Section 9 of the Act and Article 5 of DTAA–Income – Deemed to accrue or arise in India (Permanent establishment) – Where there were all relevant documentary evidence available on record to render finding whether assessee, a Netherland based company, had a permanent establishment in India and the Tribunal having referred to same in its order could not have remanded back matter to Assessing Officer for consideration afresh? – The Tribunal having referred to all factual details and crystallised issues could not have remanded back matter to Assessing officer for consideration afresh

14. Co-operative Centrale
Reiffeisen Boerenleenbank B. A. vs. Dy. DIT, (International Taxation);  [2018] 97 taxmann.com 24 (Bom);

Date of order: 29^th
August, 2018:

A. Ys. 2002-03, 2003-04 and
2005-06

Section 9 of the Act and Article 5 of DTAA–Income – Deemed to
accrue or arise in India (Permanent establishment) – Where there were all
relevant documentary evidence available on record to render finding whether
assessee, a Netherland based company, had a permanent establishment in India
and the Tribunal having referred to same in its order could not have remanded
back matter to Assessing Officer for consideration afresh? – The Tribunal
having referred to all factual details and crystallised issues could not have
remanded back matter to Assessing officer for consideration afresh

The assessee was a tax resident of
Netherlands and was entitled to claim the benefit of the DTAA between India and
Netherlands. In fact the assessee was part and parcel of the Rabo bank group.
An Indian company, the Rabo India Finance Private Limited (RIFPL) was
registered as a non-banking financial company with the RBI. It provided wide
range of financial services such as credit facilities, investment banking,
strategic, financial and project advisory services. This company also belonged
to the Rabo group. It was claimed that both, the assessee and the said Indian
Company were independent entities but worked together on select assignments as
and when required. In the relevant years, the assessee claimed to have provided
assistance on principle to principle basis to the Indian company on a few
transactions and received fees and guarantee commission.

However, the amounts received under
the aforesaid category were not offered to tax in India on the ground that the
assessee did not have a permanent establishment in India within the meaning of
Article (5) of the DTAA. The Assessing Officer passed an order holding that the
Indian Company RIFPL was a permanent establishment of the assessee within the
meaning of Article 5 (5) of the DTAA. Hence, certain percentage of the sums
referred above were taken as profits attributable to the permanent
establishment. A further percentage from that was taken as profits chargeable
to tax in India. This resulted in the return depicting total income to Rs.
31.25 lakh.

On appeal, the
Commissioner(Appeals) came to the conclusion that the assessee neither had a
fixed place of business nor agency or any other form of permanent establishment
in India and consequently the income of the assessee was not taxable in India.
The Tribunal restored the matter back to the file of the Assessing Officer to
determine the issue afresh.

Thereafter, an application was
filed seeking rectification of order initially passed by the Tribunal. However,
the Tribunal concluded that the issue was rightly remitted to the Assessing
Officer by inter alia observing that the quantum of work done, services
rendered, the contract undertaken for outsiders would have to be examined to
determine whether RIFPL was an agent having independent status or was merely
working on behalf of assessee.

On appeal, the Bombay High Court
held as under:

“i)    The
First Appellate Authority while deciding the Appeals of the assessee has passed
a fairly detailed order. The facts and the submissions have been noted in his
order. In fact, under separate heads, the details have been noted and
considered. The Appellate Authority concludes that all the agreements placed on
record would indicate that the RIFPL had procured the contract of provision of
services to the two parties.

However, with a view to meeting its
obligations, the RIFPL further entered into an agreement with the assessee
requiring the assessee to provide advisory services in Italy for a
consideration paid by the RIFPL. Based on these two contracts, the First
Appellate Authority concluded that it cannot be said that RIFPL is acting as an
agent of the assessee. On the contrary, the agreements point towards the said
Indian company obtaining independent contracts and subcontracting the part of
the work thereunder to the assessee. On each of the counts, namely, guarantee
commission and other services, the First Appellate Authority has held that the
Assessing Officer committed a mistake. The clear conclusion in this order is
that the business profits of the assessee are not taxable in India in absence
of any permanent establishment in India within the meaning of article 5 of the
DTAA.

ii)    These
very materials could have been examined by the Tribunal and it would have
arrived at the satisfaction whether the Assessing Officer was correct or
whether the First Appellate Authority was right in reversing the order of the
Assessing Officer and holding as above in favour of the assessee. One does not
see why, when the Tribunal refers to all the factual matters in its order and
has in earlier paragraphs crystallised the issues, then, what was the occasion
for a remand. In the order under Appeal, the Tribunal notes that the assessee
preferred an Appeal before the First Appellate Authority and argued that the
concept of fixed place, permanent establishment requires the enterprises to
have their business or a place of management/branch in India or office in India
and the assessee had neither.

iii)    The activities of the Indian company did not result in
constitution of any agency or permanent establishment of the assessee and that
the Indian company did not have any authority to conclude the contract on
behalf of the assesee, that it did not maintain any stock of any goods or
merchandise of the assessee nor did it secure any orders from the assessee that
it was economically and legally independent, that it was acting in ordinary
course of its business not dependent on the assessee. During the year under
Appeal, the Indian company had income from various sources amounting to Rs.
1386.70 Million. The assessee received professional income and guarantee
commission. There was also certain reimbursement of expenses by the Indian
company.

iv)   In
the backdrop of all this, and further facts noted, a cryptic order has been
passed by the Tribunal. In fact, in the order under challenge in reference to
the Income Tax Appeal No. 4632 of 2006 for Assessment year 2002-2003, the
Tribunal says that the Indian company had made payment to the assessee for
providing the advisory services to it and under the Head ‘Guarantee Commission’
and that the Indian company was paying the assesee more than 30 per cent of its
income. That the basic issues are, as to whether the assesee had permanent
establishment in India or not and as to whether the services rendered by the
Indian company could be treated as the activities carried out by the assessee.
Yet, it says that there is nothing on record to prove that the provisions of
article 5(1) of the Agreement are applicable. That stipulates that the
permanent establishment for the purpose of convention meant a fixed business
through which the business of the enterprise was wholly or partly carried on.
The conclusion is that the assessee was not having fixed place of business in
India. Hence, the First Appellate Authority rightly held that the provisions of
article 5 (1) were inapplicable. It is in these circumstances, it is surprising
that the Tribunal still deems it fit and proper to remand the case. If there
was indeed no material on record, then, the above conclusion was impossible to
be reached.

v)    Judicial
decisions have to be consistent and all the more there should be no confusion.
There ought to be some predictability and when given facts and circumstances
give rise to certain legal principles which parties assert are applicable,
then, as a last fact finding authority, the Tribunal could have summoned all
records and thereafter should have arrived at a categorical conclusion whether
the First Appellate Authority was right or the Assessing Officer. This having
admittedly not been done, it is opined that the Tribunal failed to act as a
last fact finding authority. It failed to discharge its duty and function
expected of it by the law.

vi)   Thus,
the order of the Tribunal is set aside and revenue’s appeal is restored to the
file of the Tribunal for a decision afresh on merits and in accordance with
law.”