LM WIND POWER AS ,DENMARK V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX 2(2)(1), DELHI

ITA 4280/DEL/2024

AI Insights

The case involves LM Wind Power AS, a Denmark-based company, appealing against an assessment order by the ACIT, Circle Int. Tax 2(2)(1), Delhi, which taxed the sales commission and royalty income received from LM India. The primary legal issues revolved around the existence of a Permanent Establishment (PE) in India and the taxability of the income under the Income-tax Act, 1961, and the India-Denmark Double Taxation Avoidance Agreement (DTAA). The Tribunal examined whether LM Wind Power AS had a business connection or PE in India and whether the income from sales commission and royalty was effectively connected to such a PE. The Tribunal concluded that there was no PE in India and the income was not taxable in India, leading to the allowance of the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 787603 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 17-09-2024
• Other Referred Cases: CIT vs R D Aggarwal and Co, CIT vs Toshoku Ltd, DIT vs Morgan Stanley & Co, Formula One World Championship Ltd vs CIT, CIT vs eFunds IT Solution, National Petroleum Construction Company vs DIT, Nortel Networks India International Inc vs DIT, Progress Rail Locomotive Inc vs DCIT, Samsung Heavy Industries Co Ltd vs DIT, Vodafone India Services (P) Ltd vs UOI, Shell India Markets (P) Ltd vs CIT, Dana Corporation vs UOI, Sumitomo Corpn vs DCIT, Iveco Spa vs ADIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAROJ KUMAR DUBEY
• Assessee Lawyers: AJAY VOHRA
• Keywords: Set aside; Business income; Additional evidence; Transfer pricing; International transaction; Capital receipt; Capital Gains; Advance ruling; Avoidance of tax; Initiation of penalty proceedings; Deemed to accrue or arise in india; Double taxation relief; Permanent establishment; Services rendered outside India
• Section: 143(3); 92; 92B; 92E; 92F; 92A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES ‘D’: NEW DELHI. BEFORE SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.4280/Del/2024 (Assessment Year: 2020-21) LM Wind Power AS, vs, ACIT, Circle Juptervej 6, 6000 Kolding, International Tax 2(2)(1), Denmark – 999999. Delhi (PAN :AABCL8590Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ajay Vohra, Sr. Advocate Shri Aditya Vohra, Advocate Shri ArpitGoyal, CA REVENUE BY : Shri Saroj Kumar Dubey, CIT DR Date of Hearing : 27.08.2025 Date of Order : 21.11.2025 ORDER PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appealpreferred by the assessee is directed against the assessment order dated 27.01.2025 passed by the ACIT, Circle Int. Tax 2(2)(1), Delhi under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2020-21 pursuant to the directions of the Dispute Resolution Panel u/s 144C(5) of the Act raising following grounds of appeal :- “1. That on the facts and circumstances of the case and in law, the assessment order dated 29.07.2024 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (he Act\") for assessment year 2020-21 assessing the total income of the Assessee at Rs.81,14, 14,893 is bad in law, void- ab-initio and therefore, liable to be quashed and/ or set aside. Printed from counselvise.com 2 ITA No.4280/Del/2024 2. That on the facts and circumstances of the case and in law, the assessment order passed under section 143(3)/ 144C(13) of the Act on 29.07.2024, being barred by limitation, is bad in law and void-ab-initio. Re: Sales commission not chargeable to tax in India 3. That the assessing officer erred on facts and in law in holding that sales commission of Rs.69,28,86,504 received by the Assessee from LM India was taxable in India. 3.1 That the assessing officer erred on facts and in law in arbitrarily holding that the Assessee had business connection in India during the subject assessment year. 3.2 That the assessing officer erred on facts and in law in holding that LM Wind Power Blades India Private Limited (\"LM India\") constitutes Fixed Place Permanent Establishment (\"PE\") of the Assessee in India under Article 5 of the India-Denmark Double Taxation Avoidance Agreement (\"Tax Treaty\"). 3.3 That the assessing officer erred on facts and in law in arriving at the aforesaid findings by not considering the business model of the Assessee in correct perspective and by relying on certain agreements, which were not relevant to the subject assessment year under consideration. 3.4 That without prejudice, the assessing officer erred on facts and in law in assuming 35% profit rite in the sales commission receipt, not appreciating that tie Assessee had incurred net loss during the relevant previous year and thus, no profits could be attributed to the alleged PE of Assessee in India. 3.5 That without prejudice, even if the Assessee was held to have PE in India, the assessing officer erred on facts and in law in attributing 70% of the sales commission receipts to the alleged PE in India, not appreciating that no part of sales commission are directly or indirectly attributable to that PE as the activities of the Assessee with regard to sales commission receipts are purely carried out outside India. Re : Extraneous findings of the DRP 4. That without prejudice, the DRP erred on facts and in law in holding that the amount of sales commission received by the Assessee from LM India is taxable under section 5 of the Act, as the same is sourced in India, i.e., the payer is located in India. 5. That without prejudice, the DRP erred on facts and in law in holding that even if Fixed Placed PE of the Assessee is not held to be in India, impugned sales commission received by the Assessee is still taxable in India under Article 21(3) of the India-Denmark Tax Treaty. Printed from counselvise.com 3 ITA No.4280/Del/2024 Re: Royalty income taxed as business income under section 44DA of the Act 6. That the assessing officer erred on facts and in law in taxing royalty of Rs.57,80,29,420 received by the Assessee from LM India under the head \"Profit and gains of business or profession'\" by invoking the provisions of section 44DA of the Act. 6.1 That the assessing officer erred on facts and in law in not appreciating that the rights or property in respect of which royalty has been received by the Assessee were not effectively connected with the alleged Fixed Place PE in India. 6.2 That without prejudice, even if the royalty received by the Assessee is taxable in India in terms of section 44DA of the Act, the assessing officer erred on facts and in law in not allowing deduction of expenses incurred by the PE. Re: Penalty proceedings initiated under section 271AA of the Act 7. That the assessing officer erred on facts and in law in initiating penalty proceedings under section 271AA on the basis of order dated 08.06.2023 passed by the TPO under section 92CA3) of the Act. 7.1 That the assessing officer/ TPO erred on facts and in law in initiating penalty proceedings under section 271AA of the Act, without appreciating that international transactions from which no income chargeable to tax arose were not required to be reported by the Assessee in Form No.3CEB.” 2. At the outset, ld. AR of the assessee brought to our notice the relevant facts of the case,the assessee is a foreign company incorporated in Denmark and is a tax resident of Denmark. The assessee is a part of the LM group, which is in the business of manufacturing rotor blades for wind turbine generators. Since the said business is capital intensive in nature, it is dominated by few large global customers who have operations in major territories around the world (e.g., Siemens Gamesa, GE, etc.). He submitted that during the relevant previous year, the assessee had following receipts from LM India: Printed from counselvise.com 4 ITA No.4280/Del/2024 S. No. Nature of receipt Amount (in Rs.) 1. Sales commission received from LM India for sales made to the Indian counterpart of the global customer 69,28,86,504 2. Royalty income received from LM India 57,80,29,420 2.1 He further submitted that in the original return of income filed by the assessee for the present assessment year 2020-21, income of Rs.64,16,57,700 was offered to tax. 2.2 He submitted that in the draft assessment order dated 29.09.2023, the assessing officer made addition of Rs.16,97,57,193 to the returned income of the assessee, being sales commission received by the assessee from LM India on the ground that the assessee had Fixed Place PE in India and sales commission receipts were attributable to such PE. Further, royalty of Rs.57,80,29,420 received by the assessee from LM India, duly offered for tax under section 115A in the return of income, was brought to tax under the head “Profits and gains of business or profession” by invoking provisions of section 44DA of the Act. 2.3 He submitted that against the above order, the assessee thereafter filed objections before the ld. Dispute Resolution Panel (“DRP”). Pursuant to the directions issued by the DRP under section 144C(5) wherein they sustained the findings of AO/TPO, accordingly, the assessing officer passed final assessment order dated 29.07.2024 under section 143(3) r.w.s. 144C(13) of the Act. 2.4 He submitted that computation of assessed income of the assessee in the draft assessment order is as under: Printed from counselvise.com 5 ITA No.4280/Del/2024 Particulars Amount (inRs.) Returned income under the head ‘profit and gains from business or profession’ 64,16,57,700 Add: Sales commission received from LM India 16,97,57,193 Total assessed income 81,14,14,893 2.5 He submitted that there is no computation sheet annexed to the impugned final assessment order passed. Further, as per the notice of demand dated 29.07.2024, demand of Rs. Nil has been raised on the assessee.However, on perusal of the income-tax portal of the assessee, demand of Rs.40,84,44,150 is being shown as outstanding, which is being disputed by the assessee. 2.6 Aggrieved with the above Final assessment order, assessee is in appeal before us.Now we proceed to decide the issues raised grounds wise as under. 3. Ground No.1 is general in nature, hence not adjudicated. Ground No.2 is not pressed, hence the same is dismissed as not pressed. 4. With regard to ground nos.3 to 3.5 on account of addition of Rs.16,97,57,193/- being sales commission received from LM India, ld. AR submitted that theassessee is part of LM Group, which is engaged in the business of manufacturing of rotor blades for wind turbine generators. Since the said business is capital intensive in nature, it is dominated by few large global customers who have operations in major territories around the world (e.g., Siemens Gamesa, GE, etc.). He submitted that the buyers of the rotor blades mainly operate globally and have the same technical and business requirements in all locations, they strongly prefer to deal with global suppliers and have a centralized point of contact. He further submitted that in the case of LM group, to meet the requirements Printed from counselvise.com 6 ITA No.4280/Del/2024 of global customers, the assessee centrally handles the sales process for global accounts, on behalf of LM Wind Power Blades (India) Pvt Ltd (“LM India”) and other group companies. In particular, the assessee is taking responsibility towards global customers, as is evident from the Sales Commission Agreement effective from 01.01.2010 :- - Maintain relationship with the global customers outside India and search for new potential global customers; - Co-ordinate between LM Group companies and global customers for the purpose of selling the goods and the same includes entering into global framework agreement, assisting in negotiations, etc.; - Additionally, the Assessee also markets the products of LM Group outside India; - The Assessee does not manufacture or sell any rotor blades in India. 5. Ld. AR further submitted that LM India, an Indian company incorporated in 1993, is the only company of LM group in India, which is engaged in the business of manufacturing rotor blades for wind turbines. LM India carries out its manufacturing activity in two plants located in the state of Karnataka (Dobaspet) and Gujarat (Vadodara). For its manufacturing operations, LM India purchases raw materials/ fixed assets and hires its own employees. As per the aforesaid Sales Commission Agreement, the assessee for sales support function, has agreed with LM India, for developing and maintaining the customer relationship, which in turn helps LM India to sale its product without any marketing efforts. He submitted that as part of sales support function, the assessee finalizes a global framework agreement with its global customer after taking the inputs from each manufacturing location worldwide. Post finalization of Printed from counselvise.com 7 ITA No.4280/Del/2024 global sales agreement, the details of the contract are shared with LM group companies worldwide. Thereafter, the production team of LM India connects with the customers in India (Indian company of global customer) to understand the requirements, manufacture the blades in India and deliver the same to the customer’s locations in India. 6. He further submitted that the assessee along with LM India enters into Agreements/ Memorandum of Understanding (“MoU”) with the global customers having entities in India and abroad, for supply of rotor blades for wind turbines. LM India does not make any sales directly to foreign customers; in said cases of customers outside India, LM India supplies the rotor blades to the assessee at arm’s length price, which are then further sold to foreign customers by the Assessee. He submitted that in case of sales to Indian counterpart of global customers, LM India makes sales directly to the Indian counterpart and receives payment for the same, the profits earned by LM India on the sale of blades is offered to tax by it in India. He submitted that during the subject assessment year, no sales were made by LM India to independent local customers, which were not part of any global group. He submitted that in terms of the Sales Commission Agreement dated 01.01.2010, LM India pays sales commission to the Assessee as per the following percentage of sales of LM India: Category Sales commission % Corresponding sales of LM India in Indian market Global customer 6% Seimen Gamesa, Senvion, Vestas, etc. Local customer 2% No local customer 7. He submitted that during the impugned assessment year, the assessee received Rs.69,28,86,504 from LM India as sales commission, being 6% Printed from counselvise.com 8 ITA No.4280/Del/2024 of sales made by LM India to Indian counterparty of the global customers. In the return of income filed in India for the captioned assessment year, the said amount of sales commission was not offered to tax by the assessee, as the same was not taxable in India in the absence of any business connection and/ or Permanent Establishment (“PE”) in India. He submitted that in the assessment order dated 29.07.2024, it has been held that premises of LM India were under the control and at the disposal of the assessee for carrying out its business in India and hence, LM India constituted Fixed Place PE of the assessee in India. The assessing officer, further, held that the sales commission received by the assessee is attributable to the PE and thus, taxable in India. In that manner, the assessing officer proposed to tax sales commission receipt in India by making addition of Rs.16,97,57,193 to the returned income. The working of the addition is tabulated hereunder: Particulars Amount (inRs.) Sales commission received by the Applicant 69,28,86,504 Net profit @ 35% of the sales commission 24,25,10,276 Attribution @ 70% to the PE in India 16,97,57,193 8. Ld. AR submitted that the aforesaid adverse conclusion is patently erroneous and wholly unsustainable for the reasons submitted hereunder: (A) Business model of the Assessee not considered in correct perspective The ld. AR of the assessee submitted that the assessing officer has not considered the business model in correct perspective and at the draft assessment order stage, relied on certain agreements which were not applicable to the assessment year under consideration. In fact, the Printed from counselvise.com 9 ITA No.4280/Del/2024 assessing officer even recorded at various places in the draft assessment order that the agreements being referred to by him are not relevant for the subject financial year 2019-20 as the agreements were effective only from January 2021, however, adverse findings were recorded on the basis of such agreements to reach the conclusion that the premises of LM India constitute Fixed Place PE of the Assessee in India. He submitted that it is pertinent to note that the assessee filed correct agreements before the DRP as additional evidence, which were admitted and taken on record, and direction was given to the assessing officer to consider the same and render categorical finding in the final assessment order regarding existence of PE of the assessee in India. He brought to our notice that after considering the relevant agreements, the assessing officer has, in the final assessment order, again held that PE of the assessee existed in India. It has not been specified as to which form of PE existed in India – whether Fixed Place or Dependent Agent or Service PE? He submitted that be that as it may, that the findings of the assessing officer regarding existence of PE of the assessee in India are completely unsustainable and erroneous, for the reasons submitted hereunder: - 9. At the outset, reference is made to the relevant agreements, under which the assessee has earned receipts from LM India during the subject assessment year: (i) Sales Commission Agreement dated 01.01.2010 The terms and conditions for payment of sales commission to the Assessee are set out in the said agreement as under: “1. Purpose of agreement (a) LM Wind Power AS and wholly owned subsidiaries and other affiliated companies constitute a multinational group of enterprises (hereinafter the ‘LM Group’). LM Global Sales and the LM Blade Factory (hereinafter the parties) are a part of the LM Group. Printed from counselvise.com 10 ITA No.4280/Del/2024 (b) LM Global Sales is concluding the sales to global customers on behalf of companies in the LM group. When LM Global Sales has entered into a long-term agreement or a framework agreement with a global customer, the companies in the LM Group does not need to perform any sales activity towards the customer. (c) Consequently LM Group Sales may be considered as the sales department of the companies in the LM group in respect of global customers and to some extent towards the local customer.” ………………………….. Appendix.1 – SALES COMMISSION AGREEMENT • Conclude long term frae agreement • Prepare quotations • Forecasts • Global Sales management • Key account responsibilities • Debtor handling • Sales support activities • Marketing” 10. With reference to the above agreement, he submitted that the impugned sales commission receipts of the assessee arose out of the business activity of the assessee of providing sales support services to LM India and while providing the aforesaid services, the assessee cannot be said to have exercised any control over the premises of LM India’s factories and the assessee has only undertaken sales support activities from Denmark for which it is remunerated in the form of sales commission. He submitted that neither any personnel of assessee visited India during the subject assessment year, nor any premises of LM India were used by the assessee for undertaking the aforesaid activities. Therefore, he submitted that the allegation regarding existence of Fixed Place PE of the assessee in LM India is completely incorrect and unsustainable. (ii) Memorandum of Understanding (“MoU) dated 22.04.2015 It is respectfully submitted that the Assessee earned sales commission receipt from LM India in respect of supplies made by LM Printed from counselvise.com 11 ITA No.4280/Del/2024 India to Gamesa Wind Turbines Pvt Ltd, India in terms of MoU dated 22.04.2015, entered into between (1) Gamesa Eolica, S.L, Spain & Gamesa Wind Turbines Pvt Ltd, India (collectively referred to as “Gamesa Group entities”), and (2) LM Wind Power AS, Denmark & LM Wind Power Blades (India) Pvt Ltd (collectively referred to as “LM Group entities”). It is submitted that by way of the said MoU, LM Group entities agreed to manufacture and supply of blades to Gamesa Group entities.As already mentioned supra, the Assessee received sales commission from LM India for the local sales made by LM India to the Indian counterpart of the global customer, Gamesa in this case. It is further reiterated that LM India does not sell blade to any other customer outside India, apart from the Assessee, and for the sales made by LM India to the Assessee, no commission income is being earned by the Assessee. He submitted that on perusal of the aforesaid MoU, it must be noted that LM India and the Assessee are both parties to the contract and it is not the case where the Assessee has exercised control over LM India. Neither party has acted on behalf of the other party; rather, both LM Group entities undertake their respective activities in their independent capacity and on principal-to-principal basis. The said MoU records the understanding of the parties and lists down the capacity commitments by Gamesa Group entities and pricing & payment terms agreed by the two groups for supply of the blades. He further submitted that there is no clause in the said MoU, which even remotely suggests that the Assessee exercised control over LM India and that the premises of the latter were at the disposal of the Assessee. (iii) Agreement for Dobaspet Facilities Extension dated 10.12.2015 It is further submitted that the other relevant agreement, which resulted in sales commission being received by the Assessee is “Supply Printed from counselvise.com 12 ITA No.4280/Del/2024 Agreement” dated 10.12.2015, entered into between (1) Gamesa Eolica, S.L, Spain & Gamesa Renewables Pvt Ltd, India (collectively referred to as “Gamesa Group Renewables entities”), and (2) LM Wind Power AS, Denmark & LM Wind Power Blades (India) Pvt Ltd. On perusal of the terms and conditions of the aforesaid agreement, it must be noted that LM India and the Assessee are both parties to the contract and it not the case where the Assessee has exercised control over LM India. LM India, in its independent capacity and as one of the signatories to the aforesaid agreement, has agreed for manufacture and supply of blades to Gamesa Group Renewables entities from its Dobaspet factory. Supply of blades under the said agreement is made by LM India directly to the Indian counterpart company of Gamesa Group and consideration is also received by LM India, which is duly offered for tax in India. No part of the consideration for supply of blades is received by or is payable to the Assessee, which is only entitled to receive sales commission for the sales support and marketing function provided from outside India. (iv) Purchase Orders & Invoices The Assessee, during the course of assessment proceedings, placed on record Purchase Orders issued by the Indian counterparty of the global customer in favour of LM India. On perusal of the same, it would be noted that: (a) Purchase Order was issued by the customer directly in the favour of LM India, without any reference to the Assessee; (b) the delivery address of the goods purchased was Bangalore, India; (c) The title and risk of the goods purchased was transferred in Dobaspet; (d) the contact persons involved in the transactions were employees of Indian party and LM India.Therefore, he submitted that there is no evidence supporting the contentions of the assessing officer that the Assessee was carrying its own business from the premises of LM India. The customers Printed from counselvise.com 13 ITA No.4280/Del/2024 directly contracted with LM India and received goods from LM India. From the invoices placed on record during the course of assessment proceedings, it is also evident that LM India has directly invoiced the Indian counterpart of the global customer for the supply of rotor blades, without the Assessee having any role to play in the same. 11. Further to summarize, he submitted that it may be appreciated that the business of the Assessee is purely sales support function in terms of the Sales Commission Agreement dated 01.01.2010 entered into between the Assessee and LM India. Under the said agreement, the Assessee is concluding sales to global customers on behalf of companies in the LM Group, including LM India so that companies in the LM Group do not need to perform any sales activity towards the customer. In terms of the agreement, the Assessee is considered as the sales department of companies in the LM Group, for which it is remunerated @ 6% of revenue on blade sales to external global customers. The said agreement also makes it clear that the Assessee and LM India remain independent contractors and nothing in the agreement shall be construed to place the parties in the relationship of partners, joint ventures, fiduciaries or agents.No part of the aforesaid scope of services, it is submitted, required the Assessee to be present in India or have presence in the form of premises of LM India. As a matter of fact, no such presence in India even existed during the relevant assessment year to give rise to the allegation that the Assessee had control over the premises of LM India and that the same constituted Fixed Place PE of the Assessee in India.Once the Assessee negotiates and concludes contracts with global customers, the orders for supply of blades are required to be fulfilled by LM India by making supplies directly to Indian counterpart companies of global customers, such as GAMESA. The consideration for such supply is also Printed from counselvise.com 14 ITA No.4280/Del/2024 directly received by LM India and offered to tax in the income-tax return. The aforesaid is evident from copies of the purchase orders and invoices. 13. Regarding Ground No.3.1, no business connection of the Assessee in India, ld. AR submitted that without prejudice to the foregoing submissions, in absence of ‘Business Connection’ in India, the sales commission received by the Assessee from LM India cannot be brought to tax in India. He submitted that as per the provisions of section 9(1)(i) of the Act, any income earned by a non-resident through or from any Business Connection in India shall be deemed to be an income deemed to accrue or arise in India. The expression ‘Business Connection’ undoubtedly means something more than ‘business’. A Business Connection involves a relation between a business carried on by a non- resident, which yields profits or gains and some activity in the taxable territory which contributes directly or indirectly to the earning of those profits or gains. He further submitted that it predicates an element of continuity between the business of the non-resident and the activity in the taxable territories; a stray or isolated transaction is normally not to be regarded as a Business Connection.Accordingly, he submitted that as has been judicially interpreted and held, Business Connection is a concept which has to be viewed only from a bilateral angle and Business Connection, as contemplated by section 9 of the Act, contemplates existence of an activity of the non-resident in the taxable territories of India that yields income to it. He further submitted that business activity leading to sales commission, i.e., identifying business opportunities, liaison and negotiation with the global customers and entering into contract with them and other sales support activity happens outside India and no part of the activity giving rise to sales commission receipts are undertaken in India by the Assessee, whether directly or through fixed Printed from counselvise.com 15 ITA No.4280/Del/2024 place of business in India. He submitted that in view of the well-settled position in law and applying the principles laid down by Hon’ble Apex Court in the case of CIT vs R D Aggarwal and Co reported in (1965) 56 ITR 20 (SC) to the facts of the present case, the conclusion is inescapable, i.e., the Assessee does not have any Business Connection within the meaning of section 9(1)(i) of the Act with respect to the sales commission received from LM India. He submitted that in view thereof, no portion of sales commission can be taxed in India. He submitted that reliance in this regard is also placed on the decision of the Supreme Court in the case of CIT vs Toshoku Ltd: 125 ITR 525 (SC). In view of the above, he submitted that sales commission is not liable to tax in India as the Assessee does not have ‘Business Connection’ in India. 14. With regard to Ground No.3.2, assessee does not have Fixed Place PE in India, he submitted that even otherwise, in terms of section 90(2) of the Act, the provisions of the Act are overridden by the provisions of the India-Denmark DTAA, to the extent the provisions of the latter are more beneficial to the Assessee.In this regard, he submitted that sales commission received by the Assessee, being 6% of sales made by the LM India to entities apart from the Assessee are not taxable in India under the India-Denmark DTAA and therefore, for this reason too, provisions of the Act have no application to the present case. He submitted that in the impugned final assessment order, it is held that there exists PE of the Assessee in India. The said allegation, it is submitted, is completely unsustainable and cannot be countenanced. He further submitted that the impugned sales commission has been received from LM India itself, therefore, alleging LM India to be PE of the Assessee by holding that LM India is at the disposal of the Assessee and that business of sales commissioning activity of Assessee has been carried out through those Printed from counselvise.com 16 ITA No.4280/Del/2024 premises, is grossly incorrect. It is submitted that there are no premises at the disposal of the Assessee in India and the sales commission activity of the Assessee is carried out from Denmark only; none of the activities for sales support function have been carried out from India. In this regard, he made referenceto Article 5 of the India-Denmark DTAA, which defines PE 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 especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop; f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; g) a warehouse, in relation to a person providing storage facilities for others; h) a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on; i) an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of 183 days or more. 3. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include : a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise ; b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display ; c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise ; d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise ; e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for other activities which have a preparatory or auxiliary character, for the enterprise.” (emphasis supplied) Printed from counselvise.com 17 ITA No.4280/Del/2024 15. He submitted that Paragraph 1 of Article 5 of the Tax Treaty, which defines the term PE to mean a “fixed place of business through which the business of an enterprise is wholly or partly carried on”, is similarly worded as paragraph 1 of Article 5 of the OECD Model Convention. He submitted that the OECD Commentary on Article 5 of the OECD Model Convention states that the following conditions should exist in order to constitute “fixed place of business” for the purpose of paragraph 1 of that Article: - the existence of a “place of business”, i.e., a facility such as premises or, in certain instances, machinery or equipment; - this place of business must be “fixed”, i.e., it must be established at a distinct place with a certain degree of permanence; - the carrying on of the business of the enterprise through this fixed place of business. This usually means that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated. 16. He submitted that the term “fixed place of business” is not defined. However, reference may be made to the OECD Commentary on the OECD Model Convention which explains “fixed place” as a link between the place of business and a specific geographical point. It is emphasized that to constitute “fixed place of business”, the foreign enterprise must have at its disposal certain premises or a part thereof, from which its business is carried on. He further submitted that the AAR in the case of Pintsch Bamag - 318 ITR 190 (AAR), while holding that work place set up by an independent sub-contractor to carry out the works entrusted to him by the Assessee, a German company, did not result in a permanent establishment of the German company, observed as follows: Printed from counselvise.com 18 ITA No.4280/Del/2024 “9. ……………… The fixed place of business referred to in para 1 of Article 5 is qualified by the words “through which the business of an enterprise is …..carried on”. In the present case, the enterprise is the “Assessee”. On a plain reading of the opening para of Article 5 and the nature of relationship between the Assessee and sub-contractor, it cannot be concluded that the business of the Assessee is being carried on through the sub-contractor’s workshop. The concept of PE conveys the idea that the enterprise’s presence has to be “visible” through an establishment in the other country. The objective presence of the foreign enterprise in the other country as reflected in a fixed place of business is the real criterion for determining the existence or otherwise of PE in that country. In this context, reference may be made to Mr. Arvid A. Skaar’s book on Permanent Establishment, Chapter 9 (titled – “The tax-payer’s physical presence: The place of business test”). 10. In the case of CIT vs Vishakhapatnam Port Turst (Supra), the expression “Permanent Establishment” was construed in more or less similar manner. The learned judges observed that PE connotes “a virtual projection of the foreign enterprise into the soil of another country. …………………………” (emphasis supplied) 17. He submitted that The Hon’ble Supreme Court in the case of DIT vs Morgan Stanley & Co: 292 ITR 416 (SC) while dealing with Article 5(1) of the India-USA DTAA, held as under: “Existence of P.E. in India With globalization, many economic activities spread over to several tax jurisdiction. This is where the concept of P.E. becomes important under article 5(1). There exists a P.E. if there is a fixed place through which the business of an enterprise, which is a multi-national enterprise (MNE) , is wholly or partly carried on. In the present case MSCo is a multi-national entity. As stated above it has outsourced some of its activities to MSAS in India. A general definition of the P.E. in the first part of article 5(1) postulates the existence of a fixed place of business whereas the second part of article 5(1) postulates that the business of the MNE is carried out in India through such fixed place. One of the questions which we are called upon to decide is whether the activities to be undertaken by MSAS consist of back office operations of the MSCo and if so whether such operations would fall within the ambit of the expression “the place through which the business of an enterprise is wholly or partly carried out” in article 5(1). xxx xxx xxx In our view, the second requirement of article 5(1) of the DTAA is not satisfied as regards back office functions. ……………. It is from that point of Printed from counselvise.com 19 ITA No.4280/Del/2024 view, we are in agreement with the ruling of the AAR that in the present case article 5(1) is not applicable as the said MSAS would be performing in India only back office operations. Therefore to the extent of the above back office functions the second part of article 5(1) is not attracted.” (emphasis supplied) 18. He further submitted that Phillip Baker in his Commentary on Double Taxation Conventions and International Tax Law (3rd Edition) has also stated that the nature of the fixed place of business is very much that of a physical location, i.e., one must be able to point to a physical location at the disposal of the enterprise through which the business is carried on. It is also opined therein that the fixed place of business need not be owned or leased by the foreign enterprise provided it is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises.Further, Prof. Klaus Vogel in his treatise “Klaus Vogel on Double Tax Conventions” has explained that a “fixed place of business” should satisfy, amongst others, the “power of disposition” test to qualify as PE under Article 5(1). In this regard, he submitted that the learned author observed as follows: “The power of disposition test would not be satisfied if customer of an enterprise were to make available certain premises to the enterprise for use by the latter in accomplishing a planning and supervision assignment (FG Hessen, 21 Efg 496, 497 (1973)) or in performing specific work there…” 19. It is further submitted that the DTAAs characterize a fixed place of business as a PE only if the enterprise undertakes business activity through such place of business. This is referred to as the ‘business activity’ test. However, an exception is carved out in Article 5(4)(f) in order to exclude the preparatory and auxiliary activities. The ‘core business’ of the foreign enterprise should be conducted through the place Printed from counselvise.com 20 ITA No.4280/Del/2024 of business. Thus, there should be a nexus between the place of business and carrying on of business. 20. He submitted that in order that the foreign enterprise resident of a Contracting State can be said to have a Fixed Place PE in the other Contracting State, it is essential to demonstrate that the foreign enterprise has a fixed place available at its disposal in the other Contracting State, which is used for purposes of undertaking core business activities of that foreign enterprise in that other contracting State. 21. He further submitted that the Hon’ble Courts have in the undernoted cases emphasized the importance of disposal test, i.e., the fixed place must be available to the foreign enterprise for its use without any hindrance and further that such fixed place must be used for carrying on the core business of the foreign enterprise in the other contracting State:-  The Hon’ble Supreme Court in the case of Formula One World Championship Ltd vs CIT: 394 ITR 80 (SC), after referring to the OECD Model Tax Convention, Commentaries by Professor Philip Baker and Professor Klaus Vogel, and international tax jurisprudence, observed that in terms of Article 5(1) of the India-UK Tax Treaty, a Fixed Place PE is constituted in India, if the following twin conditions are satisfied, viz.: (i) Existence of a fixed place of business at the disposal of the foreign enterprise in India; and (ii) through which the business of the foreign enterprise is wholly or partly carried on.  The Hon’ble Delhi High Court in the case of CIT vs eFunds IT Solution: 364 ITR 256 (Del), while deciding the issue as to whether outsourcing of services to an Indian affiliate results in a PE in India for the foreign company under the provisions of the Printed from counselvise.com 21 ITA No.4280/Del/2024 India-US Tax Treaty, held that for the purposes of existence of fixed place PE under Article 5(1), there must be a fixed place of business at the disposal of the enterprise. It was further held that since a subsidiary is an independent legal entity, the relationship of holding-subsidiary or control exercised by the foreign parent on its Indian subsidiary by itself does not result in PE of the foreign company in India.  Reliance is also placed upon the decision of the Hon’ble Delhi High Court in the case of National Petroleum Construction Company vs DIT: 383 ITR 648 (Del)  He further submitted that to the same effect is the decision of the Hon’ble Delhi High Court in the case of Nortel Networks India International Incvs DIT: 386 ITR 353 (Del). Further, in this regard, he placed reliance on the recent decision passed by the Hon’ble Delhi High Court in the case of Progress Rail Locomotive Inc vs DCIT: [2024] 466 ITR 76 (Del). 22. He submitted that Hon’ble Delhi High Court in the case of DIT vs Western Union Financial Services Inc (Del): [2025] 472 ITR 220 (Del), following the decision in the case of Progress Rail (supra) held as under: “49. For the purposes of being acknowledged as a PE, the said office would have had to qualify the provisions of sub-paras 1 and 2 of Article 5. It would thus have to be held to be a 'fixed place' through which the business of the enterprise was being wholly or partly carried out. In order to constitute a Fixed Place PE, it would have to satisfy the tests of virtual projection, a takeover of the premises as well as the precepts of control and disposal and the undertaking of core business activity of the enterprise. …………………………………. 68. On an overall conspectus of the various decisions handed down by this Court as well as the Supreme Court insofar as Fixed Place PE and DAPE are concerned as well as the language of Article 5, we have no hesitation in Printed from counselvise.com 22 ITA No.4280/Del/2024 holding that the LO failed to meet the threshold requirements so as to constitute a PE. 69. In summation, we come to the firm conclusion that the LO did not meet the criteria established in sub-paras 1 and 2 of Article 5, so as to constitute a 'fixed place' of business or meet the tests of virtual projection, a takeover of the premises as well as the precepts of control and disposal in order to be a Fixed Place PE. The activities undertaken by the LO even otherwise were clearly auxiliary in character and would thus clearly fall within Article 5(3)(e) of the DTAA. The LO also did not meet the requirements of a DAPE as per of clauses (a), (b) and (c) of para 4 of Article 5. Furthermore, the software utilised for the purpose of connecting the Indian agents to the mainframe, being intangible property, would invariably be excluded from the threshold of PE. The argument of the premises of the Indian agents constituting a PE is clearly misconceived since these were independent third parties having their own business portfolio. Their premises, in any case, would not satisfy the test of virtual projection.” (emphasis supplied) 23. From the aforesaid submissions, he brought to our notice that to constitute a fixed place of business, there has to be right to use the premises for carrying out its own business by the enterprise and not for the purpose of business of the owner of the premises. Further, the premises or part thereof should be available at the constant disposal of the enterprise notwithstanding that the same is situated in the business facilities of another enterprise. 24. He further submitted that in the present case, the premises of LM India were not at the constant disposal of the Assessee ‘through’ which business of the Assessee, i.e., business of sales support & marketing is carried out and thus, the allegation of the Assessee having Fixed Place PE is incorrect. In fact, the Assessee has not conducted any part of the activities of sales support function in India and was not even required to do so. The negotiation of contracts happened with global customers, who are themselves situated outside India and the allegation that the Assessee used the premises of LM India to finalize such contracts is not sustainable and not supported by any evidence. He submitted that during the relevant Printed from counselvise.com 23 ITA No.4280/Del/2024 previous year, there were no premises available to the Assessee in India, which satisfied the tests laid down by the Supreme Court and various other Courts for constitution of Fixed Place PE. He further submitted that the assessing officer has made incorrect allegations on the basis of Global Agreement, which, it is submitted, is not even relevant for the captioned assessment year. He submitted that on proper appraisal of the relevant agreements, it would be evident that LM India and the Assessee act independently on principal-to-principal basis and it is not a case where the Assessee exercises control over the premises of LM India, for the latter to constitute Fixed Place PE of the Assessee in India. 25. With regard to Ground No.3.3 regarding wrong agreements relied upon by the assessing officer, ld. AR submitted that in the assessment order, adverse findings have been recorded based on the following agreements: 1. “Blade Development and Supply Agreement” dated 13.01.2021 entered into between the Assessee and Siemens Gamesa Renewable Energy Innovation and Technology, S.L Unipersonal, Spain (“SGRE Spain”) for the development and supply of blades (hereinafter referred to as “Global Agreement”). 2. “Agreement on supply of Wind Turbine Blades” dated 01.04.2019 entered into between the Assessee and LM India (hereinafter referred to as “Supply Agreement”) 3. Global Framework Agreement dated 24.07.2019 (hereinafter referred to as “Global Framework Agreement”) entered into between the Assessee alongwith its group entities (collectively referred as “LM Group entities”) and Siemens Gamesa Renewable Energy along with its group entities, (collectively referred as “SGRE Group entities”). 1. Global Agreement The assessing officer has laid much emphasis on the Global Agreement to hold that the Assessee has business connection in India and that premises of LM India constitutes Fixed Place PE of Assessee in India. It is submitted that the assessing officer was Printed from counselvise.com 24 ITA No.4280/Del/2024 conscious of the fact that the said agreement was entered into only on 13.01.2021, which is evident from the noting in the assessment order at various places. However, despite being aware of the non- applicability of the Global Agreement to the subject assessment year, the assessing officer recorded adverse findings and concluded that LM India constituted Fixed Place PE of the Assessee in India inasmuch as the Assessee has made all production related commitments to the customer without LM India being party to the Global Agreement, which allegedly establishes that the Assessee exercised control over the premises of LM India, as the manufacturing was to be undertaken at the factories of LM India itself. In this regard, it is respectfully submitted that the Global Agreement entered into between the Assessee and SGRE Spain is effective only from 13.01.2021, whereas the financial year under consideration in the present case is 2019-20; therefore, the aforesaid allegations made by the assessing officer that the Assessee had business connection and Fixed Place PE in India on the basis of the Global Agreement, which was not applicable to the year under consideration, are completely erroneous and unsustainable. 2. Supply Agreement It is submitted that by virtue of this agreement entered into between the Assessee (the buyer) and LM India (the seller), LM India agreed to manufacture and sell products to the Assessee on principal-to-principal basis according to the instructions of the Printed from counselvise.com 25 ITA No.4280/Del/2024 Assessee. It is provided in the Supply Agreement that the Assessee would further resell the same to its customers. Referring to the terms of the said agreement, it is alleged that the business of the Assessee is being carried out through LM India inasmuch as LM India is manufacturing and supplying the products to meet the Assessee’s supply obligations towards its customers. It is respectfully submitted that the Supply Agreement has no relevance to the facts of the present case as sales commission earned by the Assessee is in respect of global sales made by LM India in cases where the Assessee expends efforts to arrange sales order from global customers. No commission has been paid by LM India to the Assessee in respect of sales made by LM India to the Assessee under the Supply Agreement. Thus, the Supply Agreement having no relevance to the present case, the adverse findings recorded by the assessing officer in respect of the same deserve to be set aside. Moreover, the assessing officer has completely glossed over the fact that the parties have contracted with each other on principal-to-principal basis; consideration for supply of goods has been made by the Assessee at arm’s length price, which has also been accepted by the transfer pricing officer in order dated 08.06.2023 passed under section 92CA(3) of the Act. The assessing officer further erred in alleging that since as per the Supply Agreement, LM India agreed to make all reasonable efforts to meet the Assessee’s obligation with its customers, therefore, LM India is not an independent party and is under the control of the Assessee. The assessing officer has grossly erred in not appreciating that the Assessee is the customer of LM India and Printed from counselvise.com 26 ITA No.4280/Del/2024 it is the duty of a businessman to put its best effort to meet the customer’s demand. For LM India, it is imperative for it to manufacture as per the requirements of its customer, viz., the Assessee. The same does not lead to the conclusion that LM India is under the control of the Assessee. Further, the allegation regarding LM India’s factories constituting Fixed Place PE of the Assessee since title and risks transfer at that location is totally bereft of logic and cannot be countenanced. It is a standard delivery term between two commercial parties that title and risk will transfer on FOB basis and the same cannot be interpreted to allege constitution of Fixed Place PE in India. 3. Global Framework Agreement dated 24.07.2019 Global Framework Agreement dated 24.07.2019 was entered into between (1) SGRE group entities, viz., SG Spain, SG India, SG China, SG Brazil, SG Denmark, and (2) LM group entities, viz the Assessee, LM India, LM Brazil & LM China. The purpose of entering into the aforesaid Global Framework Agreement was to amend and review certain provisions of the agreements signed originally, in relation to the committed Rotor volumes. On the basis of the fact that the said Global Framework Agreement was signed by employees of the Assessee, i.e., Dorte Kamper, VP Sales & Marketing and Duncan Berry, CEO, LM Wind Power, on behalf of LM India, the assessing officer alleged that there is no independent existence of LM India. Printed from counselvise.com 27 ITA No.4280/Del/2024 The aforesaid allegation of the assessing officer is without application of mind inasmuch as even if it is accepted that employees of the Assessee concluded contracts on behalf of LM India, the same would imply that the Assessee constitutes Dependent Agent PE of LM India in Denmark and not vice versa. 4. Name of Mr. Arun Sasidharan, on Purchase Order issued by Siemens Gamesa Renewables Power Private Limited, i.e., the Indian customer It is alleged in the assessment order that in the Purchase Order issued by Siemens Gamesa Renewables Power Private Limited to LM India, Mr. Arun Sasidharan is the contact person for LM India, whereas, as per LinkedIn profile of Mr. Arun Sasidharan, it is evident that he is an employee of the Assessee. Basis the above, the assessing officer held that the Assessee exercises control over LM India, as its employee is acting on behalf of LM India. In this regard, it is respectfully submitted that Mr. ArunSasidharan is an employee of LM India itself and not of the Assessee. In this regard, copies of LinkedIn profile and Form No.16 of Mr. ArunSasidharan for assessment year 2020-21 were filed before the DRP. 26. With regard to Ground No.3.4 regarding error in assuming 35% profit rate in the sales commission receipt and in holding 70% of the said profits to be attributable to the alleged PE in India, he submitted that notwithstanding the above, the assessing officer in the final assessment order not only proceeded on the erroneous assumption that the Assessee carries on business in India through PE constituted by LM India, but also Printed from counselvise.com 28 ITA No.4280/Del/2024 assumed net profit rate @ 35% of sales commission and further attributed 70% of the profits to LM India, which is not sustainable. 27. With regard to Ground No.3.5, without prejudice, no attribution to alleged PE, ld. AR submitted that without prejudice to the aforesaid submissions that the Assessee does not have PE in India, in terms of Article 7 of the DTAA, the business profits arising to a Denmark enterprise are taxable in India only if there exists PE of the Denmark enterprise in India. In case PE is established in India, profits are taxable in India, to the extent the same are attributable to: (a) the Indian PE; (b) sales in India of goods or merchandise of the same or similar kind as these sold through the PE; or (c) other business activities carried on in India of the same or similar kind as those effected through the PE. Assuming arguendo, even if the allegation of the assessing officer that the Assessee has PE in India is accepted, it is submitted that no part of the sales commission can be brought to tax in India for the reasons submitted hereunder:- Firstly, the Assessee submits that the sales commission is not attributable to the PE in India inasmuch as the Assessee has undertaken various activities relating to sales support, negotiation with global customers, etc. outside India, without any presence of the Assessee or its employees in India and such sales related activities also have no connection with the alleged Fixed Place PE of the Assessee in India, viz., the premises of LM India. Thus, no part of the receipt by way of sales commission can be said to be attributable to the alleged PE in India. Secondly, since no sales of rotor blades are made directly by the Assessee in India, it is submitted that the sales commission cannot be said to be attributable to sales in India of goods or Printed from counselvise.com 29 ITA No.4280/Del/2024 merchandise of the same or similar kind as these sold through the PE. Thirdly, there are no business activities carried out by the Assessee in India and thus, the sales commission is not attributable to ‘other business activities carried on in India of the same or similar kind as those effected through the PE’. 28. Ld. AR submitted that the sales commission is earned by it for providing sales support services to LM India by negotiating and entering into agreements with global customers and all such activities are undertaken by the Assessee outside India, without presence of any of its employees/ personnel in India or use of any premises in India. Accordingly, no part of the profit with respect to sales commission is attributable to the alleged PE in India and consequently, no part of sales commission is taxable in India. 29. With regard toAssessing officer has wrongly attributed 70% of the sales commission receipt to alleged PE in India, further, it is submitted that the assessing officer has grossly erred in holding that 70% of the sales commission is attributable to the alleged PE in India. The assessing officer has erred in not appreciating that since all activities were undertaken by the Assessee outside India, no part of the same could have been said to be connected to the alleged PE in India. 30. He submitted that having regard to Article 7 of the DTAA, even though India accepts the separate entity approach with respect to existence of PE (once established), the attribution of the profit to the PE liable to tax in India, is based on functional analysis, having regard to the functions performed, assets used or risks assumed by the PE. In this regard, it is submitted that even if the Assessee is alleged to have PE in India, the Printed from counselvise.com 30 ITA No.4280/Del/2024 attribution of income to the alleged PE has to be basis transfer pricing exercise, taking into account the functions performed, the assets employed and the risks assumed by the alleged PE. In this regard, the Hon’ble Supreme Court in the case of CIT vs Ahmedbhai Umarbhai & Co: 18 ITR 472 (SC) observed that where a person is carrying on manufacture and sale, the profits received relate firstly to his business as manufacturer and secondly, to his trading operations; profit or loss has to be apportioned in a business-like manner and according to well established principles of accountancy. He submitted that in such cases, the Supreme Court held that it will be doing no violence to the meaning of the words ‘accrue or arise’ if the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of sale are said to arise at the place where the sales are made. He further submitted that the aforesaid view was reiterated by the Hon’ble Supreme Court in the case of The Anglo French Textile Co Ltd vs CIT: 25 ITR 27 (SC), wherein it was observed that though profits may not be realized until the manufactured article is sold, profits are not wholly made by the act of sale and do not necessarily accrue at the place of sale. It was further observed that to the extent profits are attributable to the manufacturing operations, profits accrue at the place where the business operations are carried on. The question whether a particular part of income, profit or gain arose or accrued within the taxable territories or without the taxable territories would have to be decided having regard to the general principles as to where the income, profit or gain could be said to arose or accrue, the apex Court held. Further he submitted that Hon’ble Madras High Court in the case of Annamalais Timber Trust and Co vs CIT: 41 ITR 781 (Mad) held that the apportionment of profits under the above Printed from counselvise.com 31 ITA No.4280/Del/2024 provisions should not be arbitrary but on a rational basis. Where the only operation within the taxable territory was the negotiation and conclusion of the contract, there was no justification for apportioning 50% of the profits to the operation carried out within the taxable territory. The High Court held that there was justification only for apportioning 10% of the Assessee’s share of the profits to the trading operations carried out in the taxable territory. He further relied on Hon’ble Calcutta High Court in the case of CIT vsBertrams Scotts Ltd: 31 Taxman 444 (Cal) wherein it is upheld the order of the Tribunal wherein it was held that since a large number of services were to be performed outside India as compared to the comparatively fewer services rendered in India, 10% of the net profits could be estimated to be income accruing or arising in India. He further placed reliance in this regard on the decision of the Hon’ble Uttarakhand High Court in the case of Samsung Heavy Industries Co Ltd vs DIT: 265 CTR 109 (Uttarakhand). 31. He submitted that the aforesaid judgment in the case of Samsung Heavy Industries (supra) was affirmed by the Hon’ble Supreme Court in 426 ITR 1 (SC). 32. It is submitted that even in terms of Explanation 1(a) of section 9(1)(i), though overridden by the beneficial provisions of the DTAA, in the case of a business of which all the operations are not carried out in India, the income of the business deemed under section 9(1)(i) of the Act to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. He submitted that in that view of the matter, without prejudice to the argument that the Assessee does not have PE in India, that sales commission is not attributable to the alleged PE and that there is not profit embedded in the sales commission receipt on account of global net loss, it is submitted that Printed from counselvise.com 32 ITA No.4280/Del/2024 since the relevant activities were carried out by the Assessee from outside India only, the assessing officer has grossly erred in attributing 70% of the assumed profits embedded in sales commission to the alleged PE in India. 33. In view of his above submissions, he pleaded that the addition of Rs.16,97,57,193 made to the income returned by the Assessee for the subject assessment year on account of attribution of sales commission receipt to the alleged PE, therefore, deserves to be deleted in entirety. 34. On the other hand, ld. DR of the Revenue brought to our notice page 103 of the paper book, which is agreement of Know how transfer, he specifically brought to our notice the clause Responsibility of both parties on the issue of specification and quality requirements which are communicated by the assessee to the LM India. He submitted that the above clearly shows that the assessee was controlling the LM India and there is business connection. Further, he objected to the submissions of the Ld AR on the aspect of no visit by the employees of the assessee to LM India, he submitted that the Global contract was finalized by the Employee of the assessee. He brought to our notice page 57 of the paper book in this regard. He submitted that the same person signs the agreement for both the companies. He heavily relied on the findings of lower authorities. 35. Considered the rival submissions and material placed on record. We observe from the submissions and observe that the assessee is a Denmark based company, which is into the business of manufacturing of rotor blades for wind turbine generators. As per group strategy, the assessee is involved in the sales and marketing support services to the whole group. It finalizes the global agreements with the large customers based outside India. This fact was also brought on record by the TPO at page 4 of the Printed from counselvise.com 33 ITA No.4280/Del/2024 order. We observed that the assessee enters into global framework agreements with global customers outside India and the assessee after finalizing the global framework based on the group manufacturing capacity, it forwards the relevant agreements to its other group companies. LM India having manufacturing capacity, based on the global framework agreements, it supplies directly to the subsidiaries of the Global Customer in India. The framework is such that the subsidiaries of the global customers will place direct order to LM India and LM India will execute the requirements of the Indian entities of the Global Customer in India, the relevant payments were also receives from the Indian entity of the Global customers. We observe that during this year under consideration, the LM India had dealt with Siemens Gamesa, Senvion, Vestas etc. These transactions are directly coming under the Global Framework agreement, which was finalized by the assessee, the above framework was entered by the assessee outside India. This is the framework on which the group entities are habitually functions. For the above sales and marketing services, the assessee claims commission at the rate of 6%. The LM India is also allowed to sell the products manufactured by it to the local customers, on which, it has to pay 2% for which the assessee will claim the same. This year, it was brought to our notice that there is no sales made to the local customers. This is not the issue under consideration in the present appeal. 36. The only issue is that the tax authorities treated the above services offered by the assessee is taxable in India with the observation that the assessee is having PE in India for the reason that the source of Income is thru India. Accordingly, the TPO observed from the framework agreements entered by the assessee effective from January 2010 and from July 2019. With the above facts on record, he drawn conclusion that the assessee is having PE Printed from counselvise.com 34 ITA No.4280/Del/2024 in India as per the provisions of DTAA and he also held that the assessee is having business connection in India. He also drawn conclusion on the basis that the assessee had represented the LM India and finalized the framework based on the manufacturing capacity in India. Against the above findings of tax authorities, the assessee had filed a detailed note, which is reproduced by us in this order itself. 37. After considering the facts on record, we observe that this type of inter group services are common in the MNC set up and MNCs having global presence. The main entity involved in the marketing functions for the group will finalize the framework for execution of contracts/sales by the rest of the group entities. We observe that in the given case, the assessee has finalized the broad framework for execution of the contracts entered by it with the other customers who had global presence. In this case, the assessee had entered into contract with Siemens, who also executing various contracts in various countries where it has presence. Accordingly, the siemens had finalized the broad framework with the assessee company and places order directly to the Indian entity, LM India and the same are executed directly without involving the assessee. Now the question raised by the revenue that this type of transactions falls under business connection for the simple reason that the assessee had represented the Indian entity and finalized the framework based on the manufacturing capacity or facility available in India. We observed that the purchase orders were placed by the Siemens India to the LM India. These kind of transactions are commonly executed by the group entities who utilizes their resources for the benefit of group entities. 38. Further, we observed that the global framework agreements were finalized outside India with the Global customer outside India. There is no material brought on record by the revenue that the relevant agreement Printed from counselvise.com 35 ITA No.4280/Del/2024 was finalized at India. Secondly, the basis for determining the presence of the assessee in India to invoke the Permanent establishment or business connection in India. The TPO had reviewed the Article 1 of the global agreement and merely because the assessee represented the LM India to finalize the framework and volume commitment, he presumed that the assessee has complete control over the LM India, further, LM India has not signed the global agreement in its independent capacity. This observation of the TPO against the purpose of even framing the global framework to work harmoniously with the group entities. In the global economies, this type of working with the global framework is common. 39. It is clear from the above that the assessee had exhibited that it has carried on the functions of sales support services to the LM India as a service provider and accordingly claimed the commission for the services rendered outside India. The revenue had not brought on record how the assessee is treated as having PE or Business connection in India, merely observing certain clause of global agreement. There is no record brought on record with regard to fixed place of business or service PE or any employee of the assessee company had visited in India to execute any of the contracts or utilize the place of business in India. In absence of any material, we are inclined not to accept the findings of revenue authorities. Therefore, the commission income is not taxable in India. 40. With regard toattribution of commission income earned by the assessee in India to extent of 35% of the commission income, since we already held this transaction is executed outside India, the same cannot be charge to tax in India, attribution of such commission is ruled out. 41. It was further submitted that the assessee had claimed the above commission based on the global framework and commission agreement entered into with the LM India and the other agreement for Dobaspet Printed from counselvise.com 36 ITA No.4280/Del/2024 Facilities Extension dated 10.12.2015 was with tripartite agreement, this was not executed this year. Therefore, the TPO had relied on the wrong agreement. The assessee had extended purely the sales support function based on the sales commission agreement dated 01.01.2010 entered with LM India. Based on the above agreement, the assessee had concluded the sales on behalf of LM India. Therefore, it was submitted that the TPO had applied the wrong agreement for this year. Since, we already held that the agreement on which the commission earned by the assessee is finalized and entered by the assessee outside India and there is no PE and Business connection in India, therefore, the grounds raised by the assessee in this regard is allowed. 42. With regard to Ground Nos.6 to 6.2 regarding royalty income taxed as business income under section 44DA of the Act, ld. AR submitted that the Assessee and LM India entered into Agreement on Know-How Transfer dated 01.01.2017, under which apart from other payments, the Assessee was to receive royalty @ 5% of turnover of LM India for the following: - License of patented and non-patented (proprietary) technology and production rights of LM 60.0P Rotor Blades. - License of LM trademark and distribution rights for the LM 60.0P Rotor Blades. 43. He submitted that during the impugned assessment year, the Assessee received royalty of Rs.57,80,29,420 from LM India under the said agreement and in the return of income filed by the Assessee in India, the same was offered for tax under section 115A of the Act. He further submitted that in the impugned assessment order, by invoking provisions of section 44DA of the Act, it has been held that since LM India was functioning as Fixed Place PE of the Assessee in India and the receipt of Printed from counselvise.com 37 ITA No.4280/Del/2024 royalty is connected to that PE, income by way of royalty received by the Assessee shall be computed under the head “Profits and gains of business or profession”. He submitted that the said finding is grossly erroneous and deserves to be set aside for the reasons set out hereunder : Reference is made to the provisions of section 44DA of the Act, which reads as under: “The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003,where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head “Profits and gains of business or profession” in accordance with the provisions of this Act.” (emphasis supplied) 44. He submitted that the action of the assessing officer in invoking the provisions of section 44DA of the Act to tax royalty income under the head ‘PGBP’ is erroneous, contrary to the facts emanating in the present case and statutory provisions and therefore, deserves to be set aside. Reasons in support are set out hereunder: (a) Section 44DA of the Act is not applicable in absence of PE of the Assessee in India In this regard, it is respectfully submitted that since the Assessee does not have any place at its constant disposal in India, as explained supra, there did not exist any Fixed Place PE or any other form of PE of the Assessee in India. The applicability of section 44DA of the Act to royalty received by the Assessee is, therefore, erroneous and not warranted. Printed from counselvise.com 38 ITA No.4280/Del/2024 (b) Without prejudice, the receipt of royalty is not ‘effectively connected’ with the alleged PE in India Without prejudice, it is submitted that in terms of the provisions of section 44DA of the Act, where a non-resident assessee who is in receipt of royalty has PE in India, the said royalty is taxable as business income in the hands of the Assessee, provided that the right, property or contract in respect of which the royalties has been received is effectively connected with such PE. Reliance in this regard is placed on the decision of this Hon’ble Tribunal in the case of Sumitomo Corpnvs DCIT: [2008] 114 ITD 61 (Del Trib.), wherein the Tribunal while analysing the term ‘effectively connected’ in Article 12(5) of the India-Japan DTAA, held that the said term has to be construed in the sense of something ‘really connected’ and connection has to be seen not in the form but in real substance. The Appeal of the Revenue against the aforesaid decision has been dismissed in [2016] 382 ITR 75 (Del). SLP of the Revenue has also been dismissed by the Supreme Court against the aforesaid decision of Delhi High Court in [2018] 257 Taxman 554 (SC). This Hon’ble Tribunal in the case of CGG Marine SAS vs ADIT: [2015] 153 ITD 470 (Del Trib.) held that for invoking provisions of section 44DA of the Act to tax FTS, it is essential that contract from which fees for technical services arises must be effectively connected with the PE in India. 45. He submitted that in the impugned assessment order, regarding the allegation that royalty being effectively connected with the PE in India, it Printed from counselvise.com 39 ITA No.4280/Del/2024 has been held that LM India provides research & development services, services relating to wind turbine blades and components including finite element analysis, core engineering, product equipment design, quality testing, etc. in India and that the provision of said services by LM India plays a substantial role in generation of know-how by the Assessee, for which it receives royalty from LM India. The relevant extracts of the assessment order are as under: “19.6 The assessee’s contention that royalty is not linked to the PE in India is not acceptable. The assessee in its Transfer Pricing Memo and form 3CEB has indicated that the assessee pays LM India for carrying out R& D Services (Engineering and Support Services). The assessee has also entered into an agreement called the Master Service Agreement with LM Wind Power Technologies India Private Limited (merged with LM Wind Power Blades India Private Limited: LM India) for provision of services relating to wind turbine blades and components including finite element analysis, core engineering, product equipment design, R& D related activities, quality testing, etc. Hence, R&D activities being carried out in LM India are playing a substantial role in generation of the know how for which royalty is paid to the assessee. Therefore, since manufacturing of blades is taking place in LM India using the technical knowhow and LM India is the PE of the assessee in India, royalty paid by LM India to the assessee of Rs.57,80,29,420/- is taxable under section 44DA of the Act as business income. Penalty proceeding u/s 270A are also proposed to be initiated as the assessee has under reported its income.” 46. In this regard, it is submitted that the aforesaid assumption of the assessing officer is far-fetched and without any basis; even assuming for the sake of argument that the know-how has been generated as a result of R&D services rendered by LM India to the Assessee, it has not been appreciated by the assessing officer that LM India has been compensated at arm’s length price by the Assessee and that the know-how generated becomes the sole property of the Assessee. Furthermore, the assessing officer ought to have appreciated that for the application of section 44DA to the receipt of royalty, the alleged PE must have effective connection with the right, property in respect of which royalty has been received by the Assessee, i.e., patented and non-patented (propriety) technology and Printed from counselvise.com 40 ITA No.4280/Del/2024 production rights, Trademark and distribution rights of Rotor Blades must effectively be with the alleged PE. In this regard, he made to the following extracts of the commentary of Klaus Vogel on Double Taxation Conventions [Fifth Edition] (at page 893) for meaning of the term ‘effectively connected’: “……… The author believes that this is an activity test and has nothing to do with an ownership test, and therefore is of the opinion that the relevant test is, or should be, whether the shares, debt claims, rights or property, as the case may be, are managed and their exploitation is directed and controlled by people active in or from a PE. If so, the asset concerned is effectively connected with that PE and the income received from it (i.e., dividend, interest respectively royalty must be attributed to that PE (see supra m.no. 124)).” 47. Ld. AR in this regard relied on the decision of this Hon’ble Tribunal in the case of DDIT vs JC Bamford Excavators Ltd: [2014] 150 ITD 553 (Del Trib.), wherein the Hon’ble Tribunal extensively dealt with the meaning of ‘effectively connected’ with regard to ‘royalty’ income and held that effective connection with PE would mean more than the mere possession by the PE of right or property but equal or little less than legal ownership of such right or property. 48. He further made reference to the decision of this Tribunal in the case of Iveco Spa vs ADIT: 160 ITD 348 (Del Trib.) wherein the assessee, an Italian company, had set up an Indian Branch Office, which was engaged in undertaking business development and liasoning activities in India. The assessee had entered into an agreement with another Indian company for technical collaboration and license for providing right to assemble diesel engines and its parts in India. Under that agreement, it had received royalty income in India. Accordingly, the assessee had offered said sum to tax as royalty in India in terms of Article 13 of the India-Italy Tax Treaty. The AO held that the Branch Office was employing around 25 employees who provided certain technical support and training services Printed from counselvise.com 41 ITA No.4280/Del/2024 under an agreement in India. Therefore, royalty income earned by the assessee was effectively connected to its PE in India and chargeable to tax as business income of the assessee. He submitted that the Tribunal held that no presumption can be drawn by revenue regarding involvement of the PE in earning royalty income. To effectively connect royalty with a PE, one has to (i) evaluate the ‘asset test’ and to effectively connect FTS with PE one has to evaluate ‘activity test’ or ‘function test’; (ii) PE should be engaged in the performance of technical services or should be involved in actual rendering of such services, or (iii) it should arise as a result of the activities of the PE, or (iv) the PE should, at least, facilitate, assist or aid in performance of such services irrespective of the other activities PE performs. The Hon’ble Tribunal further held that in the present case, the royalty income is because of the direct dealing of the Indian company with the assessee without the aid or support from its PE in India, therefore, the income is taxable under Article 12 of the Treaty. 49. In light of the aforesaid decisions, he submitted that the right or property in respect of which royalty has been received by the Assessee has no effective connection with LM India, hence provisions of section 44DA have no applicability.It is submitted that receipt of royalty by the Assessee in the present case has no connection with the alleged PE in India on account of the following reasons: (c) Services provided by LM India under the Master Service Agreement (“MSA”) dated 01.04.2015 to various LM Group companies The assessing officer relied upon the MSA dated 01.04.2015 to hold that the rendering of services by LM India results into generation of know-how for the Assessee, for which subsequently, royalty is paid by LM India to the Assessee. Printed from counselvise.com 42 ITA No.4280/Del/2024 In this regard, it is respectfully submitted that the said MSA has been entered into between LM India (“Service Provider”) and the Assessee alongwith 25 other group subsidiary companies (“Contractors”), whereby LM India is contracted to provide services to not only the Assessee but to other group companies as well. LM India, under the aforesaid MSA, has agreed to render services relating to wind turbine blades and components, which will comprise of but will not be limited to finite element analysis, core engineering, stress engineering, product equipment design, computational fluid dynamics analysis, design & reliability analysis, manufacturing technologies engineering, product development, quality testing services, integrated supply chain services, research and development related activities, testing, quality and reliability analysis, product development, repair and logistics solutions and information technology solutions & services. Rendering of aforesaid services, it is submitted, does not result in creation of technology or know-how specifically for the Assessee, against which the Assessee could have subsequently received royalty from LM India. LM India has provided services to various group companies, not only to the Assessee. If it is held that such services played a substantive role in creation of know-how by the Assessee, the same would lead to a conclusion that all group companies of LM Group have access to know-how, which is far-fetched and not borne out of record. Printed from counselvise.com 43 ITA No.4280/Del/2024 (d) Royalty paid towards LM trademark and distributions rights, in addition to license of technology, production rights It is further submitted that royalty is received by the Assessee from LM India towards grant of license of technology, production rights, LM trademark and distribution rights of rotor blades and not only against the technology alleged to have been developed by LM India for the Assessee. The assessing officer has glossed over the fact that royalty is also being paid to the Assessee for license of LM trademark and distribution rights for the LM 60.0P Rotor Blades, which has no connection with the know-how generated. It cannot be the case of the assessing officer that for LM trademark rights, the services rendered by the alleged PE in India played any major/ substantive role. Thus, it is not a case of royalty being connected with the alleged PE. In view of the foregoing, it is submitted that the re- characterization of royalty income as being taxable under section 44DA of the Act is completely erroneous, contrary to facts of the case and statutory mandate. 50. On the other hand, Ld DR relied on the findings of lower authorities and submitted that this is connected to the PE in India. 51. Considered the rival submissions and material placed on record. We have already held that the assessee does not have any PE in India. Therefore, the provisions of section 44DA are applicable only when the transfer of rights over the license of patented and non-patented technologies, production rights, Trademarks and distribution rights are attributable to the PE in India. There is no material to demonstrate that the assessee has Printed from counselvise.com 44 ITA No.4280/Del/2024 fixed place of business in India or place is at the disposal of the assessee nor any service PE was established by bringing on record by the revenue authorities, except certain observations from the global framework agreements and MOU entered by the assessee and LM India. Since there is no PE and particularly there is no connection for granting the patented license for technology and production rights or trade mark connected to the PE in India, there is no avenue to apply provisions of section 44DA of the Act. We observed that the Indian entity had deducted the tax and also offered to tax based on the provisions of section 115A of the Act. Therefore, we direct the AO/TPO to delete the adjustment or attributions applied. In the result, grounds raised in this regard are allowed. 52. With regard to Ground No.7 regarding penalty proceedings under section 271AA of the Act, ld. AR submitted that in the transfer pricing order dated 08.06.2023 passed under section 92CA(3) of the Act, it is alleged that following transactions entered into by the assessee with LM India, have not been reported by the assessee in Form No.3CEB: S. No. Particulars Amount (inRs.) 1. Sale of raw materials and components to LM India 12,97,28,910 2. Purchase of raw materials and spares from LM India 31,88,000 3. Purchase of rotor blades from LM India 1133,08,96,334 4. Sale of tangible assets to LM India 86,33,21,458 Total 1232,71,34,702 53. Accordingly, he submitted that on the basis of order dated 08.06.2023 passed under section 92CA(3), the assessing officer in the impugned draft assessment order has proposed initiation of penalty proceedings under section 271AA of the Act alleging non-disclosure of certain international transactions.In this regard, he brought to our notice the provisions of Printed from counselvise.com 45 ITA No.4280/Del/2024 Section 271AA of the Act which read as under: “Penalty for failure to keep and maintain information and document, etc., in respect of certain transactions. 271AA. (1) Without prejudice to the provisions of section 270A or section 271 or section 271BA, if any person in respect of an international transaction or specified domestic transaction,— (i) fails to keep and maintain any such information and document as required by sub-section (1) or sub-section (2) of section 92D; (ii) fails to report such transaction which he is required to do so; or (iii) maintains or furnishes an incorrect information or document, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of each international transaction or specified domestic transaction entered into by such person. (2) If any person fails to furnish the information and the document as required under sub-section (4) of section 92D, the prescribed income-tax authority referred to in the said sub-section may direct that such person shall pay, by way of penalty, a sum of five hundred thousand rupees.” (emphasis supplied) 54. He submitted that in terms of section 271AA(1)(ii), penalty of 2% of the value of each international transaction may be levied for failure to report international transaction in Form No.3CEB.In this regard, reference is made to section 92E which provides that parties, who have entered into an international transaction during the previous year, shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by an accountant setting forth, such particulars, as may be prescribed in Rule 10E of the Income-tax Rules, 1962. The report is required to be prepared and submitted in the prescribed Form 3CEB. He further brought to our notice relevant extracts of section 92E of the Act which is reproduced hereunder: “Report from an accountant to be furnished by persons entering into international transaction or specified domestic transaction. 92E. Every person who has entered into an international transaction or Printed from counselvise.com 46 ITA No.4280/Del/2024 specified domestic transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.” 55. It is respectfully submitted that in terms of section 92E of the Act, the assessee is required to report only those transactions which have resulted in generation of taxable income of the assessee; international transactions which have not resulted into taxable income in India are not required to be reported in Form No. 3CEB, for the reason that section 92(1) of the Act provides for computation of ‘income’ arising from an ‘international transaction’ having regard to the ‘arm’s length price’ Therefore, for a transaction to come within the purview of Chapter X of the Act, the preliminary condition is that some income must arise from the transaction. He further submitted that in the absence of any income arising from the transactions of sale of raw materials, components and tangible assets to LM India and purchase of raw materials & spares and rotor blades from LM India, it is submitted that the transfer pricing provisions as contained in Chapter X of the Act are not attracted. Therefore, there was no obligation on the assessee to report the said transactions in Form No.3CEB filed for the subject assessment year. In this regard, he placed on the decision of the Bombay High Court in the case of Vodafone India Services (P) Ltd vs UOI: 368 ITR 1 (Bom) wherein the High Court held that income arising from an international transaction is a condition precedent for application of Chapter X of the Act and in the absence of any impact on income, a the transaction cannot be brought within the purview of Chapter X of the Act. 56. Further he submitted that the Hon’ble High Court further held that Chapter X of the Act is a machinery provision and in the absence of the transaction of issue of shares giving rise to any income chargeable under Printed from counselvise.com 47 ITA No.4280/Del/2024 the substantive provisions of the Act, the said transaction cannot be brought within the purview of transfer pricing provisions. 57. Therefore, in the absence of any income chargeable to tax in India arising from the aforementioned transactions undertaken with LM India, he submittedthat non-reporting of transactions of sale of raw materials, components and tangible assets to LM India and purchase of raw materials & spares and rotor blades from LM India cannot be brought within the ambit of Chapter X and proposed to initiate penalty proceedings under section 271AA of the Act is misconceived and uncalled for. He placed specific reliance in this regard on the decision of the Bombay High Court in the case of Shell India Markets (P) Ltd: [2014] 369 ITR 516 (Bom), wherein the High Court was adjudicating the action of the TPO in computing arm’s length price of shares issued by the assessee to a foreign company. In the said case, the assessee had not reported the said transaction of issuance of shares in Form No.3CEB filed. The High Court held that the case of the assessee is squarely covered by the decision in the case of Vodafone (supra) and not reporting the transaction of issuance of shares in Form No.3CEB would not result into bringing into tax the differential receipt of share capital, as the said receipts are capital receipts, the same being falling outside the scope of Chapter X.Ergo, it is submitted that the requirement to report a transaction in Form No. 3CEB arises only when the following three conditions are met, namely: a) There is an international transaction within the meaning of the definition under section 92B of the Act; b) Income arises from the said international transaction, and c) Such income is chargeable to tax under the Act. Printed from counselvise.com 48 ITA No.4280/Del/2024 58. He submitted that since in the present case, the aforesaid transactions between LM India and the assessee do not result in income in the hands of the assessee which is taxable in India, it is submitted that the assessee was not required to report the said international transactions in Form No.3CEB under section 92E of the Act. Further he placed reliance in this regard on the decision of the Authority for Advance Ruling in the case of Dana Corporation (AAR No. 778 of 2008) wherein the AAR explained the import of provision of section 92 and allied provisions contained in Chapter X of the Act, in the following words: “8. The Revenue then endeavored to bring the transaction within the fold of and there is a \"fair consideration\" for the transfer, it cannot be said there is no income, submits the counsel for Revenue. The income needs to be computed under Section 92 of the Act having regard to the arm's length price. The transaction, it is pointed out, is an international transaction between two or more associated enterprises as defined in Section 92A of the Act. The international transaction is defined by Section 92B as to mean a transaction between two or more associated enterprises, either or both of whom are non- residents, in the nature of purchase, sale or lease of tangible or intangible property or provision of services etc. or any other transaction having a bearing on the profits, income, losses or assets of such enterprises. The computation of arm's length price is provided by Section 92C. Relying on these provisions, it is submitted on behalf of the Revenue that the income has to be necessarily computed on arm's length basis \"irrespective of whether the assessee has identified the consideration for transfer of shares or not\". The computational provisions do not therefore fail, according to the Revenue. This argument is based on the obvious assumption that the transfer of shares is for fair consideration or atleast there is some consideration. If no consideration hadpassed from or on behalf of the transferee Companies to the transferor company and the charge under Section 45 fails to operate for want of consideration or determinable consideration, obviously, the provisions in Section 92 etc. do not come to the aid of the Revenue. It must be noted that Section 92 is not an independent charging provision. As the Section heading itself shows, it is a provision dealing with \"Computation of income from international transactions\". The opening part of Section 92 says that \"any income arising from an international transaction shall be computed having regard to the arm's length price\". The expression 'income arising' postulates that the income has arisen under the substantive charging provisions of the Act. In other words, the income referred to in Section 92 is nothing but the income captured by one or the other charging provisions of the Act. In such a case, the computation aspect is taken care of by Section 92 and other related provisions in Printed from counselvise.com 49 ITA No.4280/Del/2024 Chapter X. It must be noted that the income chargeable under the Act is divided into various heads under Section 14. The heads of income specified in that Section are:- 14. Heads of Income:- A - Salaries B - [Omitted by the Finance Act, 1988] C - Income from house property D - Profits and gains of business or profession E - Capital gains F - Income from other sources 8.1. The income in the present case, if at all, is traceable to 'Capital gains' which is one of the heads of income. If by application of the provisions of Section 45 read with Section 48 which are integrally connected with each other, the income cannot be said to arise. Section 92 of the Act does not come to the aid of Revenue, even though it is an international transaction. The expression 'income' in Section 92 is not used in a sense wider than or different from its scope and connotation elsewhere in the Act. Section 92 obviously is not intended to bring in a new head of income or to charge the tax on income which is not otherwise chargeable under the Act. The interpretation sought to be placed by Revenue would amount to reading words into S.92. I have, therefore no hesitation in rejecting the Revenue's contention.” (emphasis supplied) 59. Further he placed reliance on the decision of the AAR, New Delhi in the case of Vanenburg Group B.V.: [2007] 289 ITR 464 (AAR, Delhi), wherein it was held as under: “10. Coming to the question of transfer pricing, it is seen that sections 92 to 92F are contained in Chapter X of the Act under the heading 'Special Provisions Relating to Avoidance of Tax'. These provisions are aimed at preventing avoidance of tax by certain well known devices, determination of arm's length price, computation of income in certain cases, etc., in relation to international transactions. These are again machinery provisions which would not apply in the absence of liability to pay tax.” (emphasis supplied) 60. Having regard to the aforesaid, he submittedthat in the absence of any income chargeable to tax, the provisions of Chapter X of the Act would not apply. Therefore, the assessee submits that the assessing officer/ TPO has erred in proposing intimation of penalty proceedings under section Printed from counselvise.com 50 ITA No.4280/Del/2024 271AA of the Act. The action of the assessing officer/ TPO is uncalled for and deserves to be set aside. 61. On the other hand, ld. DR of the Revenue relied on the findings of lower authorities. 62. Considered the rival submissions and material placed on record. We observed that the assessee had entered into certain transaction with the LM India which includes transactions which are taxable in India like Royalty, the other transactions like sale of raw materials/components, purchase of raw materials/spares and sale of tangible assets to LM India are not taxable in India. Therefore, there is no requirement for the assessee to report the same in the prescribed format in India. These transactions are taxable in the country of origin. Therefore, we are inclined to delete the imposition of penalty u/s 271AA of the Act. In the result, ground raised by the assessee is allowed. 63. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 21st day of November, 2025. Sd/- sd/- (YOGESH KUMAR U.S.) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 21.11.2025 TS Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "