By Geeta Jani, Dhishat B Mehta, Chartered Accountants
10. I.T.A.No.1742/Mds/2011
Carpi Tech SA vs. ADIT
A.Y.: 2008-09, Date of Order: 24th August, 2016
Facts
Taxpayer a company resident in Switzerland, was engaged in the
business of water proofing and providing drainage systems. During the relevant
assessment year, the Taxpayer had received certain amounts for undertaking a
project for an Indian company.
The Taxpayer contended that the project was only for 40 days (i.e.,
less than six months), and it did not have ‘continuous presence’ or ‘business
connection’ or ‘permanent establishment’ in India. Therefore, receipts from
such project is not chargeable to tax in India. The Taxpayer also had an Indian
subsidiary1 (“Sub Co”).
In the course of inquiry, the AO found that the Taxpayer had also
executed a project in financial year 2004-05 and 2005-06. The duration of the
said project was 105 days. Between the two projects, the time lag was three
years.
During the intervening period, the MD of Sub Co was making efforts
to secure other projects for the Taxpayer in India. The website of the Taxpayer
mentioned office-cum-residential address of the MD for correspondence. The MD
was given a power of attorney (PoA) to undertake the activities of the Taxpayer
in India. Further Sub Co also had a PoA to represent the Taxpayer in its
projects in India.
Based on these as well as several other facts, the AO concluded
that Sub Co and its MD were dependent agents exclusively acting for the Taxpayer
and that the income was subject to tax under Article 7. The DRP upheld the
order of the AO.
1 While the decision mentions Indian company
as a subsidiary, the facts appear to indicate that though the name of Indian
company was similar to the name of the Taxpayer, all the shares were held by
two individual shareholders one of whom was MD of the company. Thus, impliedly,
the Taxpayer did not have any shares in the Indian company.
Held
– The facts and the documents indicates that
all the actions related to the project were undertaken by or routed through Sub
Co or its MD. The MD was also holding PoA from the Taxpayer and signed all
documents on behalf of the Taxpayer.
– It is not necessary that place of business
should be exclusively available to the Taxpayer. What is required is that to
constitute a PE, business must be located at a single place for reasonable
length of time though the activity need not be permanent, endless or without
interruption. In Sutron Corporation vs. DIT [2004] 268 ITR 156 (AAR) and
in Motorola Inc vs. DCIT [2005] 95 ITD 269 (Del) (SB), residence of
country manager was held to be fixed place of business since it was used as an
office address.
– The residence of MD from where all activities
of the Taxpayer in relation to Indian project, such as participation in bids,
correspondence with customers, signing of contracts, execution of the project
and closure of the project etc. was carried on triggered a fixed place
PE for the Taxpayer in India.
– Sub Co incurred all the project-related
expenses. The Taxpayer reimbursed these expenses
– The activities of the Taxpayer and Sub Co
were intertwined and Sub Co participated in economic activities of the
Taxpayer. Sub Co was the face of the taxpayer in India and had a PoA to
represent the Taxpayer in India. Thus the premises of Sub Co also resulted in a
fixed place PE for the Taxpayer in India.
– Further the Taxpayer was relying on the skills and knowledge of the
MD. His role was critical to all the aspect of the contract through the stage
of signing to its execution.
– There was no evidence for the claim of the
Taxpayer that MD of Sub Co was independent agent because he represented other
companies. While an independent agent would be required to have objectivity in
execution of tasks of its principal, role played by MD could not be easily
separated from services of the Taxpayer. MD was acting exclusively or almost
exclusively for the Taxpayer.
– The functions performed by MD or Sub Co could
not be considered as preparatory or auxiliary in character. The Taxpayer had
not demonstrated that it had a mere passing, transient or casual presence in
India. Accordingly, Sub Co and MD constituted fixed place PE and dependent
agent PE of the Taxpayer in India.
