CONVERGYS CUSTOMER MANAGEMENT GROUP INC., NEW DELHI V. DCIT, CIRCLE- 1(2)(1), INTERNATIONAL TAXATION, NEW DELHI

ITA 7727/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1442 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Keywords: Transfer pricing; Double taxation relief; Permanent establishment; Onus to prove
• Section: 72; 13; 22; 2; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.7727/DEL/2017 (ASSESSMENT YEAR: 2013-14) M/S CONVERGYS CUSTOMER MANAGEMENT GROUP INC. C/O- PWC PVT. LTD., SUCHETA BHAWAN, GATE NO.2, 1 ST FLOOR,11-A, VISHNU DIGAMBAR MARG, NEW DELHI-110002 PAN-AACCC8989M VS. DCIT, CIRCLE-1(2)(1), INTERNATIONAL TAXATION, ROOM NO.409, E-2 BLOCK, CIVIC CENTRE, NEW DELHI-110055 (APPELLANT) (RESPONDENT) ITA NO.130/DEL/2018 (ASSESSMENT YEAR: 2013-14) DCIT, CIRCLE-1(2)(1), INTERNATIONAL TAXATION, VS. M/S CONVERGYS CUSTOMER MANAGEMENT GROUP INC. C/O- PWC PVT. LTD., SUCHETA BHAWAN, GATE NO.2, 1 ST FLOOR11-A, 2 ROOM NO.409, E-2 BLOCK, CIVIC CENTRE, NEW DELHI-110055 VISHNU DIGAMBAR MARG, NEW DELHI-110002 PAN-AACCC8989M (APPELLANT) (RESPONDENT) APPELLANT BY SH. RAVI SHARMA, ADVOCATE SH. RISHABH MALHOTRA, AR MS. SUBHANGI ARORA, AR RESPONDENT BY SH. G.K. DHALL, CIT-DR DATE OF HEARING 22.09.2020 DATE OF PRONOUNCEMENT 27.11.2020 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: ITA NO. 7727/DEL/20 17 IS THE APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 2 5.10.2017 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) 42, NEW DELHI {CIT (A)} FOR THE ASSESSMENT YEAR 2013- 14 WHEREAS ITA NO. 130/DEL/2018 IS THE DEPARTMENTS CROSS APPEAL FOR THE SAME ASSESSMENT YEAR. 2.0 THE BRIEF FACTS OF THE C ASE ARE THAT THE ASSESSEE (CVG) IS A COMPANY INCORPORATED IN THE UNITED STAT ES OF AMERICA 3 (USA) AND AS SUCH IS A TAX RESIDENT OF USA IN TERMS OF ARTICLE 4 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETW EEN INDIA AND UNITED STATES OF AMERICA. THE ASSESSEE PROVIDES OUTSOURCED CUSTOMER AND MARKETING SUPPORT SERVICES AS WELL AS COMPREHENSIVE CUSTOMER MANAGEMENT SERVICES. CONVERG YS INDIA SERVICES PVT. LTD. (CIS) IS A SUBSIDIARY OF THE ASS ESSEE COMPANY IN INDIA. IT IS THE STATED POSITION OF THE ASSESSEE TH AT TO SERVICE ITS OVERSEAS CUSTOMERS NAMELY AT&T, MICROSOFT ETC., THE COMPANY ONLY PROCURES SERVICES ON A PRINCIPAL TO PRINCIPAL BASIS FROM CONVERGYS INDIA SERVICES PVT. LTD. IT IS ALSO THE S TATED POSITION OF THE ASSESSEE COMPANY THAT IT DOES NOT CARRY OUT ANY BUSINESS OPERATIONS IN INDIA. CONVERGYS INDIA SERVICES PVT. LTD. PROVIDES IT ENABLED CALL CENTRE / BACK OFFICE SERVICES TO THE A SSESSEE. 2.1 DURING THE YEAR UNDER CONSIDERATI ON, CONVERGYS INDIA SERVICES PVT. LTD. HAS PROVIDED SERVICES UNDE R A SUB- CONTRACT ARRANGEMENT WITH THE ASSESSEE FOR WHICH IT WAS REMUNERATED AT COST PLUS 14%. THE ASSESSEE UNDERTOO K THE FOLLOWING FUNCTIONS:- (I) CLIENT RELATIONSHIP (II) CLIENT ACCOUNT MANAGEMENT (III) SALES/MARKETING TECHNOLOGY AND BRAND DEVELOPMENT. 4 2.2 IT IS THE STATED POSITION THAT THESE F UNCTIONS WERE PERFORMED OUTSIDE INDIA AND ONLY THE DELIVERY PART HAS BEEN OUTSOURCED UNDER SUB-CONTRACT TO THE INDIAN SUBSIDI ARY. 2.3 FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO FOLLOWING TRANSACTIONS WITH CONVERGYS INDIA SERVICES PVT. LTD.: PARTICULARS AMOUNTS RECEIVED / RECEIVABLE AMOUNTS RECEIVED / RECEIVABLE (IN USD) (IN INR) FEE FOR INCLUDED SERVICES 44,300 24,,11,959 FEE FOR TECHNIC AL SERVICES 47,869 26,34,547 UPLC/ LINK CHARGES 684,072 3 , 72 , 79,929 SALARY REIMBURSEMENT 100,908 54,68,168 RECEIPT TOWARDS EMPLOYEE STOCK PURCHASE PLAN ('ESPP') 45,946 25,07,722 REIMBURSEMENT OF THIRD PARTY EXPENSES 432 23,582 TOTAL (A) 923,527 5,03 ,25,907 PARTICULARS AMOUNTS PAID / PAYABLE AMOUNTS PAID / PAYABLE (IN USD) (IN INR) PROCUREMENT OF IT - ENABLED SERVICES 129,460,696 704,82,46,431 TOTAL (B) 129,460,696 704,82,46,431 2.4 APART FROM THIS, THE ASSESSEE HAD ALSO PROCURED SOFTWARE DEVELOPMENT AND SUPPORT SERVICES FROM NETC RACKER 5 TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD. FOR WHICH AN AMOUNT OF RS. 3,54,78,335/- WAS PAID / PAYABLE TO THIS COMPANY. 2.5 THE RETURN OF INCOME WAS FILED DECL ARING A TOTAL INCOME OF RS. 53,92,376/- WHICH COMPRISED OF RS. 26 ,34,547/- AS FEE FOR TECHNICAL SERVICES, RS. 24,11,959/- AS FEES FOR INCLUDED SERVICES AND RS. 3,45,870/- AS INTEREST INCOME ON INCOME TAX REFUND. THE FEE FOR TECHNICAL SERVICES WAS OFFERED TO TAX @ 10.30% ON GROSS BASIS IN TERMS OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) , THE FEE FOR INCLUDED SERVICES WAS OFFERED TO TAX @ 15% ON GROSS BASIS IN TERMS OF ARTICLE 12 (4)(B) OF THE DTAA AND INTEREST ON INCOME TAX REFUND WAS OFFERED TO TAX @ 15% IN TERMS OF ARTICLE 11 OF THE DTAA. HOWEVER, CERTAIN REIMBURSEMENTS MADE BY CONVE RGYS INDIA SERVICES PVT. LTD. IN THE NATURE OF LINK CHAR GES, SALARY REIMBURSEMENT ETC. WERE NOT OFFERED TO TAX SINCE, AS PER THE ASSESSEE, THEY WERE NOT SUBJECT TO TAX IN INDIA IN ACCORDANCE WITH THE PROVISIONS OF DTAA. 2.6 IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) HELD THAT THE ASSESSEE HAD A PERMANENT ESTABLI SHMENT (PE IN INDIA) IN TERMS OF ARTICLE 5 OF DTAA, NAMELY: 6 I) FIXED PLACE PE UNDER PARAGRAPH 1 AND PARAGRAPH 2 OF ARTICLE 5 II) SERVICE PE UNDER PARAGRAPH 2 (1) OF ARTICLE 5 III) DEPENDENT AGENT PE UNDER PARAGRAPH 4 READ WITH PARAGRAPH 5 OF ARTICLE 5 2.7 THE AO PROCEEDED TO COMPUTE AN AMOUNT OF RS. 85,89,98,303/- AS PROFITS ATTRIBUTABLE TO THE PE IN INDIA. APART FROM THIS, THE AO ALSO HELD THAT LINK CHARGES WERE TAXABLE AS EQUIPMENT ROYALTY IN TERMS OF CLAUSE (IVA) OF EXPLA NATION 2 TO SECTION 9 (I)(VI) OF THE ACT AND ARTICLE 12 (II) RE AD WITH ARTICLE 12(3) (B) OF THE DTAA AND PROCESS ROYALTY IN TERMS OF EX PLANATION 6 TO SECTION 9 (I) (VI) OF THE ACT AND ARTICLE 12 OF THE DTAA @ 10% ON GROSS AMOUNT OF RS. 3,72,79,929/-. THE TAXABLE INCO ME OF THE ASSESSEE WAS COMPUTED AT RS. 90,16,70,608/-. 2.8 THE LD. CIT (A), FOLLOWING THE ORD ER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 AND 2008-09, HELD THAT T HE ASSESSEE HAS A FIXED PLACE PE IN INDIA IN TERMS OF ARTICLE 5(1) OF THE DTAA; THE ASSESSEE DOES NOT HAV E A DEPENDENT AGENT PE IN INDIA IN TERMS OF ARTICLE 5(4) OF THE D TAA; THE ASSESSEE DOES NOT HAVE A SERVICE PE IN INDIA IN TERMS OF ART ICLE 5(2)(1) OF THE DTAA; FURTHER PROFITS COULD BE ATTRIBUTED ON ACCOUN T OF ASSETS 7 PROVIDED BY THE ASSESSEE TO CIS AND FOLLOWED THE ME THODOLOGY PROVIDED IN THE ORDER OF THE HON'BLE ITAT IN AY 2006-07 FOR ARRIVING AT THE PROFITS ATTRIBUTABLE TO PE IN INDIA. THE LD. CIT (A ) ALSO HELD THAT THE PAYMENTS FOR LINK CHARGES DO NOT QUALIFY AS EQUIPME NT ROYALTY AND PROCESS ROYALTY IN TERMS OF ARTICLE 12 OF THE DTAA AND HENCE NOT TAXABLE IN INDIA. 2.9 AGGRIEVED WITH THE ORDER OF TH E LD. CIT (A), NOW BOTH THE DEPARTMENT AS WELL AS THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- THAT THE LD. CIT (APPEALS) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN CONF IRMING THE ORDER OF THE LD. AO THAT THE APPELLANT HAS A PERMANENT ES TABLISHMENT (PE) IN INDIA IN THE NATURE OF A FIXED PLACE PE U NDER ARTICLE 5 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN IND IA AND UNITED STATES OF AMERICA (DTAA). 2. THAT THE LD. CIT (APPEALS) FAILED TO APPRECIATE THAT IN VIEW OF THE NATURE OF TRANSACTION WHICH WAS PROCURI NG OF COMPUTER SOFTWARE (IT ENABLED SERVICES) WITHIN THE MEANING O F SECTION 10A OF THE ACT FROM ITS INDIAN SUBSIDIARY FOR THE PURPOSES OF EXPORT, NO INCOME COULD ACCRUE OR ARISE IN THE HANDS OF THE AP PELLANT IN INDIA IN VIEW OF CLAUSE (B) OF EXPLANATION 1 OF SUB-SECTI ON (1) OF SECTION 9 OF THE INCOME-TAX ACT, 1962 (ACT) READ WITH ARTIC LE 7(4) OF THE DTAA. 3. THAT THE LD. CIT (APPEALS) ERRED IN LAW IN HOLDI NG THAT PROFITS COULD BE ATTRIBUTED TO THE ALLEGED PE ON AC COUNT OF PROVISION OF/ALLOWING USE OF PROJECT SPECIFIC ASSETS/SOFTWARE BY THE APPELLANT TO ITS INDIAN SUBSIDIARY FOR THE PURPOSE OF EXECUTING SPECIFIC PROJECTS/ACTIVITIES, WHICH, IN ITSELF COUL D NOT HAVE CREATED A 8 PE OF THE APPELLANT IN INDIA. 4. THAT THE LD. CIT (APPEALS) AFTER ACCEPTING THAT THE ATTRIBUTION OF PROFITS TO THE PE SHOULD BE MADE BY APPLYING TRANSFER PRICING PRINCIPLES ERRED IN LAW IN HOLDING THAT PRO FITS COULD BE ATTRIBUTED TO THE ALLEGED PE OF THE APPELLANT IN IN DIA ON ACCOUNT OF PROVISION OF/ALLOWING USE OF ASSETS TO ITS INDIAN S UBSIDIARY. 2.10 THE REVENUE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT (A) HAS ERRED IN HOLDING THAT THE ASSESSEE DOES NOT HAVE A DEPENDENT AGENT PE (PERMANENT ESTABLISHMENT) IN INDIA? 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, LD. CIT (A) ERRED IN NOT HOLDING THAT THE ASSESSEE DOES NOT HAVE A SERVICE PE IN INDIA? 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, LD. CIT (A) ERRED IN NOT ACCEPTIN G, AND IN REDUCING, THE PROFIT ATTRIBUTION DONE BY THE AO? 4. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, LD. CIT (A) HAS ERRED IN HOLDING THAT RECEIPTS TOWARDS IPLC/LINK CHARGES ARE NOT TAXABLE AS ROYALTY IN INDIA. THE LD. CIT (A) FURTHE R ERRED IN NOT CONSIDERING AOS FINDING THAT RECEIPT TOWARD IPLC/LINK CHARGES ARE TAXABLE AS EQUIPMENT ROYALITY, AND ALTERNATIVELY TAXABLE AS PROCESS ROYA LTY IN INDIA?. 3.0 ARGUING ON THE ASSESSEES APPEAL AGAINST THE FINDING OF THE LD. CIT (A) THAT THE ASSESSEE HAD A FIXED PLACE PERMANENT ESTABLISHMENT IN INDIA, LD. AR SUBMITTED THAT THE AO IN HIS ORDER HAS ALLEGED THAT CIS IS PRACTICALLY A PROJECTION OF CVGS OWN 9 BUSINESS IN INDIA. THE VISITING EMPLOYEES OF CVG HA D A FIXED PLACE OF BUSINESS AT THEIR DISPOSAL IN THE FORM OF THE FACILITIES AND PREMISES OF CIS. IT HAS BEEN FURTHER ALLEGED THAT T HE ASSESSEE HAS PROVIDED FREE OF COST HARDWARE AND SOFTWARE ASSETS IN INDIA FOR USE OF CIS. THE LD. AR ARGUED THAT THAT THE BUSINES S IN INDIA IS THAT OF THE INDIAN COMPANY, CIS, AND NOT THAT OF TH E ASSESSEE. CIS IS A SEPARATE LEGAL ENTITY HAVING BUSINESS OPER ATIONS IN INDIA CARRIED ON BY ITS OWN EMPLOYEES FROM ITS UNITS REGI STERED WITH THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI). CIS IS W ORKING AS AN INDEPENDENT CONTRACTOR FOR CVG ON A PRINCIPAL TO PR INCIPAL BASIS AND BY NO STRETCH OF IMAGINATION CAN IT BE SAID THA T THE BUSINESS IN INDIA IS THAT OF CVG. IT WAS SUBMITTED THAT WHIL E DETERMINING THE EXISTENCE OF THE PERMANENT ESTABLISHMENT WHAT N EEDS TO BE LOOKED AT IS WHETHER THE WORK CARRIED ON BY THE EMP LOYEES THAT VISITED INDIA/ SECONDED TO CIS WAS CARRYING OUT THE WORK OF THE ASSESSEE OR ITS SUBSIDIARY. IN THIS REGARD, RELIANC E WAS PLACED ON THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF ASST. DIRECTOR OF INCOME TAX, NEW DELHI V. E-FUN DS IT SOLUTION INC. (2018) 13 SCC 294 WHEREIN IT HAS BEEN HELD AS UNDER: 10 16. THIS REPORT WOULD SHOW THAT NO PART OF THE MAI N BUSINESS AND REVENUE EARNING ACTIVITY OF THE TWO AMERICAN COMPANIES IS CARRIED ON THROUGH A FIXED BUSINESS PLACE IN INDIA WHICH HAS BEEN PUT AT THEIR DISPOSAL. IT IS CLEAR FROM THE ABOVE THAT THE INDIA N COMPANY ONLY RENDERS SUPPORT SERVICES WHICH ENABLE THE ASSESSEES IN TURN TO RENDER SERVICES TO THEIR C LIENTS ABROAD. THIS OUTSOURCING OF WORK TO INDIA WOULD NOT GIVE RISE TO A FIXED PLACE PE AND THE HIGH COURT JUDGMEN T IS, THEREFORE, CORRECT ON THIS SCORE. 3.1 THE LD. AR FURTHER S UBMITTED THAT THE ASSESSEE HAS CONSISTENTLY MAINTAINED THAT THE SECON DED EMPLOYEES WERE ACTING ON BEHALF OF THE SUBSIDIARY A ND NOT THE ASSESSEE. IT WAS SUBMITTED THAT THE REVENUE HAS NOT BEEN ABLE TO CONTRADICT THE ABOVE FINDING BY BRINGING ON RECO RD ANY MATERIAL AND HENCE, THE BURDEN OF PROOF IS NOT DISC HARGED BY THE REVENUE. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN T HE CASE OF SAMSUNG HEAVY INDUSTRIES: CIVIL APPEAL NO. 12183 OF 2016 WHEREIN IT HAS BEEN HELD AS UNDER: THIS IS ANOTHER PERVERSE FINDING WHICH IS SET ASID E. EQUALLY THE FINDING THAT THE ONUS IS ON THE ASSESSE E AND NOT ON THE TAX AUTHORITIES TO FIRST SHOW THAT THE P ROJECT 11 OFFICE AT MUMBAI IS A PERMANENT ESTABLISHMENT IS AG AIN IN THE TEETH OF OUR JUDGMENT IN E-FUNDS IT SOLUTION INC. (SUPRA). 3.2 IT WAS FURTHER SUBMITTED BY THE LD. AR THAT IN THE CONCERNED YEAR ONLY ONE EMPLOYEE, MR. ROBERT HA WKINS, WAS ASSIGNED/ SECONDED BY THE ASSESSEE COMPANY TO CIS. ON ASSIGNMENT, THIS PERSON TOOK UP EMPLOYMENT WITH CIS AS SENIOR MANAGER NETWORKS EFFECTIVE FROM OCTOBER 26, 2012. MR. HAWKINS WORKED AS AN EMPLOYEE OF CIS AND WORKED UNDER ITS C ONTROL AND SUPERVISION. HE CARRIED OUT THE BUSINESS OF CIS AND NOT THAT OF THE ASSESSEE. HIS SALARY WAS MERELY DISBURSED BY TH E ASSESSEE ON BEHALF OF CIS FOR ADMINISTRATIVE REASONS AND, TH EREAFTER, REIMBURSED BY CIS TO THE ASSESSEE ON A COST-TO-COST BASIS IN ACCORDANCE WITH THE SALARY REIMBURSEMENT AGREEMENT BETWEEN CVG AND CIS. THE LD. AR SUBMITTED THAT THE PRESENCE OF SUCH SECONDED PERSONNEL IN INDIA WHO WERE ON THE PAYROLL OF AND UNDER THE CONTROL AND SUPERVISION OF CIS CANNOT CON STITUTE A PE OF THE ASSESSEE IN INDIA. FURTHER, IT WAS SUBMITTED , THE VISITING EMPLOYEES CAME TO INDIA FOR SHORT DURATIONS FOR REN DERING TRAINING AND TECHNICAL SERVICES AS REQUIRED UNDER T HE TECHNICAL SERVICE AGREEMENT. THE PREMISES OF CIS USED FOR PRO VIDING TRAINING AND TECHNICAL SERVICES COULD NOT BE SAID T O BE AT THE 12 DISPOSAL OF THE ASSESSEE. 3.3 THE LD. AR SUBMITTED THAT T HE FACT THAT CIS HAS ENTERED INTO A TECHNICAL SERVICE AGREEMENT WITH THE ASSESSEE FOR AVAILING ITS SERVICES AND WAS PAYING TO THE ASSESSE E ON AN HOURLY RATE BASIS FOR THE SERVICES RENDERED BY IT MEANS TH AT SUCH SERVICES WERE BEING UTILISED BY CIS FOR ITS OWN BUS INESS. RELIANCE WAS PLACED ON CLAUSE 7.4 OF THE SERVICE AGREEMENT I N THIS REGARD AND IT WAS SUBMITTED THAT THE AO HAS DISREGARDED TH E ABOVE CLAUSE WITHOUT BRINGING ANY MATERIAL ON RECORD TO T HE CONTRARY. THE PREMISES OF CIS USED FOR PROVIDING SERVICES COU LD NOT BE SAID TO BE AT THE DISPOSAL OF THE ASSESSEE AS THEY DID N OT HAVE ANY PERMISSION TO ENTER THE PREMISES IN THEIR OWN RIGHT AND HAD TO UNDERGO THE SAME DRILL AS ANY OTHER VISITOR. IN SUC H A CASE, IT CANNOT BE SAID THAT THE ASSESSEE HAD AT ITS DISPOSA L, AS A MATTER OF RIGHT, CERTAIN SPACE WHICH COULD BE CATEGORIZED AS ITS FIXED PLACE OF BUSINESS. 3.4 IT WAS FURTHER SUBMITTED BY TH E LD. AR THAT DURING THE YEAR UNDER CONSIDERATION ONLY 8 EMPLOYEES/REPRESENTATIVES OF THE ASSESSEE VISITED I NDIA TO PROVIDE TECHNICAL SERVICES TO CIS. FIXED PLACE PE I S NOT 13 CONSTITUTED MERELY IF THE INDIAN SUBSIDIARY ALLOWED THE VISITING EMPLOYEES OF A FOREIGN COMPANY TO USE CERTAIN FACIL ITIES IN ITS OFFICE OCCASIONALLY, SINCE, IT CANNOT BE SAID THAT THE FOREIGN COMPANY HAD AT ITS DISPOSAL, AS A MATTER OF RIGHT, CERTAIN SPACE WHICH COULD BE CHARACTERIZED AS ITS FIXED PLACE OF BUSINESS. IN ORDER TO CONSTITUTE A FIXED PLACE PE, THE FOREIGN COMPANY MUST HAVE CERTAIN PREMISES AT ITS CONSTANT DISPOSAL, THR OUGH WHICH IT CONDUCTS ITS BUSINESS. 3.5 IT WAS FURTHER SUBMITTED THAT THE BUSINESS IN INDIA IS OF CIS AND NOT THE ASSESSEE, WHO IS INDEPE NDENT CONTRACTOR WORKING ON A PRINCIPAL TO PRINCIPAL BASI S. THE SIGNIFICANT BUSINESS RISK OF PROCUREMENT OF SERVICE S BY THE ASSESSEE FROM CIS LIES WITH THE COMPANY WHICH IS SI TUATED OUTSIDE INDIA. THE RISK IS IN THE FORM OF MARKET RI SKS, PRICE RISKS, R&D RISK, SERVICE LIABILITY RISK TOWARDS ITS CUSTOM ERS FOR QUALITY AND EFFICIENCY IN DELIVERY OF SERVICES. SINCE BOTH THE COMPANY AND ITS CUSTOMERS ARE OUTSIDE INDIA, THE AFORESAID RISK RESIDES OUTSIDE INDIA. THE ASSESSEE IS RESPONSIBLE FOR THE DELIVERY OF SERVICE TO ITS CLIENTS OUTSIDE INDIA. 14 3.6 THE LD. AR REITERATED THAT THE EMPLOYEES/REPRESENTATIVES OF THE ASSESSEE VISITED I NDIA FOR SHORT DURATION AND FOR PROVIDING TRAINING/TECHNICAL SERVI CES UNDER THE TECHNICAL SERVICES AGREEMENT. SECONDED PERSONNEL WE RE EMPLOYEES OF CIS WORKING UNDER ITS CONTROL AND SUPE RVISION AND NOT THE EMPLOYEES OF THE CVG. IT CANNOT BE SAID THA T THEY WERE CARRYING OUT THE MANAGEMENT OF RISK IN INDIA. 3.7 WITH RESPECT TO THE PROVIS ION OF CERTAIN HARDWARE AND SOFTWARE ASSETS ON FREE OF COST BASIS TO CIS, THE LD. AR SUBMITTED THAT CVG PROVIDED CERTAIN ASSETS ON LO AN BASIS TO CIS AGGREGATING TO USD 9,44,550 DURING THE FINANCIA L YEARS 2002-03 AND 2003-04. THESE ASSETS WERE RETURNABLE O N DEMAND OR ON COMPLETION OF THE PROJECT. ASSETS AGGREGATING TO USD 5,18,497 AND USD 1,43,393 WERE RETURNED DURING FY 2 006-07 AND 2007-08 RESPECTIVELY. IT WAS SUBMITTED THAT THE SE ASSETS ARE DESIGNATED TOOLS AND EQUIPMENTS WHICH ARE REQUIRED BY CIS IN ORDER TO UNDERTAKE JOBS SPECIFIC TO A PARTICULAR CL IENTS/PROJECTS REQUIREMENTS. SUCH ASSETS WERE PROVIDED TO CIS BY C VG IN ITS CAPACITY AS THE MAIN CONTRACTOR TO ENABLE CIS TO WO RK ON A PARTICULAR PROJECT. PROVIDING SUCH PROJECT-SPECIFIC ASSETS ON A FREE OF COST BASIS IS A STANDARD INDUSTRY PRACTICE IN TH E IT/ITES- BPO 15 SECTORS. IT WAS SUBMITTED THAT CVG HAS ALSO PROVIDE D CERTAIN SOFTWARE TO CIS SUCH AS CONVERGYS CUSTOMER MANAGEME NT SYSTEM (CCMS) WHICH IS AN APPLICATION FOR AGENTS' D ESKTOP WHICH ALLOWS DEVELOPMENT OF SCRIPTS FOR CLIENTS OF CONVERGYS WHO ARE SETUP IN THE CALL CENTRES. THE CCMS IS HOSTED O N A SERVER OUTSIDE INDIA. THESE OPERATING TOOLS ARE ESSENTIAL IN ORDER TO MINIMIZE ERRORS, ENSURE CONSISTENT DELIVERY AND MAI NTAIN THE QUALITY OF SERVICES PROVIDED BY ALL THE WORLDWIDE C ALL CENTRES OF CMG, INCLUDING CIS IN INDIA. THE PROVISION OF SOFTW ARE BY THE ASSESSEE TO CIS CANNOT LEAD TO THE CONCLUSION THAT THE ASSESSEE WAS CARRYING ON BUSINESS IN INDIA. IT WAS ARGUED TH AT MERE PROVISION OF ASSETS ON LOAN BASIS CAN NEITHER LEAD TO FIXED PLACE AT THE DISPOSAL OF THE ASSESSEE NOR BE CONSTRUED AS CARRYING ON OF BUSINESS BY THE ASSESSEE IN INDIA. IN FACT, SUBSTAN TIAL ASSETS HAVE BEEN RETURNED TO THE ASSESSEE. EVEN OTHERWISE THE ECONOMIC VALUE OF THE BALANCE REMAINING ASSETS WOUL D BE NIL. THE LD. AR PLACED RELIANCE ON JUDGMENT IN THE CASE OF E-FUNDS CORPORATION [(2014) 364 ITR 256] WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT OUTSOURCING OF SERVICES BY A US COMPANY TO ITS INDIAN SUBSIDIARY DOES NOT CONSTITUTE A PE OF T HE US COMPANY IN INDIA. THE RELEVANT EXTRACT OF THE OBSER VATIONS OF THE 16 HONBLE HIGH COURT IS AS UNDER: 49. THE ASSESSING OFFICER, COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE PRIMARILY RELIED UPON THE CLOSE ASSOC IATION BETWEEN E-FUND INDIA AND THE TWO ASSESSEE AND APPLI ED FUNCTIONS PERFORMED, ASSETS USED AND RISK ASSUMED, CRITERIA TO DETERMINE WHETHER OR NOT THE ASSESSEE H AS FIXED PLACE OF BUSINESS. THIS IS NOT A PROPER AND APPROPR IATE TEST TO DETERMINE LOCATION PE. THE FIXED PLACE OF BUSINE SS PE TEST IS DIFFERENT. THEREFORE, THE FACT THAT E-FUND INDIA PROVIDES VARIOUS SERVICES TO THE ASSESSEE AND WAS DEPENDENT FOR ITS EARNING UPON THE TWO ASSESSEES IS NOT THE RELEVANT TEST TO DETERMINE AND DECIDE LOCATION PE. THE ALLEGATION TH AT E- FUND INDIA DID NOT BEAR SUFFICIENT RISK IS IRRELEVA NT WHEN DECIDING WHETHER LOCATION PE EXISTS. THE FACT THAT E-FUND INDIA WAS REIMBURSED THE COST OF THE CALL CENTRE OP ERATIONS PLUS 16% BASIS OR THE BASIS OF MARGIN FIXATION WAS NOT KNOWN, IS NOT RELEVANT FOR DETERMINING LOCATION OR FIXED PLACE PE. SIMILARLY WHAT WERE THE DIRECT OR INDIREC T COSTS AND CORPORATE ALLOCATIONS IN SOFTWARE DEVELOPMENT C ENTRE OR BPO DOES NOT HELP OR DETERMINE LOCATION PE. ASSIGNM ENT OR SUB-CONTRACT TO E-FUND INDIA IS NOT A FACTOR OR RUL E WHICH IS TO BE APPLIED TO DETERMINE APPLICABILITY OF ARTICLE 5(1). FURTHER WHETHER OR NOT ANY PROVISIONS FOR INTANGIBL E SOFTWARE WAS MADE OR HAD BEEN SUPPLIED FREE OF COST IS NOT THE RELEVANT CRITERIA/TEST. E-FUND INDIA WAS/IS A S EPARATE ENTITY AND WAS/IS ENTITLED TO PROVIDE SERVICES TO T HE ASSESSEES WHO WERE/ARE INDEPENDENT SEPARATE TAXPAYE R. 17 INDIAN ENTITY I.E. SUBSIDIARY COMPANY WILL NOT BECO ME LOCATION PE UNDER ARTICLE 5(1) MERELY BECAUSE THERE IS INTERACTION OR CROSS-TRANSACTIONS BETWEEN THE INDIA N SUBSIDIARY AND THE FOREIGN PRINCIPAL UNDER ARTICLE 5(1). EVEN IF THE FOREIGN ENTITIES HAVE SAVED AND REDUCED THEI R EXPENDITURE BY TRANSFERRING BUSINESS OR BACK OFFICE OPERATIONS TO THE INDIAN SUBSIDIARY, IT WOULD NOT B Y ITSELF CREATE A FIXED PLACE OR LOCATION PE. THE MANNER AND MODE OF THE PAYMENT OF ROYALTY OR ASSOCIATED TRANSACTIONS I S NOT A TEST WHICH CAN BE APPLIED TO DETERMINE, WHETHER FIX ED PLACE PE EXISTS. 50. REFERENCE TO CORE OF AUXILIARY OR PRELIMINARY A CTIVITY IS RELEVANT WHEN WE APPLY PARAGRAPH 3 OF ARTICLE 5 OR WHEN SUB-CLAUSE (A) TO PARAGRAPH 4 TO ARTICLE 5 IS UNDER CONSIDERATION. THE FACT THAT THE SUBSIDIARY COMPANY WAS CARRYING ON CORE ACTIVITIES AS PERFORMED BY THE FOR EIGN ASSESSEE DOES NOT CREATE A FIXED PLACE PE. PARAGRAP H 3 OF ARTICLE 5 LISTS NEGATIVE ACTIVITIES WHICH WHEN PERF ORMED FROM A FIXED PLACE IN THE OTHER CONTRACTING STATE WOULD NOT CREATE A PE. THE ACTIVITIES SPECIFIED IN ARTICLE 5, PARAGRAP H 3 WOULD NOT CREATE A PE, EVEN WHEN THE CONDITIONS SPECIFIED IN PARAGRAPHS (1) AND (2) OF ARTICLE 5 ARE SATISFIED. PARAGRAPH 3 IS NOT A POSITIVE PROVISION BUT A NEGATIVE LIST. TH E SAID PARAGRAPH DOES NOT CREATE A PE BUT HAS A NEGATIVE CONNOTATION AND ACTIVITIES SPECIFIED WHEN CARRIED O N DO NOT CREATE A PE.' 18 3.8 IT WAS SUBMITTED THAT THE AFORESAID JUDGMENT BY THE HONBLE DELHI HIGH COURT HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF E-FUNDS IT SOLUTIONS & ORS [(2017) 399 ITR 34 (SC)] WHICH SQUARELY COVERS THE PRESENT CASE OF THE ASSESSEE THAT THE ASSESSEE DOES NOT HAVE A FIXED PL ACE PE IN INDIA. 4.0 ARGUING AGAINST THE GROUNDS RAISED BY THE DEPARTMENT ON THE ISSUE OF SERVICE PE IN INDIA, THE LD. AR SUBMITTED THAT THE AO HAS ALLEGED IN HIS ORDER THAT THE ASSESSEE HAS A PE IN TERMS OF ARTICLE 5(2)(1) AS IT IS PROVI DING SERVICES TO CIS AND THESE SERVICES ARE NOT IN OF THE NATURE OF FEES FOR INCLUDED SERVICES. THE LD. AR SUBMITTED THAT AS PE R THE PROVISIONS OF ARTICLE 5(2)(1) OF THE DTAA, A SERVIC E PE CAN BE CONSTITUTED WHEREIN A FOREIGN ENTERPRISE FURNISHES SERVICES (OTHER THAN INCLUDED SERVICES AS DEFINED IN ARTICLE 12) WI THIN INDIA THROUGH ITS EMPLOYEES/PERSONNEL. THE PERSONNEL OF T HE ASSESSEE VISITED INDIA FOR RENDERING SERVICES THAT QUALIFY A S FEE FOR INCLUDED SERVICES UNDER ARTICLE 12 OF THE DTAA AND THE ASSESSEE HAS, ACCORDINGLY, OFFERED SUCH AMOUNT TO TAX IN ITS TAX RETURN. EVEN IN THE ASSESSMENT ORDER, THE AO HAS ACCEPTED T HE RETURNED POSITION AND TAXED THE SAID AMOUNT AS FEE FOR INCLU DED SERVICES 19 IN TERMS OF ARTICLE 12 OF THE DTAA. WITH REGARD TO THE AFORESAID OBSERVATION OF THE AO, IT WAS SUBMITTED THAT THE AO , IN HIS ORDER FOR AY 2006-07, HAD ALSO ALLEGED THAT CVG HAS A SER VICE PE. HOWEVER, THE LD. CIT (A) HAD GRANTED RELIEF TO CVG AND THE SAID FINDING HAS BEEN ACCEPTED BY THE REVENUE DEPARTMENT . THIS HAS BEEN CATEGORICALLY RECORDED IN THE ORDER OF THIS TR IBUNAL FOR AY 2006-07 AND THAT THE LD. CIT (A), IN HIS ORDER FOR THE CAPTIONED YEAR, HAS TAKEN COGNIZANCE OF THE AFORESAID FACT AN D HAS HELD THAT CVG DOES NOT HAVE A SERVICE PE IN INDIA. 4.1 ARGUING AGAINST THE GROUNDS RAI SED BY THE DEPARTMENT ON THE ISSUE OF DEPENDENT AGENT PE IN IN DIA, THE LD. AR SUBMITTED THAT CIS DOES NOT HAVE ANY AUTHORITY T O CONCLUDE CONTRACTS ON BEHALF OF CVG AND HENCE CANNOT BE TERM ED AS ITS DEPENDENT AGENT. CIS IS WORKING ON A PRINCIPAL TO P RINCIPAL BASIS IN ITS CAPACITY AS A SUB-CONTRACTOR AND CAN BY NO S TRETCH OF IMAGINATION BE TERMED AS AN AGENT OF CVG. IT WAS SU BMITTED THAT AS PER THE BUSINESS MODEL, CVG UNDERTAKES SALES AND MARKETING ACTIVITIES. IT TARGETS POTENTIAL CUSTOMERS AND CONV INCES THEM ABOUT THE UNMATCHED QUALITY OF ITS SERVICE AND ONGO ING CUSTOMER RELATIONSHIP MANAGEMENT. IT ALSO NEGOTIATES THE PRI CES AND ENTERS INTO CONTRACTS WITH THE END CUSTOMER. IT WAS FURTHE R SUBMITTED 20 THAT TO SERVICE ITS CUSTOMERS OUTSIDE INDIA, CVG PR OCURES SERVICES FROM CIS UNDER A SUB-CONTRACT ARRANGEMENT I.E. ON A PRINCIPAL TO PRINCIPAL BASIS. THE AGREEMENT BETWEEN CVG AND CIS CLEARLY STATES THAT IT SHALL IN NO RESPECT CREATE T HE RELATIONSHIP OF AGENCY BETWEEN CIS AND CVG. THUS, CIS IS NOT AN AGE NT OF THE COMPANY. IT WAS SUBMITTED BY THE LD. AR THAT IDENTI CAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL IN ITS ORDER FOR AY 2006- 07 AND THAT THE LD. CIT (A) HAS TAKEN NOTE OF THE AFORESAID ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR AY 2006-07 AND AY 2008-09 AND HAS THAT THE ASSESSEE DO ES NOT HAVE A DEPENDENT AGENT PE IN INDIA. 4.2 FURTHER, ARGUING AGAINST PROFIT ATTRIBUTION, A GROUND COMMON IN BOTH THE APPEALS, THE LD. AR SUBMI TTED THAT ATTRIBUTION OF PROFITS TO THE PERMANENT ESTABLISHME NT IS A TRANSFER PRICING ISSUE AND NO FURTHER PROFITS CAN B E ATTRIBUTED TO A PE ONCE AN ARM'S LENGTH PRICE HAS BEEN DETERMINED FOR THE INDIAN ASSOCIATED ENTERPRISE (WHICH SUBSUMES THE FU NCTIONS, ASSETS AND RISK PROFILE OF THE ALLEGED PE). IT WAS SUBMITTED THAT IN VIEW OF THE PROVISIONS OF THE ACT READ WITH CBDT CI RCULAR NO. 14 OF 2001 AND CIRCULAR NO. 5 OF 2004 AS WELL AS THE JUDGMENT OF THE HONBLE SUPREME COURT IN MORGAN STANLEY (292 ITR 41 6), IT IS 21 SETTLED THAT ATTRIBUTION TO A PE IS A TRANSFER PRIC ING ISSUE AND THE SAME NEEDS TO BE MADE BY FOLLOWING THE TRANSFER PRI CING PRINCIPLES AND SHOULD BE BASED ON THE FUNCTION PERF ORMED, ASSETS USED AND RISKS ASSUMED (FAR) PROFILE OF THE PE; AND THAT WHEN THE FAR OF AN ALLEGED PE IS ALREADY CAPTURED/ SUB SUMED IN THE FAR PROFILE OF THE ASSOCIATED ENTERPRISE ALLEGED TO BE THE PE, NO FURTHER ATTRIBUTION CAN BE MADE IN THE PE. IT WAS S UBMITTED THAT IN THE PRESENT CASE, THE FAR PROFILE AS DETERMINED BY THE AO OF THE ALLEGED PE IS ALREADY CAPTURED/SUBSUMED IN TH E FAR PROFILE OF CIS, FOR WHICH THE LATTER HAS BEEN ADEQUATELY CO MPENSATED IN ACCORDANCE WITH THE ARMS LENGTH STANDARD PRESCRIBE D UNDER THE INDIAN TRANSFER PRICING REGULATIONS. HENCE, THE NEE D TO ATTRIBUTE ADDITIONAL PROFITS TO THE ALLEGED PE IN INDIA IS AU TOMATICALLY EXTINGUISHED IN THE INSTANT CASE. THE LD. AR FURTHE R SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THE PR ICES ARE, FOR ANY REASON, NOT CONSIDERED TO BE THE ARM'S LENGTH PRICE , THE ADDITION/DISALLOWANCE COULD BE MADE ONLY TO THE ASS ESSABLE INCOME OF CIS. RELIANCE WAS PLACED ON THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ADOBE S YSTEMS INCORPORATED V. ASSISTANT DIRECTOR OF INCOME TAX (T S-267-HC- 2016), WHEREIN IT HAS BEEN HELD THAT THE QUESTION OF ATTRI BUTION 22 NEEDS TO BE DETERMINED IN THE HANDS OF THE INDIAN A E AND NOT THE FOREIGN COMPANY. 4.3 ARGUING AGAINST THE GROUNDS R AISED BY THE DEPARTMENT ON THE ISSUE OF PAYMENT OF LINK CHARGES/ IPLC BEING TAXABLE UNDER EQUIPMENT ROYALTY AND PROCESS ROYA LTY, THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATI ON, AN AMOUNT OF INR 37,279,929 (USD 684,072) WAS PAID/ PA YABLE BY CIS TO THE ASSESSEE PERTAINING TO LINK CHARGES. THE LINK CHARGES PERTAIN TO INTERNATIONAL PRIVATE LEASED CIRCUITS (' IPLC') THAT PROVIDE A POINT-TO-POINT PRIVATE LINE USED BY AN OR GANIZATION FOR COMMUNICATION. AN IPLC CAN BE USED FOR INTERNET ACC ESS, BUSINESS DATA EXCHANGE, VIDEO CONFERENCING, AND ANY OTHER FORM OF TELECOMMUNICATION. IPLC IS ONE OF THE BASIC REQU IREMENTS FOR INFORMATION TECHNOLOGY ENABLED SERVICES LIKE BUSINE SS PROCESS OUTSOURCING. IN THE INSTANT CASE, IPLCS ALLOW A DED ICATED CAPACITY FOR A PRIVATE, SECURE COMMUNICATION LINK F ROM INDIA TO THE US OVER THE INTERNET WHICH ENABLES CIS TO COMMU NICATE WITH THE CUSTOMER. IT WAS SUBMITTED THAT CVG MAKES PAYME NT FOR SUCH LINK CHARGES TO TELECOM SERVICE PROVIDERS IN T HE USA AND CROSS CHARGES THE PORTION OF THE COST INCURRED BY I T IN CONNECTION WITH THE INDIA HALF LINK TO CIS, WHICH IS ACCORDING LY REIMBURSED 23 BY CIS TO CVG. THE LD. AR SUBMITTED THAT THE AO HAS MADE AN ADDITION ON ACCOUNT OF SUCH LINK CHARGES BY STATING THAT THEY ARE TAXABLE AS 'EQUIPMENT ROYALTY' IN TERMS OF ARTICLE 12(2) READ WITH ARTICLE I2(3)(B) OF THE DTAA AND ACCORDINGLY TAXED IT @ 10% ON GROSS BASIS. IN ADDITION TO THE FINDING OF THE AO THAT LINK CHARGES ARE TAXABLE AS 'EQUIPMENT ROYALTY', THE AO ALSO HEL D THAT THE PAYMENTS PERTAINING TO LINK CHARGES ARE TAXABLE AS 'PROCESS ROYALTY' BOTH UNDER THE ACT AS WELL AS DTAA. IT WAS SUBMITTED THAT THE LINK CHARGES DO NOT QUALIFY AS EQUIPMENT R OYALTY. THE INDIAN JUDICIARY HAS MADE IT CLEAR THAT IT IS IMPOR TANT TO SEE WHETHER THERE WAS ANY INTENTION TO TRANSFER THE RIG HT TO USE OR NOT. IT WAS SUBMITTED THAT IT CANNOT BE CONTROVERTE D THAT CVG/CIS HAVE ANY CONTROL OR POSSESSION OVER THE EQU IPMENT I.E. THE NETWORK FACILITIES ARE UNDER THE CONTROL OF AND MAINTAINED AND OPERATED BY THE SERVICE PROVIDERS. CVG/CIS MERE LY AVAIL A SERVICE. WITH REGARD TO EQUIPMENT ROYALTY, IT WAS S UBMITTED THAT THE TRIBUNAL FOR AY 2006-07 HELD THE ISSUE IN FAVOU R OF CVG AND THE LD. CIT (A) HAS FOLLOWED THE ORDER OF THE ITAT IN THE YEAR UNDER CONSIDERATION AND HAS ALLOWED ASSESSEES GROU ND. 5.0 IN RESPONSE TO THE ARGUMENTS OF THE LD. AR, LD. CIT (DR) SUBMITTED THAT AS FAR AS THE ISSUE OF EXISTENCE OF FIXED PLACE PE 24 WAS CONCERNED IT WAS COVERED IN FAVOUR OF THE REVEN UE BY THE ORDER OF THE ITAT. LD. CIT (DR) ALSO FILED WRITTEN SUBMISSIONS WHICH ARE REPRODUCED AS UNDER: A. EXISTENCE OF FIXED PLACE PE : IT HAS ALREADY BEEN HELD BY HON'BLE ITAT IN THE CASE OF THE APPELLANT DURING EA RLIER YEARS THAT THE ASSESSEE HAS A FIXED PLACE PE IN TERMS OF ART-5(1) OF THE DTAA. THERE HAVE BEEN SPECIFIC RECORDINGS OF FACT B OTH BY THE AO AND BY LD CIT (A) THAT THE FACTS OF THE CASE HAVE REMAINED SAME AND UNCHANGED AS DURING EARLIER YEARS. SUCH A SPECI FIC FINDING OF FACT WAS NEVER CHALLENGED EITHER BEFORE THE LD C IT (A) OR BEFORE HON'BLE ITAT BY WAY OF ANY SPECIFIC GROUND O F APPEAL. ONCE IT IS ESTABLISHED BY THE REVENUE DURING THE EA RLIER YEARS THAT THERE IS A PE THE SAME CAN CEASE TO EXIST ONLY WITH THE DISPOSAL OF THE FIXED PLACE OF BUSINESS OR WITH THE CESSATION OF ANY ACTIVITY THROUGH IT. TO QUOTE KLAUS VOGEL- '11 BEGINNING AND END OF A PE: A PERMANENT ESTABLISHMENT BEGINS TO EXIST AS SOON AS THE ENTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROUGH A FIXED PLACE OF BUSINESS. THIS IS THE COSE ONCE THE ENTERPRISE PREPARES, AT THE PLACE OF BUSINESS, THE ACTIVITY FOR WHICH THE PLACE OF BUSINESS IS TO SERVE PERMANENTLY. THE PERIOD OF TIME DURING WHICH THE FI XED PLACE OF BUSINESS ITSELF IS BEING SET UP BY THE ENTERPRIS E SHOULD NOT BE COUNTED, PROVIDED THAT THIS ACTIVITY DIFFERS SUBSTA NTIALLY 25 FROM THE ACTIVITY FOR WHICH THE PLACE OF BUSINESS I S TO SERVE PERMANENT Y. TOE PERMANENT ESTABLISHMENT CEASES TO EXIST WITH THE DISPOSAL OF THE FIXED PLACE OF BUSINESS OR VRICN THE CESSATION OF ANY ACTIVITY THROUGH IT, THAT IS WHEN ALL ACTS AND MEASURES CONNECTED WITH THE FORMER ACTIVITIES OF TH E PERMANENT ESTABLISHMENT ARE TERMINATED (WINDING UP CURRENT BUSINESS TRANSACTIONS, MAINTENANCE & REPAIR FACILITIES).' (PP. 301-302) 'C. BEGINNING & END OF A PE 78 ....... THE PE CEASES TO EXIST AS SOON AS THE FI RST OF THE INDISPENSIBLE ELEMENTS OF ART. 5(1) OECD AND UN MC(OR OF ART. 5(5) OECD AND UN MC, RESPECTIVELY HAS DROPPED OUT. INSIGNIFICANT INTERRUPTIONS OF THE BUS INESS ACTIVITY ARE NOT TAKEN INTO ACCOUNT. APART FROM SUC H SHORT-TERM INTERRUPTIONS, THE LEASING OUT OF AN ENT ERPRISE OR A PE BY THE TAXPAYER WILL USUALLY BRING THE PE O F THE LESSOR TAXPAYER TO AN END. LIKEWISE, A PE CEASES TO EXIST AS SOON AS ONE OF TH E NEGATIVE ELEMENTS CONTAINED IN ART- 5(4) OR (6) OEC D AND UN MC OCCURS. IT IS IMPORTANT TO NOTE, HOWEVER, THAT THE DETERMIN ATION OF THE BEGINNING AND END OF A PE IS RELEVANT; FOR C APITAL TAXATION ONLY. BY CONTRAST, IT NEED NOT BE CONSIDER ED FOR INCOME TAX PURPOSES. THIS IS PARTICULARLY TRUE WITH REGARD TO ART 7(1) & (2).... AS THE RULES ON ATTRIB UTION OF PROFITS TO A PE ALLOW AN ATTRIBUTION OF EARNINGS AN D EXPENSES TO THE PE EVEN IF THEY HAVE ACCRUED AT A T IME 26 WHEN THE PE HAD NOT SUBSISTED YET - OR VICE VERSA, AFTER THE PE CEASED TO EXIST.' (PP.348-349) PHILIP BAKER, IN HIS BOOK 'DOUBLE TAXATION CONVENTIONS' ALSO ECHOED A SIMILAR VIEW WHERE HE OBSERVED AS UNDER- '5C.1111 THE PERMANENT ESTABLISHMENT CEASES TO EXI ST WITH THE DISPOSAL OF THE FIXED PLACE OF BUSINESS OR WITH THE CESSATION OF ANY ACTIVITY THROUGH IT, THAT IS WHEN ALL ACTS AND MEASURES CONNECTED WITH THE FORMER ACTIVITIES O F THE PERMANENT ESTABLISHMENT ARE TERMINATED (WINDING UP CURRENT BUSINESS TRANSACTIONS, MAINTENANCE & REPAIR FACILITIES), '(P.5-8) IN VIEW OF THE ABOVE, THE CLAIMS OF THE ASSESSEE IN THIS REGARD DESERVE TO BE DISMISSED. THE AO & THE CIT (A) HAVE HELD THAT THE BUSINESS MODEL AND ALL OTHER FACTS REMAIN THE SAME. ONCE THE REVENUE ESTABLISHED THAT THE ASSESSEE HAD A PE IN I NDIA DURING EARLIER YEARS, THE ONUS IS UPON THE ASSESSEE [AND N OT UPON THE AO/CIT (A)/DRP] TO PROVE THAT DURING THE YEAR UNDER CONSIDERATION, THE FIXED PLACE HAS CEASED TO EXIST/ BEEN DISPOSED OFF/NO LONGER AT ITS DISPOSAL AND/OR THERE IS CESSA TION OF ANY ACTIVITY THROUGH IT/CHANGE IN THE CHARACTER OF ACTI VITIES CARRIED ON TO 'AUXILIARY & PREPARATORY' IN CHARACTER. THE ASSE SSEE HAS FAILED 27 TO DISCHARGE SUCH ONUS AND PROVE OTHERWISE BEFORE T HE LOWER AUTHORITIES AS WELL AS DURING THE COURSE OF THIS AP PEAL. IN THIS REGARD RELIANCE IS PLACE IN THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ROLLS ROYCE PLC. [2019-TII-81-HC-DEL -INTL] IN THAT CASE TOO, ONE OF THE GROUNDS OF APPEAL BEFORE THE H ON'BLE ITAT WAS ON THE MECHANICAL RELIANCE BY THE AO ON THE STATEME NTS /FINDINGS OF THE SURVEY CONDUCTED DURING EARLIER YEARS, [GOA 3.1 & 3.2; COPY OF THE RELEVANT GROUNDS OF APPEAL IN THE CASE OF RO LLS ROYCE PLC, COPY OF THE ORDER OF THE TRIBUNAL & COPY OF THE ORD ER OF THE HIGH COURT ENCLOSED] WHILE AFFIRMING THE ORDER OF HON'BL E TRIBUNAL, THE HON'BLE HC MADE THE FOLLOWING OBSERVATIONS ON THE A PPLICABILITY OF THE PRINCIPLES OF RES-JUDICATA '3. WE HAVE NO DIFFICULTY IN ACCEPTING THE LEGAL PR OPOSITION LAID DOWN IN M.M.IPAH (SUPRA). HOWEVER, IT WAS FOR THE A PPELLANT TO POINT OUT AS TO HOW THE FACTS PERTAINING TO THE REL EVANT ASSESSMENT YEARS WERE DIFFERENT FROM THE FACTS ON W HICH THE DECISION WAS RENDERED AGAINST THE ASSESSES, HOLDING THAT RP. L CONSTITUTED PE OF THE ASSESSEE IN INDIA. 4. THE EARLIER DECISION AGAINST THE APPELLANT-ASSESSE E, HOLDING THAT RRIL CONSTITUTED ITS PE IN INDIA, PERTAINS TO THE ASSESSMENT YEARS 1997-98 TO 2003- 04. THE PRESENT A PPEAL PERTAINS TO THE ASSESSMENT YEAR 2004- 5. THE APPELLANT HAS NOT BEEN ABLE TO POINT OUT ANY P ERTINENT DIFFERENCE IN FACTS PREVAILING IN THE ASSESSMENT YE AR IN 28 QUESTION, AND THE ASSESSMENT YEARS TO WHICH THE DEC ISION OF THIS COURT RELATES. ****************** ************************* 6. THUS, IT WOULD BE SEEN THAT THE FINDING RETURNED BY THE ITAT- THAT RRIL CONSTITUTED THE PE OF THE APPELLANT IS PR IMARILY A FINDING OF FACT BASED ON THE APPRECIATION OF EVIDEN CE. NO CHANGE IN THE FACTUAL MATRIX IS POINTED OUT BY (HE APPELLANT, AND THE FINDING RETURNED DOES NOT RAISE A SUBSTANTI A AUESTIER OF LAW.' ACCORDINGLY AND IN VIEW OF THE ABOVE, GROUNDS OF AP PEAL CHALLENGING THE EXISTENCE OF PE DESERVE TO BE DISMI SSED. 5.1 IN RESPECT OF OTHER GROUNDS IN ASSESSEES A PPEAL, THE LD. CIT (DR) PLACED RELIANCE ON THE OBSERVATIONS AND FI NDINGS RECORDED BY THE AO AND THE LD. CIT (A) AND IN RESPE CT OF THE GROUNDS IN THE DEPARTMENTS APPEAL, RELIANCE WAS PL ACED ON THE AO. 6.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIAL ON RECORD. THE ESSENTIAL QUESTION ARIS ING FOR DETERMINATION BY US IN ASSESSEES APPEAL IS WHETHER THE ASSESSEE HAS A FIXED PLACE PE IN INDIA OR NOT DURING THE YEAR UN DER CONSIDERATION. THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 AND 2008-09 HAS HELD THAT THE ASSESSEE HAS A FIXED PLACE PE IN INDIA BUT THE ASSESSEE DOES NOT HAVE A DEPENDENT AGENT PE IN INDIA NOR 29 DOES HAVE A SERVICE IN INDIA. IT HAS ALSO BEEN HELD BY THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 AND 2008-09 AS AFORESAID THAT PROFITS COULD BE ATTRIBUTED ON ACCOU NT OF ASSETS PROVIDED BY THE ASSESEE TO CONVERGYS INDIA SERVICES PVT. LTD. IT HAS ALSO BEEN HELD BY THE ITAT THAT PAYMENTS FOR LINK C HARGES DO NOT CLASSIFY AS EQUIPMENT ROYALTY AND PROCESS ROYALTY A ND ARE HENCE NOT TAXABLE IN INDIA. DURING THE COURSE OF PROCEEDING S BEFORE US, THE LD. AR HAS MADE DETAILED ARGUMENTS FOR THE PROPOSITION THAT THE ASSESSEE DOES NOT HAVE A FIXED PLACE PERMANENT ESTABLISHMENT IN INDIA. IT IS THE STAND OF THE DEPARTMENT THAT EMPLOYEES OF THE ASSES SEE FREQUENTLY VISITED THE PREMISES OF CONVERGYS INDIA SERVICES PV T. LTD. AND, THEREFORE, IT CONSTITUTED A FIXED PLACE OF BUSINESS . ON THE OTHER HAND THE ASSESSEE HAS CONSISTENTLY MAINTAINED THAT THE S ECONDED EMPLOYEES WERE ACTING ON BEHALF OF THE SUBSIDIARY AND NOT THE ASSESSEE. IT IS THE ASSESSEES CLAIM THAT DURING THE YEAR UNDER CONSIDE RATION ONLY ONE EMPLOYEE MR. ROBERT HAWKING WAS SECONDED BY THE ASS ESSEE COMPANY TO CONVERGYS INDIA SERVICES PVT. LTD. AND THAT THIS PERSON WORKED AS THE EMPLOYEE OF CONVERGYS INDIA PVT. LTD. UNDER ITS CONTROL AND SUPERVISION AND NOT UNDER THE CONTROL AND SUPERVISI ON OF THE ASSESSEE COMPANY. THE LD. AR HAS ALSO REFERRED TO THE TECHNI CAL SERVICE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND CON VERGYS INDIA SERVICES PVT. LTD. TO DEMONSTRATE THAT CONVERGYS IN DIA PVT. LTD. WAS AVAILING THE SERVICES OF THE ASSESSEE COMPANY AND W AS PAYING TO THE 30 ASSESSEE ON HOURLY RATE BASIS THUS INDICATING THAT SUCH SERVICES WERE BEING UTILISED BY CONVERGYS INDIA SERVICES PVT. LTD . FOR ITS OWN BUSINESS. IT IS THE CONTENTION OF THE LD. AR THAT A LL THESE FACTS WERE DISREGARDED BY THE AO /TPO AND HEAVY RELIANCE HAS B EEN PLACED BY THE LOWER AUTHORITIES ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 AND 2008-09 WHERE IN A COORDINATE BENCH OF THE TRIBUNAL HAS REACHED THE CONCLUSION TH AT THERE WAS A FIXED PLACE PE OF THE ASSESSEE IN INDIA. THE LD. AR HAS ALSO PLACED EXTENSIVE RELIANCE ON THE JUDGMENT OF THE HONBLE D ELHI HIGH COURT IN THE CASE OF E-FUNDS CORPORATION REPORTED IN 2014 36 4 ITR 256 WHEREIN IT HAS BEEN HELD THAT OUTSOURCING OF SERVICES BY A US COMPANY TO ITS INDIAN SUBSIDIARY DOES NOT CONSTITUTE AS PE OF THE US COMPANY IN INDIA. IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT THIS JUDGEMENT OF THE HONBLE DELHI HIGH COURT HAS ALSO BEEN UPHELD BY TH E HONBLE APEX COURT AS REPORTED IN 2017 399 ITR 34. 6.1 ON THE OTHER HAND, THE LD. CIT (DR) HAS VEHEM ENTLY PLACED RELIANCE ON THE ORDER OF THE ITAT IN EARLIER ASSESS MENT YEARS 2006-07 AND 2008-09 WHEREIN THE TRIBUNAL HAD HELD THAT THE ASSESSEE HAD A FIXED PLACE PE IN TERMS OF ARTICLE 5 (1) OF THE DTA A. IT HAS ALSO BEEN ARGUED BY THE LD. CIT (DR) THAT A PE BEGINS TO EXIS T AS SOON AS AN ENTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROU GH A FIXED PLACE OF BUSINESS AND THE PE CEASES TO EXIST WITH THE DISPOS AL OF THE FIXED PLACE OF BUSINESS OR CESSATION OF ANY ACTIVITY THROUGH IT THAT IS ALL THE ACTS 31 AND MEASURES CONNECTED WITH THE ACTIVITIES OF THE P E ARE TERMINATED FOR THIS PROPOSITION, LD. CIT (DR) HAS PLACED RELIA NCE ON THE OECD GUIDELINES AS WELL AS ON THE COMMENTARY BY KLAUS VO GEL. IT IS THE LD. CIT (DR)S CONTENTION THAT IF IN ONE YEAR IT HAS BE EN ESTABLISHED THAT THE ASSESSEE HAD A FIXED PE IN INDIA, THE ONUS IS U PON THE ASSESEE TO PROVE THAT DURING SUBSEQUENT YEARS THE FIXED PLACE CEASED TO EXIST/HAS BEEN DISPOSED OF OR IS NO LONGER AT ITS DISPOSAL. 6.2 AFTER DULY CONSIDERING THE SUBMISSIONS OF BOTH THE SIDES AS WELL AS THE IMPUGNED ORDER, WE ARE OF THE CONSIDERE D OPINION THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR S 2006-07 AND 2008-09 HAS REACHED THE CONCLUSION THAT THERE WAS A FIXED PLACE PE OF THE ASSESSEE IN INDIA AND THAT PROFIT ATTRIBUTION H AD TO BE MADE IN THE HANDS OF THE ASSESSEE DUE TO SUCH FIXED PLACE PE. A LTHOUGH, THE ASSESSEE HAS APPROACHED THE HONBLE HIGH COURT AGAI NST THE SAID ORDER OF THE TRIBUNAL HOLDING THAT THE ASSESSEE HAD FIXED PLACE PE IN INDIA, THE APPEALS ARE YET TO BE DISPOSED OF BY THE HONBLE HIGH COURT. THUS, AS OF DATE, THE ORDER OF THE CO-ORDINATE BENC H OF THE TRIBUNAL FOR ASSESSMENT YEARS 2006-07 AND 2008-09 HAVE A BIN DING PRECEDENTIAL VALUE FOR US BECAUSE BOUND BY JUDICIAL DISCIPLINE, WE ARE TO FOLLOW THE DECISIONS OF THE CO-ORDINATE BENCH, E SPECIALLY IF THE SAME HAVE BEEN RENDERED IN ASSESSEES OWN CASE. THE RELE VANT OBSERVATIONS AND FINDINGS OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 32 2006-07 AND 2008-09 ARE CONTAINED IN PARA 9.8 OF TH E SAID ORDER AND THE SAME ARE REPRODUCED HEREIN UNDER FOR A READY RE FERENCE:- 9.8 LOOKING AT THE ENTIRETY OF FACTS AND CIRCUMST ANCES, WE ARE OF THE VIEW THAT THE LD. CIT(A)S ORDER ON T HE PROPOSITION OF PE DESERVES TO BE UPHELD. THE EMPLOYEES OF THE A SSESSEE FREQUENTLY VISITED THE PREMISES OF CIS TO PROVIDE S UPERVISION, DIRECTION AND CONTROL OVER THE OPERATIONS OF CIS AN D SUCH EMPLOYEES HAD A FIXED PLACE OF BUSINESS AT THEIR DI SPOSAL. CIS WAS PRACTICALLY THE PROJECTION OF ASSESSEES BUSINE SS IN INDIA AND CARRIED OUT ITS BUSINESS UNDER THE CONTROL AND GUIDANCE OF THE ASSESSEE AND WITHOUT ASSUMING ANY SIGNIFICANT R ISK IN RELATION TO SUCH FUNCTIONS. BESIDES ASSESSEE HAS AL SO PROVIDED CERTAIN HARDWARE AND SOFTWARE ASSETS ON FREE OF COS T BASIS TO CIS. THUS, THE FINDINGS OF THE CIT(A) THAT ASSESSE E HAS A FIXED PLACE PE IN INDIA UNDER ARTICLE 5(1) OF THE DTAA IS UPHELD. 6.3 ACCORDINGLY, RESPECTFULLY FOLLOWING THE ORDER OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMEN T YEARS 2006-07 AND 2008-09, WE UPHOLD THE ACTION OF THE LD. CIT( A) IN HOLDING THAT THE ASSESSEES HAS A FIXED PLACE PE IN INDIA. 6.4 AS FAR AS THE METHODOLOGY OF PROFIT ATTRIBUTIO N IS CONCERNED, THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 AND 2008-09 HAS LAID DOWN THE 33 METHODOLOGY IN PARAGRAPHS 11.17 TO 11.26 OF THE SAI D ORDER AND RESPECTFULLY FOLLOWING THE SAME, THE TPO IS DIRECTE D TO ADOPT THE SAME METHODOLOGY AS ENUMERATED BY THE CO-ORDINATE BENCH. THUS, THE ISSUE TO ATTRIBUTION OF PROFITS IS RESTORED TO THE FILE OF TPO FOR COMPUTING THE ATTRIBUTION OF PROFITS WITH RESPECT T O THE FIXED PLACE PE AFTER GIVING DUE OPPORTUNITIES TO THE ASSESSEE TO S UBMIT ITS COMPUTATION AND CALCULATIONS. THUS, GROUND NOS.3 & 4 IN ASSESSEES APPEAL AND GROUND NO.3 IN DEPARTMENTS APPEAL STAND ALLOWED FOR STATISTICAL PURPOSES. 7.0 AS FAR AS THE DEPARTMENTS APPEAL IS CONC ERNED, IT IS CHALLENGING THE ACT OF THE LD. CIT (A) IN HOLDING T HAT THE ASSESSEE DID NOT HAVE A DEPENDENT AGENT PE OR A SERVICE PE IN IN DIA AND IT ALSO CHALLENGES THE REDUCTION IN PROFIT ATTRIBUTION DONE BY THE AO. THE DEPARTMENTS APPEAL ALSO CHALLENGES THE ACTION OF T HE LD. CIT (A) IN HOLDING THAT THE RECEIPTS TOWARDS IPLC / LINK CHARG ES WERE NOT TAXABLE IN INDIA AS ROYALTY. THE ISSUES RAISED BY THE DEPAR TMENT ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 AND 2008-09. THE RELEVANT OBSERVATIONS OF THE ITAT WITH RESPECT TO T HE ASSESSEE NOT HAVING A SERVICE PE IN INDIA ARE CONTAINED IN PAR AGRAPH 3.10 OF THE ORDER OF THE TRIBUNAL AND IT HAS BEEN FOLLOWED BY T HE LD. CIT (A) IN THE YEAR UNDER CONSIDERATION. OBSERVATIONS OF THE TRIBU NAL ARE CONTAINED 34 IN PARA 3.10 AND THE SAME IS BEING REPRODUCED HERE IN UNDER FOR READY REFERENCE:- 3.10. AGGRIEVED WITH THE ORDER OF THE CIT (A), BOT H ASSESSEE AND REVENUE HAVE PREFERRED APPEALS BEFORE THE ITAT. THE REVENUE HAS NOT CHALLENGED THE ORDER OF THE CIT (A) HOLDING THAT ASSESSEE HAS NO SERVICE PE. THUS, THE REVENUE HAS ACCEPTED THAT CMG DOES NOT HAVE A SERVICE PE IN IND IA. 7.0.1 WE ALSO NOTE THAT THE LD. CIT ( A) HAS RETURNED A FINDING BASED ON THE ORDER OF THE ITAT AND HAS ALSO NOTED T HAT EVEN IN ASSESSMENT YEAR 2006-07, THE LD. CIT (A) HAD HELD T HAT THERE WAS NO SERVICE PE IN INDIA AND THAT THE AO HAD NOT CHALLEN GED THIS BEFORE THE ITAT. THE FINDINGS OF THE LD. CIT (A) ARE REPRODUCE D HERE IN UNDER FOR A READY REFERENCE:- ON THE ISSUE OF SERVICE PE, AO HAS MENTIONED IN TH E ASSESSMENT ORDER FOR AY 2013-14 THAT THE APPELLANT IS PROVIDING SERVICES TO CIS AND THESE SERVICES ARE NO T IN THE NATURE OF FEE FOR INCLUDED SERVICES. IN THIS REGARD , THE APPELLANT HAS SUBMITTED THAT, THE PERSONNEL OF THE COMPANY VISITED INDIA FOR RENDERING SERVICES THAT QUALIFY A S FEE FOR INCLUDED SERVICES UNDER ARTICLE 12 OF THE DTAA AND THE COMPANY HAS ACCORDINGLY OFFERED SUCH INCOME TO TAX IN ITS TAX RETURN. EVEN IN THE ASSESSMENT ORDER THE LD. AO HAS 35 ACCEPTED THE RETURNED POSITION AND TAXED THE SAID A MOUNT AS FEE FOR INCLUDED SERVICES IN TERMS OF ARTICLE 12 OF THE DTAA. EVEN IN AY 2006-07, THE CIT(A) HAS HELD THAT THERE IS NO SERVICE PE IN INDIA AND THE AO HAD NOT CHALLENGE D THIS BEFORE ITAT. ACCORDINGLY, I HOLD THAT THE APPELLANT DOES NOT HAVE A SERVICE PE UNDER ARTICLE 5(2X1) OF THE DTAA. ACCORDINGLY, GROUND NO 5.12 IS ALLOWED. 7.0.2 THEREFORE, IN ABSENCE OF THE DEPA RTMENT POINTING OUT ANY DISTINGUISHING FACTS IN THIS YEAR, ON IDENTICAL FAC TS, WE DISMISS THE RELATED GROUNDS RAISED BY THE DEPARTMENT. 7.1 AS FAR AS THE ISSUE OF DEPENDENT AGENT PE IS CONCERNED, IT IS AGAIN SEEN THAT THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT Y EAR 2006-07 AND THE RELEVANT OBSERVATIONS ARE CONTAINED IN PARA 4.2 6 WHICH ARE REPRODUCED HERE IN UNDER FOR A READY REFERENCE :- 4.26. IN THE LIGHT OF ABOVE, EVEN ASSUMING, CIS IS NOT AN AGENT OF CMG, IT DOES NOT HAVE ANY AUTHORITY TO CON CLUDE CONTRACTS OR SECURE ORDERS ON BEHALF OF CMG AND HEN CE CMG DOES NOT HAVE A DEPENDENT AGENT PE IN INDIA. 7.1.1 WE ALSO NOTE THAT THE LD. CIT (A) HAS DULY TAKEN NOTE OF THIS ORDER OF THE TRIBUNAL AS HAS MADE THE FOLLOWIN G OBSERVATIONS: REGARDING THE CONSTITUTION OF DEPENDENT AGENT OF P E 36 (DAPE) OF THE APPELLANT IN INDIA, I AM IN AGREEMENT WITH THE SUBMISSION OF THE APPELLANT AND THE ORDER OF TH E ITAT IN APPELLANTS OWN CASE FOR AY 2006-07 AND AY 2008- 09. IN VIEW OF THE BUSINESS MODEL OF THE APPELLANT AND IN ABSENCE OF ANY MATERIAL ON RECORD THAT THE CONDITIO NS MENTIONED IN ARTICLE 5(4) OF THE DTAA IS SATISFIED VIZ. HABITUALLY EXERCISING AUTHORITY TO CONCLUDE CONTRAC TS OR MAINTAINING STOCK OF GOODS OR HABITUALLY SECURING O RDERS. I AM OF THE VIEW THAT CIS DID NOT CONSTITUTE A DEPEND ENT AGENT PE OF THE APPELLANT IN INDIA. IN VIEW OF THIS , GROUNDS 5.9 TO 5.11 ARE ALLOWED. 7.1.2 IN THIS CASE ALSO, THE DEPARTMENT HAS NOT BEEN ABLE TO BRING OUT ANY DISTINGUISHING FACTS IN THIS YEAR UND ER CONSIDERATION AND, THEREFORE, FOLLOWING THE ORDER OF THE ITAT IN EARLIER ASSESSMENT YEARS, WE DISMISS THE RELATED GROUNDS IN DEPARTMENT S APPEAL IN THIS YEAR ALSO. 7.2 SIMILARLY, THE ISSUE OF PAYMENT L INK CHARGES/IPLC CHARGES BEING TAXABLE UNDER ROYALTY HAS BEEN DECIDE D IN ASSESSEES FAVOUR BY THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 I N PARA 3.5 OF THE SAID ORDER. THE SAME IS BEING REPRODUCED HERE IN UN DER FOR A READY REFERENCE:- 37 3.5. IN VIEW OF THE FOREGOING OBSERVATIONS WE HOLD THAT THERE IS NO TRANSFER OF THE RIGHT TO USE, EITHER TO THE ASSE SSEE OR TO CIS. THE ASSESSEE HAS MERELY PROCURED A SERVICE AND PROV IDED THE SAME TO CIS, NO PART OF EQUIPMENT WAS LEASED OUT TO CIS. EVEN OTHERWISE, THE PAYMENT IS IN THE NATURE OF REIMBURS EMENT OF EXPENSES AND ACCORDINGLY NOT TAXABLE IN THE HANDS O F THE ASSESSEE. THEREFORE, IT IS HELD, THAT THE SAID PAYM ENTS DO NOT CONSTITUTE ROYALTY UNDER THE PROVISIONS OF ARTICLE 12 OF THE TAX TREATY AND THE GROUND IS ALLOWED IN FAVOUR OF ASS ESSEE. 7.2.1 IT IS ALSO SEEN THAT THE LD. CIT (A ) HAS TAKEN DUE COGNIZANCE OF THIS FINDING OF THE TRIBUNAL IN THE Y EAR UNDER CONSIDERATION AND HAS ALLOWED RELIEF TO THE ASSESSE E. THE FINDINGS OF THE LD. CIT (A) ARE CONTAINED IN PARAGRAPH 8-9 WHIC H IS BEING REPRODUCED HERE IN UNDER:- 8.9 THE HON'BLE DELHI HIGH COURT IN THE CASE OF NE W SKIES SATELLITE BV (SUPRA) FURTHER HELD THAT INDIA'S CHAN GE IN POSITION TO THE OECD COMMENTARY CANNOT ACT AS INFLU ENCE IN INTERPRETING THE WORD ROYALTY AS IT STANDS TODAY. T HE ONLY WAY SUCH CHANGE CAN HE BROUGHT ABOUT IS THROUGH SUC H CHANGE BEING INCORPORATED IN THE DTAA ITSELF AN AME NDMENT IN THE DOMESTIC LAW CANNOT BRING ABOUT A UNILATERAL CHANGE IN THE DTAA. FURTHER, HON'BLE COURT OBSERVED THAT T HE ARGUMENT THAT CERTAIN INCOMES WOULD SLIP OUT OF THE BANDS OF 38 REVENUE, WHERE SUCH POSITION IS TAKEN, CANNOT BE AC CEPTED. THE HON'BLE COURT CONCLUDED THAT AMENDMENT IN SECTI ON 9 WILL NOT AFFECT DTAA, AND THE TERM ROYALTY' WOULD H AVE TO BE UNDERSTOOD AS DEFINED DTAA ONLY. 8.10 AS DISCUSSED ABOVE, THE HON'BLE I TAT, DELHI IN IT S ORDER DATED MAY 10,2013 IN APPELLANTS OWN CASE/OR ASSESSMENT TEAR 2006-07 AND ASSESSMENT YEAR 2008-09 HAS HELD THAT THERE IS NO TRANSFER OF THE RIGHT TO USE, EITHER TO CMG OR TO CIS. THE ITAT OBSERVED THAT THE APPELLANT HAS MERELY PROCURED A SERVICE AND PROVIDED THE SAME TO CIS. FURTHER, ITAT OBSERVED THAT EVEN OTHERIUISE, THE PA YMENT IS IN THE NATURE OR REIMBURSEMENT OF EXPENSES AND ACCO RDINGLY NOT TAXABLE IN THE HANDS OF THE APPELLANT. THEREFOR E, IT IS HELD THAT THE SAID PAYMENTS DO NOT CONSTITUTE ROYAL TY UNDER THE PROVISIONS OF THE DTAA. 8.11 RESPECTFULLY FOLLOWING THE HONBLE ITAT DECISION I N THE CASE OF THE APPELLANT AND JURISDICTION HIGH COU RTS DECISION OF NEW SKIES SATELLITE BV (SUPRA) WHEREIN IT IS HELD THAT THE AMENDMENT IN SECTION 9 WILL NOT AFFECT THE DTAA, I FIND THAT THE PAYMENT OF LINK CHARGES RECEIVED BY T HE APPELLANT FROM CONUERGYS INDIA SERVICES RUT. LTD. W OULD NOT QUALIFY AS PROCESS ROYALTY IN TERMS OFARTICLE 12 OF LNDIA-US 39 DTAA. HENCE, THE GROUND OF APPEAL, INCLUDING ADDITI ONAL GROUND OF APPEAL IS ALLOWED. 7.2.2 THEREFORE, IN ABSENCE OF ANY CONTRARY FACTS HAVING BEEN POINTED OUT BY THE DEPARTMENT, IN VIEW OF THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE AS AFOREMEN TIONED, WE DISMISS THE RELATED GROUNDS RAISED BY THE DEPARTMEN T IN THIS REGARD. 7.3 AFTER THIS THE ONLY ISSUE REMAINING TO BE ADJUDICATED IN THE DEPARTMENTS APPEAL IS THE ACTION OF THE LD. CIT (A) IN REDUCING THE PROFIT ATTRIBUTION DONE BY THE AO WITH RESPECT TO FIXED PLACE PE IN INDIA. AS WE HAVE ALREADY RESTORED THE GROUND IN AS SESSEES APPEAL CHALLENGING THE FINDING REGARDING FIXED PLACE PE, T HE GROUNDS RELATING TO PROFIT ATTRIBUTION IN BOTH THE APPEALS ALSO NEED TO BE RESTORED TO THE AO/TPO WITH SIMILAR DIRECTIONS AS CONTAINED IN PARA 6.0 ABOVE. IT IS SO DIRECTED. 8.0 IN THE FINAL RESULT BOTH THE APPEA LS STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2020. SD/- SD/- (R.K. PANDA) (SUDHANSHU SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27/11/2020 VEENA 40 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI