Search Results For: attribution of profits to PE


Nokia Networks OY vs. JCIT (ITAT Delhi Special Bench)

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DATE: June 5, 2018 (Date of pronouncement)
DATE: June 7, 2018 (Date of publication)
AY: 1997-98
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CITATION:
Entire law explained on (a) whether a subsidiary of a foreign company constitutes "business connection" and/ or "fixed Permanent Establishment" and/or "Dependent Agent Permanent Establishment" of assessee in India, (b) whether any attributes of profits on account of signing, network planning and negotiation of off-shore supply contracts in India could be attributed to such business connection/ permanent establishment and (c) whether notional interest on delayed consideration of supply of equipment and licensing of software taxable in the hands of assessee as interest from vendor financing

HELD by majority in favour of the assessee:

According to the Supreme Court in Formula One World Championship Ltd. vs. CIT, reported in 394 ITR 80 (SC), the ‘disposal test’ is paramount which needs to be seen while analyzing fixed place PE under Article 5(1). Though in our humble understanding, the test of permanency qua fixed place has been slightly diluted by the Hon’ble Court but not the “disposal test”. Again this judgment of Hon’ble Supreme Court has been reiterated and referred extensively in a subsequent judgment by the Hon’ble Supreme Court in the case of ADIT vs. E-Fund IT Solution (2017) 86 taxmann.com 240, wherein the Hon’ble Apex Court had quoted extensively the same views and commentaries and also the judgment of Formula One World Championship Ltd. and held that there must exist a fixed place in India which is at disposal of foreign enterprise through which they carry on their own business. In that case, the Indian subsidiary company of the foreign enterprise was rendering support services which enabled the foreign enterprise in turn to render services to its client and the outsourcing of work to the Indian subsidiary was held to be not giving rise to fixed place of PE. This judgment of the Hon’ble Supreme Court nearly clinches the issue before hand in so far as role of Indian subsidiary while deciding the fix place PE.

HELD by minority in favour of the revenue:

The assessee company had a PE in India by way of the premises and existence of its Indian subsidiary Nokia India Pvt Ltd, and that the profit attributable to the specified operations of this PE are 3.75% of total sales of the equipment in India. The plea of the assessee against the existence of business connection and the existence of permanent establishment is to be rejected, and plea of the assessee on the attribution of profit is to be partly accepted in the terms

GE Energy Parts Inc vs. ADIT (ITAT Delhi)

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DATE: January 27, 2017 (Date of pronouncement)
DATE: January 31, 2017 (Date of publication)
AY: 2001-02
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CITATION:
Permanent Establishment: Entire law explained on whether the deputation of personnel by a foreign company to assist the Indian subsidiaries in negotiations, marketing etc leads to a “fixed place PE” or a “Dependant Agent PE” under Article 5 of the DTAA and if so, the manner in which the profits of the foreign company are attributable to operations in India

The expats of GEII and employees of GEIIPL were appointed to act as agent of multiple GE overseas enterprises. It is nobody’s case that they were otherwise acting as agents of independent status working for other third parties in India. This proves that expats and employees of GEEIPL acted as agents of dependent status in the first place itself. Although, the number of GE overseas entities looked after by each of them is more than one, but the fact that such entities were in one of the three broader ITA No.671/Del/2011 160 lines of businesses of GE group, makes them agents of dependent status per se

International Management Group (UK) Ltd vs. ACIT (ITAT Delhi)

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DATE: October 4, 2016 (Date of pronouncement)
DATE: October 18, 2016 (Date of publication)
AY: 2010-11
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CITATION:
Article 7: There is a difference between "effectively connected" with the permanent establishment and "legally connected" with it. Only those activities necessary for the functioning of the PE are "effectively connected" with the PE. Article 13: Concept of "make available" technical knowledge etc explained

In the present case certain activities are carried out by the appellant which are not even concerned with the functioning of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not “effectively connected” with the permanent establishment. We are also of the view that the term “effectively connected” should not be understood to mean the opposite of “legally connected” but rather something in the sense of “really connected”. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of Rs. 33 crores involved in the contract is “effectively connected” with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant.

Consulting Engineering Corporation vs. JDIT (ITAT Delhi)

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DATE: October 31, 2014 (Date of pronouncement)
DATE: November 3, 2014 (Date of publication)
AY: 2003-04
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CITATION:
(i) As the work done by the branch in India required high technical and managerial skill, it is not preparatory and auxiliary work of a back office but constitutes a permanent establishment (ii) Attribution of profits under Rule 10B(2) on the basis of the H.O's profits in the absence of data on uncontrolled transactions is proper, (iii) As risks were shared by the H.O. and the PE, 50% 50% of the profits determined as per rule 10 are attributable to operations carried out by the PE in India

(i) The benefit of the ratio of first part of Morgan Stanley and Co. Inc. (2007) 292 ITR 416 (SC) is not available for the assessee as on careful examination of activities and modus operandi of the assessee, we have

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