JC BAMFORD INVESTMENTS ROCESTER Vs. DDIT
INCOME TAX APPELLATE TRIBUNAL
Jc Bamford Investments Rocester
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R.S.Syal, Member (A) -
(1.) THIS appeal by the assessee and the Cross Objection by the Revenue arise out of the order passed by the AO u/s. 143(3) read with section 144C(13) of the Income -tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 2008 -09.
(2.) GROUND Nos. 1 and 2 of the assessee's appeal are against the holding that the assessee has a Service Permanent Establishment (PE) in India within the meaning of Article 5 of Indo -UK Double Taxation Avoidance Agreement (DTAA). Briefly stated, the facts of the case are that the assessee is a company incorporated under the laws of and is tax resident of UK. The assessee derived income in the nature of Royalty/fees for technical services (hereinafter also referred to as 'royalty'), which was offered to tax @ 15% on gross basis in India as per tax rates specified in the DTAA. Before proceeding further, it is relevant to mention that JC Bamford Excavators Ltd., UK (JCBE), another group company, was also incorporated under the laws of and is tax resident of UK. On 05.03.04, JCBE entered into Technology Transfer Agreement (TTA) with JC Bamford India Ltd. (JCBI) to license the know -how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market Excavator Loader (P -92 version) in the territory of India under the brand name 3DX. On 17.12.07, JCBE, JCBI and the assessee entered into a tripartite Intellectual Property Agreement, pursuant to which JCBE's licence of intellectual property, given to JCBI for manufacturing and marketing 3DX in India, was sub -licensed to the assessee company in consideration of the payment of royalty by the assessee to JCBE. Under the new Agreement, the licence was to be commercially exploited by JCBI as was done earlier, but the royalty for such user was to be paid by JCBI to the assessee, who was to pass on 99.5% of the same to JCBE. That is how, the assessee derived income in the nature of Royalties/fees for technical services from JCBI which was offered to tax @ 15% in India on gross basis by treating the receipt as 'Royalties and Fees for technical services' covered under Article 13(2) of the DTAA.
3.2. The AO observed that in the earlier years, viz., AYs 2006 -07 and 2007 -08, he had held in the case of JCBE that their employees seconded to JCBI on assignment basis in India resulted into constituting service P.E. of JCBE in India in terms of Article 5(2)(k)(i) of the DTAA. He further noticed that the payment of royalty by JCBI to JCBE in respect of rights under the Technology Transfer Agreement (TTA) and International Personnel Assign Agreement (IPAA) in these earlier years was held to be effectively connected with the said service PE of the assessee in India. Relying on para 6 of Article 13, the Assessing Officer took the view in the earlier years that such royalties/fees for technical services was liable to be considered as 'Business Profits' under Article 7 of the DTAA as it was effectively connected with the P.E. After grossing up the receipt of royalty in terms of sec. 195A and allowing deduction for expenses at the rate of 20% of such amount of royalties/fees for technical services, he had computed total income of the assessee.
3.3. The AO noticed in the proceedings for the instant year that JCBE continued to second its employees to JCBI as was done in the earlier years. The details of such employees have been reflected on pages 3 and 4 of the assessment order. He further observed that all the terms and conditions for the use of the licence by JCBI were similar to those of the earlier Agreement. The only difference in this year was that under the new Agreement dated 17.12.2007, royalty was first paid by JCBI to the assessee and the assessee, in turn, paid it to JCBE in full less 0.5%. He found that the royalty ultimately reached JCBE but through the assessee. After going through various terms of the new Agreement in conjunction with the earlier Agreement, it was opined by him that TTA, IPAA and the present Agreement under consideration were not to be looked into isolation from one another. In this backdrop of the facts, he held that the employees of JCBE as seconded to JCBI constituted a service PE of the assessee as they were covered under the expression 'or other personnel' in Article 5(2)(k) of the DTAA. The assessee is aggrieved against the holding of its service PE in India.
(3.) WE have heard the rival submissions and perused the relevant material on record. It is observed that in the earlier years, JCBE licensed intellectual property rights for manufacture of excavators under the brand name 3DX to JCBI. However, by virtue of new Agreement entered on 17.12.07 w.e.f. 01.04.07 amongst the assessee, JCBE and JCBI, the intellectual property rights came to be sub -licensed to the assessee without interfering in any manner its actual exploitation by JCBI. All the terms and conditions for the use of such rights by JCBI under TTA and IPAA are same. The only difference that came into the hitherto arrangement was that whereas earlier JCBI was paying royalty directly to JCBE, now it is being routed through the assessee with the deduction of 0.05%. The question of a service PE of JCBE in India came up for consideration before the Tribunal for assessment years 2006 -07 and 2007 -08. Vide its order for the AY 2006 -07, the tribunal categorized employees of JCBE on deputation to India on assignment basis in the first category and those doing stewardship activities and inspection and testing in the second category. JCBI has been held to be constituting a service PE of JCBE in India because of the employees of the first category. The matter of the establishment of PE for the current year would have become a covered matter for the current year if there had not been the new factor of the tripartite agreement dated 17.12.2007, under which JCBE sub -licensed the intellectual property right to the assessee to 'manage the licensing of JCB UK's intellectual property to JCB India going forward.'. To buttress the view that the employees of JCBE constituted service PE of the assessee in India, the AO has observed that the employees of JCBE, earlier seconded to JCBI, continued to render services to JCBI during the year in question in the same way as they were doing in the past. This position was noticed by virtue of Clause (d) of the new Agreement and Clause 4.2 of this Agreement which clarifies that the delivery of technical documentation and making available of technical personnel as set out in earlier clauses III and IV of the Technology Agreement shall remain unaffected by this agreement and shall continue as rights and obligations between JCBE and JCBI under the Technology Agreement. The AO held that the above details coupled with the fact that JCBE received 99.5% of royalty from the assessee left nothing to doubt that there was service PE of the assessee as per Article 5(2)(k) of the DTAA covered within the ambit of 'other personnel'. Since this position has been candidly accepted by the ld. AR as well, we, therefore, refrain from any independent evaluation of this aspect. The ld. AR accentuated that his objections against the holding of the service PE of the assessee in India were practically the same which were taken for the earlier years. The tribunal has discussed and jettisoned such objections in its order for the A.Y. 2006 -07. Under such circumstances and following the precedent, we hold that all the requisite conditions for attracting the mandate of Article 5(2)(k) are satisfied inasmuch as (i) there is furnishing of services including managerial services; (ii) such services are other than those taxable under Article 13 (royalties and fees for technical services); (iii) such services are rendered out of India; (iv) such services are rendered by 'other personnel'; and (v) such activities continued for a period of more than 90 days within 12 months' period. It is thus held that the service PE of the assessee is established in India. These grounds are, therefore, not allowed.;
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