Taxpublishers.in - InterestingDecision/IDDTF_292.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 144 Views


Tax Publishers Attribution of profits in the hands of a Liaison Office (LO) *Facts:* Assessee a German company in the business of publishing technical books had a Liaison office (LO) in India under permissions of RBI. Arising out of the promotional activities by the LO, assessee was able to sell books directly to distributors and to other end customers directly out of Germany. Besides this there was an Indian subsidiary of the assessee who was remunerated at 11% for their activities by the assessee. This was found to be at arm's length and was not the dispute in this case. Assessee also got some books printed in EPZ (Export Processing Zone) using some Indian publishers and these were distributed to Indian customers as well. Arising out of a survey operations various statements were obtained from the assessee where in the revenue alleged that the LO was more than mere preparatory and auxiliary entity and thus created a place PE for the assessee in India under Indo-German DTAA Article 5(2). Attribution of profits were made @ 15% under rule 10 by lower authorities. On appeal to ITAT the prime issue was whether the LO created a PE in India and if yes, what was the attribution of income to be taxed in India. Held against the assessee that to the limited extent of the EPZ activities since the averments proved that the LO was doing more than mere preparatory and auxiliary activities, by enabling conclude contracts for the assessee in India on regular basis they created a place PE in India. Attribution was thus to be made at 11% of 80% of the sales in India via EPZ and not on other business models of the assessee. *Ed. Note:* Assessee cited below cases to support their plea that there was no PE in India. (i). Union of India v. U.A.E. Exchange Centre Ltd. (2020) 273 Taxman 122 (SC) (ii). IAC v. Mitsui & Co. Ltd. (1991) 39 ITD 59 (Delhi) (SB) : 1991 TaxPub(DT) 1600 (Del-Trib) (iii). DIT v. Mitsui & Co. (2018) 407 ITR 294 (Delhi) [SLP Dismissed/Rejected in (2019) 111 taxmann.com 215 (SC)] : 2018 TaxPub(DT) 1459 (Del-HC) (iv). DIT (Intl. Taxation) v. Morgan Stanley & Co. Inc. (2007) 292 ITR 416 (SC) : 2007 TaxPub(DT) 1354 (SC) (v). Sojitz Corporation v. ADIT (2008) 117 TTJ 792 (Kolkata) : 2008 TaxPub(DT) 1193 (Kol-Trib) (vi). Metal One Corpn. v. DD1T (2012) 52 SOT 304 (Delhi) : 2012 TaxPub(DT) 2556 (Del-Trib) (vii). S.R. Technics Switzerland Limited v. ACIT (2022) ITA No. 6616/Mum/2018, dt. 25-11-2022 : 2023 TaxPub(DT) 1917 (Mum-Trib). *Case:* Springer Verlag Gmbh v. DCIT 2024 TaxPub(DT) 246 (Del-Trib)

Tax Publishers

Attribution of profits in the hands of a Liaison Office (LO)

Facts:

Assessee a German company in the business of publishing technical books had a Liaison office (LO) in India under permissions of RBI. Arising out of the promotional activities by the LO, assessee was able to sell books directly to distributors and to other end customers directly out of Germany. Besides this there was an Indian subsidiary of the assessee who was remunerated at 11% for their activities by the assessee. This was found to be at arm's length and was not the dispute in this case. Assessee also got some books printed in EPZ (Export Processing Zone) using some Indian publishers and these were distributed to Indian customers as well. Arising out of a survey operations various statements were obtained from the assessee where in the revenue alleged that the LO was more than mere preparatory and auxiliary entity and thus created a place PE for the assessee in India under Indo-German DTAA Article 5(2). Attribution of profits were made @ 15% under rule 10 by lower authorities. On appeal to ITAT the prime issue was whether the LO created a PE in India and if yes, what was the attribution of income to be taxed in India.

Held against the assessee that to the limited extent of the EPZ activities since the averments proved that the LO was doing more than mere preparatory and auxiliary activities, by enabling conclude contracts for the assessee in India on regular basis they created a place PE in India. Attribution was thus to be made at 11% of 80% of the sales in India via EPZ and not on other business models of the assessee.

Ed. Note: Assessee cited below cases to support their plea that there was no PE in India.

(i). Union of India v. U.A.E. Exchange Centre Ltd. (2020) 273 Taxman 122 (SC)

(ii). IAC v. Mitsui & Co. Ltd. (1991) 39 ITD 59 (Delhi) (SB) : 1991 TaxPub(DT) 1600 (Del-Trib)

(iii). DIT v. Mitsui & Co. (2018) 407 ITR 294 (Delhi) [SLP Dismissed/Rejected in (2019) 111 taxmann.com 215 (SC)] : 2018 TaxPub(DT) 1459 (Del-HC)

(iv). DIT (Intl. Taxation) v. Morgan Stanley & Co. Inc. (2007) 292 ITR 416 (SC) : 2007 TaxPub(DT) 1354 (SC)

(v). Sojitz Corporation v. ADIT (2008) 117 TTJ 792 (Kolkata) : 2008 TaxPub(DT) 1193 (Kol-Trib)

(vi). Metal One Corpn. v. DD1T (2012) 52 SOT 304 (Delhi) : 2012 TaxPub(DT) 2556 (Del-Trib)

(vii). S.R. Technics Switzerland Limited v. ACIT (2022) ITA No. 6616/Mum/2018, dt. 25-11-2022 : 2023 TaxPub(DT) 1917 (Mum-Trib).

Case: Springer Verlag Gmbh v. DCIT 2024 TaxPub(DT) 246 (Del-Trib)