|CORAM:||Chandra Poojari (AM), G. Pavan Kumar (JM)|
|CATCH WORDS:||Dependent Agent Permanent Establishment, PE|
|COUNSEL:||T. N. Seetharaman|
|DATE:||August 24, 2016 (Date of pronouncement)|
|DATE:||November 8, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Article 5 DTAA: Law explained as to when a "power of attorney" holder of a non-resident can constitute a "dependent agent", "fixed place of business" and a "permanent establishment" under Article 5 of the DTAA. The fact that the physical presence of the non-resident in India is nominal is irrelevant|
(a) The assessee claimed that it has executed the project of NHPC at Tanakpur between 27.01.2008 to 05.03.2008, so that the number of days is only 40 days. Hence, as per provisions, time may be containing in Article 5.2(j) of the DTAA between India and Swiss. According to the ld. AR, the assessee cannot be said to have any PE in India, since the project activity is less than six months. In our opinion, the above contention of the assessee’s counsel has no merit. In the present case, the business of the assessee has been conducted from the address of project coordinator, Mr. V. Subramanian and all correspondences relating to prospecting of client, participation in bids, correspondence with customers, signing of contract document, execution of the project and closure of the project etc. were initiated or routed through the business address of the company as above. Mr. V. Subramanian is the Power of Attorney holder from the company for all the projects, as the assessee was non-resident. He represented the nonresident assessee at site and he signed all the documents on behalf of nonresident assessee. Further, it is to be noted that :
(i) the claim of the assessee that no PE existed in view of Article 5.2(j) of the DTAA was only a subterfuge on the face of such facts;
(ii) the “fixed place test” is a positive one for the assessee and there was no requirement to go for special inclusion for the purpose of determination of PE;
(iii) even otherwise the nature of service rendered by the assessee was strictly not covered as relating to a building site, construction, installation or assembly project. The work mostly being in the nature of repair and supply of material and therefore the time limit of 182 days in clause (j) of Article 5.2 would not apply;
(iv) the contract was not one of assembly, construction or installation and no time limit has been prescribed for incidence of source country taxation of such projects. Reliance was placed on the decision of the Delhi Tribunal in the case of Furgo Engineers BV[20 SOT 78](Delhi) wherein it was held that number of days was not significant in peculiar type of work undertaken. In that case work undertaken for just over 40 days constituted PE as the business was conducted through a fixed place;
(v) the examination of contract documents revealed that M/. Carpi India Waterproofing Specialties Private Limited represented by Sr. V. Subramanian was also the designated Power of Attorney holder for these projects on behalf of the non-resident assessee. Sri V. Subramanian had also been mentioned as the project representative at site and alternatively project coordinator in the contract documents. The contract documents were signed by Sri V. Subramanian on behalf of the assessee;
(vi) the company in its reply dated 15-11-2010 before the AO had specifically mentioned its date of incorporation as 216-12-2005 with share holders and Directors including the name of Sr V. Subramanian as a Director with two others;
(vii) the letter heads of both the assesses i.e. CIWSPL and M/s. Carpl Tech SA were similar and to that extent CIWSPL – Sri V. Subramanian was the India face of the assessee;
(viii) the domestic company CIWSPL was the authorized representative for the project taken by the assessee and further all expenses in India to execute the project were incurred by CIWSPL which were reimbursed by the assessee by remittance from Switzerland as well as from local account – as confirmed by the assessee vide its letter dated 15-11-2010;
(ix) M/s. Shakira Enterprises Pvt. Ltd., a vendor was appointed by CIWSPL to render services locally at New Delhi and the payments to the said company was made from the account of CIWSPL through their bank account.
(b) On the basis of the above factual findings, a show cause dated 21- 10-2010 was issued by AO requiring the assessee to explain why CIWSPL represented by Sri V. Subramanian or alternatively, Sri V. Subramanian himself be not treated as PE in terms of Article 5.1 and 5.2 of the DTAA. In reply to the above, the assessee merely took the plea of the provisions and time limit as contain in Article 5.2(j) of the DTAA. It also took the plea that there was considerable time lag of three years between the project executed for TNEB and NHPC at Kadamparai and Tanakpur respectively. Finally it was argued that Sri V. Subramanian could not be treated as PE since he represents other companies also in the ordinary course of business, these being M/s. Litostroj Power, Slovenia and M/s. Koncar, Croatia.
(c) Further, on the argument of the ld. AR is that Sri V. Subramanian was not an agent of independent status, the AO observed that the companies claimed to have been represented by Sri V. Subramanian such as Litostroj Power and M/s Koncar were at different point in time i.e. between 2002 & 2006 while the Tanakpur project referred to the period 2007-08 and not during the same period when Sri V. Subramanian was involved in undertaking the project work of the assessee. Further that in the data sheet presented before the Principal i.e. NHPC Sri V. Subramanian has been represented as the Indian representative of the assessee. CIWSPL was also the Indian f ace of Carpi Tech SA, Switzerland representing the company in all practical matters, financially compensated by the assessee. To that extent, the company represented by Sri V. Subramanian was dependent agent of Carpi Tech SA, the assessee, and therefore can be treated as PE. Finally the AO has also drawn attention to the fact that at the time of issuing an order u/s 195(2) on an application made by the assessee for NIL deduction certificate, all these facts could not be gone through. It is now that the facts have been analysed with reference to contract document, terms contained therein which leads to the irreversible conclusion that the receipts contrary to the claim of being fees for included services, was actually in the nature of business income taxable in India that the PE was in existence.
(d) Sri V. Subramanian, the agent for the assessee who is critical to all aspects of the contract through the stages of signing the contract to execution is critically functional as the Managing Director of the Indian Subsidiary, where the other two directors are Mrs. V. Thenmozhi and Mrs. S. Devaki with Sri V. Subramanian & Mrs. V. Thenmozhi being the only shareholders, In the web site of the assessee company, the address for correspondence for all official transactions is the office cum residential address of Sri V. Subramanian. But for the feeble assertion that Sri V. Subramanian is an independent agent also acting for and on behalf of M/s. Koncar, Croatia and M/s. Litostroj Power, Slovenia, no evidence, credible or otherwise was led in this regard. As also, to refute and rebut the assertion made by the AO that Sri V. Subramanian primarily represented the assessee company almost exclusively during the period when these contracts were executed. In a case as this before us, the activities of the assessee and the Indian entity are intertwined and the Indian entity participates in the economic activities of the assessee, the activities of the Indian entity therefore necessarily are to be analysed to determine whether there is a fixed place P.E. In fact, the name of the company itself is the same as the non-resident company but for calling it Carpi Waterproofing Specialities Private Limited. Both carrying out identical nature of jobs in India.
(e) Further, Sri V. Subramanian, the Managing Director of the Indian entity is the technical head with qualifications of being a graduate Engineer and Marketing Management having experience in handling Hydro Power projects for various foreign and domestic companies. The role played by him as an agent of the non-resident company and the Indian company who render similar services cannot be easily discerned or’ separated. There being a unison of interest to a great extent, while as an independent agent there would be required an objectivity in execution of the tasks of the non- resident company.
(f) It is also noted that Sri V. Subramanian represented the consortium of M/s. Litostroj Power & M/s Koncar by strength of agreement entered into on 30-07-2001. While no activities are attributable in favour of these consortium during the period he was representing Carpi Tech SA, the non-resident company.
(g) It is in this context that the reference by AO to Article 5 draws special importance. While business constitutes continuous activity in organized manner it is often a question of fact & law. “Place of business” usually means a premises of the enterprise used for carrying on the business, whether or not exclusively used for business. The residence of the country Manager was held to be a fixed place of business as the same was used as an office address in Sutron Corporation In re 268 ITR 156 AAR. Similarly an office space of 3 x 6 metres in Motorola Inc & Ors 95 ITD 269 (Del). To constitute a PE, the business must be located at a single place for a reasonable length of time. The activity need not be permanent, endless or without interruptions. It may not be out of place to mention that functions performed by Sri V. Subramanian or the Indian subsidiary could not be classified as preparatory or auxiliary in character. The facts strongly indicate towards Sri V. Subramanian constituting a dependent agent / PE for reasons brought on record by the AO and as discussed in foregoing paragraphs. There were no presence of a number of principals who exercised legal and or economic control over the agent Sri V. Subramanian. The principal i.e. the assessee has failed to demonstrate this aspect when confronted by the AO. The principal i.e. the assessee was relying on the special skills and knowledge of the agent Sri V. Subramanian the Managing Director of the Indian entity by the same name and rendering similar functions. Sri V. Subramanian was acting exclusively or almost exclusively for and on behalf of the assessee during the currency of the contracts in question. To that extent it was not in furtherance of his ordinary course of business. Finally the refuge taken of Article 5(2)(j) on the short period of contracts and the interregnum does not offer any solace to the assessee either. The assessee has not demonstrated it was a mere passing, transient or casual presence for its activity in India. In view of this, we confirm the order of the lower authorities. This ground is therefore dismissed.
1. Motorola Inc. Vs. DCIT in (2005) 95 ITD 269 (Delhi)(SB)
2. Sutron Corporation in (2004) 268 ITR 156(AAR) wherein held that collecting information submitting tenders and signing contracts on behalf of the non-resident amounts to business connection.
3. Horizontal Drilling international S.A Vs. CIT in (1999) 237 ITR 142(AAR)
4. DIT Vs. Paper Products Ltd., in  257 ITR 1(Delhi)
5. Aditya Birla Nuro Ltd. Vs. ADIT in 11 ITR (Trib) 812 (Mum.)
6. Tiong Woon Project and Contracting Pte Ltd., in (2011) 338 ITR 386(AAR).