If any amount is to be taxed by virtue of having a Permanent Establishment in India or otherwise, the amount that can be taxed is Rs. Nil, as the Permanent Establishment has been compensated at arm’s length and has offered the said compensation for tax in India.
1. Appellant is company incorporated in the United States and is engaged in the business of selling and marketing medical equipments
2. Appellant has a wholly owned subsidiary in Hongkong
3. Both were making direct sales to customers in India
4. Wholly owned subsidiary setup a liaison office in India which was later converted to branch office
5. Even after setting up branch office they both were making direct sales
6. Indian branch office was getting management fees which was offered for taxation
7. Management fee was received as arm’s length compensation calculated on the basis of direct sales quantum
8. Receipt of management fees fell within the transfer pricing provisions and thus the matter was scrutinized by the Transfer Pricing Officer who held that sales made was at arm’s length and thus no addition was called for
9. AO held that the Indian branch had a permanent establishment in India and made an adhoc estimate of 20% of the direct sales
10. Assessee appealed to the CIT(A) who decided the matter partly in favour of assessee and revenue
11. AO issued notice u/s 148 in respect of the amounts deleted by the CIT(A)
12. Assessee and Revenue both preferred appeal to the Tribunal
13. Tribunal decided in favour of the assessee
Thus in view of the above mentioned finding it is held that even if any amount is to be taxed in the hands of SJMI (the appellant) by virtue of having a Permanent Establishment in India or otherwise, the amount that can be taxed is Rs. Nil, as the Permanent Establishment has been compensated at arm’s length and has offered the said compensation for tax in India which satisfies any charge in view of inter alia the decision of the Supreme Court in the case of DIT Vs Morgan Stanley & Co. (2007) 292 ITR 416 (SC) and the order of the TPO. Ground No. 4 is thus allowed.
Case referred to