB IS A PROFILE OF PRITAM KUMAR, AN EMPLOYEE OF GEIIPL WITH THE DESIGN ATION OF MARKET STRATEGY MANAGER. HE IS REPORTING TO PIERRE CANTE . ITA NO.671/DEL/2011 100 III. YASHDEEP SULE - PAGE 280 CONTAINS DETAILS OF YASHDEEP SULE, AGAIN AN EMPLOYEE OF GEIIPL. HIS JOB DESCRIPTION IS SAL ES AND MARKETING FOR SIGNALING AND LOCOMOTIVES. HIS REPORTING MANAGER I S PRITAM KUMAR AS DISCUSSED IMMEDIATELY HEREINABOVE, WHO, IN TURN, IS REPORTING TO PIERRE CANTE. IV. JANAK CHAUDHARY - PAGE 292 IS REPORT OF JANAK C HAUDHARY WITH DESIGNATION OF `VICE PRESIDENT AND JOB DESCRIPTION OF SECTOR ANALYSIS FOR GROWTH IN INDIA. HIS REPORTING MANAGER IS AGAI N SOME FOREIGN EMPLOYEE. 27.5. ABOVE NARRATION OF THE NATURE OF JOBS CARR IED OUT BY THESE EMPLOYEES OF GEIIPL MAKES IT AMPLY CLEAR THAT THEY WERE AT THE HIGHER POSITIONS IN THE GENERAL ADMINISTRATION AND, MORE S PECIFICALLY, SALES OF GE OVERSEAS, REPORTING DIRECTLY TO THE EXPATS, WHO, IN TURN, WERE INDIA COUNTRY HEADS OR OCCUPYING THE PEAK POSITIONS IN GE OVERSEAS IN INDIA. 27.5. HAVING SEEN THE JOB RESPONSIBILITIES OF THE EXPATRIATES AND EMPLOYEES OF GEIIPL ASSISTING THE EXPATS IN THE IND IAN OPERATIONS OF GE OVERSEAS, NOW LET US HAVE A LOOK AT SOME OF THE E-M AILS WHICH ARE PART ITA NO.671/DEL/2011 101 OF THE SURVEY DOCUMENTS, WHICH FULLY JUSTIFY THE RE SPECTIVE DESIGNATIONS GIVEN TO THEM. AS NOTICED EARLIER, THE ASSESSEE IN ITS REPLIES TO THE AO HAS USED TWO TERMS, NAMELY, GE OVERSEAS AND GE INDI A. ADMITTEDLY, GE OVERSEAS HAS BEEN REFERRED TO AS ALL THE `GE OVE RSEAS ENTITIES COLLECTIVELY AND GE INDIA HAS BEEN REFERRED TO AS ` EXPATRIATE EMPLOYEES OF GE INTERNATIONAL INC. LOCATED IN INDIA AND EMPLO YEES OF GE INDIA INDUSTRIAL PRIVATE LIMITED I.E. GEIIPL ENGAGED IN P ROVIDING MARKETING SUPPORT SERVICES FOR OFFSHORE SALES INTO INDIA. US E OF THE EXPRESSION GE INDIA PRIMA FACIE SHOWS THAT FIRSTLY, THE EXPATS OF GEII WORKED FOR GE OVERSEAS IN INDIA, AND SECONDLY, THE ROLE PLAYED BY THE EMPLOYEES OF GEIIPL IS MORE THAN WHAT HAS BEEN SET OUT IN THE AG REEMENT. 27.6. PAGE 127 OF THE SURVEY DOCUMENTS PB-I IS A N E-MAIL FROM LA MOITA OF GE OVERSEAS ENTITY TO P. RICCARDO (GE INDI A) AND OTHERS WHICH HAS BEEN STYLED AS CONFIDENTIAL. THIS E-MAIL READ S : NOW THE CASE OF BHEL AS WE HAVE DISCUSSED IT WHAT IS REPORTED IN TH E MOU REFLECTS THE CONTENT OF CONVERSATION WE HAD (ME, YOU AND RICCARD O) IN THE 2 ND HALF OF AUGUST, WHEN WE WERE IN INDIA NEGOTIATING THE DEAL. THIS E-MAIL ITA NO.671/DEL/2011 102 INDICATES THAT RICCARDO (GE INDIA) WAS FULLY INVOLV ED IN NEGOTIATING THE DEAL AND WAS NOT MERELY ACTING AS A COMMUNICATION C HANNEL. PAGE 195 OF SURVEY DOCUMENTS PB I IS A COMMUNICAT ION FROM BHEL TO P. RICCARDO (GE INDIA) WITH A REQUEST TO REVISE YOUR OFFER FOR PRESENT JOB IN LINE WITH ENCLOSED PAST SIMILAR ORDE R. THIS DOCUMENT SHOWS THAT P. RICCARDO (GE INDIA) WAS DIRECTLY MAKI NG OFFERS AND ALSO ENTERTAINING REQUESTS FROM CUSTOMERS IN INDIA FOR R EVISING THE OFFER. PAGE 82 OF SURVEY DOCUMENTS PBI IS AN E-MAIL FROM VIVEK VENKATACHALAM (GE INDIA) ADDRESSED TO PRONTERA, ETC . (GE OVERSEAS) WITH A COPY TO RICCARDO PROCACCI (GE INDIA). THIS I S IN RESPECT OF INFRA, OIL AND GAS BUSINESS RELATING TO NUOVO PIGNONE SPA, MENTIONING THAT: RELIANCE WOULD SAY THAT THE EFFECTIVE DATE WOULD F ALL SOMETIME BY END OF MARCH 07. IN INDIA, THE FINANCIAL CLOSING IS 1 ST APRIL-31 ST MARCH AND HENCE THEY REQUESTED US TO CHANGE THE PERIOD TO 120 DAYS FOR THE WHRU AND WE ACCOMMODATED THEIR REQUEST. THIS SHOWS THAT SHRI VIVEK VENKATACHALAM, A PART OF INDIAN TEAM, CHANGED THE T ERMS AND CONDITIONS INDICATING NEGOTIATIONS AND DECISION MAKING TAKING PLACE IN INDIA. ITA NO.671/DEL/2011 103 PAGE 155 OF SURVEY DOCUMENTS PBI IS A DOCUMENT GIV ING `2007 OUTLOOK, A PPT SENT TO JOHN RICE (GE OVERSEAS) BY RICCARDO (GE INDIA). ON THE LEFT SIDE OF THIS DOCUMENT, THERE IS A MENTION, INTER ALIA, OF `REINFORCING SALES TEAM TO IMPROVE LONG-TERM VISIBI LITY AND RESOURCES PLANNING. ON THE RIGHT SIDE, THERE IS A NOTING OF CUSTOMER-WISE SALES MADE. THIS HAS BEEN BIFURCATED INTO TWO PARTS VIZ.: DIRECT ORDERS AND INFERENCE ORDERS. ONLY DIRECT ORDERS RELATE TO OPERATIONS IN INDIA. RICCARDO MENTIONS ON THE SECOND PAGE OF THE PPT ABO UT KEY WINS OF RELIANCE EWGP, IOCL HALDIA AND PII. THIS PAGE ALSO MENTIONS MARKET DYNAMICS AND REVENUES. HE ALSO REFERS TO FIERCE PR ICE PRESSURE AND PROFITABILITY THROUGH LOCAL SOURCING. THIS DOCUMEN T EVIDENCES THE FULL- BLOWN INDULGENCE OF GE INDIA IN RUNNING AND SECURIN G ORDERS FOR GE OVERSEAS FROM INDIA. PAGE 2 BOTTOM AND PAGE 3 OF SURVEY DOCUMENTS PBII IS AN E-MAIL FROM ROBERT PRESTWICH (GE OVERSEAS) TO VIVEK VENKATACHAL AM, AN EMPLOYEE OF GEIIPL (GE INDIA): `THE DRAFT TSA (TECHNICAL SER VICES AGREEMENT) FOR RELIANCE ATTACHED. I GUESS THIS NEEDS TO BE REV IEWED BY YOUR ITA NO.671/DEL/2011 104 AFTERMARKET COLLEAGUES IN INDIA OR DOES IT NEED TO GO BACK TO SOMEONE IN FLORENCE. THIS E-MAIL COMMUNICATION SHOWS THAT THE DRAFT AGREEMENT SENT BY RELIANCE INDUSTRIES LTD. TO MIKE HOSFORD (G E OVERSEAS) WAS, IN TURN, SENT TO INDIA, NAMELY, VIVEK VENKATACHALAM (G E INDIA), REQUIRING HIM TO GET IT REVIEWED FROM HIS AFTERMARKET COLLEAG UES IN INDIA. PAGES 32 AND 33 OF SURVEY DOCUMENTS PB-II ARE CERTA IN E-MAILS BETWEEN P. RICCARDO, VIVEK VENKATACHALAM (GE INDIA) AND DIN O CATASTINE (GE OVERSEAS). P. RICCARDO WRITES TO DINO CATASTINE THA T: THE CREDIBILITY OF THE TEAM IS COMPROMISED. WHY CHANGES HAVE BEEN MAD E TO WHAT WE AGREED DURING THE LAST TWO MEETINGS AND CONFERENCE CALLS WITH RIL WITHOUT PRIOR CONSULTATION WITH THE LOCAL TEAM? . ALL COMMUNICATION TO RIL MUST BE PASSED THROUGH VIVEK. IF THERE IS NO AGREEMENT ON THE SUBJECT LET US DISCUSS. THEN, DIN O CATASTINE WRITES TO RICCARDO SAYING: `WE DIDNT CHANGE OUR POSITION WIT H RESPECT TO THE CONFERENCE CALLS WE HAVE PARTECIPATED. ONCE AGAIN HE WRITES TO RICARDO AND VIVEK SAYING: FOLLOWING OUR PHONE CALL, I CONF IRM THAT, IF NECESSARY TO CLOSE THE DEAL WITHOUT ANY OTHER CHANG E TO OUR PROPOSAL, WE ITA NO.671/DEL/2011 105 CAN WITHDRAW OUR REQUEST FOR A 2% PRICE INCREASE FO R DIFFERENT PAYMENT TERMS AND FORWARD EXCHANGE RATE INSTEAD OF SPOT. T HE ABOVE E-MAILS SHOW THAT RICARDO DID NOT TAKE IT CHARITABLY WHEN D INO CATASTINE MADE SOME CHANGES QUA CONTRACT WITH RIL WITHOUT PRIOR CONSULTATION WITH THE GE INDIA AND HE EXPRESSED HIS ANGUISH BY WRITING TH AT THE CREDIBILITY OF THE TEAM WAS COMPROMISED. THIS LEAVES NOTHING TO D OUBT THAT GE INDIA WAS IN FULL COMMAND OF THE SALES ACTIVITIES IN INDI A AND NOT ALLOWING GE OVERSEAS EVEN TO INTERFERE WITH WHAT THEY HAD AGREE D WITH THE CUSTOMER IN INDIA. PAGE 39 OF THE SURVEY DOCUMENTS PBII IS AN E-MAIL FROM VIVEK VENKATACHALAM (GE INDIA) TO P. RICCARDO (GE INDIA), DISCUSSING ANOTHER CUSTOMER, NAMELY, BONGAIGAON REFINERY AND P ETROCHEMICALS LTD., REQUESTING RICCARDO: TO MAKE VITTORIO UNDERS TAND THAT WE CANNOT CHANGE THE PAYMENT TERMS COMPLETELY.. THIS SHOW S THAT GE INDIA WAS NOT EVEN ALLOWING GE OVERSEAS TO CHANGE T HE TERMS AND CONDITIONS OF A CONTRACT, WHAT TO TALK OF WORKING A S A MERE COMMUNICATION CHANNEL BETWEEN THE GE OVERSEAS AND I NDIAN CUSTOMER. ITA NO.671/DEL/2011 106 PAGES 101-103 OF THE SURVEY DOCUMENTS PBII ARE CER TAIN RELATED E- MAILS. FIRST IS AN E-MAIL FROM GIANLUCA (GE OVERSEA S) TO A CUSTOMER IN INDIA (PUMP DESIGN DEPARTMENT OF IOC) WITH THE SUBJ ECT `OFFER. IT HAS BEEN WRITTEN: `AS ALREADY ADVISED BY MR. PROCACCI O N OCTOBER 12, 2006 WE CONFIRM AS FOLLOWS. THIS INDICATES THAT PROCAC CI, A PART OF GE INDIA REPRESENTING GE OVERSEAS, WAS FINALIZING THE MOU WITH THE INDIAN CUSTOMER AND ADVISING ACCORDINGLY TO THE GE OVERSEA S. THEN THERE IS AN E-MAIL FROM RAJESH GUPTA, AN EMPLOYEE OF GEIIPL TO PUMP DESIGN DEPARTMENT OF IOC WITH COPY TO P. RICCARDO, CONVEYI NG TO THE CLIENT THAT: AS A SPECIAL CASE, WE HAVE DECIDED TO ACCEPT THE FOLLOWING PAYMENT TERMS FOR THE SUBJECT MOU. THIS SHOWS THAT THE CHANGE WAS PERMITTED IN THE TERMS OF MOU BY GE INDIA, WHICH WA S CONVEYED BY VIVEK TO THE CUSTOMER, WITH A COPY TO RICARDO PROCA CCI. THIS IS A POINTER TOWARDS MAJOR ACTIVITIES IN CONNECTION WITH ORDERS AND FINALIZATION OF TERMS AND CONDITIONS OF SALES BEING DONE BY GE INDI A. PAGE 104 OF THE SURVEY DOCUMENTS PBII IS AN E-MAIL FROM PUMP DESIGN DEPARTMENT TO P. RICCARDO (GE INDIA) WITH A COPY TO VIVEK ITA NO.671/DEL/2011 107 VENKATACHALAM (GE INDIA) AND RAJESH GUPTA (GE INDIA ) REQUESTING THE INDIAN TEAM TO SEND THE DRAFT OF MOU ALONG WITH COM PLETE COMMENTS, SO THAT THE SAME COULD BE INCORPORATED IN THE ORIGI NAL MOU. THIS E-MAIL SHOWS THAT THE ENTIRE CORRESPONDENCE WITH THE CUSTO MER IN INDIA WAS BEING DONE BY THE INDIAN TEAM HEAD P. RICCARDO. PAGE 120 OF THE SAME PB-II IS AN E-MAIL FROM R. PRO CACCI (GE INDIA) TO DOMENICO (GE OVERSEAS) WITH A COPY TO VIVEK VENKATA CHALAM (GE INDIA) READING: `AS AGREED WE WILL TRY TO PUT TOGET HER A SIMPLE BUSINESS CASE IN ORDER TO TAKE THE INITIATIVE FORWARD TO THE NEED LEVEL OF EVOLUTION..THE APPROACH MUST BE AS LIGHT AS POSSIB LE IN ORDER TO MATCH THE CURRENT BUSINESS STRATEGIES AND PRIORITIES. T HIS SHOWS GE INDIA (PROCACCI) ADVISING GE OVERSEAS OF THE WAY IN WHICH A CASE IS TO BE PUT UP BEFORE THE INDIAN CLIENT. THEN LA MOTTA (GE OVER SEAS) REPLIES TO P. RICCARDO, VIVEK VENKATACHALAM (GE INDIA) AND OTHERS REFERRING TO SALES TEAM (VIVEK AND RICCARDO). THIS AGAIN DISCL OSES THAT GE INDIA (RICCARDO AND VIVEK) WERE SALES TEAM AND NOT MERELY A COMMUNICATION CHANNEL AS CONTENDED. ITA NO.671/DEL/2011 108 27.7. NOW LET US EXAMINE THE STATEMENT OF SHRI CH ANDER JAIN RECORDED AT THE TIME OF SURVEY, WHOSE COPY IS AVAILABLE ON P AGES 1-14 OF SURVEY DOCUMENTS PB. HE ADMITTED IN RESPONSE TO QUESTION N O.10 THAT GEIOC IS A REPRESENTATIVE OFFICE AND ALL SUCH REPRESENTS OF A CORPORATE OFFICE OF GE IN INDIA. IN AN ANSWER TO QUESTION NO. 30 AS TO WHETHER THE EMPLOYEES OF GEIIPL WORK FOR GE GROUP ENTITIES IN I TS SALE SERVICING BUSINESS IN INDIA, HE SAID THAT: THERE ARE CERTAIN NUMBER OF PEOPLE WHO ARE ENGAGED BY GEIIPL TOWARDS MARKETING AND SALES. IF ANY OTHER PERSON ARE PROVIDING THE ABOVE SERVICES I WILL PROVIDE THE INFORMATION. 27.8. SHRI RUPAK SAHA, WHOSE STATEMENT WAS ALSO R ECORDED DURING THE COURSE OF SURVEY, ADMITTED IN RESPONSE TO QUESTION NO. 9 THAT HE WAS RESPONSIBLE FOR TAX MATTERS OF ALL COMPANIES OF GE GROUP AND, TO THIS EXTENT, HE WAS SUPPORTED BY GEIOC AND OTHER COMPANI ES HAVING OPERATIONS IN INDIA. 27.9. WHEN WE CONSIDER ALL THE SURVEY DOCUMENTS IN HARMONY WITH THE SELF APPRAISALS, MANAGER ASSESSMENTS AND JOB RESPON SIBILITIES GIVEN UNDER THE SIGNATURE OF THE EXPATS AND EMPLOYEES OF GEIIPL WORKING FOR ITA NO.671/DEL/2011 109 GE OVERSEAS ENTITIES IN INDIA, IT BECOMES ABSOLUTEL Y CLEAR THAT GE INDIA WAS CONDUCTING BUSINESS OF GE OVERSEAS IN INDIA AND WAS DIRECTLY AND WHOLLY INVOLVED IN NEGOTIATING AND FINALIZING THE C ONTRACTS. THE HONBLE SUPREME COURT IN CIT VS. AHMEDBHAI UMARBHAI & CO. (1950) 18 ITR 472 (SC) HELD THAT: `THE PROFITS ATTRIBUTABLE TO THE MANUFA CTURING BUSINESS ARE SAID TO ARISE OR ACCRUE AT THE PLACE W HERE THE MANUFACTURE IS BEING DONE AND THE PROFITS WHICH ARISE BY REASON OF THE SALE ARE SAID TO ARISE AT THE PLACE WHERE THE SALES ARE MADE. IT IS CLEAR FROM THE ABOVE THAT MARKETING AND SALES ARE INCOME YIELDING ACTIVI TIES IN THEMSELVES AND IF THE CORE ACTIVITY OF MARKETING AND SALE HAS TAKE N PLACE IN INDIA, THEN PROFIT FROM SALE, ACCRUES OR ARISES IN INDIA ALONE AND THE SAME TO THAT EXTENT SHOULD BE CHARGED TO TAX ACCORDINGLY. THE AB OVE DISCUSSION LEAVES NO ROOM TO DOUBT THAT IN THE INSTANT CASE TH OUGH BUSINESS OF GE OVERSEAS WAS PARTLY CARRIED OUT IN INDIA BUT THE CO RE OF SALES ACTIVITY WAS DONE FROM THE AIFACS BUILDING, BEING THE FIXED PLAC E OF BUSINESS. THE SECOND REQUISITE ALSO, THEREFORE, STANDS SATISFIED. ITA NO.671/DEL/2011 110 28.1. THE THIRD CONDITION FOR CONSTITUTING A FIXED PLACE PE, TO THE EXTENT IT IS RELEVANT FOR OUR PURPOSE, IS THAT THE ACTIVIT IES CARRIED ON FROM SUCH FIXED PLACE SHOULD NOT BE OF PREPARATORY OR AUXILIARY CHARACTER. IF THE ACTIVITIES DONE FROM SUCH FIXED PLACE FALL WITHIN T HE PURVIEW OF PREPARATORY OR AUXILIARY, THE FIXED PLACE SHEDS I TS CHARACTER OF A PERMANENT ESTABLISHMENT. THE TERM `PREPARATORY ACTI VITY IS UNDERSTOOD IN COMMON PARLANCE AS SOME JOB CONCERNED WITH THE PREPARATION OF THE MAIN TASK TO BE UNDERTAKEN. IT IS PURSUED BEFORE TH E TAKING UP OF THE ACTUAL ACTIVITY. BLACKS LAW DICTIONARY 7 TH EDITION AT PAGE 130 DEFINES THE TERM AUXILIARY TO MEAN AS AIDING OR SUPPORTI NG, SUBSIDIARY. AN ACTIVITY BECOMES AUXILIARY IF IT IS IN SUPPORT OR A ID OF THE CORE INCOME GENERATING ACTIVITY. THE HONBLE JURISDICTIONAL HIG H COURT IN U.A.E. EXCHANGE CENTRE LTD. VS. UNION OF INDIA AND ORS. (2 009) 313 ITR 94 (DEL) CONSIDERED A CASE IN WHICH THE ACTIVITY TO BE DONE THROUGH THE LIAISON OFFICE IN INDIA WAS OF DOWNLOADING THE DATA ; PREPARATION OF CHEQUES FOR REMITTING THE AMOUNT; AND DISPATCHING T HE SAME THROUGH COURIER BY LIAISON OFFICE. THE HONBLE HIGH COURT D ESIGNATED IT AS AUXILIARY TO THE MAIN ACTIVITY OF THE PETITIONER. T HE HONBLE ITA NO.671/DEL/2011 111 JURISDICTIONAL HIGH COURT IN A MORE RECENT DECISION IN NATIONAL PETROLEUM CONSTRUCTION COMPANY VS. DIT (IT) (2016) 383 ITR 648 (DEL) , CONSIDERING THE EARLIER DECISIONS IN MORGAN STANLEY (SUPRA) AND UAE EXCHANGE CENTRE (SUPRA), HAS HELD THAT ACTIVITY OF PREPARATORY OR AUXILIARY CHARACTER IS REMOTE FROM ACTUAL REALIZATION OF PROFITS AND IS SIMPLY IN AID OR SUPPORT OF THE MAIN ACTIVITY. IN T HAT CASE, THE ACTIVITIES OF THE LIAISON OFFICE IN INDIA WERE HELD NOT TO CON TRIBUTE DIRECTLY OR INDIRECTLY TO THE EARNING OF PROFITS BY THE ASSESSE E AND THE SAME BEING OF PREPARATORY OR AUXILIARY NATURE, DID NOT CONSTITUTE PE IN TERMS OF ARTICLE 5(3)(E) OF THE DTAA. THE HONBLE SUPREME COURT IN MORGAN STANLEY (SUPRA) HELD THAT BACK OFFICE FUNCTIONS PERFORMED IN INDIA ARE THE ACTIVITIES OF PREPARATORY OR AUXILIARY CHARACTER, W HICH DO NOT CONSTITUTE A FIXED PLACE PE UNDER ARTICLE 5(1) OF THE DTAA. 28.2. IT IS DISCERNIBLE FROM AN OUTLINE OF THE AB OVE JUDGMENTS RENDERED BY THE HONBLE APEX COURT AND THE HONBLE JURISDICT IONAL HIGH COURT THAT THE TEST FOR DETERMINING A PREPARATORY OR AUXI LIARY ACTIVITY IS NOT TO SEE IF THE CORE ACTIVITY CAN OR CANNOT BE PERFORMED WITHOUT IT. RATHER, THE TEST IS THAT SUCH ACTIVITY MERELY SUPPORTS THE CORE ACTIVITY AND DOES NOT ITA NO.671/DEL/2011 112 PER SE LEAD TO EARNING OF INCOME. IF THE ACTIVITY CARRIED ON FROM A FIXED PLACE IN INDIA IS SIMPLY IN AID OR SUPPORT OF THE C ORE INCOME GENERATING ACTIVITY AND IS REMOTE FROM THE ACTUAL REALIZATION OF PROFITS, THE SAME ASSUMES THE CHARACTER OF A PREPARATORY OR AUXILIARY NATURE AND FALLS WITHIN CLAUSE (E) OF ARTICLE 5(3) TO BRING THE CASE OUT OF THE AMBIT OF A `PERMANENT ESTABLISHMENT. ONE THING IS CLEAR FROM ALL THE ABOVE DECISIONS CITED BY THE LD. AR THAT THE ACTIVITIES P ERFORMED BY THOSE ASSESSES IN INDIA WERE EITHER DONE BY THEIR LIAISON OFFICES ACTING AS COMMUNICATION CHANNEL STRICTLY AS APPROVED BY THE R BI OR WERE IN AID AND SUPPORT OF THE MAIN ACTIVITY, NOT GENERATING A NY INCOME IN THEMSELVES. 28.3. SECTION 2(E) OF FOREIGN EXCHANGE MANAGEMENT (ESTABLISHMENT IN INDIA OF BRANCH OF OFFICE OR OTHER PLACE OF BUSINES S) REGULATIONS, 2000 DEFINES `LIAISON OFFICE TO MEAN A PLACE OF BUSINESS TO ACT AS A CHANNEL OF COMMUNICATION BETWEEN THE PRINCIPAL PLACE OF BUSINESS OR HO AND ENTITIES IN INDIA, BUT WHICH DOES NOT UNDERTAKE ANY COMMERCIAL/ TRADIN G/ INDUSTRIAL ACTIVITY AND MAINTAINS ITSELF OUT OF INWARD REMITTANCES ITA NO.671/DEL/2011 113 RECEIVED FROM ABROAD THROUGH NORMAL BANKING CHANNEL . FROM THE DEFINITION OF LIAISON OFFICE SEEN IN JUXTAPOSITION TO THE ABOVE REFERRED JUDGMENTS, IT BECOMES CLEAR THAT ACTING AS A COMMUN ICATION CHANNEL IS AN ACTIVITY OF AUXILIARY CHARACTER AND HENCE DOES N OT CONSTITUTE A PE IN INDIA. 28.4. NOW, LET US EXAMINE IF THE ACTIVITIES CARRI ED OUT IN INDIA BY THE GE OVERSEAS ENTITIES THROUGH GE INDIA ARE OF PREPAR ATORY OR AUXILIARY CHARACTER. MAIN FOCUS OF THE LD. AR WAS TO ESTABLI SH THAT THE ACTIVITIES DONE BY GE INDIA WERE OF PREPARATORY OR AUXILIARY C HARACTER. AS PER THE APPLICATION MADE TO RBI AND PERMISSION OBTAINED, TH E LO OF GEIOC WAS TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE H EAD OFFICE AND THE CUSTOMERS IN INDIA. THUS, THERE REMAINS NO DOUBT TH AT THE ACTIVITIES TO THE EXTENT OF COMMUNICATION CHANNEL, AS SANCTIONED BY T HE RBI, BEING OF PREPARATORY OR AUXILIARY CHARACTER, WOULD NOT CONST ITUTE ANY PE IN INDIA. HOWEVER, IT HAS BEEN NOTICED ABOVE THAT THE ACTUAL ACTIVITIES CARRIED ON FROM THE FIXED PLACE OF AIFCAS BUILDING DID NOT REM AIN CONFINED ONLY ITA NO.671/DEL/2011 114 TO THOSE OF A COMMUNICATION CHANNEL AS WAS ALLOWED BY THE RBI TO GEIOC AT THE TIME OF SETTING UP ITS LO IN INDIA. 28.5. THE LD. AR HARPED ON THE ASSESSEES REPLY TO THE AOS LETTER DATED 14.11.2008 SUBMITTING FOUR STAGES OF SALES TO CONTE ND THAT THE ACTIVITIES CARRIED OUT IN INDIA BY GE INDIA WERE MERELY PREPAR ATORY OR AUXILIARY. HE FURTHER RELIED ON THE ROLES AND RESPONSIBILITIES OF EMPLOYEES OF GEIIPL ETC. SUPPLIED BY THE ASSESSEE TO DEPARTMENT, PURSUANT TO THE JUDGMENT OF THE HONBLE HIGH COURT. BASED ON SUCH S UBMISSIONS, IT WAS ARGUED THAT ALL THE ACTIVITIES CARRIED OUT IN INDIA WERE OF PREPARATORY OR AUXILIARY NATURE AND THE CORE ACTIVITY OF EARNING I NCOME WAS DONE BY GE OVERSEAS OUTSIDE INDIA. 28.6. WE HAVE GONE THROUGH THE AFORESAID REPLY GIVE N BY THE ASSESSEE WHICH HAS BEEN INCORPORATED ON PAGE 45 ONWARDS OF T HE ASSESSMENT ORDER AND ALSO THE ROLE AND RESPONSIBILITIES OF THE EMPLOYEES OF GEIIPL ETC. WORKING IN INDIA, WHICH WE WILL NOW ESPOUSE FO R CONSIDERATION. THE REPLY BRIEFLY EXPLAINS THE SALES PROCESS IN FOUR ST AGES, VIZ., ITA NO.671/DEL/2011 115 STAGE 1- PRE-QUALIFICATION; STAGE 2- BID/NO BID AND PROPOSAL DEVELOPMENT; STAGE 3- BID APPROVAL AND NEGOTIATIONS; AND STAGE 4- FINAL CONTRACT DEVELOPMENT AND APPROVAL 28.7.1. THE LD. AR CONTENDED THAT FOR THE FIRST STA GE OF `PRE- QUALIFICATION, THE ASSESSEE STATED BEFORE THE AO T HAT GE INDIAS ROLE COMPRISES OF ASSISTING GE OVERSEAS IN IDENTIFYING B USINESS OPPORTUNITIES/LEADS. GE INDIA COLLECTS AND FURNISHE S INFORMATION PERTAINING TO MARKET TRENDS, KEY POLICY CHANGES IN THE INDUSTRY, ETC. THROUGH THESE EFFORTS, GE INDIA IS ABLE TO IDENTIFY OPPORTUNITIES FOR GE OVERSEAS. ONCE GE INDIA IDENTIFIES A BUSINESS OPPOR TUNITY, IT COMMUNICATES THE POTENTIAL OPPORTUNITY TO GE OVERSE AS. GE INDIA PROVIDES ITS MARKETING SUPPORT SERVICES AT THIS STA GE WITHIN THE BROAD FRAMEWORK AND STRATEGY FORMULATED BY GE OVERSEAS. 28.7.2. IT IS CLEAR FROM THE ABOVE THAT THE ASSES SEE ADMITTED THE ROLE OF GE INDIA (EXPATS OF GEII AND THE EMPLOYEES OF GEIIP L) IN IDENTIFYING BUSINESS OPPORTUNITIES, COLLECTING AND FURNISHING I NFORMATION PERTAINING TO MARKET TRENDS, KEY POLICY CHANGES IN THE INDUSTR Y, ETC. ITA NO.671/DEL/2011 116 28.8.1. FOR THE SECOND STAGE OF `BID/NO BID AND PROPOSAL DEVELOPMENT, THE LD. AR CONTENDED THAT THE ASSESSE E STATED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT ON RECEIP T OF COMMUNICATION FROM GE INDIA REGARDING AN IDENTIFIED VIABLE BUSINE SS OPPORTUNITY, GE OVERSEAS ANALYSES THE SAME INDEPENDENTLY FOR DECIDI NG WHETHER THE SAME IS WORTH PURSUING. IN CASE GE OVERSEAS REQUIRE S ANY INPUTS/CLARIFICATIONS/ ADDITIONAL INFORMATION (AS P ART OF ITS DECISION MAKING PROCESS), IT MAY REQUEST GE INDIA TO PROVIDE THE SAME. GE OVERSEAS EXAMINES THE OPPORTUNITY IN DETAIL AND THU S ARRIVES AT AN INDEPENDENT DECISION OF WHETHER TO PURSUE THE IDENT IFIED BUSINESS OPPORTUNITY OR NOT. ENTIRE TECHNICAL AND COMMERCIAL EVALUATION OF THE OPPORTUNITY AT THIS STAGE IS CARRIED OUT BY GE OVER SEAS WITH INPUTS FROM ITS VARIOUS FUNCTIONAL PERSONNEL SPANNING OPERATION S, FINANCE, MARKETING, ETC. IN THE EVENT, GE OVERSEAS DECIDES TO PURSUE TH E IDENTIFIED BUSINESS OPPORTUNITY, IT COMMENCES THE PROPOSAL DEVELOPMENT PROCESS AND INTIMATES GE INDIA IN THIS REGARD. GE INDIA (ON REC EIPT OF SUCH INTIMATION AND UNDER THE EXPLICIT INSTRUCTIONS OF G E OVERSEAS) UNDERTAKES AN INTERACTION WITH THE PROSPECTIVE END- CUSTOMER SO AS TO ITA NO.671/DEL/2011 117 IDENTIFY CUSTOMER'S REQUIREMENTS/ WHICH ARE PASSED ON TO GE OVERSEAS AS INPUTS IN THE PROPOSAL DEVELOPMENT PROCESS. AS P ART OF THE PROPOSAL DEVELOPMENT PROCESS, GE OVERSEAS MAY SEEK INPUTS FR OM GE INDIA IN RESPECT OF VARIOUS ASPECTS SUCH AS PRICING, PREPARA TION OF BIDDING PACKAGE AND OTHER SUPPLEMENTARY INFORMATION. 28.8.2. IT IS NOTICED THAT THE ASSESSEE HAS ADMITT ED A SMALL ROLE PLAYED BY GE INDIA. CLAIM OF INDEPENDENT DECISION TAKEN BY GE OVERSEAS HAS BEEN RIGHTLY HELD BY THE AO AS ERRONEOUS. VARIOUS SURVEY DOCUMENTS, AS DISCUSSED ABOVE, ABUNDANTLY SHOW GE INDIA PLAYING A N IMPORTANT AND PROACTIVE ROLE IN THE FINALIZATION OF THE DEAL AND THE TERMS AND CONDITIONS WITH CUSTOMERS IN INDIA. IN REALITY, THE MAJOR ACTI VITIES ABOUT SOURCING OF CUSTOMERS AND FINALIZING THE DEALS WITH THEM WERE D ONE BY GE INDIA IN CONSULTATION, WHEREVER REQUIRED, WITH GE OVERSEAS. THE ASSESSEE FRANKLY ADMITTED IN THE SAME PARA THAT: `IN SOME INSTANCES, THE PROPOSAL DEVELOPMENT IS JOINTLY RUN BY THE GE OVERSEAS AND G E INDIA TEAMS. THIS IS ALSO BORNE OUT FROM PAGE 104 OF THE SURVEY DOCUMENTS PBII, AS DISCUSSED ABOVE, WHICH IS AN E-MAIL FROM PUMP DESIG N DEPARTMENT TO ITA NO.671/DEL/2011 118 GE INDIA AND COPY TO OTHER MEMBERS OF GE INDIA REQU ESTING THE INDIAN TEAM TO SEND THE DRAFT OF MOU ALONG WITH COMPLETE C OMMENTS, SO THAT THE SAME COULD BE INCORPORATED IN THE ORIGINAL MOU. SIMILARLY, PAGE 127 OF THE SURVEY DOCUMENTS PB-I SHOWS THAT THE MOU WITH BHEL REFLECTED THE CONVERSATION WHAT GE INDIA AND GE OVE RSEAS DISCUSSED. THUS, THERE IS NOT EVEN AN IOTA OF DOUBT THAT GE IN DIA WAS FULLY INVOLVED IN PROPOSAL DEVELOPMENT. 28.9.1. THE LD. AR SUBMITTED FOR THE THIRD STAGE OF `BID APPROVAL AND NEGOTIATIONS, THAT THE ASSESSEE STATED BEFORE THE AO THAT ONCE THE PROPOSAL/ BID/ TENDER HAVE BEEN PUT TOGETHER AS DES CRIBED IN STAGE 2 ABOVE, IT IS APPROVED BY THE SENIOR MANAGEMENT DURI NG THE STAGE 3 AND, THEREAFTER, SUBMITTED TO THE END CUSTOMER. SUBSEQUE NTLY, GE OVERSEAS MAY CARRY OUT NEGOTIATIONS WITH THE CUSTOMER, WHICH MAY ENTAIL ADDRESSING QUERIES, IF ANY, RAISED BY THE END-CUSTO MER, SEEKING/ PROVIDING CLARIFICATIONS REGARDING WORK SCOPE, PRIC ING, ETC REQUIRED BY THE END CUSTOMER. FOR THE FOURTH STAGE OF `FINAL C ONTRACT DEVELOPMENT AND APPROVAL, THE ASSESSEE STATED THAT GE OVERSEAS DISCUSSES THE OUTCOME OF THE NEGOTIATION PROCESS INTERNALLY AMONG ST ITS VARIOUS ITA NO.671/DEL/2011 119 OVERSEAS FUNCTIONAL HEADS/ APPROVING AUTHORITIES (O PERATIONS, FINANCE, LEGAL, ETC) SO AS TO DECIDE WHETHER OR NOT TO GO-AH EAD WITH THE CONTRACT ON THE AGREED TERMS AND CONDITIONS WITH THE CUSTOM ER. IF THE NEGOTIATED CONTRACT TERMS ARE APPROVED AND ACCEPTED BOTH BY GE OVERSEAS AND THE END-CUSTOMER, THE CONTRACT DOCUMENTS ARE PREPARED A ND EXECUTED/SIGNED BY GE OVERSEAS. LOCAL INPUTS ARE OBTAINED FROM GE I NDIA AT THIS STAGE ON A NEED BASIS. 28.9.2. HERE AGAIN WE FIND THAT THE ASSESSEES SU BMISSIONS ARE ONLY PARTLY TRUE. PAGES 101-103 OF THE SURVEY DOCUMENTS PB II, AS DISCUSSED ABOVE, EVIDENCE GE INDIA FINALIZING MOU W ITH THE INDIAN CUSTOMER, PUMP DESIGN DEPARTMENT OF IOC, AND ADVISI NG ACCORDINGLY TO THE GE OVERSEAS. THEN, THERE IS A MAIL SHOWING THAT THE CHANGE WAS PERMITTED IN THE TERMS OF MOU BY THE INDIAN TEAM, W HICH WAS CONVEYED BY GE INDIA TO THE CUSTOMER, WITH A COPY TO ANOTHER MEMBER OF GE INDIA. GE INDIA WAS NEGOTIATING TERMS WITH THE INDI AN CUSTOMERS IS ALSO BORNE OUT FROM PAGE 195 OF SURVEY DOCUMENTS PBI AS DISCUSSED ABOVE, WHEREBY INDIAN CUSTOMER WAS REQUESTING GE INDIA TO REVISE THE OFFER. ITA NO.671/DEL/2011 120 SIMILARLY, PAGE 82 OF SURVEY DOCUMENTS PBI, AS DIS CUSSED ABOVE, SHOWS THAT GE INDIA CHANGED THE TERMS AND CONDITION S. IN THE LIKE MANNER, PAGES 2 AND 3 OF SURVEY DOCUMENTS PBII SHO W THAT THE DRAFT AGREEMENT BY RELIANCE INDUSTRIES LTD. TO GE OVERSEA S WAS SENT BACK TO GE INDIA TO GET IT REVIEWED FROM AFTERMARKET COLLEA GUES IN INDIA. PAGES 32 AND 33 OF SURVEY DOCUMENTS PB-II SHOW THAT WHEN GE OVERSEAS TRIED TO CONTACT DIRECTLY WITH RIL, GE INDIA OBJECT ED TO THE SAME AND WANTED THE ENTIRE CONSULTATIONS ONLY THROUGH THE IN DIAN TEAM, WHICH WAS POSITIVELY RESPONDED BY GE OVERSEAS. PAGE 39 OF TH E SURVEY DOCUMENTS PBII AGAIN SHOWS THAT IT IS GE INDIA WHICH WAS NEG OTIATING WITH INDIAN CUSTOMERS AND NOT ALLOWING GE OVERSEAS EVEN TO CHAN GE THE TERMS AND CONDITIONS. 28.10. AT THIS JUNCTURE, IT IS SIGNIFICANT TO NOT E THAT THE ASSESSEE IS NOT DEALING IN OFF THE SHELF GOODS. SALES ARE MADE ON T HE BASIS OF A PRIOR CONTRACT. IN SUCH CASES, CUSTOMERS REQUIREMENTS AR E FIRST PROPERLY UNDERSTOOD AND THOROUGHLY EXAMINED; THEN COMMERCIAL AND TECHNICAL DISCUSSION MEETINGS TAKE PLACE; THEN PROPOSALS ARE PREPARED AFTER ITA NO.671/DEL/2011 121 NEGOTIATIONS ON TECHNICAL AND COMMERCIAL ASPECTS TA KING INDIAN LAWS AND REGULATIONS IN CONSIDERATION. THESE ARE ALL SIGNIFI CANT AND ESSENTIAL PARTS OF SALES ACTIVITY, WHICH HAVE TO BE NECESSARILY DON E IN INDIA BY GE INDIA. ORDINARILY, IT IS NOT THE INDIAN CUSTOMER, WHO WOUL D VISIT GE ENTITIES OVERSEAS, BUT IT IS GE INDIA, WHO HAS TO HAVE PHYS ICAL PRESENCE IN INDIA AND SUCH PRESENCE IS THROUGH THE GE INDIA TEAM. 28.11. IT FOLLOWS FROM THE FOREGOING DISCUSSION TH AT MOST OF THE WORK CONCERNING THE FIRST STAGE OF PRE-QUALIFICATION WAS ADMITTEDLY DONE BY GE INDIA; FOR THE SECOND STAGE OF BID/NO BID AND PR OPOSAL DEVELOPMENT, ALBEIT THE ASSESSEE ADMITTED THAT IN SOME INSTANCES , THE PROPOSAL DEVELOPMENT WAS JOINTLY DONE BY THE GE OVERSEAS AND GE INDIA TEAMS, BUT WE HAVE NOTICED FROM THE SURVEY DOCUMENTS THAT THE CORE ACTIVITIES OF FINDING THE CUSTOMERS AND FINALIZING THE DEALS W ITH THEM WERE DONE BY GE INDIA IN CONSULTATION, WHEREVER REQUIRED, WITH G E OVERSEAS; FOR THE THIRD STAGE OF BID APPROVAL AND NEGOTIATIONS AND TH E FOURTH STAGE OF FINAL CONTRACT DEVELOPMENT AND APPROVAL, AGAIN WE HAVE FO UND THAT IT WAS GE INDIA WHO WAS FINALIZING AND CHANGING THE TERMS AND CONDITIONS OF MOU WITH THE INDIAN CUSTOMERS AND GE OVERSEAS WAS NOT EVEN ALLOWED TO ITA NO.671/DEL/2011 122 CHANGE ANY OF THE TERMS AND CONDITIONS DIRECTLY WIT HOUT CONSULTING GE INDIA. THE MERE FACT THAT THE CONTRACTS WERE FORMAL LY SIGNED OUTSIDE INDIA BY GE OVERSEAS DOES NOT IN ANY MANNER UNDERMI NE THE DOING OF CORE ACTIVITY OF SALES BY GE INDIA. IT IS SO FOR TH E REASON THAT GE INDIA FINDS CUSTOMERS IN INDIA, UNDERSTANDS THEIR REQUIRE MENTS, NEGOTIATES NECESSARY TERMS AND CONDITIONS WITH THEM, PREPARES OR HELPS IN PREPARING MOU AND FINALIZES THE DEAL WITH THEM. WITH THE DOIN G OF ALL THE ABOVE ACTIVITIES, WHEN MOU IS PREPARED IN INDIA AND THE I NDIAN CUSTOMER SIGNS IT FIRST IN INDIA AND THEN IT IS SENT TO GE OVERSEA S FOR SIGNATURE, FOR ALL PRACTICAL PURPOSES, IT WILL HAVE TO BE CONCLUDED TH AT CORE SALES ACTIVITY WAS UNDERTAKEN BY GE INDIA ALONE. 28.12. NEXT LEG OF THE SUBMISSIONS TO BOLSTER THE ARGUMENT OF THE PREPARATORY OR AUXILIARY SERVICES RENDERED BY GE IN DIA WAS REFERENCE TO THE ROLES AND RESPONSIBILITIES OF SOME OF THE EXPAT S AND EMPLOYEES OF GEIIPL ETC. SUPPLIED BY THE ASSESSEE TO DEPARTMENT PURSUANT TO THE JUDGMENT OF THE HONBLE HIGH COURT. BASED ON SUCH D ETAILS, IT WAS ARGUED THAT GE INDIA WAS SIMPLY ASSISTING GE OVERSE AS AND THEIR ROLE ITA NO.671/DEL/2011 123 WAS NOT MORE THAN THAT OF A SUPPORT STAFF TO GE OVE RSEAS, WHO, IN TURN, WAS TAKING ALL THE RELEVANT DECISIONS REGARDING SAL ES IN INDIA. 28.13. AT THIS POINT IT IS PERTINENT TO MENTION T HAT THE DEPARTMENT COLLECTED LINKEDIN PROFILES OF SOME EMPLOYEES OF GE GROUP, WHO IN ITS OPINION WERE CARRYING ON THE OPERATIONS OF GE OVERS EAS IN INDIA. SUCH DETAILS WERE FILED BEFORE THE TRIBUNAL ON AN EARLIE R OCCASION AS ADDITIONAL EVIDENCE. THE TRIBUNAL PASSED A SEPARATE ORDER ADMI TTING SUCH EVIDENCE. ON A WRIT PETITION, THE HONBLE HIGH COURT VIDE ITS ORDER DATED 21.11.2014 SET ASIDE THE TRIBUNAL ORDER BUT REQUIRE D THE ASSESSEE TO FURNISH THE DETAILS OF :`NAMES, DESIGNATIONS, ROLES AND RESPONSIBILITIES OF THE EMPLOYEES OF G.E. GROUP COMPANIES, WHO WERE WOR KING IN INDIA DURING THE RELEVANT PERIOD ALONG WITH THEIR EDUCATI ONAL QUALIFICATIONS. THE ASSESSEE FILED THE INFORMATION, WHOSE COPY HAS BEEN PLACED BEFORE US. THUS, IT IS CLEAR THAT THIS INFORMATION WAS GIV EN BY THE ASSESSEE AFTER THE PASSING OF THE ASSESSMENT ORDER AND NO INCOME-T AX AUTHORITY HAD ANY OCCASION TO VERIFY ITS VERACITY. THIS INFORMATION I S ABOUT THE PERSONS ENGAGED IN INDIAN ACTIVITIES OF GE OVERSEAS COMPANI ES. ITA NO.671/DEL/2011 124 28.14. NOW LET US SEE THE STATUS OF ROLE AND RESP ONSIBILITIES OF SOME MEMBERS OF GE INDIA TEAM AS GIVEN BY THE ASSESSEE F OLLOWING THE HONBLE HIGH COURT JUDGMENT AND WHAT TRANSPIRED FRO M THE DOCUMENTS FOUND DURING THE SURVEY AND POST-SURVEY PROCEEDINGS BUT BEFORE ISSUING NOTICE U/S 147. I. WILLIAM BLAIR ANNEXURE 5 TO THE ASSESSEES LETTER PURSUANT TO THE HONBLE HIGH COURTS ORDER EXPLAINS HIS ROLES AND RESPONSIBILITIES. IT H AS BEEN WRITTEN THAT WILLIAM, INTER ALIA ,: `HAD LIMITED INVOLVEMENT IN A TRANSACTION AS HE WAS PRIMARILY RESPONSIBLE TO OVERSEEING THE FUNCTIONING OF HIS GROUP. HE WAS JUST ACTING AS A COMMUNICATION CHANNEL AND WAS RESPONSIBLE FOR COMMUNICATING GE OVERSEAS ENTITY'S POSITION TO THE INDIAN CUSTOMER AND TRANSMITTING CUSTOMER'S FEEDBACK TO THE GE OVERSEAS ENTITY FOR FURTHER INPUTS. WILLIAM HAD NO AUTHORITY TO FINALIZE ANY DE AL. ALL THE PRICING AND TERMS AND CONDITION DECISIONS WERE TAKEN BY GE OVERSEAS ENTITY AND HE HAD NO ROLE IN SUCH DECISION MAKING. WILLIAM'S RESPONSIBILITY WAS TO TAKE PRIOR APPROVAL FOR INITIATING ANY DIALOGUE WITH CUSTOMERS IN INDIA. ITA NO.671/DEL/2011 125 FURTHER, HE HAD NO AUTHORITY TO SIGN OR EXECUTE ANY CONTRACT ON BEHALF OF GE OVERSEAS ENTITY AND HE NEVER EXECUTED ANY CONTRA CT WITH CUSTOMERS IN INDIA. THE ABOVE NARRATION OF ROLE AND RESPONSIBIL ITIES SHOWS THAT WILLIAM WAS TO ACT AS A MERE COMMUNICATION CHANNEL BETWEEN THE CUSTOMERS IN INDIA AND GE OVERSEAS. IN CONTRAST, WH EN WE SEE HIS `JOB DESCRIPTION GIVEN UNDER HIS OWN SIGNATURE IN THE D OCUMENTS AS DISCUSSED ABOVE, IT TRANSPIRES THAT HE WAS TO: ORG ANIZE LOCAL AVIATION TEAM INCLUDING COMMERCIAL AND MILITARY SALES LEADER S; CONDUCT COMPLIANCE RISK ASSESSMENTS, AUDITS AND SUPPORT TRA INING FOR AVIATION TEAM MEMBERS IN INDIA; DEVELOP AVIATION GROWTH STRA TEGY FOR INDIA AND OBTAIN HQ SUPPORT FOR SAME. IN OTHER WORDS, HE WAS RESPONSIBLE FOR ALL THE ACTIVITIES OF SALES IN INDIA AND ONLY THE REQUI SITE SUPPORT WAS TO BE TAKEN FROM HQ. THERE IS AN APPARENT CONTRADICTION B ETWEEN WHAT WILLIAM SAID IN A DOCUMENT SIGNED BY HIM AND THE PI CTURE OF HIS ROLE WHICH THE ASSESSEE PORTRAYED AFTER THE CONCLUSION O F ASSESSMENT. IT GOES WITHOUT SAYING THAT THE PRIMARY DOCUMENT DULY SIGNE D BY WILLIAM SHOWING HIS JOB RESPONSIBILITIES WILL HAVE PRECEDEN CE OVER WHAT THE ASSESSEE STATED BY WAY OF ANNEXURE AFTER THE TERMIN ATION OF ASSESSMENT. ITA NO.671/DEL/2011 126 II. KUMAR PRATYUSH - ANNEXURE 12 TO THE ASSESSEES LETTER PURSUANT TO TH E HONBLE HIGH COURTS ORDER EXPLAINS HIS ROLES AND RESPONSIBILITI ES. IT HAS BEEN WRITTEN THAT, INTER ALIA, : `PRATYUSH WAS NOT INVOLVED IN ANY SALES.. WAS N EVER INVOLVED IN NEGOTIATING DEALS, TERMS AND CONDITIONS AND PRICING FOR OR ON BEHALF OF ANY GE OVERSEAS ENTITY. HE WAS MORE INVOL VED IN OVERALL MANAGEMENT OF CLIENT AND GOVERNMENT RELATIONSHIPS I NCLUDING SMOOTH FUNCTIONING OF GE BUSINESSES IN INDIA. IN CONTRAST , WHEN WE SEE HIS DESIGNATION IN THE ASSIGNMENT LETTER AS `LEADER, GE INFRASTRUCTURE, OPS- INDIA OF GE TRANSPORTATION REPORTING DIRECTLY TO T HE GLOBAL CEO OF GE INFRASTRUCTURE AND THE `JOB DESCRIPTION GIVEN BY H IM IN THE EARLIER REFERRED DOCUMENTS OF HAVING A SPECIFIC ROLE TO: `H ELP GE INFRASTRUCTURE BUSINESS DEVELOP THEIR STRATEGY IN INDIA; ALIGN GE SOLUTIONS WITH CUSTOMER NEED; HELP SHAPE POLICY TO REALIZE OPPORTU NITIES; AND FACILITATE BUSINESS DEVELOPMENT DISCUSSIONS, IT BECOMES MANIF EST THAT THE ASSESSEE INTENTIONALLY TRIMMED HIS ROLE TO JUSTIFY ITS STAND , WHICH, BEING CONTRARY TO THE PRIMARY AND SOURCE DOCUMENTS, CANNOT BE ACCE PTED. ITA NO.671/DEL/2011 127 III. NALIN ASHFAQ ANNEXURE 18 TO THE ASSESSEES LETTER PURSUANT TO TH E HONBLE HIGH COURTS ORDER EXPLAINS HIS ROLES AND RESPONSIBILITI ES. IT HAS BEEN WRITTEN THAT, INTER ALIA, : `ASHFAQ WAS RESPONSIBLE FOR PROVIDING SUPPORT TO THE TRANSPORTATION DIVISION .HE WAS NOT INVOLVED IN AN Y PARTS SALES TO CUSTOMERS IN INDIA. AT THE RELEVANT TIME, HE WAS INVOLVED IN PROMOTING THE BUSINESS OF SALE OF PARTS TO RAILWAYS AND DEVEL OPING MARKET STRATEGIES. HIS ROLE WAS TO GET INTO THE DISCUSSION WITH RAILWAYS FOR MARKETING DEVELOPMENT. ASHFAQ HAD NO SIGNING AUTHORITY. THIS SHOWS THAT THOUGH THE ASSESSEE CANDIDLY ADMITTED IN THE P OST ASSESSMENT LETTER THAT ASHFAQ WAS INVOLVED IN PROMOTING THE BUSINESS OF SALE OF PARTS TO RAILWAYS AND DEVELOPING MARKET STRATEGIES, BUT IT ALSO SIMULTANEOUSLY UNDERMINED HIS ACTUAL ROLE BY SAYING THAT HE WAS NO T INVOLVED IN ANY ACTUAL SALES. THIS IS CONTRARY TO THE APPRAISAL REP ORT SHOWING HIS JOB AS ALSO INCLUDING TO: COORDINATE ACTIVITIES OF THE MA RKETING AND SALES TEAMS TO DEVELOP POTENTIAL SOLUTIONS. TO EVALUATE THE TEAMS PERFORMANCE AGAINST THE BUSINESS GOALS AND OBJECTIV ES... HE HAS MENTIONED HIS `ACCOMPLISHMENTS IN TERMS OF SALES A ND ORDERS IN INDIA. ITA NO.671/DEL/2011 128 THEN, THERE IS THE `MANAGER ASSESSMENT ON PAGE 63, WHICH SHOWS THAT HE MADE SOLID PROGRESS IN 06 WITH `ORDERS AND SALE S. IT IS DISCERNIBLE FROM THE ABOVE DISCUSSION THAT THE ASSESSEE DID NOT PROPERLY STATE THE ROLE AND RESPONSIBILITIES OF ASHFAQ IN THE LETTER F ILED POST ASSESSMENT, ON WHICH THE LD. AR HAS RELIED TO CANVASS THAT THE ROL E PLAYED BY GE INDIA WAS ONLY AUXILIARY AND PREPARATORY. IV. PIERSON KENNETH ANNEXURE 19 TO THE ASSESSEES LETTER PURSUANT TO TH E HONBLE HIGH COURTS ORDER EXPLAINS HIS ROLE AND RESPONSIBILITIE S. IT HAS BEEN WRITTEN, INTER ALIA , THAT,: `KENNETHS PROFILE WAS MORE OF LOCATING OP PORTUNITY AND PROVIDING MARKETING DEVELOPMENT STRATEGIES FOR THE GE OVERSEAS ENTITY. KENNETH HAD NO AUTHORITY TO TAKE ANY DECIS ION WITH RESPECT TO THE SALE OF PRODUCT/PARTS IN THE SIGNALING BUSINESS . ALL PRICES AND TERMS AND CONDITIONS WERE NEGOTIATED AND FINALIZED ONLY B Y THE GE OVERSEAS ENTITY. KENNETH BEING TECHNICAL PERSON DID NOT HAVE ANY AUTHORITY TO NEGOTIATE ANY TERMS OF CONTRACTS IN INDIA. NOW LE T US HAVE A LOOK AT HIS ASSIGNMENT LETTER, WHICH SHOWS HIS POSITION AS `SAL ES & MARKETING ITA NO.671/DEL/2011 129 MANAGER OF GE TRANSPORTATION. WE FAIL TO COMPREHEN D AS TO WHAT A `SALES & MARKETING MANAGER WILL DO WITHOUT ANY AUT HORITY TO TAKE ANY DECISION W.R.T. SALE. FALLACY OF THE ASSESSEES CLA IM IN THE POST- ASSESSMENT LETTER IS ESTABLISHED FROM THE SELF APPR AISAL REPORT OF KENNETH, WHICH STATES THAT `HE LED THE GS TEAM THRO UGH KEY ACTIVITIES SALES, CROSS-APPROVAL, PARTNERSHIP APPROVALS, MARKE TING AND RESOURCING. THEN THERE IS MANAGER ASSESSMENT OF THE SELF APPRAISAL OF KENNETH M. PIERSON. IT HAS BEEN MENTIONED THAT: K EN IS COMMITTED TO GROWING THE INDIA SIGNALING BUSINESS, BUT MISSED THE ORDERS TARGET FOR THE YEAR . THIS SHOWS THAT KENNETH PIERSON WAS GIVEN SALES TARGET, WHICH HE COULD NOT ACHIEVE. HERE, IT IS RELEVANT TO NOTE THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN BROWN AND SHARPE INC. VS. CIT & ANR. (2014) 369 ITR 704 (ALL) IN WHICH THE TRIBUNAL, WHILE AFFIRMING THE ORDER OF THE CIT (A), RELIED UPON RELEVANT DOCUMENT ARY MATERIAL IN ARRIVING AT THE CONCLUSION THAT THE ACTIVITIES OF T HE LIAISON OFFICE ESTABLISHED THAT IT WAS PROMOTING THE SALES OF THE ASSESSEE IN INDIA AND THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE INCOME ATTRIBUTABLE TO THE LIAISON OFFICE WAS TAXABLE IN I NDIA. UPHOLDING SUCH A ITA NO.671/DEL/2011 130 VIEW, THE HONBLE HIGH COURT HELD THAT: `THE TRIBUNAL HAS CORRECTLY NOTED THAT IN THE PRESENT CASE, THE LIAISON OFFICE WAS PROMOTING THE SALES OF THE GOODS OF THE ASSESSEE COMPANY THROUGH ITS EMPLOYEES, TO WHOM A SALES INCENTIVE PLAN WAS PROVIDED FOR ACHIEVING A S ALES TARGET AND THE PERFORMANCE OF THE EMPLOYEES WAS BEING JUDGED BY TH E ORDERS SECURED BY THE ASSESSEE . IN THE INSTANT CASE ALSO, IT IS CLEAR THAT THE SALES TARGETS WERE ASSIGNED TO THE EXPATS ETC. AND KENNETH PIERSO N, A `SALES & MARKETING MANAGER, COULD NOT ACHIEVE THE SALES TAR GET GIVEN TO HIM. GOING BY THE RATIO DECIDENDI OF BROWN AND SHARPE (SUPRA) , IT IS PALPABLE THAT PE OF GE OVERSEAS WAS ESTABLISHED IN INDIA. V. RICARDO PROCACCI - ANNEXURE 20 TO THE ASSESSEES LETTER PURSUANT TO TH E HONBLE HIGH COURTS ORDER EXPLAINS HIS ROLE AND RESPONSIBILITIE S. IT HAS BEEN WRITTEN, INTER ALIA , THAT,: `RICCARDO'S ROLE WAS TO FIND OUT HOW INDIA WOULD BE RELEVANT FOR OIL & GAS BUSINESS AND ALSO TO GATHER INFORMATION ON THE CUSTOMERS IN SUCH INDUSTRY. HIS ROLE WAS LIMITED TO UNDERSTANDING THE NEEDS OF THE CUSTOMERS IN INDIA AND PASS SUCH INFOR MATION TO THE GE ITA NO.671/DEL/2011 131 OVERSEAS ENTITY IN ITALY. AT ANY POINT OF TIME, H E WAS NOT DELEGATED ANY POWER TO TAKE DECISION ON BEHALF OF THE GE OVER SEAS ENTITY. HE WAS ACTING AS LIAISON BETWEEN GE OVERSEAS ENTITY AND CU STOMERS IN INDIA. HIS RESPONSIBILITY WAS TO LIAISE THE RELATIONSHIP WITH INDIAN CUSTOMERS.MOST OF COMMERCIAL NEGOTIATIONS WERE DON E BY THE COMMERCIAL OPERATION TEAM SITTING IN ITALY RICCARD O NEVER TOOK ANY DECISION OR NEGOTIATED ON BEHALF OF THE GE OVERSEAS ENTITY. AND HE WAS MERELY ACTING AS CHANNEL BETWEEN THE COMMERCIAL TEAM AND THE CUSTOMERS. HERE AGAIN, THE ASSESSEE MISLED BY STA TING WRONG FACTS ABOUT THE WORKING OF RICARDO IN THE POST-ASSESSMENT LETTER. HIS ASSIGNMENT LETTER SHOWS HIS POSITION AS `OIL & GAS, INDIA COUNTRY LEADER OF GE ENERGY. WE HAVE NOTICED FROM THE SURV EY DOCUMENTS ABOVE THAT RICARDO WAS NOT ONLY NEGOTIATING AND FIN ALIZING THE TERMS AND CONDITIONS WITH CUSTOMERS IN INDIA BUT ALSO NOT ALL OWING GE OVERSEAS TO ALTER ANY SUCH TERMS WITHOUT THE CONSENT OF GE INDI A. THE ASSESSEE DID NOT FURNISH HIS APPRAISAL REPORT AND MANAGER ASSESS MENT DESPITE A SPECIFIC REQUEST BY THE AO TILL THE COMPLETION OF A SSESSMENT. ITA NO.671/DEL/2011 132 VI. NALIN JAIN (GEIIPL) - ANNEXURE 8 TO THE ASSESSEES LETTER PURSUANT TO THE HONBLE HIGH COURTS ORDER EXPLAINS HIS ROLE AND RESPONSIBILITIES. IT HA S BEEN WRITTEN, INTER ALIA , THAT,: `NALIN'S ROLE WAS TO COLLECT THE MARKET IN TELLIGENCE AND INITIATE A DIALOG WITH THE INDIAN CUSTOMER TO UNDERSTAND THE IR REQUIREMENTS HIS ROLE WAS TO PASS ON THE INFORMATION/QUERIES BET WEEN THE OVERSEAS ENTITY AND THE INDIAN CUSTOMERNALIN HAS NO AUTHORI TY TO FINALIZE ANY DEAL. HE WAS JUST ACTING AS A COMMUNICATION CHANNEL ALL THE PRICING AND TERMS AND CONDITION DECISIONS WERE TAKEN BY GE OVERSEAS ENTITY AND HE HAD NO ROLE IN SUCH DECISION MAKING. HERE AGAI N, WE FIND THAT THE ASSESSEE DID NOT COME OUT CLEAN. SURVEY DOCUMENTS SHOW HIS DESIGNATION IN INDIA AS SALES DIRECTOR OF GE TRAN SPORTATION, AIRCRAT ENGINES. JOB DESCRIPTION HAS BEEN GIVEN AS MARK ET INTELLIGENCE AND SUPPORT TO HEADQUARTERS. HE HAS INDICATED HIS REP ORTING MANAGER AS WILLIAM BLAIR, WHO IS ONE OF THE SEVEN EXPATS FROM GEII WORKING IN INDIA FOR GE OVERSEAS ENTITIES. ITA NO.671/DEL/2011 133 28.15. ON A HOLISTIC CONSIDERATION OF THE ENTIRE MATERIAL BEFORE US, POR UNA PARTE , THERE IS PRIMARY, SPECIFIC AND ORIGINAL SUBSTANTI ATED MATERIAL RELIED BY THE LD. DR IN THE FORM OF SURVEY DOCUMENT S, SELF APPRAISALS, MANAGER ASSESSMENT AND JOB DESCRIPTIONS GIVEN UNDER THE SIGNATURE OF SUCH PERSONS, SHOWING THE DOING OF CORE SALE ACTIVI TY BY GE INDIA, AND POR OTRA PARTE, THERE IS SOMEWHAT CONTRARY, GENERALIZED AND UNSUBSTANTIATED MATERIAL RELIED BY THE LD. AR IN TH E FORM OF THE DOWNPLAYED ROLE OF GE INDIA IN FOUR STAGES OF SALES AND JOB RESPONSIBILITIES STATED BY THE ASSESSEE (NOT BY THE CONCERNED EMPLOYEES) AFTER THE COMPLETION OF ASSESSMENT, FOR A CLAIM THA T GE INDIA WAS RENDERING SERVICES TO GE OVERSEAS AS A MERE COMMUNI CATION CHANNEL AND SUCH SERVICES WERE OF PREPARATORY OR AUXILIARY CHARACTER. IT GOES WITHOUT SAYING THAT THE SPECIFIC, PRIMARY, ORIGINAL AND SUBSTANTIATED MATERIAL WILL HAVE PRIMACY OVER THE GENERALIZED AND UNSUBSTANTIATED MATERIAL. BUT FOR THE SURVEY ACTION UNEARTHING THE SPECIFIC AND PRIMARY MATERIAL DIVULGING THE DOING OF CORE SALE ACTIVITY BY GE INDIA, THE REALITY WOULD HAVE REMAINED UNDER THE CARPET AND THE ASSESS EE WOULD HAVE CONTINUED TO HARP ON ITS GENERAL SUBMISSIONS WITH D OWNSIZED ROLES AND ITA NO.671/DEL/2011 134 UNDERPLAYED RESPONSIBILITIES OF GE INDIA, TO AVOID THE ESTABLISHMENT OF PE IN INDIA. 28.16. HAVING SEEN THAT HOW THE ASSESSEE DEGRADED THE DESIGNATIONS AND LOWERED THE ROLES AND RESPONSIBILITIES OF THE EXPAT S ETC. IN THE STATEMENT FILED PURSUANT TO THE HONBLE HIGH COURT JUDGMENT, SHOWING AS IF THEY WERE MERE COMMUNICATION CHANNEL AS AGAINST THE STAR K REALITY OF THEIR PERFORMING ALL THE CORE FUNCTIONS IN INDIA RELATING TO SALES, WE WILL NOW DISCUSS THE DETAILS FILED BY THE ASSESSEE ALONG WIT H THE SAME LETTER ABOUT SOME OTHER EMPLOYEES OF GEIIPL WHO WERE ENGAGED IN THE ACTIVITIES IN INDIA. DESPITE SHOWING ALL OF THEM AS DOING MAINLY THE WORK OF MEDIATOR, THE ASSESSEE HAS ALSO ACCEPTED INVOLVEMEN T OF SOME OF THEM IN CORE ACTIVITIES, WHICH IS AS UNDER : - I. ANAND MOHAN AWASTHY HE IS A MECHANICAL ENGINEE R WITH DIPLOMA IN FINANCE AND IS AN EMPLOYEES OF GEIIPL WORKING SI NCE FINANCIAL YEAR 2000-01. HIS DESIGNATION IS `SERVICE MANAGER. ANNE XURE 1 DISCUSSES HIS ROLES AND RESPONSIBILITIES, BEING, `RESPONSIBLE FOR AFTERMARKET SALES ITA NO.671/DEL/2011 135 (SPARES) AND SERVICES IN RESPECT OF STEAM TURBINES AND GENERATORS SOLD BY VARIOUS GE OVERSEAS ENTITIES IN INDIA. II. ANAND BANSAL HE IS IN BUSINESS ADMINISTRATION /MANAGEMENT AND IS AN EMPLOYEES OF GEIIPL WORKING SINCE FINANCIAL Y EAR 2002-03. HIS DESIGNATION IS `SALES MANGER. ANNEXURE 2 DISCUSSIN G HIS ROLES AND RESPONSIBILITIES PROVIDES THROUGH THE SECOND BULLET POINT THAT :`AS A PART OF HIS JOB, ANANDS ROLE WAS TO FORMULATE MARKETING STRATEGY FOR WIND ENERGY RELATED EQUIPMENTS IN INDIA, WHICH INVOLVED, AMONG OTHER THINGS, DETERMINING A MARKETING STRATEGY THAT HELPS DISTING UISH GE PRODUCTS FROM ITS COMPETITORS, ASSIST POTENTIAL CUSTOMERS IN THEIR STUDY PHASE AND HELP DEFINE THEIR NEEDS FOR WIND ENERGY EQUIPMENTS. BULLET POINT 5 ALSO PROVIDES THAT :`FROM 2007 ONWARDS, ANAND WAS SUPPOR TING BGGTS (JOINT VENTURE OF GE AND BHEL), AND WAS RESPONSIBLE TO PROVIDING AFTER SALE AND MAINTENANCE SUPPORT. III. SHARMILA BARATHAN - SHE IS MA IN ECONOMICS AN D ALSO DID HER MASTERS IN INTERNATIONAL BUSINESS. SHE IS AN EMPLOY EE OF GEIIPL. HER DESIGNATION IS `GOVERNMENT AFFAIRS. ANNEXURE 3 DIS CUSSING HER ROLES ITA NO.671/DEL/2011 136 AND RESPONSIBILITIES PROVIDES THROUGH THE SECOND BU LLET POINT THAT : `SHE SUPPORTS THE TEAM OF MARKET DEVELOPMENT AND ASSIST THEM THROUGH SHAPING GOVERNMENT POLICIES. HER ROLE WAS TO PROVID E RECOMMENDATIONS ON THE INTEGRATED ENERGY POLICIES AND ALSO TO PREPA RE ENABLING POLICIES TO ENCOURAGE INVESTMENTS IN THE ENERGY SECTOR ON BEHAL F OF GE. IV. SCOTT BAYMAN HE DID HIS MASTERS IN MANAGEMENT AND BACHELORS IN MARKETING. HIS DESIGNATION IS `PRESIDENT AND CEO. ANNEXURE 4 DISCUSSING HIS ROLES AND RESPONSIBILITIES PROVIDES THROUGH THE FIRST BULLET POINT THAT HIS: `PRIMARY ROLE WAS TO HELP SET-UP LO CAL SUPPORT TEAMS IN INDIA. THE SECOND BULLET POINT PROVIDES THAT HE: `WOULD ASK FOR HEADCOUNT FROM HQ TO CREATE LOCAL TEAMS. HE WAS RES PONSIBLE FOR GROWTH OF GES BUSINESSES IN THE INDIAN MARKET. HE WAS ALS O RESPONSIBLE FOR MANAGEMENT OF LOCAL BUSINESS AFFAIRS, COMPLIANCE PR ACTICES, INTEGRITY ASPECTS, HR AND ALSO HAD OVERSIGHT OVER CAPITAL BUS INESS. V. SUJOY GHOSH HE IS AN ELECTRICAL ENGINEER AND I S AN EMPLOYEE OF GEIIPL. HIS DESIGNATION IS `SALES MANGER. ANNEXURE 6 DISCUSSING HIS ROLES AND RESPONSIBILITIES PROVIDES THROUGH BULLET POINT FIVE THAT `AT THAT ITA NO.671/DEL/2011 137 POINT OF TIME THERE WAS A ROBUST R TABLE PROCESS FO LLOWED BY ALL GE BUSINESSES. UNDER SUCH R TABLE PROCESS, NO PERSON S ITTING IN INDIA COULD MAKE A PROPOSAL TO ANY CUSTOMER IN INDIA WITHOUT PR IOR APPROVAL OF GE OVERSEAS ENTITIES NOR COULD ANY PERSON SITTING IN I NDIA NEGOTIATE OR FINALIZE ANY CONTRACT IN INDIA. ONE THING IS CLEAR FROM THE R TABLE PROCESS THAT THERE WAS NO BLANKET BAR ON GE GROUP E MPLOYEES IN INDIA FOR MAKING PROPOSALS OR TO NEGOTIATE OR FINALIZE AN Y CONTRACT IN INDIA. MAKING A PROPOSAL ENVISAGES EXAMINING THE OPPORTUNI TY IN DETAIL, UNDERTAKING AN INTERACTION WITH THE PROSPECTIVE END -CUSTOMER SO AS TO IDENTIFY HIS REQUIREMENTS, STUDYING ALL THE RELEVAN T ASPECTS, FINDING OUT THE TECHNICAL AND FINANCIAL VIABILITY, AND THEN ARR IVING AT THE ULTIMATE CONCLUSION OF THE SUPPLYING AND PRICING. THE ONLY C ONDITION SET OUT UNDER THE R TABLE PROCESS ON THE INDIAN EMPLOYEES W ORKING FOR GE OVERSEAS ENTITIES IN INDIA WAS THAT THE APPROVAL WA S REQUIRED TO BE SOUGHT FROM THE GE OVERSEAS BEFORE SENDING THE PROPOSAL TO CUSTOMERS IN INDIA. THE ASSESSEE HAS ITSELF ADMITTED THROUGH STAGE 2: B ID/NO BID AND PROPOSAL DEVELOPMENT OF THE `SALES PROCESS THAT: ` IN SOME INSTANCES, THE PROPOSAL DEVELOPMENT IS JOINTLY RUN BY THE GE OVERS EAS AND GE INDIA ITA NO.671/DEL/2011 138 TEAMS. HOWEVER, EVEN IN SUCH CASES, DECISION MAKING AUTHORITY CONTINUES TO REMAIN ONLY WITH GE OVERSEAS. VI. SANJEEV KAKKAR - HE DID HIS MASTERS IN MECHANIC AL ENGINEERING. HIS DESIGNATION IS `SALES DIRECTOR. HE IS AN EMPLOYEE OF GEIIPL WORKING SINCE 2000. ANNEXURE 10 DISCUSSING HIS ROLES AND RE SPONSIBILITIES PROVIDES THROUGH THE SIXTH BULLET POINT THAT:` AS A PART OF HIS JOB, SANJEEV WOULD UNDERSTAND THE REQUIREMENTS OF CLIENT S IN TERMS OF EQUIPMENT REQUIRED AS WELL AS FINANCING REQUIRED AN D THEREAFTER, COMMUNICATE THESE REQUIREMENTS TO THE OVERSEAS ENTI TIES. THERE IS AGAIN A REFERENCE TO R TABLE PROCESS AND IT HAS BEEN MENT IONED THAT HE WILL NOT SIGN OR NEGOTIATE WITH ANY CUSTOMER IN INDIA WITHOU T ANY PRIOR APPROVAL OF THE OVERSEAS ENTITIES. THIS AGAIN SHOWS THAT HE WAS SIGNING OR NEGOTIATING WITH CUSTOMERS IN INDIA, BUT WITH THE A PPROVAL OF THE GE OVERSEAS. IT HAS BEEN SPECIFICALLY PROVIDED IN THE EIGHTH BULLET POINT THAT: `ALTHOUGH SANJEEV AND OTHER PEOPLE SITTING IN INDIA WERE PART OF THE NEGOTIATING TEAM WITH CUSTOMERS, HOWEVER, AT NO POI NT OF TIME COULD THEY COMMIT TO ANY NEGOTIATION WITH RESPECT TO TERM S AND CONDITIONS OR ITA NO.671/DEL/2011 139 DISCOUNT WITHOUT PRIOR APPROVAL FROM THE OVERSEAS P EOPLE LISTED ON THE R TABLE. VII. ALPANA KHERA - SHE DID HER ENGINEERING IN INS TRUMENTATION AND DIPLOMA IN MARKETING. HER DESIGNATION IS `SALES MAN AGER. SHE IS AN EMPLOYEE OF GEIIPL WORKING SINCE 2001. ANNEXURE 11 DISCUSSING HER ROLES AND RESPONSIBILITIES AGAIN REFERS TO R TABLE PROCESS, WHICH IMPLIES THAT SIGNING OR NEGOTIATING WITH CUSTOMERS IN INDIA WAS ALLOWED BUT WITH THE APPROVAL OF THE GE OVERSEAS. VIII. ASHISH MALHOTRA - HE DID HIS ELECTRICAL ENGI NEERING AND PG DIPLOMA IN MARKETING. HIS DESIGNATION IS `SALES MAN AGER. HE IS AN EMPLOYEE OF GEIIPL WORKING SINCE 2001. IX. JAIMIN SHAH - HE DID HIS MECHANICAL ENGINEERIN G. HIS DESIGNATION IS `ACCOUNT EXECUTIVE. HE IS AN EMPLOYEE OF GEIIPL W ORKING SINCE 2002. ANNEXURE 21 DISCUSSING HIS ROLES AND RESPONS IBILITIES PROVIDES THROUGH THE FIRST BULLET POINT THAT HE :`WAS RESPON SIBLE FOR THE AFTERMARKET SALES SERVICES OF EQUIPMENT. ITA NO.671/DEL/2011 140 X. VIVEK VENKATACHALAM - HE DID HIS B. TECH IN CHEM ICAL ENGINEERING. HIS DESIGNATION IS `EXECUTIVE BUSINESS OPERATIONS . HE IS AN EMPLOYEE OF GEIIPL. 28.17. TAKING ABOVE DISCUSSION INTO CONSIDERATIO N, MORE SPECIFICALLY, THE PRIMARY, SPECIFIC AND ORIGINAL SUBSTANTIATED MA TERIAL IN THE FORM OF SURVEY DOCUMENTS, SELF APPRAISALS AND MANAGER ASSES SMENT ETC., THERE REMAINS NO DOUBT WHATSOEVER THAT GE OVERSEAS WAS SE LLING ITS PRODUCTS IN INDIA AND THE CORE ACTIVITIES IN REGARD TO SALE, NAMELY, PRE-SALE, DURING-SALE AND POST-SALE WERE BEING CARRIED OUT IN INDIA BY GE INDIA. NOTWITHSTANDING THE FACT THAT THE AO HAS CATEGORICA LLY HELD THAT ALL THE CORE ACTIVITIES REGARDING SALES WERE DONE BY GE IND IA, WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A) AS WELL, THE ASSESSEE H AS FAILED TO TENDER ANY EVIDENCE TO SHOW THAT SUCH A VIEW CANVASSED BY THE AUTHORITIES BELOW IS WRONG AND IN FACT, SUCH CORE OPERATIONS WE RE CARRIED OUT IN INDIA BY SOME OTHER MEANS. EXCEPT FOR LIP SERVICE T HAT GE OVERSEAS WAS DOING CORE SALE ACTIVITY AND GE OVERSEAS DOING ONLY PREPARATORY OR AUXILIARY ACTIVITIES, THE ASSESSEE DID NOT PLACE ON RECORD EVEN AN IOTA OF EVIDENCE TO PROVE ITS CONTENTION. IF WE MINUTELY CO NSIDER THE NATURE OF ITA NO.671/DEL/2011 141 ACTIVITIES DONE BY GE OVERSEAS AND GE INDIA, IT CLE ARLY SURFACES THAT GE INDIA WAS DOING CORE MARKETING AND SALES ACTIVITY A ND GE OVERSEAS WAS DOING ONLY AUXILIARY ACTIVITIES, IN AID AND SUPPORT OF THE ACTIVITIES OF THE MARKETING ACTIVITIES CARRIED OUT BY GE INDIA. 28.18. MOREOVER, PARA 26 OF THE OECD COMMENTARY D ISCUSSING EXEMPTION UNDER SUB-PARA (E), BEING ACTIVITIES OF P REPARATORY OR AUXILIARY NATURE, CLEARLY PROVIDES THAT : `A FIXED PLACE OF B USINESS WHICH RENDERS SERVICES NOT ONLY TO ITS ENTERPRISE BUT ALSO DIRECT LY TO OTHER ENTERPRISES, FOR EXAMPLE TO OTHER COMPANIES OF A GROUP TO WHICH THE COMPANY OWNING THE FIXED PLACE BELONGS, WOULD NOT FALL WITH IN THE SCOPE OF SUBPARAGRAPH E). THIS PART OF THE COMMENTARY EXPL AINING `PREPARATORY OR AUXILIARY ACTIVITIES MAKES IT CLEAR THAT IF A F IXED PLACE OF BUSINESS IS USED FOR RENDERING SERVICES TO MORE THAN ONE COMPAN IES OF A GROUP, AS IS A CASE UNDER CONSIDERATION, THEN SUCH SERVICES CANN OT BE TREATED AS OF PREPARATORY OR AUXILIARY CHARACTER. 28.19. IT IS FURTHER PERTINENT TO NOTE AT THIS S TAGE THAT THE PERMISSION TO SET UP LO AT AIFACS BUILDING WAS GIVEN BY THE RBI T O GEIOC AND NOT ITA NO.671/DEL/2011 142 TO THE ASSESSEE INCLUDING ALL GE OVERSEAS ENTITIES COVERED IN THIS BATCH OF APPEALS. THUS, NONE OF THE INSTANT ASSESSES HAD ANY LO IN INDIA. BE THAT AS IT MAY, EVEN THE LO OF GEIOC HAS BEEN TREATED AS ITS FIXED PLACE PE AND THE EXCLUSION CLAIMED ON THE GROUND OF PREPARAT ORY OR AUXILIARY ACTIVITIES, HAS BEEN DENIED UP TO THE TRIBUNAL LEVE L. NOT ONLY THAT, EVEN PENALTY U/S 271(1)(C) ON THIS SCORE HAS BEEN CONFI RMED BY THE TRIBUNAL ON GEIOC AND NO MATERIAL HAS BEEN PLACED ON RECORD TO DEMONSTRATE THAT SUCH PENALTY ORDER HAS BEEN REVERSED OR MODIFI ED BY THE HONBLE HIGH COURT IN ANY MANNER. IN VIEW OF THE FOREGOING DISCUSSION, IT IS MANIFEST THAT THE ACTIVITIES CARRIED ON BY GE INDIA FROM AIFCAS BUILDING WERE OF SUBSTANTIAL AND CORE AND NOT MEREL Y PREPARATORY OR AUXILIARY. 29. WE, THEREFORE, SUM UP THAT ALL THE THREE CONDI TIONS FOR CONSTITUTING A FIXED PLACE PE IN TERMS OF PARAS 1, 2 AND 3 OF THE ARTICLE 5 ARE FULLY SATISFIED AS AIFCAS BUILDING IS A FIXED PLACE FROM WHICH BUSINESS OF GE OVERSEAS IS PARTLY CARRIED ON IN INDIA AND THE A CTIVITIES CARRIED OUT FROM SUCH FIXED PLACE ARE NOT OF PREPARATORY OR AUXILIARY CHARACTER. OUR ITA NO.671/DEL/2011 143 VIEW IS ALSO FORTIFIED BY THE JUDGMENT IN JEBON CORPORATION INDIA (SUPRA) , THE FACTS OF WHICH CASE ARE SIMILAR. IN THAT CASE ALSO THE LIAISON OFFICE WAS PERMITTED TO ACT AS A COMMUNICATION CHAN NEL AND THERE WAS A PROHIBITION IN DOING ANY TRADING OR COMMERCIAL ACTI VITIES. A SURVEY WAS CONDUCTED ON THE PREMISES OF THE LO WHICH TRANSPIRE D THAT IT WAS ACTUALLY CARRYING ON COMMERCIAL ACTIVITIES OF IDENT IFYING THE BUYERS, NEGOTIATING WITH THE BUYERS, AGREEING TO THE PRICE, PROCURING PURCHASE ORDERS AND FORWARDING THE SAME TO THE HEAD OFFICE. THE DEPARTMENT CAME TO HOLD THAT LO WAS PE UNDER ARTICLE 5 OF THE DTAA AND THE BUSINESS PROFITS EARNED IN INDIA THROUGH SUCH LO WA S TAXABLE IN INDIA. CONTENTION OF THE ASSESSEE THAT THE BUYERS WERE PLA CING ORDERS DIRECTLY WITH THE HEAD OFFICE AND MAKING PAYMENTS DIRECTLY T O THE HEAD OFFICE AND IT WAS THE HEAD OFFICE WHICH WAS DIRECTLY SENDING T HE GOODS TO THE BUYERS, WAS HELD TO BE NOT SUFFICIENT FOR HOLDING THAT THE ACTIVITY DONE BY THE LO WAS ONLY LIAISON WORK. THE HONBLE HIGH COURT UPHELD THE VIEW OF THE REVENUE THAT PE WAS CONSTITUTED IN SUCH CIRCUMSTANCES AND BUSINESS PROFITS EARNED IN INDIA THROUGH THIS LIAIS ON OFFICE WERE TAXABLE IN INDIA. ITA NO.671/DEL/2011 144 30. WE FIND THAT THE RELIANCE OF THE LD. AR ON DIT VS. E-FUNDS IT SOLUTIONS (2014) 364 ITR 256 (DEL) IS MISCONSTRUED. IN THAT CASE, THE TRIBUNAL HELD THAT THE ACTIVITIES OF E-FUNDS INDIA WERE NOT PREPARATORY OR AUXILIARY IN CHARACTER IN TERMS OF PARAGRAPH 3 OF A RTICLE 5 AND HENCE PE WAS CREATED IN INDIA. THE HONBLE HIGH COURT DID NO T CONCUR WITH THIS VIEW BY HOLDING THAT, FIRST AND FOREMOST, ARTICLE 5 (1)/(2) SHOULD BE APPLICABLE BUT THEN IF THE ACTIVITIES FALL WITHIN P ARAMETERS OF PARAGRAPH 3, PE IS NOT CREATED FOR IMPOSING TAX IN THE SECOND ST ATE. IT WAS FURTHER HELD THAT IT DID NOT FOLLOW THAT IF ACTIVITIES ARE NOT C OVERED IN THE NEGATIVE OR EXCLUSIONS SET OUT IN PARAGRAPH 3, A PE IS ESTABLIS HED OR DEEMED TO BE ESTABLISHED UNDER PARAGRAPHS 1 OR 2 OF ARTICLE 5. W E FAIL TO COMPREHEND AS TO HOW THE POSITION STATED BY THE HONBLE HIGH C OURT IS MISSING HERE. IT HAS BEEN DISCUSSED ABOVE THAT PARAS 1 AND 2 OF A RTICLE 5 APPLY AND THE ACTIVITIES DONE BY GE OVERSEAS ARE NOT COVERED BY P ARA 3(E) OF ARTICLE 5 OF THE DTAA. 31. IN THE LIKE MANNER, THE RELIANCE OF THE LD. A R ON CIT VS. SUMITOMO CORPORATION (2016) 382 ITR 75 (DELHI) FOR CONTENDING THAT NO FIXED ITA NO.671/DEL/2011 145 PLACE PE WAS CONSTITUTED, IS MISPLACED. WE DO NOT F IND ANY RELEVANCE OF THIS CASE TO THE ISSUE UNDER CONSIDERATION. IN THAT CASE, THE QUESTION WAS OF SUPERVISORY PE, IN WHICH THE TRIBUNAL HELD THAT ASSESSEE HAD NO PE IN INDIA AND THAT SUPERVISORY SERVICES WERE NOT CONNEC TED THROUGH ANY OF ITS OTHER PE IN INDIA AND THAT SINCE SUPERVISION FEE WA S EARNED IN INDIA, IT WAS TAXABLE UNDER ARTICLE 12(2) OF DTAA AT 20%. THE HONBLE COURT APPROVED THE VIEW OF THE TRIBUNAL THAT FTS WAS LIAB LE TO BE TAXED AT 20% UNDER ARTICLE 12(2) OF THE DTAA. IT IS THUS CLEAR T HAT THIS CASE DOES NOT INVOLVE THE ISSUE AS IS UNDER CONSIDERATION IN THE EXTANT APPEALS. 32. THE LD. AR FURTHER CONTENDED THAT PARA 33 OF THE OECD COMMENTARY MANDATING THAT A PERSON ATTENDING OR EVE N PARTICIPATING IN NEGOTIATIONS DOES NOT CONSTITUTE PE AND FURTHER UNL ESS A PERSON IS AUTHORIZED TO NEGOTIATE ALL THE ELEMENTS OF A CONTR ACT (NOT SOME OF THEM), HE DOES NOT CONSTITUTE PE, APPLIES TO PREPARATORY O R AUXILIARY SERVICES IN THE CONTEXT OF FIXED PLACE PE. WE ARE NOT IN AGREEM ENT WITH THIS PROPOSITION AS HAS BEEN ELABORATELY DISCUSSED INFRA WHILE DEALING WITH AGENCY PE. IT IS THEREFORE, HELD THAT AIFACS BUILDI NG CONSTITUTED FIXED ITA NO.671/DEL/2011 146 PLACE PE OF THE ASSESSEE AND ALL THE GE OVERSEAS EN TITIES IN THIS BATCH OF APPEALS. II. AGENCY PE 33. THE AO ALSO HELD THAT GE INDIA CONSTITUTED AG ENCY PE. HE NOTICED THAT GE INDIA WAS SECURING ORDERS FOR GE OVERSEAS I NASMUCH AS THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY REVEALE D THAT THERE WERE REQUESTS FOR PROPOSALS, COPIES OF AGREEMENTS, COPIE S OF MOUS AND VARIOUS OTHER PAPERS INDICATING THAT THE EXPATRIATE S ALONG WITH THE EMPLOYEES OF GEIIPL PARTICIPATED IN ACTIVITIES RELA TING TO THE SUPPLY OF PRODUCTS. SUCH WERE RAW DOCUMENTS WHEREIN MANY CHAN GES WERE MADE, WHICH, IN THE OPINION OF THE AO, ESTABLISHED THE PA RTICIPATION OF THE PERSONS FOR THE BUSINESS OF OVERSEAS ENTITIES IN DE CIDING THE PRICES, TERMS AND CONDITIONS OF THE PRODUCTS SOLD IN INDIA. HERE , NOT ONLY ONE CUSTOMER OF GE, BUT, MANY CUSTOMERS IN AVIATION, OI L AND GAS, ENERGY AND TRANSPORTATION BUSINESS WERE BEING LOOKED AFTER BY THESE EXPATS. THE ASSESSEES CONTENTION THAT THERE WAS NO AGENCY PE BECAUSE GE INDIA WAS AN AGENT OF INDEPENDENT STATUS, WAS TURNED DOWN . THE LD. CIT(A) ITA NO.671/DEL/2011 147 ECHOED THE VIEW TAKEN BY THE AO, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. AGENCY PE IS SUBJECT MATTER OF PARAS 4 AND 5 OF ARTICLE 5 OF THE DTAA. RELEVANT PARTS OF PARA 4, RE AD AS UNDER :- `4. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2, WHERE A PERSON OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHO M PARAGRAPH 5 APPLIES IS ACTING IN A CONTRACTING STATE ON BEHALF OF AN EN TERPRISE OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED STATE IF : (A) HE HAS AND HABITUALLY EXERCISES IN THE FIRST-ME NTIONED STATE AN AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO THOSE MENTIONED IN PARAGRAPH 3 WHICH, IF EXERCISE THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THAT FIXED PLACE OF BUSINESS A PERMANENT ESTABLISHMENT UNDER THE PROVISIONS OF THAT PARAGRAP H; (B) TO (C) 35. PARA 4 BEGINS WITH A NON OBSTANTE CLAUSE KEEPING ASIDE THE PROVISIONS OF PARAGRAPH 1 AND 2. THESE TWO PARAGRA PHS, IN TURN, DEALS WITH FIXED PLACE PE TO MEAN A FIXED PLACE IN THE NA TURE OF OFFICE OR FACTORY, ETC., THROUGH WHICH THE BUSINESS OF AN ENT ERPRISE IS CARRIED ON. INSERTION OF NON OBSTANTE CLAUSE QUA PARAS 1 AND 2 BRINGS OUT THAT THERE ITA NO.671/DEL/2011 148 IS NO NEED OF A FIXED PLACE WHEN AGENCY PE IS UNDER CONSIDERATION. EVEN IF AN AGENT, REFERRED TO IN PARA 4, OPERATES FROM A NON-FIXED PLACE, HE WILL STILL CONSTITUTE PE OF THE ENTERPRISE, IF OTHER REL EVANT CONDITIONS ARE SATISFIED. 36. NEXT PART OF PARA 4 OF ARTICLE 5 SPECIFIES A PERSON WHO, ACTING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF OTH ER CONTRACTING STATE, CONSTITUTES PE. RELEVANT PART OF PARA 4 IN THIS CO NTEXT STATES : WHERE A PERSON OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 5 APPLIES - THIS SHOWS THAT THE `PERSON TO CONSTITUTE A PE, SUBJECT TO THE FULFILLMENT OF OTHER CONDITIONS, MU ST BE OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARA 5 APPLI ES. 37. AT THIS STAGE, LET US NOTE DOWN THE PRESCRIPT ION OF PARA 5 OF ARTICLE 5, WHICH READS AS UNDER : - 5. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT B E DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING ST ATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER STATE THROUGH A BROKER, GENERAL COMMISSION AGENT, OR ANY OTHER AGENT OF AN INDEPEND ENT STATUS, PROVIDED THAT SUCH PERSONS ARE ACTING IN THE ORDINA RY COURSE OF THEIR BUSINESS. HOWEVER, WHEN THE ACTIVITIES OF SUCH AN A GENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRIS E AND THE ITA NO.671/DEL/2011 149 TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRISE A RE NOT MADE UNDER ARM'S LENGTH CONDITIONS, HE SHALL NOT BE CONSIDERED AN AGENT OF INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAG RAPH. 38. PARA 5 IS IN TWO PARTS. FIRST PART PROVIDES THAT AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT BE DEEMED TO HAVE A PE IN THE OTHER CONTRACTING STATE MERELY BECAUSE IT CARRIES ON BUSI NESS IN THAT OTHER STATE THROUGH A BROKER, GENERAL COMMISSION AGENT, OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, PROVIDED THAT SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. A PLAIN READING OF THIS PART INDICATES THAT THE ENTERPRISE SHALL NOT BE DEEMED TO HAVE A PE IF IT CARRIES ON BUSINESS IN THE OTHER STATE THROUGH CERTAIN PERSONS BEING A B ROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDE NT STATUS, IF SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. IT, THEREFORE, FOLLOWS THAT THE FIRST PART OF PARA 5 REFERS TO AGE NTS OF INDEPENDENT STATUS WHO ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSI NESS. WHEN THIS PART IS READ WITH PARA 4, IT TRANSPIRES THAT IF AN `ENTERPR ISE OF A CONTRACTING STATE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH THE AGENTS OF INDEPENDENT STATUS, IT SHALL NOT BE DEEMED TO HAVE A PE IN THE OTHER ITA NO.671/DEL/2011 150 CONTRACTING STATE. TO PUT IT SIMPLY, AN ENTERPRISE OF THE USA SHALL NOT BE DEEMED TO HAVE A PE IN INDIA IF IT CARRIES ON BUSIN ESS IN INDIA THROUGH AGENTS OF INDEPENDENT STATUS. SECOND PART OF PARA 5, WHICH IS ABSENT IN THE OECD MODEL CONVENTION, MAKES OUT AN EXCEPTION T O THE FIRST PART. STARTING WITH THE WORD `HOWEVER, IT STATES THAT WH EN THE ACTIVITIES OF `SUCH AN AGENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRISE AND THE TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRISE ARE NOT MADE UNDER ARMS LENGTH CONDITIONS, HE SHALL NO T BE CONSIDERED AN AGENT OF INDEPENDENT STATUS WITHIN THE MEANING OF T HIS PARA. 39. THE LD. AR CONTENDED THAT THE SECOND PART OF PARA 5 OF ARTICLE 5 OF THE DTAA ENVISAGES THAT THE ACTIVITIES OF AN AGENT MUST BE WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRISE. HE SUB MITTED THAT THE REFERENCE TO THE TERM THAT ENTERPRISE DRAWS ITS C OLOUR FROM AN ENTERPRISE WHOSE PE IS SOUGHT TO BE PROVED. IF THE ACTIVITIES OF AN AGENT IN INDIA ARE DEVOTED TO MORE THAN ONE ENTERPRISE, SUCH AN AG ENT WILL CEASE TO BE AN AGENT CONSTITUTING PE OF THE US ENTERPRISE IN IN DIA. HE SUBMITTED THAT THE REVENUE HAS ADMITTEDLY MADE OUT A CASE THAT THE SE EXPATS FROM GEII ITA NO.671/DEL/2011 151 AND OTHER EMPLOYEES OF GEIIPL, ETC., WERE RENDERING SERVICES TO MULTIPLE ENTITIES IN ONE LINE OF BUSINESS AND SUCH ACTIVITIES WERE NOT CONFINED TO A PARTICULAR ENTITY. IT WAS, THEREFORE, CONTENDED THAT REPRESENTATION BY SUCH INDIVIDUAL PERSONS TO MULTIP LE ENTITIES TOOK THE CASE OUT OF THE PURVIEW OF AGENCY PE. 40. THIS WAS COUNTERED BY THE LD. DR WHO SUBMITTE D THAT THE CONTENTION THAT AN AGENT CANNOT CONSTITUTE AGENCY P E OF MULTIPLE ENTERPRISES IS FALLACIOUS BECAUSE THE OTHER INGREDI ENT OF PART 2 OF PARA 5 CLEARLY PROVIDES THAT THE TRANSACTIONS BETWEEN THE AGENT AND ENTERPRISE MUST BE AT ALP. HE SUBMITTED THAT IF THE TRANSACTIO NS BETWEEN AN AGENT AND THE ENTERPRISE ARE NOT AT ALP, THEN, SUCH AGENT GETS COVERED WITHIN THE AMBIT OF PARA 4 OF ARTICLE 5. IN A NUTSHELL, HI S CONTENTION WAS THAT IF ONE OF THE CONDITIONS, NAMELY, MULTIPLE ENTERPRISES OR THE TRANSACTIONS NOT AT ALP, IS SATISFIED, THE PERSON BECOMES DEPEND ENT AGENT CONSTITUTING PE OF THE USA ENTERPRISE IN INDIA. THI S ARGUMENT WAS FURTHER ELABORATED BY POINTING OUT THAT THE FACT OF EXPATS FROM GEII MAKING SALES IN INDIA WITH THE HELP OF EMPLOYEES FR OM GEIIPL ETC. WAS ITA NO.671/DEL/2011 152 NEVER DISCLOSED AND FURTHER THERE WAS NO REPORTING OF SUCH AN INTERNATIONAL TRANSACTION OF MAKING SALES BY THESE EXPATS, ETC., IN INDIA FOR GE OVERSEAS. IT WAS SUBMITTED THAT WHEN THERE WAS NO REPORTING OF ANY SUCH INTERNATIONAL TRANSACTION, THE QUESTION OF THE SAME BEING AT ARMS LENGTH PRICE (ALP) DID NOT ARISE. 41. WE FIND FORCE IN THE CONTENTION ADVANCED BY T HE LD. AR ON THIS ISSUE. IT IS AN ADMITTED POSITION THAT THE EXPATS WERE RENDERING SERVICES TO MULTIPLE GE ENTITIES IN INDIA. IN FACT, THE LD. DR HAS SUCCESSFULLY CONTENDED, WHILE ARGUING FOR THE VALIDITY OF INITIA TION OF RE-ASSESSMENT PROCEEDINGS, THAT THE EXPATS WERE LOOKING AFTER ONE OF THE THREE MAJOR LINES OF BUSINESS, SUCH AS INFRASTRUCTURE ETC., CAT ERING TO VARIOUS GE OVERSEAS ENTITIES. THUS, THERE REMAINS NO DOUBT THA T GE INDIA COMPRISING OF EXPATS AND OTHER EMPLOYEES OF GEIIPL ETC., WERE NOT WORKING FOR A PARTICULAR ENTERPRISE, BUT, FOR MULTIPLE ENTERPRISE S DEALING IN ONE OF THE THREE MAJOR BUSINESSES OF GE GROUP. REVERTING TO P ART 2 OF PARA 5 OF ARTICLE 5, IT IS CLEAR THAT THE ACTIVITIES OF AGENT SHOULD BE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRISE. THE TERM THAT ITA NO.671/DEL/2011 153 ENTERPRISE REFERS TO PART 1 OF PARA 5, BEING, AN E NTERPRISE OF A CONTRACTING STATE. THE TERM ENTERPRISE OF A CONTRACTING STATE HAS BEEN DEFINED IN ARTICLE 3(G) OF THE DTAA TO MEAN: AN ENTERPRISE CA RRIED ON BY A RESIDENT OF A CONTRACTING STATE. ON A CONJOINT REA DING OF PART 2 OF PARA 5 OF ARTICLE 5 AND ARTICLE 3(G), IT IS OSTENSIBLE THA T PART 2 OF PARA 5 REFERS TO AN AGENT LOOKING AFTER THE ACTIVITIES OF A SINGLE E NTERPRISE AND NOT MULTIPLE ENTERPRISES. THE LD. AR HAS RELIED ON THE DECISION OF THE MUMBAI TRIBUNAL IN VARIAN INDIA (P) LTD. VS. ASSTT. DIT (2013) 142 ITD 692 (MUM) IN WHICH IT HAS BEEN HELD THAT IN ORDER TO BE COVE RED WITHIN THIS PART OF PARA 5, IT IS NECESSARY THAT THE ACTIV ITIES OF AGENT MUST BE DEVOTED WHOLLY OR ALMOST WHOLLY TO ONE ENTERPRISE. 42. NOW, WE TAKE UP THE CONTENTION OF THE LD. DR THAT SINCE THE TRANSACTIONS WERE NOT AT ALP, OR FOR THAT MATTER, T HE INTERNATIONAL TRANSACTIONS WERE NOT EVEN DISCLOSED, THE ASSESSEE CANNOT CLAIM NOT TO HAVE AN AGENCY PE. THERE IS NO DOUBT ABOUT THE FAC T THAT THE TRANSACTIONS OF MAKING SALES BY GE INDIA (CONSISTIN G OF EXPATS AND EMPLOYEES OF GEIIPL ETC.) ON BEHALF OF GE OVERSEAS WERE NOT DISCLOSED ITA NO.671/DEL/2011 154 AND, AS SUCH, QUESTION OF DEEMING SUCH TRANSACTIONS AT ALP DOES NOT ARISE. THE LD. DR IS RIGHT TO THIS EXTENT. HOWEVER , WE FIND THAT THE SECOND PART OF PARA 5 CLEARLY PROVIDES THAT A PERSO N SHALL NOT BE CONSIDERED AN AGENT OF INDEPENDENT STATUS ONLY IF H E SATISFIES BOTH THE CONDITIONS SIMULTANEOUSLY. IN OTHER WORDS, WHEN TH E ACTIVITIES OF SUCH AN AGENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEH ALF OF AN ENTERPRISE AND THE TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRI SE ARE NOT AT ALP, THEN, HE SHALL NOT BE CONSIDERED AN AGENT OF INDEPE NDENT STATUS. USE OF THE WORD AND BETWEEN THE TWO CONDITIONS MAKES IT AMPLY CLEAR THAT THE CONCURRENT SATISFACTION OF BOTH OF THEM IS A PREREQ UISITE FOR NOT CONSIDERING SUCH A PERSON AN AGENT OF INDEPENDENT S TATUS. IF ONLY ONE CONDITION IS SATISFIED AND THE OTHER IS NOT, THE PE RSON IS CONSIDERED AS AN AGENT OF INDEPENDENT STATUS. IN THE FACTS AND CIRC UMSTANCES OF THE INSTANT CASE, ALTHOUGH THE TRANSACTIONS WERE NOT AT ALP, BU T, SINCE GE INDIA WORKED FOR MULTIPLE ENTITIES, IT FAILS TO FALL WITH IN THE EXCEPTION CARVED OUT IN PART 2 OF PARA 5. ITA NO.671/DEL/2011 155 43. IN SPITE OF TURNING DOWN THE CONTENTION OF T HE LD. DR IN THIS REGARD, WE FIND THAT THE GE INDIA STILL QUALIFIES AS A PERS ON IN PARA 4 OF ARTICLE 5, WHOSE ACTIVITIES CONSTITUTE AGENCY PE IN INDIA. RE ASON FOR SUCH A CONCLUSION IS THAT PART 1 OF PARA 5 REFERS TO AN E NTERPRISE CARRYING ON BUSINESS IN THE OTHER STATE THROUGH CERTAIN PERSON S, WHO ARE AGENTS OF INDEPENDENT STATUS ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. IT, THEREFORE, FOLLOWS THAT THE THREE CATEGORIES OF PER SONS, NAMELY, BROKERS, GENERAL COMMISSION AGENT AND ANY OTHER AGENT ARE AG ENTS OF INDEPENDENT STATUS ACTING IN THE ORDINARY COURSE OF THEIR BUSIN ESS. THUS, PART 1 OF PARA 5 REFERS TO AGENTS OF AN INDEPENDENT STATUS. WE HAVE NOTICED ABOVE THAT PART 2 OF PARA 5 IS AN EXCEPTION TO PART 1. W HEN THE TWIN CONDITIONS, AS NOTED ABOVE, ARE NOT SATISFIED, SUCH AN AGENT O F INDEPENDENT STATUS SHALL NOT BE CONSIDERED AN AGENT OF INDEPENDENT ST ATUS WITHIN THE MEANING OF THIS PARAGRAPH. IT IS, THEREFORE, OBVI OUS THAT PART 2 OF PARAGRAPH 5, FIRSTLY REFERS TO AN AGENT OF INDEPEND ENT STATUS AND, THEN, SAYS THAT IF THE CONDITIONS ARE NOT SATISFIED, THEN , SUCH AN AGENT OF INDEPENDENT STATUS `SHALL NOT BE CONSIDERED AN AGEN T OF INDEPENDENT STATUS. IT IS FURTHER CLARIFIED FROM THE USE OF W ORDS SUCH AN AGENT IN ITA NO.671/DEL/2011 156 THE OPENING PORTION OF PART 2 OF PARA 5, WHICH RELA TES BACK TO AN AGENT OF INDEPENDENT STATUS DISCUSSED IN FIRST PART OF PARA 5. THE SAME ANALOGY FOLLOWS FROM LAST FEW WORDS OF PART 2 OF PARA 5 WHI CH READ THAT HE `SHALL NOT BE CONSIDERED AN AGENT OF INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAGRAPH. SINCE THE SECOND PART OF THE PARA 5 REFERS TO S UCH AN AGENT AND AN AGENT OF INDEPENDENT STATUS WITHIN T HE MEANING OF THIS PARAGRAPH, IT, THEREFORE, BECOMES UTTERLY OBVIOUS THAT THE EXCLUSION ENSHRINED IN PART 2 OF PARA 5 IS OF AN AGENT WHO IS OTHERWISE OF AN INDEPENDENT STATUS. WHEN WE READ BOTH THE PARTS OF PARA 5, IT FOLLOWS THAT WHEREAS THE FIRST PART REFERS TO AN AGENT OF A N INDEPENDENT STATUS, THE SECOND PART CARVING EXCEPTION TO THE FIRST PART MAK ES IT LUCID THAT UPON THE FULFILLMENT OF THE GIVEN CONDITIONS, SUCH AN AG ENT OF OTHERWISE INDEPENDENT STATUS SHALL NOT BE CONSIDERED AN AGENT OF INDEPENDENT STATUS WITHIN PARA 5. TO SUM UP, THE FIRST PART OF PARA 5 REFERS TO AN AGENT OF INDEPENDENT STATUS AND THE SECOND PART OF PARA 5 RE FERS TO AN AGENT OF INDEPENDENT STATUS WHO IS NOT CONSIDERED AN AGENT O F INDEPENDENT STATUS BECAUSE OF THE CONDITIONS SET OUT IN THIS PARAGRAPH . ITA NO.671/DEL/2011 157 44. A FOREIGN COMPANY MAY APPOINT OR SET UP A PER SON AS AN AGENT IN INDIA FOR ITS EXCLUSIVE PURPOSE, WHO OBVIOUSLY WILL BE CALLED AS AN AGENT OF DEPENDENT STATUS. THE POSITION WILL REMAIN SO, E VEN IF THERE ARE MORE THAN ONE RELATED COMPANIES OF THE SAME GROUP. SUCH A PERSON WILL NOW BE DEPENDENT ON SUCH MORE NUMBER OF RELATED COMPANI ES OF THE SAME GROUP. HE WILL NOT LOSE HIS CHARACTER OF AN AGENT OF DEPENDENT STATUS SIMPLY BECAUSE HE IS LOOKING AFTER MORE THAN ONE RE LATED COMPANIES. SUCH MORE THAN ONE RELATED COMPANIES WILL BE CONSID ERED AS ONE UNIT. THIS POSITION NEEDS TO BE SEEN IN CONTRAST TO AN AG ENT OF AN INDEPENDENT STATUS, WHOSE NORMAL COURSE OF BUSINESS EXTENDS TO MULTIPLE INDEPENDENT CUSTOMERS. THE FACT THAT TRANSACTIONS BETWEEN SUCH AN AGENT OF DEPENDENT STATUS AND MULTIPLE RELATED ENTERPRISES A RE OR ARE NOT AT ALP, IS NOT RELEVANT AT THE STAGE OF ESTABLISHMENT OF A DEPENDENT AGENT PE IN INDIA, WHICH IS CREATED SOLELY DUE TO THE NATURE OF ACTIVITIES OF SUCH AN AGENT FOR THE OVERSEAS ENTITY(IES). THIS ASPECT ASS UMES SIGNIFICANCE AT THE LATER STAGE OF ATTRIBUTION OF INCOME. IF THE TRANSA CTIONS BETWEEN THE AGENT AND SUCH RELATED ENTERPRISES ARE AT ALP, THERE CAN BE NO FURTHER ATTRIBUTION OF INCOME TO THE PE BECAUSE THE AGENT G OT REMUNERATED AT ITA NO.671/DEL/2011 158 ALP AND HIS INCOME GOT TAXED IN INDIA. IF, HOWEVER, THE TRANSACTIONS ARE NOT AT ALP, THEN, OF COURSE, INCOME NEEDS TO BE ATT RIBUTED TO THE PE. IN ANY CASE, THE FACT OF THE TRANSACTIONS AT OR NOT AT ALP GAINS PROMINENCE ONLY WHEN THE QUESTION OF ATTRIBUTION ARISES AND NO T BEFORE THAT. ESTABLISHMENT OF PE IS A STAGE ANTERIOR TO THE STAG E OF ATTRIBUTION OF INCOME, WHICH GETS CONCLUDED BY SEEING THE NATURE O F ACTIVITIES CARRIED ON BY SUCH A DEPENDENT AGENT IN THE OTHER CONTRACTI NG STATE. 45. WE AGAIN REVERT TO THE LANGUAGE OF PARA 4 OF ARTICLE 5, WHICH STATES THAT WHERE A PERSON OTHER THAN AN AGENT OF INDEPENDENT STATUS TO WHOM PARAGRAPH 5 APPLIES - FULFILLS THE CONDITIONS AS SET OUT IN THIS PARA, HE WILL CONSTITUTE PE OF THE ENTERPRISE. IT FOLLOW S THAT THE PERSON MUST BE OTHER THAN AN AGENT OF INDEPENDENT STATUS TO WHOM PARAGRAPH 5 APPLIES. THE TERM OTHER THAN AN AGENT OF INDEPENDENT STATU S TO WHOM PARA 5 APPLIES, ENCOMPASSES NOT ONLY AN AGENT OF INDEPENDE NT STATUS COVERED WITHIN SECOND PART OF PARA 5, BUT ALSO A DEPENDENT AGENT AS SUCH, WHO IS OTHERWISE NOT AN INDEPENDENT AGENT ACTING IN THE OR DINARY COURSE OF HIS BUSINESS. THUS, IT IS AXIOMATIC THE PERSON REFERR ED TO IN PARA 4 REFERS TO ITA NO.671/DEL/2011 159 AN AGENT OF DEPENDENT STATUS AS SUCH AND ALSO AN AG ENT OF AN INDEPENDENT STATUS WHO IS COVERED IN PART 2 OF PARA 5. EXCEPTI ON TO THE FIRST PART OF PARA 5 CREATED IN PART 2 IS RESTRICTED ONLY TO `AN AGENT OF INDEPENDENT STATUS, WHO IS OTHERWISE `ACTING IN THE ORDINARY C OURSE OF HIS BUSINESS, BUT FOR THE TIME BEING, HIS ACTIVITIES ARE DEVOTED WHOLLY OR ALMOST WHOLLY DEVOTED TO ONE ENTERPRISE. ON THE OTHER HAND, IF T HERE IS AN AGENT OF DEPENDENT STATUS PER SE WHOSE ACTIVITIES ARE DEVOTED TO ONE OR MULTIPLE RELATED ENTERPRISES, HE WILL BE DIRECTLY COVERED WI THIN THE SCOPE OF PARA 4 OF ARTICLE 5 OF THE DTAA. 46. COMING BACK TO THE FACTS OF THE PRESENT CASE , WE FIND THAT THE EXPATS OF GEII AND EMPLOYEES OF GEIIPL WERE APPOINT ED TO ACT AS AGENT OF MULTIPLE GE OVERSEAS ENTERPRISES. IT IS NOBODYS CASE THAT THEY WERE OTHERWISE ACTING AS AGENTS OF INDEPENDENT STATUS WO RKING FOR OTHER THIRD PARTIES IN INDIA. THIS PROVES THAT EXPATS AND EMPLO YEES OF GEEIPL ACTED AS AGENTS OF DEPENDENT STATUS IN THE FIRST PLACE IT SELF. ALTHOUGH, THE NUMBER OF GE OVERSEAS ENTITIES LOOKED AFTER BY EACH OF THEM IS MORE THAN ONE, BUT THE FACT THAT SUCH ENTITIES WERE IN O NE OF THE THREE BROADER ITA NO.671/DEL/2011 160 LINES OF BUSINESSES OF GE GROUP, MAKES THEM AGENTS OF DEPENDENT STATUS PER SE . 47. FACTS OF VARIAN (SUPRA), RELIED BY THE LD. AR, ARE DISTINGUISHABLE INASMUCH AS VARIAN INDIA HAD PROVIDED SERVICES TO F IVE AES FOR WHICH THERE WERE SEPARATE AGREEMENTS AND DIFFERENT PAYMEN TS. THE TRIBUNAL RECORDED THAT THE COMMISSION INCOME WAS QUITE NORMA L AND THE TRANSACTIONS WERE AT ALP. THESE FACTS ARE ABSENT I N THE INSTANT CASE. IT IS FOUND THAT THE HONBLE SUPREME COURT OF ITALY IN PHILLIP MORRIS VS. AMNINISTRAZIONE FINANZIARIA (THE TAX AUTHORITIES) (COPY GIVEN AT PAGE 37 OF DEPARTMENTAL PB-7) HAS HELD THAT: A COMPANY HAVING ITS SEAT IN ITALY MAY TAKE ON THE ROLE OF A MULTIPLE PERMANENT ESTABL ISHMENT OF FOREIGN COMPANIES BELONGING TO THE SAME GROUP AND PURSUING A COMPANY STRATEGY; IN SUCH A CASE, THE ASSESSMENT OF THE ACT IVITY CARRIED ON BY THE ITALIAN . MUST BE DONE ON A UNITARY BASIS AND WI TH REFERENCE TO THE PROGRAMME OF THE GROUP CONSIDERED AS A WHOLE. IN THIS CASE, THE VIEW OF AN AGENT HAVING MULTIPLE PERMANENT ESTABLISHMENT S OF FOREIGN ITA NO.671/DEL/2011 161 COMPANIES BELONGING TO THE SAME GROUP, AS IS THE CA SE BEFORE US AS WELL, WAS COUNTENANCED. 48. IT IS FURTHER FOUND THAT PARA 26 OF THE OECD COMMENTARY DISCUSSED SUPRA , THOUGH DEALING WITH THE ACTIVITIES OF PREPARATORY OR AUXILIARY NATURE, ALSO ACKNOWLEDGES THAT A FIXED PLACE OF BUS INESS WHICH RENDERS SERVICES TO MORE THAN ONE COMPANY WOULD NOT FALL IN EXEMPTION GIVEN IN SUBPARAGRAPH E) AND HENCE, IMPLIEDLY, CONSTITUTE PE . WE, THEREFORE, HOLD THAT GE INDIA CONSISTING OF EXPATRIATES OF GEII AND EMPLOYEES OF GEIIPL ETC., ARE THE PERSONS COVERED IN PARAGRAPH 4 ACTING IN INDIA ON BEHALF GE OVERSEAS ENTITIES. 49. HAVING SEEN THAT GE INDIA IS COVERED IN THE EARLIER PART OF PARA 4 OF ARTICLE 5 OF THE DTAA, IT NEEDS TO BE SEEN IF THE A CTIVITIES CARRIED OUT BY THEM FALL IN ANY OF THE THREE SUB-PARAS TO CONSTITU TE PE IN INDIA. THOUGH THE AO HELD THAT THE ACTIVITIES OF GE INDIA WERE CO VERED UNDER CLAUSES (A) AND (C) OF PARA 4, BUT THE LD. DR HAS RESTRICTE D HIS ARGUMENTS ONLY TO CLAUSE (A). WE WILL ALSO CONFINE OURSELVES TO EXAMI NING THE ISSUE OF AGENCY PE ON THE TOUCHSTONE OF CLAUSE (A) ONLY. ITA NO.671/DEL/2011 162 50. CLAUSE (A) OF PARA 4 OF ARTICLE 5 OF THE DTAA PROVIDES THAT THE AGENT: HAS AND HABITUALLY EXERCISES IN THE FIRST M ENTIONED STAGE AN AUTHORITY TO CONCLUDE CONTRACT ON BEHALF OF THE ENT ERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO THOSE MENTIONED IN PARAGR APH 3 WHICH, IF EXERCISED THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THAT FIXED PLACE OF BUSINESS A PERMANENT ESTABLISHMENT UNDER T HE PROVISIONS OF THAT PARAGRAPH. A PLAIN READING OF SUB-PARA (A) DIVULG ES THAT THE AGENT WILL CONSTITUTE PE IF HE HABITUALLY EXERCISES AN AUTHOR ITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE AND HIS ACTI VITIES ARE, INTER ALIA , NOT LIMITED TO PREPARATORY OR AUXILIARY ACTIVITIES WHIC H IF CARRIED THROUGH A FIXED PLACE WOULD NOT MAKE THAT FIXED PLACE A PE. T HE EXPRESSION AN AUTHORITY TO CONCLUDE CONTRACTS HAS NOT BEEN DEFINED IN THE DTAA. PARA 5 OF ARTICLE 5 OF OECD MODEL CONVENTION ALSO USES T HE SIMILAR EXPRESSION, NAMELY: AN AUTHORITY TO CONCLUDE CONTR ACTS. PARA 5 OF OECD DEALS WITH THE SAME SUBJECT MATTER AS PARA 4 O F THE DTAA WITH THE USA, NAMELY, DEPENDENT AGENT PE. PARAS 31-35 O F THE OECD COMMENTARY DEAL WITH PARA 5 OF THE OECD MODEL CONVE NTION WHOSE LANGUAGE, IS SIMILAR TO PARA 4 OF ARTICLE 5 OF THE DTAA. ITA NO.671/DEL/2011 163 51. THE LD. AR STRONGLY RELIED ON TWO SENTENCES FROM PARA 33 OF THE OECD COMMENTARY FOR DRIVING HOME THE CONTENTION THA T NO AGENCY PE OF GE OVERSEAS WAS CONSTITUTED IN INDIA. FIRST SEN TENCE IS THAT A PERSON WHO IS AUTHORIZED TO NEGOTIATE ALL ELEMENTS AND DETAILS OF A CONTRACT IN A WAY BINDING ON THE ENTERPRISE CAN BE SAID TO HAVE E XERCISED THIS AUTHORITY AND THE SECOND IS THAT THE MERE FACT, H OWEVER, THAT A PERSON HAS ATTENDED OR EVEN PARTICIPATED IN NEGOTIATIONS .. WILL NOT BE SUFFICIENT , BY ITSELF, TO CONCLUDE THAT THE PERSON HAS EXERCI SED IN THAT STATE AN AUTHORITY TO CONCLUDE CONTRACTS IN THE NAM E OF THE ENTERPRISE. RELYING ON THESE TWO SENTENCES, IT WAS CONTENDED TH AT EVEN IF SOME OF THE ELEMENTS OF A CONTRACT WERE PRESUMED TO HAVE BE EN NEGOTIATED BY GE INDIA, IT WOULD FALL SHORT OF ALL ELEMENTS OF A CO NTRACT AND EVEN PARTICIPATION IN NEGOTIATIONS BETWEEN GE OVERSEAS A ND CUSTOMERS IN INDIA WILL NOT LEAD TO THE ESTABLISHMENT OF AN AGEN CY PE IN INDIA. THIS ARGUMENT WAS STRONGLY REFUTED BY THE LD. DR WHO SUB MITTED THAT INDIA HAS CLARIFIED ITS POSITION IN 2008 ON PARA 33 OF TH E OECD COMMENTARY BY MAKING IT CLEAR THAT IT DOES NOT AGREE WITH BOTH THESE SENTENCES FROM PARA 33 OF THE OECD COMMENTARY AS IN ITS VIEW THE M ERE FACT THAT A ITA NO.671/DEL/2011 164 PERSON HAS ATTENDED OR PARTICIPATED IN NEGOTIATIONS IN A STATE BETWEEN AN ENTERPRISE AND A CLIENT, CAN, IN CERTAIN CIRCUMSTAN CES, BE SUFFICIENT, BY ITSELF, TO CONCLUDE THAT THE PERSON HAS EXERCISED I N THAT STATE AN AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE ; AND THAT A PERSON WHO IS AUTHORIZED TO NEGOTIATE THE ESSENTIAL ELEMEN TS OF CONTRACT, AND NOT NECESSARILY ALL THE ELEMENTS, CAN BE SAID TO EXERCI SE THE AUTHORITY TO CONCLUDE CONTRACTS. IN VIEW OF THIS POSITION OF IN DIA, THE LD. DR CONTENDED THAT PARA 33 OF THE COMMENTARY, TO THE EX TENT RELIED BY THE LD. AR, SHOULD NOT BE CONSIDERED. 52.1. FIRST, WE TAKE UP THE EFFECT AND CONSEQUEN CE OF INDIAS POSITION ON PARA 33 OF OECD COMMENTARY GIVEN IN 2008 PURSUAN T TO OECD CALLING NON-MEMBER COUNTRIES, INCLUDING INDIA, TO S TATE THEIR POSITION ON OECD COMMENTARY IN 2006. PARA 3 OF INTRODUCTION TO THE OECD COMMENTARY STATES THAT THE MEMBER COUNTRIES OF THE OECD (INDIA IS NOT A MEMBER), WHEN CONCLUDING OR REVISING BILATERAL CO NVENTIONS SHOULD CONFORM TO THIS MODEL CONVENTION AS INTERPRETED BY THE COMMENTARIES THEREON AND HAVING REGARD TO THE RESERVATIONS CONTAINED THEREIN . IT HAS ITA NO.671/DEL/2011 165 FURTHER BEEN PROVIDED THAT: . THEIR TAX AUTHORITI ES SHOULD FOLLOW THESE COMMENTARIES, AS MODIFIED FROM TIME TO TIME AND SUBJECT TO THEIR OBSERVATIONS THEREON , WHEN APPLYING AND INTERPRETING THE PROVISIONS OF THEIR BILATERAL TAX CONVENTIONS THAT ARE BASED ON T HE MODEL CONVENTION. IT IS, THEREFORE, COMPREHENSIBLE FROM PARA 3 THAT T HE OECD COMMENTARY IS NOT UNIVERSALLY APPLICABLE. IF A MEMBER COUNTRY OF OECD HAS EXPRESSED RESERVATIONS ON ANY OF ITS PARTS, THEN, T HE COMMENTARY STANDS MODIFIED TO THAT EXTENT IN SO FAR AS THE INTERPRETA TION OF THE CONVENTIONS OF THAT MEMBER COUNTRY IS CONCERNED. PARA 30 OF TH E INTRODUCTION TO THE OECD COMMENTARY FURTHER CLARIFIES THAT: OBSERVATIO NS ON THE COMMENTARIES HAVE SOMETIMES BEEN INSERTED AT THE RE QUEST OF MEMBER COUNTRIES THAT ARE UNABLE TO CONCUR IN THE INTERPRE TATION GIVEN IN THE COMMENTARY ON THE ARTICLE CONCERNED. THESE OBSERVAT IONS THUS DO NOT EXPRESS ANY DISAGREEMENT WITH THE TEXT OF THE CONVE NTION, BUT USEFULLY INDICATE THE WAY IN WHICH THOSE COUNTRIES WILL APPL Y THE PROVISIONS OF THE ARTICLE IN QUESTION. .. THIS PARA ALSO CLARIF IES THAT SOMETIMES OBSERVATIONS ARE INSERTED IN THE COMMENTARY AT THE INSTANCE OF SOME MEMBER COUNTRIES WHO DO NOT CONCUR WITH THE INTERPR ETATION GIVEN IN THE ITA NO.671/DEL/2011 166 COMMENTARY. THIS, AGAIN, CLEARLY DECODES THAT THE O ECD COMMENTARY IS NOT CONCLUSIVE IN ITSELF. IF SOME MEMBER COUNTRY H AS RESERVATIONS ON ANY PART OF THE COMMENTARY, IT CAN EXPRESS SO. IN S UCH A SITUATION, THE INTERPRETATION GIVEN IN THE COMMENTARY BOWS DOWN IN FAVOUR OF THE OBSERVATIONS GIVEN BY SUCH COUNTRY IN SO FAR AS THE CONVENTIONS OF SUCH A COUNTRY ARE CONCERNED. 52.2. DUE TO THE GROWING INFLUENCE OF NON-MEMBER COUNTRIES, THE OECD INVITED SOME NON-MEMBER COUNTRIES TO GIVE THEI R POSITION ON THE OECD COMMENTARY. IT IS PURSUANT TO THIS INVITATION EXTENDED BY THE OECD IN 2006 THAT INDIA GAVE ITS POSITION IN 2008 O N PARA 33 DISAGREEING WITH THE OBSERVATIONS GIVEN IN THE TWO SENTENCES. SUCH A CONTRARY POSITION HAS A BINDING EFFECT ON ALL THE C ONVENTIONS WHICH INDIA ENTERS INTO AFTER THAT DATE. IT CANNOT RETROSPECTIV ELY APPLY TO THE CONVENTIONS IN EXISTENCE ON THAT DATE, UNLESS CONVE NTION(S) IS/ARE SPECIFICALLY MODIFIED. AS A CONVENTION IS AN AGREE MENT BETWEEN TWO COUNTRIES, THE SAME CANNOT BE UNILATERALLY MODIFIED BY ONE COUNTRY DECLARING ITS SUO MOTU POSITION. IT IS SO BECAUSE WHEN INDIA ENTERED INT O A CONVENTION WITH AN OECD MEMBER COUNTRY, IT WAS IM PLIED THAT THE ITA NO.671/DEL/2011 167 OECD COMMENTARY EXPLAINING THE RELEVANT PROVISIONS, PICKED UP FROM THE OECD MODEL CONVENTION AND INCORPORATED IN THE R ESPECTIVE CONVENTION, WILL BE APPLICABLE. IF INDIA DID NOT CH ANGE ITS POSITION BY ALTERING THE LANGUAGE OF THE DTAA, THEN, THE PRESUM PTION TO BE DRAWN IS THAT IT WAS AGREEABLE WITH THE OECD COMMENTARY TO T HE EXTENT OF IDENTICAL PROVISIONS INCORPORATED IN ITS CONVENTION . TO PUT IT SIMPLY, THE RESERVATIONS GIVEN BY INDIA IN 2008 CANNOT RETROSPE CTIVELY AMEND ITS POSITION QUA THE OECD COMMENTARY DEALING WITH SIMILAR EXPRESSIO NS USED IN DTAA WITH THE USA, WHICH WAS ADMITTEDLY ENT ERED INTO MUCH EARLIER. HOWEVER, THIS DOES NOT APPLY TO THE CONVE NTIONS ENTERED INTO AFTER INDIA STATING ITS POSITION ON THE OECD COMMEN TARY, IN WHICH CASE, THE POSITION GIVEN BY INDIA OVERRIDES THE OECD COM MENTARY TO THAT EXTENT. WE ARE, THEREFORE, NOT PERSUADED TO ACCEPT THE CONTENTION OF THE LD. DR THAT INDIAS POSITION ON PARA 33 OF THE OECD COMMENTARY GIVEN IN 2008, SHOULD BE READ AS A PART OF THE COMMENTARY INTERPRETING THE DTAA. ITA NO.671/DEL/2011 168 52.3. NOTWITHSTANDING THE FOREGOING PARA, WE ARE NO T PREPARED TO READ EACH AND EVERY LINE OF THE OECD COMMENTARY AS A PAR T OF THE STATUTE OR THE DTAA BY THE DOCTRINE OF INCORPORATION. AFTER AL L, IT IS ONLY AN INTERPRETATION OF THE OECD MODEL CONVENTION. ONE S HOULD TAKE COGNIZANCE OF THE VIEW GIVEN IN THE COMMENTARY ON A HOLISTIC BASIS AND NOT AS EMANATING FROM INDIVIDUAL AND SELECTIVE LINE S, WHICH, AT TIMES, MAY TURN OUT TO BE OVERLAPPING IN NATURE. 52.4. THIS BRINGS US BACK TO THE PARAS 32 AND 33 OF THE OECD COMMENTARY DEALING WITH THE EXPRESSION AUTHORITY T O CONCLUDE CONTRACTS. PARA 32.1 STATES THAT: ` LACK OF ACTIVE INVOLVEMENT BY AN ENTERPRISE IN TRANSACTIONS MAY BE INDICATIVE OF A G RANT OF AUTHORITY TO AN AGENT. FOR EXAMPLE, AN AGENT MAY BE CONSIDERED TO POSSESS ACTUAL AUTHORITY TO CONCLUDE CONTRACTS WHERE HE SOLICITS A ND RECEIVES (BUT DOES NOT FORMALLY FINALISE) ORDERS WHICH ARE SENT DIRECT LY TO A WAREHOUSE FROM WHICH GOODS ARE DELIVERED AND WHERE THE FOREIGN ENT ERPRISE ROUTINELY APPROVES THE TRANSACTIONS. IT IS CLEAR FROM THE AB OVE PARA THAT LACK OF ACTIVE INVOLVEMENT BY AN ENTERPRISE MAY BE INDICATI VE OF GRANT OF AUTHORITY TO AN AGENT. LACK OF DOES NOT MEAN ABSENCE OF. IT SHOWS THAT ITA NO.671/DEL/2011 169 IF THE ENTERPRISE IS NOT FULLY INVOLVED IN THE TRAN SACTION WHICH IS CONCLUDED BY AN AGENT, IT WILL GIVE AN INFERENCE OF THE AGENT HAVING AN AUTHORITY TO CONCLUDE CONTRACT IN THE NAME OF THE ENTERPRISE. THIS POSITION GIVEN IN PARA 32.1 IS RUNNING CONTRARY TO THE POSITION CONTAINED IN PARA 33 ON WHICH THE LD. AR HAS HEAVILY RELIED T O THE EFFECT THAT ALL ELEMENTS AND DETAILS OF A CONTRACT MUST BE NEGOTIATED TO CONSTITUTE AN AUTHORITY TO CONCLUDE CONTRACT IN THE NAME OF ENTER PRISE. FURTHER, THE IMMEDIATELY NEXT LINE FOLLOWING THE LINE ON WHICH T HE LD. AR HAS RELIED, READS : THE FACT THAT A PERSON HAS ATTENDED OR EVEN PARTICI PATED IN SUCH NEGOTIATIONS COULD, HOWEVER, BE A RELEVANT FACTOR IN DETERMINING THE EXACT FUNCTIONS PERFORMED BY THAT PERSON ON BEHALF OF THE ENTERPRISE. THUS, IT IS EVIDENT THAT THE PARAS CONTAINING COMME NTARY ON THE EXPRESSION AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE DO NOT HAVE UNIFORMITY IN THE APPROACH. THERE IS S OME SORT OF CONTRADICTION BETWEEN THEM. THE ESSENCE OF THE MAT TER IS THAT SELECTIVE REFERENCE TO THE OECD COMMENTARY IS IMPERMISSIBLE. ONE SHOULD UNDERSTAND AND FOLLOW THE SPIRIT RATHER THAN INDIVI DUAL LINES DIVORCED FROM THE CONTEXT. AS THE LD. DR CANNOT BE ALLOWED T O SOLELY RELY ON THE ITA NO.671/DEL/2011 170 LINES FORWARDING THE CASE OF THE DEPARTMENT, IN THE SAME MANNER, THE ASSESSEE CAN ALSO NOT BE PERMITTED TO PICK UP THE L INES BUTTRESSING HIS POINT OF VIEW. IN SUCH A SITUATION, ONE NEEDS TO HA RMONIZE THE CONFLICTING LINES TO DISCOVER THE REAL PURPORT OF THE EXPRESSIO N. 52.5. WHEN WE READ CLAUSE (A) OF PARA 4 OF ARTICL E 5 IN TOTALITY, WHAT COMES OUT IS THAT AN AGENCY PE IS ESTABLISHED IF TH E PERSON HABITUALLY EXERCISES AN AUTHORITY TO CONCLUDE CONTRACTS SO LON G AS HIS ACTIVITIES ARE NOT OF PREPARATORY OR AUXILIARY NATURE. WE HAVE NO TICED ABOVE THAT THE TERM PREPARATORY OR AUXILIARY REFERS TO SUCH ACTI VITIES WHICH ARE SIMPLY IN SUPPORT OF THE CORE INCOME GENERATING ACTIVITY. THEY DO NOT COMPREHEND NEGOTIATING ALL ELEMENTS AND DETAILS OF A CONTACT . IF WE ACCEPT THE ARGUMENT OF THE LD. AR AS LAYING DOWN TH E CORRECT POSITION, THEN THERE WOULD HAVE BEEN NO NEED TO QUALIFY THE E XPRESSION `AUTHORITY TO CONCLUDE CONTRACTS WITH `UNLESS HIS ACTIVITIES ARE LIMITED TO THOSE MENTIONED IN PARAGRAPH 3 WHICH, IF EXERCISED THROUG H A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THAT FIXED PLACE OF BUSINE SS A PERMANENT ESTABLISHMENT ... THIS DECIPHERS THAT THE ACTIVITI ES OF THE PERSON LEADING TO THE `AUTHORITY TO CONCLUDE A CONTRACT, SO AS TO FORM AN AGENCY PE, ITA NO.671/DEL/2011 171 SHOULD NOT BE RESTRICTED TO EXEMPTIONS FOR THE CONS TITUTION OF A FIXED PLACE PE, SUCH AS, PREPARATORY OR AUXILIARY ETC. I T MEANS THAT THE ACTIVITIES OF SUCH A PERSON SHOULD BE OF CORE NATUR E AND NOT MERELY SUBSIDIARY TO THE MAIN ACTIVITIES, WHICH OBVIOUSLY RULES OUT NEGOTIATING ALL ELEMENTS AND DETAILS OF A CONTRACT. READING CLAUSE (A) IN TOTALITY GIVES A CLEAR IDEA OF CONSTITUTING A PE WHEN THE ACTIVITI ES OF THE PERSON, OTHER THAN AN AGENT OF INDEPENDENT STATUS, ARE NOT OF PRE PARATORY OR AUXILIARY NATURE. IT DOES NOT REQUIRE DOING OF EACH AND EVERY ASPECT OF THE CONTRACT, HOWSOEVER MINOR. OUR VIEW GETS FILLIP FROM THE JUDG MENT OF THE HONBLE SUPREME COURT OF ITALY IN PHILLIP MORRIS (SUPRA) IN WHICH IT HAS BEEN HELD THAT: THE PARTICIPATION OF REPRESENTATIVES OR EMPLOYEES OF A RESIDENT COMPANY IN A PHASE OF THE CONCLUSION OF A CONTRACT BETWEEN A FOREIGN COMPANY AND ANOTHER RESIDENT ENTITY MAY FAL L WITHIN THE CONCEPT OF AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF T HE FOREIGN COMPANY, EVEN IN THE ABSENCE OF A FORMAL POWER OF REPRESENTA TION. HAVING DISCUSSED SUPRA THE NATURE OF ACTIVITIES DONE BY GE INDIA, WHICH AR E OF CORE NATURE AND NOT MERELY PREPARATORY OR AUXILIARY , WE HOLD THAT THEY CLEARLY INDICATE ITS AUTHORITY TO CONCLUDE CONTRACT S ON BEHALF OF GE ITA NO.671/DEL/2011 172 OVERSEAS. IT IS, CONSEQUENTLY, HELD THAT GE INDIA CONSTITUTED AGENCY PE OF ALL THE GE OVERSEAS ENTITIES IN INDIA. 53.1. NOW, WE TAKE UP THE CONTENTION OF THE LD. A R THAT IF THE ACTIVITIES CARRIED OUT FROM THE FIXED PLACE DO NOT LEAD TO CON CLUSION OF CONTRACTS IN INDIA, THEN NO FIXED PLACE PE IS CONSTITUTED. THIS WAS STATED BY REFERRING TO THE LINE FROM PARA 33, READING: SINCE, BY VIRTU E OF PARAGRAPH 4, THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR PURPOSES LISTED IN THAT PARAGRAPH IS DEEMED NOT TO CONSTITUTE A PERMAN ENT ESTABLISHMENT, A PERSON WHOSE ACTIVITIES ARE RESTRICTED TO SUCH PURP OSES DOES NOT CREATE A PERMANENT ESTABLISHMENT EITHER. HE CORRELATED THI S CONTENTION WITH TWO SENTENCES FROM PARA 33 OF THE OECD COMMENTARY SUPPO RTING HIS CASE AND SUBMITTED THAT NO PE IS CONSTITUTED EVEN UNDER ARTICLE 5(1) READ WITH 5(3) OF INDO-US DTAA IF ALL ELEMENTS AND DETAILS OF A CONTRACT ARE NOT NEGOTIATED FROM THE FIXED PLACE IN INDIA. AU CONTRAIRE, THE LD. DR SUBMITTED THAT THE REQUIREMENT TO CONCLUDE CONTRACT S AS SET OUT IN CLAUSE (A) OF ARTICLE 5(4) OF THE DTAA IS RELEVANT ONLY F OR THE ISSUE OF DEPENDENT AGENT PE AND NOT A FIXED PLACE PE. ITA NO.671/DEL/2011 173 53.2. WE DO NOT AGREE WITH THE CONTENTION OF THE LD. DR. IT IS OBVIOUS FROM ARTICLE 5(1) READ WITH ARTICLE 5(3) OF THE DTA A THAT THE TERM FIXED PLACE PE MEANS A PLACE OF BUSINESS THROUGH WHICH TH E BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON AND THE C ARRYING ON OF THE BUSINESS DOES NOT INCLUDE THE ACTIVITIES SPECIFIED IN THE EXEMPTED CATEGORIES, SUCH AS, DOING OF ANY PREPARATORY OR AU XILIARY ACTIVITY. THIS SHOWS THAT CORE ACTIVITY OF BUSINESS, IN CONTRAST T O THE PREPARATORY OR AUXILIARY ACTIVITY, MUST BE DONE FROM SUCH PLACE SO AS TO CONSTITUTE A FIXED PLACE PE. CONCLUDING CONTRACTS IS ALWAYS A C ORE ACTIVITY, WHICH IS MORE THAN A MERE PREPARATORY ACTIVITY. IF THE FIXE D PLACE IS NOT INVOLVED IN SUCH CORE ACTIVITIES, BUT IS CONFINED ONLY TO CA RRYING ON PREPARATORY OR AUXILIARY ACTIVITIES, THEN IT WILL NOT CONSTITUTE F IXED PLACE PE. 53.3. WE ARE NOT CONVINCED WITH THE PROPOSITION SET UP BY THE LD. AR AS WELL THAT IF ALL ELEMENTS AND DETAILS OF A CONTR ACT ARE NOT NEGOTIATED FROM THE FIXED PLACE IN INDIA, THEN NO PE IS CONSTI TUTED UNDER ARTICLE 5(1) OF THE DTAA. PARAS 1-4 OF ARTICLE 5 OF THE OE CD MODEL CONVENTION DEAL WITH FIXED PLACE PE AND ITS PARALLE L IN THE USA - DTAA ITA NO.671/DEL/2011 174 ARE PARAS 1-3 OF ARTICLE 5. PARA 5 AND 6 OF ARTICLE 5 OF THE OECD MODEL CONVENTION DEAL WITH AGENCY PE AND THEIR COUNTERPAR T IN THE USA - DTAA ARE PARAS 4 AND 5 OF ARTICLE 5. PARAS 31-35 O F THE COMMENTARY DEAL WITH AGENCY PE AS PER ARTICLE 5(5) OF THE OECD MODEL CONVENTION. ON THE OTHER HAND, PREPARATORY OR AUXIL IARY ACTIVITIES, ETC., HAVE BEEN DISCUSSED IN PARAS 23-30 OF THE OECD COMM ENTARY. WHEN PARA 33 OF THE OECD COMMENTARY REPRESENTS DISCUSSIO N ON AGENCY PE, IT IS TOO MUCH TO ARGUE THAT THE SAME SHOULD BE REA D FOR FIXED PLACE PE AS WELL. ONE NEEDS TO UNDERSTAND THE RATIONALE BEHIND MAKING REFERENCE TO PARA 4 IN PARA 5 OF ARTICLE 5 OF THE OECD. IT HAS B EEN DONE TO INDICATE THAT THE HABITUAL EXERCISE OF AN AUTHORITY TO CONCL UDE CONTRACT IN THE NAME OF THE ENTERPRISE SHALL CONSTITUTE PE ONLY IF THE ACTIVITIES OF THE AGENT ARE NOT LIMITED TO THOSE MENTIONED IN PARAGRA PHS 4 I.E., OF PREPARATORY AND AUXILIARY CHARACTER. REFERENCE TO PARA 4 OF FIXED PLACE OF BUSINESS HAS BEEN MADE SIMPLY TO AVOID REPETITIO N OF THE ACTIVITIES LISTED IN CLAUSES (A) TO (F) IN THE LANGUAGE OF PAR A 5. INSTEAD OF SPECIFICALLY REFERRING TO ALL THE ABOVE ACTIVITIES, THE OECD MODEL CONVENTION HAS INCORPORATED THEM BY MAKING A REFERE NCE TO PARAGRAPH ITA NO.671/DEL/2011 175 4(4) IN IT. NOTHING MORE THAN THAT SHOULD BE READ F ROM IT. SIMILAR IS THE POSITION QUA THE USA - DTAA. BE THAT AS IT MAY, WE HAVE ALREADY REPELLED THE CONTENTION OF THE LD. AR ON APPLICABIL ITY OF THE TWO SENTENCES FROM PARA 33 OF THE COMMENTARY AS THE ONL Y NECESSARY CONDITIONS TO CONSTITUTE AGENCY PE. EX CONSEQUENTI , SUCH A REFERENCE IN THE CONTEXT OF A FIXED PLACE PE ALSO FAILS. C. ATTRIBUTION OF INCOME 54. HAVING HELD THAT VARIOUS GE OVERSEAS ENTITIES WERE MAKING SALES WITH THE ACTIVE INVOLVEMENT OF THEIR RESPECTIVE PES IN INDIA, THE NEXT QUESTION IS ATTRIBUTION OF INCOME TO SUCH PES, WHIC H IS CHARGEABLE TO TAX IN INDIA. 55. THE AO REQUIRED THE ASSESSEE TO MAKE AVAILABL E YEAR-WISE INDIA SPECIFIC ACCOUNTS OF GE OVERSEAS. FINANCIAL STATEM ENTS OF ALL THE ENTITIES FOR ALL THE YEARS WERE NOT SUBMITTED. AN I NABILITY WAS EXPRESSED ON THE GROUND THAT IN SOME COUNTRIES THE ACCOUNTS W ERE NOT MAINTAINED AND THEY WERE COVERED IN THE GROUP SCHEMES. IN THE ABSENCE OF SUCH INFORMATION OF ENTITY LEVEL PROFITS, THE AO OPINED THAT WORKING OF ACTUAL ITA NO.671/DEL/2011 176 ENTITY-WISE AND YEAR-WISE PROFIT WAS NOT POSSIBLE. IT WAS OBSERVED QUA THE THREE ENTITIES FOR WHICH THE ASSESSEE FURNISHED INFORMATION, THAT THERE WAS NO REGULAR TREND IN THE PROFITS AND EVEN GE JAP AN HAD CLOSED ITS TRADING BUSINESS FROM THE YEAR 2002-03. FOR THE OT HER TWO ENTITIES ALSO, THERE WERE NO REASONS FOR THE LOSSES. EVEN NOTES T O ACCOUNTS, INTEGRAL PART TO THE FINANCIAL STATEMENTS, WERE ALSO NOT SUB MITTED, THAT COULD HAVE THROWN SOME LIGHT ON THE LOSSES/LOW PROFITABILITY. THE AO, THEREFORE, TOOK THE VIEW THAT THE PROFITABILITY STATEMENTS OF THESE ENTITIES FOR VARIOUS YEARS COULD NOT BE USED FOR ATTRIBUTING PRO FITS TO INDIAN PE. HAVING REGARD TO RULE 10 (III), THE AO CAME TO HOLD THAT THE INCOME OF NON-RESIDENTS WAS TO BE DETERMINED BY: ANY SUCH OT HER MANNER AS MAY DEEM SUITABLE. TAKING GUIDANCE FROM SECTIONS 44BB AND 44BBB, THE AO ESTIMATED PROFIT @ 10% OF SALES CONSIDERATIO N TO THE CUSTOMERS IN INDIA. INSPIRED BY THE DECISION OF THE DELHI BE NCH OF THE TRIBUNAL IN ROLLS ROYCE PLC VS. DDIT 2007-TII-32-ITAT-DEL-INTL, IN WHICH CASE 35% OF THE TOTAL PROFIT WAS HELD TO BE PERTAINING T O MARKETING ACTIVITIES, THE AO APPLIED THE SAME PERCENTAGE TO WORK OUT THE INCOME CHARGEABLE ITA NO.671/DEL/2011 177 TO TAX IN INDIA. FIRST APPEAL DID NOT ALLOW ANY REL IEF. THAT IS HOW, THE ASSESSEE IS AGGRIEVED AGAINST SUCH ATTRIBUTION OF I NCOME. 56. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE EXERCISE OF ATTRIBUTION OF INCOME BY THE AO IS IN TWO PARTS, VIZ., CALCULATION OF TOT AL PROFIT FROM THE SALES MADE BY GE OVERSEAS ENTITIES IN INDIA, WHICH, IN TH E INSTANT CASE, HAS BEEN WORKED OUT AT 10% AND SECOND, ATTRIBUTION OF S UCH PROFIT TO MARKETING ACTIVITIES, WHICH THE AO HAS TAKEN AT 35% OF 10%. AS REGARDS THE FIRST COMPONENT, BEING, THE ESTIMATION OF PROFIT ON THE SALES MADE IN INDIA, WE FIND THAT THE AO SPECIFICALLY REQ UIRED THE ASSESSEE TO FURNISH YEAR-WISE ENTITY-WISE PROFITS OF GE OVERSEA S ENTITIES FOR THE OPERATIONS CARRIED OUT IN INDIA. EITHER SUCH INFORM ATION WAS NOT GIVEN OR A PART OF THE INFORMATION GIVEN DID NOT HELP IN DED UCING THE CORRECT AMOUNT OF PROFIT. IN SUCH CIRCUMSTANCES, THE AO WAS LEFT WITH NO ALTERNATIVE, BUT, TO ESTIMATE INCOME ON SOME RATION AL BASIS. HE INVOKED THE PROVISIONS OF RULE 10(III) AND ESTIMATED PROFIT AT 10% OF SALES MADE IN INDIA. RATE OF 10% WAS APPLIED BY DRAWING STREN GTH FROM SECTIONS ITA NO.671/DEL/2011 178 44BB AND 44BBB, WHICH, IN TURN, ARE SPECIAL PROVISI ONS FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS O F EXPLORATION, ETC. OF MINERAL OILS/OPERATION OF AIRCRAFT IN THE CASE OF N ON-RESIDENTS. IN OUR CONSIDERED OPINION, THE APPROACH OF THE AO IN ESTIM ATING INCOME AT 10% OF SALES MADE IN INDIA, IN THE GIVEN CIRCUMSTANCES, IS PERFECTLY IN ORDER AND DOES NOT REQUIRE ANY INTERFERENCE. 57. AS REGARDS THE SECOND COMPONENT OF THE SHARE OF MARKETING ACTIVITIES IN THE TOTAL PROFIT, THE AO APPLIED 35% BY TAKING ASSISTANCE FROM THE DECISION TAKEN BY THE DELHI BENCH OF THE T RIBUNAL IN THE CASE OF ROLLS ROYCE (SUPRA) . THE SAID ORDER OF THE TRIBUNAL STANDS AFFIRMED B Y THE HONBLE DELHI HIGH COURT IN ROLLS ROYCE PLC VS. DIT(IT) (2011) 339 ITR 147 (DEL) . DELHI BENCH OF THE TRIBUNAL IN ZTE CORPORATION VS. ADDL. DIT (2016) 159 ITD 696 (DEL) HAS ALSO ATTRIBUTED 35% OF THE PROFITS ATTRIBUTABLE TO MARKETING ACTIVITIES IN IND IA. WE FIND FORCE IN THE ARGUMENTS ADVANCED BY THE LD. AR THAT THERE CAN BE NO HARD AND FAST RULE OF ATTRIBUTION OF PROFIT TO MARKETING ACTIVITIES CA RRIED OUT IN INDIA AT A PARTICULAR LEVEL. IN FACT, ATTRIBUTION OF PROFITS TO PE IN INDIA IS FACT BASED, ITA NO.671/DEL/2011 179 DEPENDING UPON THE ROLE PLAYED BY THE PE IN THE OVE RALL GENERATION OF INCOME. SUCH ACTIVITIES CARRIED OUT BY A PE IN IND IA RESULTING IN GENERATION OF INCOME, MAY VARY FROM CASE TO CASE. ATTRIBUTION OF INCOME HAS TO BE IN LINE WITH THE EXTENT OF ACTIVIT IES OF PE IN INDIA. 58. ADVERTING TO THE FACTUAL MATRIX OF THE CASE, THE ASSESSEE DEMONSTRATED BEFORE THE AO BY WAY OF A CHART ON PAG ES 87-90 OF THE ASSESSMENT ORDER THAT THE NATURE OF ACTIVITIES DONE BY ROLLS ROYCE IN INDIA WERE MORE THAN THOSE DONE BY GE OVERSEAS ENTI TIES. SIMILAR CHART HAS ALSO BEEN GIVEN SHOWING DIFFERENCE IN THE ACTIV ITIES CARRIED OUT BY ZTE CORPORATION IN INDIA VIS--VIS THE ASSESSEE. FROM SUCH A COMPARATIVE ANALYSIS, WE ARE SATISFIED WITH THE CON TENTION ADVANCED BY THE LD. AR THAT THE ACTIVITIES CARRIED OUT BY ROLLS ROYCE AND ZTE CORPORATION IN INDIA ARE NOT SIMILAR TO THOSE DONE BY THE PES OF GE OVERSEAS ENTITIES IN INDIA. WHILE DISCUSSING ABOVE THE NATURE OF ACTIVITIES PERFORMED BY GE INDIA IN GENERATING SALE S OF GE OVERSEAS IN INDIA, WE HAVE ELABORATELY TAKEN NOTE OF THE LEAD R OLE PLAYED BY GE INDIA AND GE OVERSEAS PLAYING ONLY A SUPPORTING ROL E. IN SUCH ITA NO.671/DEL/2011 180 CIRCUMSTANCES, WE CANNOT APPROVE ATTRIBUTION OF WHO LE OF 35% OF THE PROFITS RELATING TO SALES AND MARKETING TO THE PE I N INDIA. CONSIDERING ALL THE RELEVANT FACTS AND ADOPTING A HOLISTIC APPROACH , WE HOLD THAT GE INDIA CONDUCTED CORE ACTIVITIES AND THE EXTENT OF A CTIVITIES BY GE OVERSEAS IN MAKING SALES IN INDIA IS ROUGHLY ONE FO URTH OF THE TOTAL MARKETING EFFORT. ERGO, WE ESTIMATE 26% OF TOTAL PR OFIT IN INDIA AS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT BY THE P E IN INDIA. THEREFORE, AS AGAINST THE AO APPLYING 3.5% TO THE AMOUNT OF SA LES MADE BY THE ASSESSEE IN INDIA, WE DIRECT TO APPLY 2.6% ON THE T OTAL SALES FOR WORKING OUT THE PROFITS ATTRIBUTABLE TO THE PE IN INDIA. D. INTEREST U/S 234B 59. THE LD. AR CONTENDED THAT INTEREST U/S 234B HAS BEEN WRONGLY CHARGED FROM SOME OF THE GE OVERSEAS ENTITIES WHICH ARE IN APPEAL BEFORE THE TRIBUNAL IN RELATION TO THE ASSESSMENT Y EARS 20007-08 AND 2008-09. THE SAME WAS REQUESTED TO BE CANCELLED. TO SUPPORT HIS CONTENTION, THE LD. AR RELIED ON THE JUDGMENT RENDE RED BY THE HONBLE DELHI HIGH COURT IN ONE OF THE GE OVERSEAS ENTITIES WHICH HAS SINCE ITA NO.671/DEL/2011 181 BEEN REPORTED AS DIT (IT) VS. GE PACKAGED POWER INC. (2015) 373 ITR 65 (DEL) . IT WAS STATED THAT THE AO LEVIED INTEREST U/S 234 B IN ALL THE APPEALS STARTING FROM AY 2001-02 TILL 2008-09. THE APPEALS FOR THE ASSESSMENT YEARS 2001-02 TO 2006-07 WERE ROUTED THR OUGH THE CIT (A), WHO DELETED SUCH LEVY OF INTEREST. THE DELETION OF INTEREST WAS CONFIRMED BY THE TRIBUNAL. IN FURTHER APPEALS BY TH E REVENUE, THE HONBLE HIGH COURT IN THE AFORECITED CASE ALSO UPHE LD THE DELETION OF INTEREST U/S 234B. THIS WAS OPPOSED BY THE LD. DR WHO REFERRED TO AN EARLIER JUDGMENT OF THE HONBLE DELHI HIGH COURT IN DIT (IT) VS. ALCATEL LUCENT USA INC. (2014) 264 CTR 240 (DEL) IN WHICH LEVY OF INTEREST WAS APPROVED. THE LD. DR SUBMITTED THAT THE FACTS OF T HE INSTANT CASE ARE SIMILAR TO ALCATEL LUCENT USA INC. (SUPRA). 60. WE ARE NOT INCLINED TO ACCEPT THE CONTENTION ADVANCED ON BEHALF OF THE REVENUE IN THIS REGARD. THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN GROUP CASES INVOLVING IDENTICAL FACTS HAS APPRO VED THE CANCELLATION OF THE LEVY OF INTEREST U/S 234B FOR THE ASSESSMENT YEARS 2001-02 TO 2006-07. FACTS RELATING TO THE A.YS. 2007-08 AND 20 08-09 INSTANTLY ITA NO.671/DEL/2011 182 BEFORE US, ARE, ADMITTEDLY, SIMILAR TO SUCH FACTS C ONSIDERED AND DECIDED BY THE HONBLE DELHI HIGH COURT. WHEN THERE IS A J UDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT DIRECTLY IN ASSES SEES OWN CASE AND THE FACTS AND CIRCUMSTANCES FOR THE LATER YEARS ARE SIMILAR, THERE CAN BE NO QUESTION OF APPLYING THE RATIO DECIDENDI OF ANOTHER JUDGMENT LAYING DOWN A DIFFERENT PROPOSITION. IT IS MORE SO, WHEN T HE EARLIER JUDGMENT WAS ALSO CONSIDERED BY THE HONBLE HIGH COURT IN A LATER DECISION IN ASSESSEES OWN CASE. IN VIEW OF THE FOREGOING DISC USSION AND RESPECTFULLY FOLLOWING THE PRECEDENT IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, WE ARE SATI SFIED THAT THE INTEREST U/S 234B HAS BEEN WRONGLY CHARGED FOR THE A.YS. 2007-8 AND 2008-09. THE SAME IS HEREBY CANCELLED. 61. BEFORE PARTING, WE RECORD OUR DEEP APPRECIAT ION FOR ILLUMINATING ARGUMENTS PUT FORTH ON BEHALF OF BOTH THE SIDES ON THE ISSUES IN THE APPEAL. FURTHER WE WANT TO MAKE IT CLEAR THAT THE RATIO DECIDENDI OF ALL THE DECISIONS RELIED ON BY BOTH THE SIDES HAS BEEN DULY TAKEN INTO CONSIDERATION WHILE PASSING THIS ORDER. HOWEVER, WE HAVE DESISTED FROM ITA NO.671/DEL/2011 183 SPECIFICALLY REFERRING TO CERTAIN CASES RELIED ON B Y BOTH THE SIDES IN THE PRESENT ORDER EITHER DUE TO THEIR IRRELEVANCE OR RE PETITIVE NATURE. 62. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 27.01.201 7. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 27 TH JANUARY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.
Other Referred Cases
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Laws Referred To
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1:1 Consultation on Business Valuations
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1:1 Consultation on SME Listing
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Research Collaboration Agreement
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Declaration of Gift
Mehul₹500
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