Rolls Royce Plc vs. DDIT (ITAT Delhi)
(i) jurisdiction u/s 147 can be exercised even on the basis of a prima facie opinion (ii) On facts, the wholly owned subsidiary constituted a ‘business connection’ as well as a ‘permanent establishment’ (iii) the total profits of the enterprise have to be apportioned on the basis of various factors affecting accrual of income. First, the economically significant activities and responsibilities (in the context of activities and responsibilities undertaken by the enterprise as a whole) undertaken through the PE have to be identified through a functional and factual analysis.
Then, the remuneration of such dealings should be determined by applying, by analogy the principles developed for the application of the arm’s length principle between associated enterprises, by reference to the functions performed, assets used and risk assumed by the enterprise through the PE and through the rest of the enterprise. The profits of the foreign enterprise can be apportioned between manufacturing, R&D and marketing. The marketing profits shall be chargeable to tax in India.
