By Geeta Jani | Dhishat B. Mehta
Chartered Accountants
4.
TS-74-ITAT-2019(Mum) Hempel Singapore
Pte Ltd. vs. DCIT A.Y.: 2014-15 Date of Order: 8th
February, 2019
Article 7 of India-Singapore DTAA – No
further profit attribution to an Indian agency PE where the commission is paid
at arm’s length.
FACTS
Taxpayer, a foreign company incorporated in
Singapore, was engaged in the business of selling protective coating/paints for
marine industry. Taxpayer had appointed its wholly owned subsidiary in India (I
Co) as a sales agent for rendering sales support services in India. For such
services I Co was remunerated at cost plus mark-up as commission on sales
effected in India. There was no dispute on the ground that I Co constituted
dependent agency PE (DAPE) for the Taxpayer in India under Article 5(4) of
India-Singapore DTAA.
Taxpayer contended that the cost plus mark
up to I Co was at arm’s length. Further, since the income attributable to the
DAPE in India was equal to the commission paid to I Co, the resultant income in
India was NIL.
AO, however computed an ad hoc amount
of 25 percent of sales in India as the income attributable to the DAPE in
India. Thus, the difference between such income and commission paid to ICo was
held as taxable in India.
The DRP affirmed the order of the AO.
Aggrieved, Taxpayer appealed before the
Tribunal.
HELD
- A foreign company is liable
to be taxed in India on so much of its business profits as is attributable to
its PE in India.
- The commission paid by the
Taxpayer to I Co was accepted to be at arm’s length in the transfer pricing
analysis of I Co for the relevant year.
- Further, once the commission
is accepted to be at arm’s length in the hands of the agent, a different view
cannot be taken in the case of non-resident principal who pays the commission
to the agent. This principle has been enunciated by Delhi High Court in the
case of DIT vs. BBC Worldwide Ltd.3
- If basis the transfer
pricing analysis undertaken, the remuneration paid to the Indian agent is held
to be at an arm’s length, there is no need to attribute further profits to the
agency PE. The above principle has been confirmed by the Hon’ble Supreme Court
in the case of Morgan Stanley & Co. Inc4 and the Hon’ble Bombay High Court in the case
of SET Satellite Singapore Pte Ltd5. For this purpose, it is
of no relevance if the transfer pricing analysis of the commission paid is done
in the hands of the agent and not the principal.
3. ITA Nos. 1341 of
2010 & ors. dated 30.09.2011
4. 292 ITR 416
5. (2008) 307 ITR 205
