November 2010
On facts, Indian branch of American company carrying on research and development activity in India was a PE. Consequently, profit attributable to it was to be computed following arm’s-length principle.
By Geeta Jani
Dhishat B. Mehta
Chartered Accountants
Reading Time 2 mins
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Pioneer Overseas Corporation
v. DDIT
(2010) 131 TTJ (Del.) 409
Article 5, 7 of India-USA
DTAA
S. 9(1)(i) of Income-tax Act
A.Ys. : 1997-98 & 1999-2000
to 2001-02
Dated : 24-12-2009
5. On facts, Indian branch
of American company carrying on research and development activity in India was a
PE. Consequently, profit attributable to it was to be computed following
arm’s-length principle.
Facts :
The assessee was an American
company. The assessee had a branch in India for carrying out the following two
distinct activities :
(i) Conducting agri-genetic
research, the results of which to be made available to Indian companies; and
(ii) Production of
parent seeds and its sales to joint venture company under an arrangement.
The assessee also had a
joint venture company in India. The branch developed and produced hybrid breeder
seeds which were used for producing and multiplying parent seeds. The branch
sold the parent seeds to the joint venture company.
The data collected by the
assessee while developing breeder seeds formed part of the reach pool of the
head office. This data was used by the head office and other branches of the
assessee globally.
Held :
The Tribunal held as follows
:
(i) Both the activities
of the branch were interwoven, inter-related, co-ordinated, interlinked and
interdependent. Thus, the activities of Indian branch directly or indirectly
contributed to the income of the head office. Consequently, the Indian
branch was not covered under the exclusion in Article 5(3)(e) of India-USA
DTAA. Therefore, the branch constituted PE in India of the assessee.
(ii) The income of the
PE to the extent of its contribution would be taxable in India. In the light
of Article 7(1) and (2) of India-USA DTAA, the PE should be treated as
separate profit centre and profit attributable to it should be computed on
an arm’s-length principle.
