LM Wind Power AS Vs ACIT (ITAT Delhi)
Sales Commission Not Taxable in India – No PE, No Business Connection; Wrong Agreements Used by AO; Royalty u/s 115A Accepted
In LM Wind Power AS Vs ACIT Intl. Tax 2(2)(1), Delhi – ITA No.4280/Del/2024 for AY 2020-21 (Order dated 21.11.2025), the Denmark-based Assessee, a global sales support entity of the LM Group, challenged the addition of ₹16.97 crore out of ₹69.28 crore of sales commission received from LM Wind Power India Pvt Ltd. The AO held that LM India constituted the Assessee’s Fixed Place PE and that sales commission was taxable in India u/s 9(1)(i) & Article 5 of the India–Denmark DTAA. The AO also invoked a 35% profit rate and attributed 70% of such profit to the alleged PE. DRP confirmed the view.
The Tribunal examined the business model and held that the Assessee only carried out global sales support & marketing activities outside India, pursuant to a Sales Commission Agreement dated 01.01.2010, under which it negotiated & concluded global framework agreements with global turbine manufacturers (e.g., Siemens Gamesa, Vestas, Senvion). LM India independently manufactured blades in India and executed supply contracts with Indian subsidiaries of such global customers. Purchase orders, invoicing, delivery, risk transfer, and receipt of sale consideration all took place directly between LM India and the Indian customer. No material showed that Assessee used LM India’s factory, office, personnel, or any premises in India. No employee of Assessee visited India during the year.
The ITAT noted that the AO incorrectly relied on agreements not applicable to FY 2019-20, including a Global Agreement dated 13.01.2021, and various 2019 framework agreements irrelevant to the commissioning income for the year. These wrong agreements were consciously acknowledged even in the assessment order. The Tribunal held that the correct agreements placed before the DRP clearly demonstrated independent principal-to-principal functioning, and none suggested that the Assessee had disposal-based control over LM India’s premises.
Relying on OECD commentary, Formula One SC, Morgan Stanley SC, eFunds HC, Nortel HC, Progress Rail HC & Western Union HC principles, the Tribunal held that no Fixed Place PE or Business Connection existed, as business of the Assessee was not carried out “through” India and no premises were at its disposal. All sales support activities took place in Denmark. Therefore attribution of income in India did not arise. The AO’s assumption of 35% profit and 70% attribution was found baseless and contrary to settled law.
Accordingly, the Tribunal deleted the entire addition of ₹16.97 crore, holding that the sales commission of ₹69.28 crore is not taxable in India.
On the royalty issue, the Tribunal accepted the Assessee’s position that royalty under the 01.01.2017 Know-How Licence Agreement remained taxable on gross basis u/s 115A, since it was not effectively connected with any PE (as no PE existed). Hence, section 44DA was inapplicable.
Penalty initiation u/s 271AA was held unsustainable.
Result: Appeal allowed; sales commission not taxable; no PE; no business connection; royalty taxable only u/s 115A; additions deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal preferred 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.
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.
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:
| 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.
