ACIT Vs Mitsui & Co. Ltd. (ITAT Delhi)
The AO asked the assessee to explain why Mitsui India Pvt. Ltd (MIPL) should not be treated Dependant Agent Permanent Establishment (DAPE) in India and also why the assessment should not be completed as per the preceding assessment year since the facts remain the same. Rejecting the various explanations given by the assessee the AO held that MIPL is DAPE of Mitsui & Co. Japan.
We find the issue stands squarely covered in favour of the assessee by the Tribunal in assessee’s own case for asstt. Year 2010-11. We find, the Tribunal vide ITA No. 4377/Del/2016 order dated 22nd September, 2020 for the assessment year 2010-11 has held that MIPL is not a Dependent Agency PE of the assessee.
Since the lower authorities following the orders of the preceding years have held that M/s. Mitsui & Co. Ltd. has been constituted as Dependent Agent PE of the assessee company in India , therefore, following the consistent decisions of the Tribunal in assessee’s own case in the preceding assessment years and in absence of any contrary material brought to our notice against the decision of the Tribunal we hold that MIPL is not a Dependent Agency Permanent Establishment of the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the Revenue is directed against the order dated 30th June, 2016 of the Ld. CIT(A)-43 New Delhi relating to assessment year 2012-13. The assesee has filed the Cross Objection against the appeal filed by the revenue. For the sake of convenience the same were heard together and are being disposed of by way of this common order.
2. Facts of the case, in brief, are that the assessee is a company incorporated in Japan and is one of biggest trading houses of the world. The assessee is involved in trading from needle to airplane engines. Assessee also undertakes several projects in connection with big industrial installations power projects. It filed its return of income on 29th September, 2012 declaring income of Rs. 19,54,96,219/-. AO during the course of assessment proceedings noted that the assessee has three project offices in India namely :-
TISCO
Purulia
Teesta Projects
3. He noted that assessee has entered into contract with West Bengal State Electricity Board, Calcutta (WBSEB) on 11.08.2000 in respect of Purulia Pumped Storage Project. These agreements are as under-
a) Contract for Erection, Testing and Commissioning of Equipment and Materials inrespect of Electro Mechanical Equipment (Lot 6. 1) of Purulia Pumped Storage Project.
b) Contract for supply of equipment and materials in respect of Electro Mechanical Equipment (Lot 6.1) of Purulia Pumped Storage Project.
4. The assessee has also entered into contract with Tata Iron and Steel Company Limited on 31.03.1998 for the following:
a) Design manufacture and supply of imported plant, machinery and equipment with auxiliaries
b) Supply of imported designs and drawing, foreign technicians’ services for supervision of detailed engineering in India,
c) Design manufacture and supply of indigenous plant, machinery and equipment
d) Supply of indigenous designs and drawings, erection, startup, commissioning and demonstration of performance guarantee tests for skin pass mill (SPM) for cold rolling mill project, Jamshedpur. (TISCO Project)
In addition to the above, the assessee has also entered into contracts with National Hydroelectric Power Corporation Ltd. (NHPC) on 6.12.2001 for carrying out Electrical and mechanical Works of Teesta H.E. Project [3 X 1 70 MW (Stage-V) Sikkim, India. These agreements are as under :-
a) First Contract – For CIF/CIP Supply of all offshore equipments and materials including Mandatory Spares for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage- V).
b) Second Contract – For Ex-works supply of all equipments and materials of Indian origin for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V).
c) Third Contract – For providing all onshore services in respect of all equipments supplied under First & Second Contract and other services for Lot-6 Electrical & Mechanical works of Teesta HE Project (Stage-V). (Teesta Project)
4. On being questioned by the AO the assessee submitted that (a) no income has been earned from the execution of three projects namely Teesta, TISCO and Purulia projects. (b) Income from offshore supplies accrued outside India and no operation is carried out in India in respect of offshore supplies. (c) Capital gains income has been earned during the year on sale of shares of Buongiorno Digital Innovation Private Limited. Capital gains on such sale have been duly offered to tax at the rate of 20%.
5. The AO asked the assessee to explain why Mitsui India Pvt. Ltd (MIPL) should not be treated Dependant Agent Permanent Establishment (DAPE) in India and also why the assessment should not be completed as per the preceding assessment year since the facts remain the same. Rejecting the various explanations given by the assessee the AO held that MIPL is DAPE of Mitsui & Co. Japan. The AO noted from the details furnished by the assessee that the total supplies made by Mitsui Japan to Indian customers amount to Rs. 39,67,73,32,478/-. Applying the GP rate of 2.07% the AO determined the gross profit at Rs. 82,13,20,782/- and held that an amount of Rs. 41,06,60,391/- is the profit attributable to the PE being 50% of such gross trading profit.
7. The AO similarly noted that the assesses has paid commission of Rs. 84,06,07,736/- on total sale of Rs. 39,67,73,32,478/. It was explained by the assessee that the commission was paid to MIPL for support services rendered and the same has been charged at market price. However the AO noted that such commission paid was allowed @0.8905556% in assessment year 2008-09, 2009-10, 2010-11 and 2011-12. He, therefore, restricted such commission to Rs. 35,33,48,865/- by applying the same rate. Accordingly the excess commission paid during the year of Rs. 48,72,58,871/- was disallowed by him.
6.1 AO also made addition to Rs. 22,31,645/- being the guarantee fee received from Bussan Auto Finance Pvt. Ltd and network maintenance service fee of Rs. 5,88,86,927/- received from MIPL due to certain mismatch of the Form 26AS. Accordingly the AO determined the taxable income of the assessee at Rs. 31,39,26,317/- as against the returned income of Rs. 19,54,96,219/-.
7. In appeal the Ld. CIT(A) upheld the view of the AO that MIPL has been constituted as a dependant agency permanent establishment of the assessee company in India. He however, held that 20% of the gross trading profit is to be attributable to the operations of the assessee in India. He also upheld the action of the AO in confirming the addition of Rs. 22,31,645/- made by the AO on account of guarantee fee and Rs. 5,88,86,927/- made by the AO on account of network maintenance service fee. However the Ld. CIT(A) held that only 20% of the gross trading profit out of the operations in India as against 50% determined by the AO is attributable to the Indian operations. . He allowed deduction of commission to the permanent establishment of the assessee at Rs. 84,06,07,736/- as against Rs. 35,33,48,865/-determined by the AO.
8. Aggrieved with such order of the Ld. CIT(A) the revenue is in appeal before the Tribunal by raising the following grounds :-
1. “On the facts and in the circumstances of the case, whether the Ld. CIT(A) erred holding that only 20% of the gross trading profit out of the operations in India, was attributable to the permanent Establishment of Mitsui & Co. Ltd. (“Assessee”) in India as against 50% as was determined by the Assessing Officer.
2. On the facts and in the circumstances of the case, whether the Ld. CIT(A) erred in allowing deduction of commission to the Permanent Establishment of the assesee at Rs. 84,06,07,736/- as against Rs. 35,33,48,865/- which was determined by the Assessing Officer.
3. The appellant craves to add, amend, modify or alter any grounds of appeal at any time or before the hearing of the appeal.”
9. Assessee has also filed the cross objection by raising the following grounds :-
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eyes of law as well as on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in upholding the view of the AO that Mitsui India Pvt. Ltd. has been constituted as a Dependent Agency Permanent Establishment of the assessee company in India.
3. Without prejudice to the above and in the alternative, the learned CIT(A) has erred in not accepting the fact that the transaction between the assessee and Mitsui India Pvt. Ltd. being at arm’s length only, no further profit could be attributable to the assessee.
4. On the facts and circumstances of the case, the learned CIT(A) has erred in holding 20% of the gross trading profits to be attributable to the operations of assessee in India without there being any basis for the same.
5. (i) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs.22,31,645/’- made by the AO on account of Guarantee fees.
ii. That the addition has been confirmed despite the fact that the income appearing in Form 26AS is not taxable in the hands of the assessee. i;
iii. Without prejudice to the above, the credit of the tax deducted at source on such income has not been given to the assessee.
6. (i) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs.5,88,86,927/- made by the AO on account of Network Maintenance Service Fees.
(ii) That the addition has been confirmed despite the fact that the said income appearing in Form 26AS is not taxable in the hands of the assessee.
(iii) Without prejudice to the above, the credit of the tax deducted at source on such income has not been given to the assessee.
7. That the respondent craves leave to add, amend or alter any of the grounds of appeal.”
10. Ld. Counsel for the assessee did not press ground of appeal No. 4, 5 & 6 for which Ld. DR has no objection. Accordingly the above grounds are dismissed as not pressed. Ground No. 1 and 7 of the Cross Objection being general in nature are dismissed.
11. So far as ground of appeal No. 2 is concerned , i.e. the order of the Ld. CIT(A) in holding that M/s. Mitsui India Pvt. Ltd. has been constituted as a Dependent Agency Permanent Establishment of the assessee company in India, we find the issue stands squarely covered in favour of the assessee by the Tribunal in assessee’s own case for asstt. Year 2010-11. We find, the Tribunal vide ITA No. 4377/Del/2016 order dated 22nd September, 2020 for the assessment year 2010-11 has held that MIPL is not a Dependent Agency PE of the assessee. The relevant observation of the Tribunal from para 10 onwards reads as under :-
“10. So far as ground of appeal No. 2 is concerned i.e. the order of the Ld. CIT(A) in holding that M/s. Mitsui India Pvt. Ltd. has been constituted as a Dependent Agency Permanent Establishment of the assessee company in India, we find the issue stands squarely covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for asstt. Year 2005-06 vide ITA No. 2335/Del/2011 order dated 14.09.2017 wherein it was held that MIPL is not a Dependent Agency PE of the assesse. The relevant observations of the Tribunal from para 4 onwards read as under :–
4. The Second ground is regarding finding of the learned CIT (Appeals) holding that no income is liable to be attributed in India even if MIPL is considered to be Dependent Agent PE in India. On this issue the learned CIT-DR though stated that though in view of the TPO order under Section 92CA(3) holding the transactions between the assessee and the MIPL at arm’s length, addition may not be sustainable, yet argued that MIPL be considered as/Dependent Agent PE in India in terms of Article 5(7) of DTAA between India and Japan. It was contended by the learned CIT-DR on the basis of the allegation levied by the Assessing Officer in the assessment order that MIPL habitually secures order for the assessee in India and MIPL is economically dependent on the assessee as major revenue of MIPL is from the assessee company. Accordingly, it has to be examined whether MIPL can be considered to be a Dependent Agent of the assessee company. In this regard it may be relevant to refer to Article 5(7) of DTAA between India and Japan, which reads as under :-
“7. Notwithstanding the provisions of paragraphs 1 and 2, where a person— other than an agent of an independent status to whom paragraph 8 applies— is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State, if:
8. he has and habitually exercises in that Contracting State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph;
9. he has no such authority, but habitually maintains in the first mentioned Contracting State a stock of goods or merchandise from. which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned Contracting State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control as that enterprise.
