Amit Shukla, Judicial Member - The aforesaid appeal has been filed by the assessee against impugned assessment order dated 12.10.2011, passed in pursuance of direction given by the Dispute Resolution Panel-II (DRP) u/s 144C(5) for the assessment year 1997-98. In various grounds of appeal, the assessee has mainly challenged the direction of the DRP that the assessee has a dependent agency Permanent Establishment (PE) in India under Article 5(4) and 5(5) and also has a Service PE under Article 5(2)(k) of Indo-UK DTAA and thereby taxing the 'Distribution' revenues on gross basis u/s 44D. The other grounds are merely reiteration of this issue on many counts. Lastly, the assessee has also challenged the levy of interest u/s 234B & 234D. Besides this, the assessee has also raised additional ground stating that :
"Without prejudice, if the assessee does constitute a PE in India then no further profits can be said/sought to be attributable to the PE as the transaction with the assessee have been found to be at arm's length by the Transfer Pricing Officer (TPO), in subsequent years".
2. The brief facts and background of the case are that, the assessee company, M/s Reuters Limited is incorporated under the laws of the United Kingdom (UK) and is a tax resident of UK. It is mainly engaged in the business of providing worldwide news and financial information products (which are termed as "Reuters Products"). The news and financial information products are produced, compiled and distributed by the assessee company through 'Reuters Global Network' with a vast global communication network consisting of data storage facilities situated in three locations i.e. London, New York and Singapore, which are linked by satellite links and terrestrial lines. The assessee uses the network to receive and transmit information and provide access of the compiled news and edited financial information to distributors in the various countries. In India, the assessee provides 'Reuters products' to its Indian subsidiary named as 'Reuters India Private Limited ('RIPL') under certain specified agreements. In turn, the RIPL distributes the 'Reuters products' to the Indian subscribers independently in its own name. The assessee (Reuters) had three kinds of contractual agreements/arrangements with 'RIPL', that is :—
| (i) |
License Agreement LA: Under this agreement dated 06.01.1995 the assessee has granted RIPL non-exclusive license to use the trademark "Reuters" and in consideration thereof the RIPL pays a license fee, which is a "Royalty" amounting to 1 percent of its total subscription revenues received from its subscribers in India. Such a receipt of 'royalty' is offered to tax in India, which is not the issue of dispute in the present appeal; |
(ii) |
Product Distribution Agreement: Under this Agreement with RIPL, a product distribution fees for distribution of some of the assessee's specific software products is charged on a prescribed percentage ranging from 22% to 25% of the revenue from the subscribers under the product distribution agreement (PDA). The revenue from this agreement is also not the subject matter of dispute here in this appeal; and |
(iii) |
Distributor Agreement: Under the Distributor Agreement (DA) dated 06.09.1995, the RIPL has been appointed as distributor to sell designated 'Reuters Products' to subscribers in India using the Reuters Global Network. Under this agreement, the assessee provides RIPL connection to the Reuters Global Network whereby products are made available to the RIPL, which are then distributed by RIPL to various subscribers in India independently. In the present case, the revenue resulting from distribution agreement to the assessee is the subject matter of dispute whether the same is to be taxed in India on the ground that the assessee has PE in India either under Article 5(2)(k) or under Article 5(5) or both. |
3. In this case, original assessment order was passed, wherein the revenues earned by the assessee under the DA were treated as in the nature of 'fees for technical services' taxable under Article 13 of the DTAA, @ 20% of the gross revenue. It was further held that RIPL constituted dependent agency PE in India under Article 5(5) and accordingly, income was computed in accordance with the section 44D and entire revenue was taxed on the gross basis. In the first appeal, the Ld. CIT(A) vide order dated 08.12.2000 held that the amount received under the 'distribution fees' is not FTS and therefore, cannot be taxed under Article 13. It was further held that RIPL is not an agent of the assessee and, therefore, do not constitute Agency PE for taxing the distribution fee in India. Uptil this stage, there was no issue regarding service PE under Article 5(2)(k). Against this order, second appeal was preferred by the Revenue before the Tribunal. The Tribunal vide order dated 29th July, 2009, remanded the matter to the Assessing Officer for fresh consideration with regard to the existence of PE in India, not only under Article 5(5) but also within the meaning of Article 5(2)(k) of the Indo-UK-DTAA.
4. Now, in pursuance of ITAT order, the Assessing Officer required the assessee to show cause as to why RIPL should not be treated as PE of assessee in India under article 5(5) and also about service PE under Article 5(2)(k). In response, the assessee filed very detail submissions which have been incorporated by the Assessing Officer from pages 3 to 8 of the assessment order. In the draft assessment order, the Assessing Officer held that assessee has an agency PE in India as RIPL has done exclusive business for the assessee in India and had all the authority to market the assessee's product in India; secondly, the assessee has deputed one, Mr. Simon Cameron Moore, as Bureau Chief of Bombay from 19.08.1996 and he was in India during the relevant financial year and accordingly, the assessee had service PE also in India under Article 5(2)(k). Against the said draft assessment order, the assessee filed objections before the DRP, which can be summarized as under :—
| (i) |
The direction of the ITAT to the Assessing Officer is only with the respect to determination of PE under Article 5(5) of the Treaty; |
(ii) |
Essence of agency is not satisfied and the contract between the assessee and RIPL are on the principal-to- principal basis; |
(iii) |
Article 5(4) of the Treaty applies if the entity is not an independent agent; |
(iv) |
There is no finding on how Mr. Simon Moore, the employee constitutes a service PE for the assessee in India. The employee works under the direction supervision and control of RIPL's Board and does not render services to RIPL for or on behalf of the assessee; |
(v) |
Section 44D is not applicable; |
(vi) |
No attribution can be done since the agent has been compensated at arm's length. |
5. The DRP, rejected the assessee's objection on all the counts and held that the assessee has a PE in India under Article 5(4) & 5(5) in the form of RIPL, as it was dedicated for the business of the assessee; and secondly, Mr. Simon Moore was deployed in India as Bureau Chief during the relevant period, for rendering service to RIPL on assessee's behalf and, therefore, such services will constitute service PE in India. Accordingly, the Assessing Officer in the final assessment order passed in pursuance of such directions of the DRP held as under:
"7. As per the directions of the honourable ITAT it is to be determined whether a PE under Article 5(5) of the DTAA exists for the Assessee. On the basis of the agreements and after considering the submissions of the assessee, it was concluded during the assessment proceeding the submissions of the assessee, it was concluded during the assessment proceedings that the assessee has an agency PE in India as RIPL has only done the business of the assessee and had all the authority to market the assessee's products in India. Accordingly, considering the submission of the Assessee, it was held that there is an agency PE of the Assessee under Article 5(5) of the DTAA for AY 1997-98.
8. Under Article 5(2)(k), a UK resident will be deemed to have a PE in India if it renders services through employees deputed to India. The Assessee has deputed employees to RIPL and this is indicated by the appointment of Mr. Simon Cameron Moore to RIPL as Bureau Chief of Bombay from 19.08.1996 as per the letter dated 12.06.1996 which was brought out by the DR during the hearing for AY 1997-98 before the ITAT. The Assessee has not brought any document or third party evidence like passport copies on record to prove that Mr. Simon Moore was in fact not in India during the period 1996- 97. The Assessee has therefore was in fact not in India during the period 1996-97. The Assessee has therefore deputed its employee to RIPL in senior capacity. Thus, as Mr. Simon Moore was in India since 12.06.1996, the Assessee has PE in India under Article 5(2)(k) of the DTAA for AY 1997-98".
Thereafter, the Assessing Officer, taxed the entire "distribution fee" on gross basis @ 20% u/s 44D r.w. section 115A.
6. Before us, Ld. Senior Counsel, Shri P J Pardiwala, after explaining the entire facts, submitted that the main issue which needs to be examined is, whether the PE of the assessee under Article 5(2)(k) and 5(5) can be said to have been established in India qua the fees received under the "Distribution Agreement" between assessee and RIPL. He submitted that the 'distribution agreement' was mainly for the distribution of 'Reuters Products' in India and supply of news, reports etc., by the assessee to the distributor, and from the distributor to the assessee. This agreement was on principal-to-principal basis. Regarding application of service PE under Article 5(2)(k) on the ground that, Chief Bureau, Mr. Simon Moore was an employee of an assessee who was deputed to serve in India and, hence, assessee is furnishing services in India and, therefore, there is service PE in India, Mr. Pardiwala submitted that firstly, it has to be seen what is the role of Bureau Chief under the distribution agreement, that is, what kind of services he was rendering for the purpose of generating receipts/revenue under the said agreement. He pointed out that the role of the Chief Bureau was mainly gathering, writing and distributing the news and overall coverage of news. He is merely a Reporter. The duties and functions performed by Bureau Chief has nothing to do with the furnishing of services to the assessee qua the 'Distribution Agreement'. No profit is attributable under the Distribution fee on account of functioning of Chief Bureau. In support of roles and functions performed by the Bureau Chief he has filed an article available in public domain in the internet illustrating the functions and duties of a News Bureau Chief and pointed out that by no stretch of imagination it can be held that Bureau Chief was rendering any service qua the DA or any fee under the DA is attributable to Bureau Chief, so as to constitute service PE of assessee in India within the meaning and scope of Article 5(2)(k).
7. Regarding agency PE under Article 5(4) and 5(5), Mr. Pardiwala submitted that RIPL cannot be said to be dependent agent of the assessee, because for being dependent agent, it is essential that all the conditions as mentioned in Article 5(4) are fulfilled, i.e. firstly, the agent habitually exercises an authority to negotiate and enter into contracts for and on behalf of the enterprise; and secondly, he habitually maintains stock of goods or merchandise from which he regularly delivers the goods or merchandise for on behalf the enterprise; and lastly, habitually secures the order wholly for the enterprise. None of these conditions for being dependent agency PE is established qua the distribution agreement in the case of the assessee, because the RIPL is not exercising any authority to negotiate and enter into a contract for and on behalf of the assessee so as to bind the assessee. It is neither maintaining any stock of the goods or merchandise nor habitually secures any orders wholly or almost wholly for the enterprise. Further it is not covered under Article 5(5) also, because RIPL is neither a broker, nor commission agent, or any other agent of an independent status, because RIL is acting in the ordinary course of business. The activities of RIPL is not restricted or devoted wholly or almost or almost wholly for the assessee which is evident from the fact that it has substantial receipts/income from transaction with third parties. He submitted that for being a dependent agent, all these conditions as enumerated in Article 5(4) have to be fulfilled and in support of his contention he strongly relied upon the decision of the Co-ordinate Bench in the case of Varian India (P.) Ltd.v. Asstt. DIT [2013] 142 ITD 692/33 taxmann.com 249 (Mum.). He also drew our attention to the agreement between RIPL and various other customers in India to show that RIPL entered into a contract with these parties independently at its own risks and rewards and has nothing to do with the assessee. RIPL treats all receipts as its own receipts and the payment made to the 'Reuters' is treated as its expense hence, the relationship between assessee and RIPL and transactions are strictly on principal-to-principal basis qua the DA and also otherwise. Thus, there is neither a service PE in the form of Bureau Chief nor any agency PE in India, hence a distribution fee cannot be taxed in India.
8. On the other hand, Ld. CIT DR, Ms. Vandana Sagar, after referring to various clauses of distribution agreement, submitted that the assessee did had an agent in India in the form of RIPL, which worked mostly for the assessee and activities done by the RIPL is quite akin to activities given in clause (a) of para 4 of Article 5. She also referred to certain Reuters Service Contract to point out that and most of the income of the RIPL is from service fee from the distribution of Reuters Products and services in India. All these go to show that RIPL was doing business for the assessee and did not had much independent source of income. For being a dependent agent PE, one has to see whether the person or entity is doing work or activity for on behalf of the Foreign Enterprise or not. She also referred to catena of case laws in support of various contentions, which are as under :—
| (i) |
Airlines Rotables Ltd. v. Jt. DIT [2011] 44 SOT 368 (Mum.); |
(ii) |
E Funds Corpn. v. Asstt. DIT [2010] 42 SOT 165 (Delhi); |
(iii) |
Nortel Networks India International Inc. v. Dy. DIT [2014] 49 taxmann.com 147/65 SOT 158 (Delhi - Trib.) (URO); |
(iv) |
Nimbus Sports International (P.) Ltd. v. Dy. CIT[2013] 18 taxmann.com 105/[2012] 136 ITD 69 (Delhi); |
(v) |
Galileo International Inc. v. Dy. CIT [2008] 19 SOT 257 (Delhi); and |
(vi) |
Rolls Royce Singapore (P.) Ltd. v. Asstt. DIT[2011] 13 taxmann.com 81/202 Taxman 45/[2012] 347 ITR 192 (Delhi) (URO) |
Regarding service PE, she submitted that the Bureau Chief has been seconded by the assessee to the RIPL for furnishing of service in India and remuneration is paid to him in London. This shows that he was contractual employer of the assessee who was deputed to perform services in India. Accordingly, the Bureau Chief can be said to constitute a service PE within Article 5(2)(k).
9. In the rejoinder, Mr. Pardiwala, submitted that, firstly, the major revenue of RIPL is from the Indian customers which is evident from the copy of profit and loss account and only part of the revenue i.e. Rs. 4.80 crores have been received as service fee, therefore, it cannot be said that RIPL is doing exclusive work only for the assessee. As regards decisions relied upon by the DR, he submitted that all the decisions are squarely distinguishable on facts and none of them are remotely applicable to the facts of the assessee's case. Regarding Delhi High Court decision in Rolls Royce Singapore (P.) Ltd(supra), Mr. Pardiwala submitted that subsequently the said decision has been recalled by the Hon'ble Delhi High Court itself in a review petition vide order dated 27th July, 2007 and fresh hearing will take place, therefore, reliance on the said decision will not be appropriate.
10. We have heard the rival contentions, perused the relevant finding given in the impugned orders and material placed on record. In the second round of proceedings, we are mainly required to examine, whether the assessee has a PE in India, especially with regard to payment under the distribution agreement, that is, distribution fee. For other payments, there is no dispute at all. The assessee is a tax resident of United Kingdom and has worldwide business of providing news and financial information distributed through Reuters Global Network. In India, it has entered into distribution agreement with RIPL for distribution of news and information service compiled by the 'Reuters' from the materials collected either by the 'Reuters' itself or from its subscribers in the territory of India and also supply of news and information by the distributor. First, we shall examine whether the payment made under the Distribution Agreement can be taxed in India on the ground that RIPL constitutes dependent agent PE of assessee in India within Article 5(4) & 5(5), which sake of ready reference are reproduced hereunder :—
"(4) A person acting in a Contracting State for or on behalf of an enterprise of the other contracting State - other than an agent of an independent status to whom paragraph (5) of this Article applies, shall be deemed to be a permanent establishment of that enterprise in the first mentioned State if:
| (a) |
He has, and habitually exercises in that State, an authority to negotiate and enter into contracts for or on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or |
(b) |
He habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise for or on behalf of the enterprise; or |
(c) |
He habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and the enterprises controlling, controlled by, or subject to the same common control, as that enterprise. |
5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, if the activities of such an agent are carried out wholly or almost wholly for the enterprise (or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it or are subject to same common control) he shall not be considered to be an agent of an independent status for the purposes of this paragraph".
It can be seen that an agent is deemed to be P.E., if he is not independent and habitually exercises an authority to conclude contracts on behalf of the enterprise or if he has no such authority, but habitually maintains stock of goods or merchandise from which he regularly deliver goods or merchandise on behalf of the enterprise or he habitually secure orders solely or almost wholly for the enterprise. If any of these conditions mentioned in Para-4 above, are not fulfilled, the agent cannot constitute a P.E. for the foreign enterprise
11. We shall now examine whether such conditions stands satisfied from the distribution agreement. Under the terms of distribution agreement, the 'Reuters' (i.e. assessee) agreed to provide Reuters Services to the RIPL (distributor) and for further re-distribution by the distributor to the subscribers in the territory of India. Distributor will put best of its efforts to promote and sell the Reuter services/products throughout India. The preamble sets out following arrangements :—
"(A) |
Reuters carries on the business of producing and distributing news and information services compiled by Reuters from material collected by Reuters itself and from its Subscribers and others together with dealing data manipulation facilities; |
(B) |
Such services and facilities are produced and distributed through and by means of world-wide computer and communications networks for the processing, storing, retrieval, switching and matching of information comprising Equipment (as hereinafter defined) located both inside and outside the Territory (as hereinafter defined); |
(C) |
The parties wish to enter into arrangements for; |
? |
distribution of the said services and facilities (hereinafter defined as "the Reuter Services") in the Territory; and |
? |
the supply by the Distributor to Reuters of news reports, pictures and television news film from the Territory for use in the Reuter Services". |
Clause 3 of the agreement provides for supply by 'Reuters' of the Reuter services to the distributor and Article 4 provides for the duties carried out by the distributor of news and materials. The relevant clauses of Clause 3 and Article 4 are reproduced hereunder :—
"Article 3 -Supply by Reuters of the Reuter Services to the Distributor
3.1 Reuters shall deliver Reuter Services to the Distributor and endeavour at all times to transmit the same without interruption unless prevented by circumstances beyond its control
3.2 Reuters shall inform the Distributor of any new service or transmission facility to be made available to Subscribers and shall give the Distributor any further information concerning such new service or facility as shall be necessary for the proper performance of this Agreement by the Distributor.
3.3 Reuters shall at its cost supply the Distributor with examples of current catalogues and other sales promotion material as developed by Reuters from time to time.
Article 4 - General Duties of Distributor - Supply of News Materials
4.1 General
The Distributor shall:
| (a) |
use its best endeavours to market promote the sales of and achieve maximum distribution of the Reuter Services in the Territory provided that the Distributor shall harmonise as far as possible its operations in the fields of marketing and publicity of the Reuter Services with those followed by Reuters in other countries of the world. In order to ensure consistency and high standards of sales promotion material in the Reuters Group worldwide, the Distributor shall submit all advertising and promotional material developed by it to Reuters for prior approval. Approval shall be deemed to be given 'if no action is taken by Reuters within twenty one (21) days from receipt of the said material. |
(b) |
in order to maintain the standard of Reuter group contracts and continuity with Reuters multicentre contracts utilize for contracts to be entered into between the Distributor and Subscribers forms of contract consistent with the standard forms from time to time in use by Reuters; and |
(c) |
notify Reuters of the names and addresses of any new Subscribers to the Reuter Services not later than four (4) week after such Subscribers first receive the Reuter Services. |
4.3 Contributors
The Distributor expressly recognizes that by accepting the Reuter Services for distribution, it has become a link in the Reuters international interactive network. As a part of this network the Distributor assumes the responsibility of :
| (a) |
providing such facilities to Subscribers in the Territory as will allow them not only to retrieve information from but also (were appropriate) to contribute information to the Reuter Services. |
(b) |
Withdrawing the contributor facility under the Reuter Services from any Subscriber who, in the reasonable opinion of the Distributor or Reuters, has misused such facility, and withdrawing from the Reuter Services any information contributed by any such Subscriber the insertion of which, in the reasonable opinion of the Distributor or Reuters has been a misuse of the facility; |
(c) |
Ensuring that the contributor facility is supplied to subscribers on such terms and conditions as shall enable the Distributor to fulfil its obligations under paragraph (b). |
4.5 Exchange and other information suppliers
| (a) |
where the Reuter Services supplied by Reuters to the Distributor contain prices or information relating to securities commodities or other financial markets and the supplier of that information requires Reuters and/or its distributors and licensees to collect fees from the recipients to whom such prices and information are ultimately delivered, the Distributor undertakes with Reuters to collect such fees from its Subscribers and remit the same to Reuters or as Reuters may direct. |
(b) |
where the Reuter Services supplied by Reuters to the Distributor contain prices or information relating to securities commodities or other financial markets in respect of which the supplier requires Reuters and/or its distributors and licensees to pay an additional fee or fees calculated upon the number of recipients to whom or number of items of terminal equipment through which such prices and information are ultimately delivered. Reuters may notify the Distributor of such fees and in addition to the distribution fee payable pursuant to Article 9.1 the Distributor shall pay the amount of such fees to Reuters or as Reuters may direct. |
(c) |
where Reuters is required by a supplier of information under paragraph (a) or (b) above to procure that the ultimate recipient of the information enters into an agreement with such supplier, then Reuters may notify the Distributor of such requirement and the Distributor shall procure Subscribers in the Territory to enter into such agreements and notify Reuters monthly with respect to each such Subscriber of its name the address of its premises and the number of terminals over which the relevant information is being received. |
4.6 News Materials
The Distributor undertakes to gather edit compile and supply to Reuters a file of news reports pictures and television news video material ("News Materials") on the news and features of the day within the Territory of a standard suitable for use by Reuters in the Reuter Services such file to be supplied to Reuters by satellite or cassette shipment in London or by such other means as may be agreed or in such other location as Reuters may indicate from time to time, and to provide related facilities and personnel".
Clause 5 provides for sub-distributors, which the RIPL may delegate any one or more of its duties provided under clause 4 to any third parties. Clause 6 provides for multi centre agreement wherein it has been provided that RIPL acknowledges to 'Reuters' that it may from time to time conclude agreements with subscribers. Clause 9 provides for payment to Reuters by the distributor in consideration for supply of Reuters services and if the distributors supply news material to the Reuters then Reuters shall pay to the distributors for supply of news material as a news fees.
12. From the plain reading of the relevant terms of the agreement, it is quite apparent that nowhere it has been specified or there is any mandate that RIPL is habitually exercising its authority to negotiate and to conclude the contracts on behalf of the assessee in the territory of India which binding or can bind the assessee. It envisages simply delivering of Reuter services for a price which can be further distributed by the RIPL for earning of its own revenue. There is no clause that RIPL will act as an agent on behalf of assessee qua the distribution to subscribers. In fact, the RIPL is having independent contract with the subscribers, which is evident from the contract agreement between RIPL and Third party subscribers in India as pointed out by the Ld. Counsel from pages 174 of the Paper Book. Further RIPL also files suits for any recovery of debts independently. Similarly, when RIPL is supplying news and material to the assessee, the same is again on principal- to-principal basis. The second condition as mentioned in para 4 of Article 5, also does not fulfill, because RIPL is not habitually maintaining any stock of any goods and merchandise for which it can be held that it is regularly delivering goods on behalf of Reuters. Lastly, it is not habitually securing the orders wholly and almost wholly for the 'Reuters'. The RIPL is earning substantial income from its own dealing with third party customers which is evident from the contract entered by the third parties and also from the income shown from "subscription fee" by RIPL from 3rd party customers as on 31st March, 1997 is at Rs. 64,14,97,984/- whereas, the service fee shown under the head "other income" is Rs. 4,80,79,626/-. There is no income by way of commission income shown by RIPL under the Distribution agreement. Nothing is flowing from the D A or financial accounts that RIPL is acting as an agent of the assessee. The character of an agent under Article 5(4) which can be said to be dependent is that the commercial activities of the agent for the enterprise are subject to instructions or comprehensive control and it does not bear the entrepreneur risk. The main thrust of an agent being a PE under Indo-UK treaty is that whether the agent has an authority to conclude contracts in the name of the enterprise i.e. the agent has sufficient authority to bind enterprise's participation in the business activities and the agent's activities involved the enterprise to a particular extent in the business activities. Thus, the qualified character of the agency is authorization to act on behalf of somebody else so much as to conclude the contracts. Here in this case, there is no such terms which is borne out from the distribution agreement that RIPL is only acting on behalf of 'Reuters' or is in kind of dependent agent. It is completely an independent entity and the relationship between the assessee and RIPL is on principal-to-principal basis.
13. Even under Para 5, the foremost condition is that the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise. As stated above, activities of RIPL cannot be said to be devoted wholly or almost wholly on behalf of the assessee as it has entering into contracts with the subscribers in India on independent basis and on principal-to-principal for earning and generating its revenues. In fact revenue from third party subscribes are far excess than transaction with the assessee. It is not the case here that it has completely or wholly doing activity for 'Reuters' and earning income wholly from 'Reuters' only. Thus, the conditions laid down in Article 5(5) also does not fulfil.
14. Now coming to the second limb of the controversy as to whether there is a service PE within the scope and ambit of Article 5(2)(k), which reads as under :—
"(k) the furnishing of services including managerial services, other than those taxable under Article 13 (royalties and fees for technical services), within a Contracting State by an enterprise through employees or other personnel, but only if:
| (i) |
activities of that nature continue within that State for period or periods aggregating more than 90 days within any twelve-month period, or |
(ii) |
services are performed within that State for an enterprise within the meaning of paragraph 1 of Article 10 (Associated enterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period |
Provided that for the purpose of this paragraph an enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with, or supplies plant and machinery on hire or to be used in, the prospecting for, or extraction or production of, mineral oils in that State."
It is clear from the provisions of Article 5(2)(k) that an Enterprise shall be deemed to have a PE in India if it furnishes managerial or other services except services which are taxable as 'royalty' or 'fees for technical services', through employees or other personnel, provided the duration of activities within the contracting state exceeds the prescribed period. The conditions to be satisfied are :
| (a) |
The enterprise furnishes the services within India; |
(b) |
Such services are furnished by the enterprise through employees or other personnel; |
(c) |
The services are not taxable under Article 13 of the Treaty (i.e. 'Royalty' and 'FTS'); and |
(d) |
The period of the activity of providing services exceeds the prescribed limits". |
15. The main thrust of Article 5(2)(k) is furnishing of services through employees or other personnel in the other contracting State. The revenue's case is that one, Mr. Simon Moore who has been deployed by the assessee in India as Bureau Chief of Bombay and was in India during the relevant period therefore, by virtue of his employment, the service PE of the assessee has been constituted. In the present context, we have to examine first, whether the Bureau Chief is providing any services to RIPL under the distribution agreement for which the assessee has received payment of distribution fee. The News Bureau Chief is very senior and experienced reporter or correspondent who is responsible for collecting and analyzing the news and holds a management position in the news centre or news room. He is mainly responsible for co-coordinating the efforts of the reporting staff to investigate and cover stories for dissemination of news to printing and media outlets. Mr. Simon Moore has been assigned to India by the assessee as a 'Text Correspondent' to perform functions of a Bureau Chief. Here his functions and duties has nothing to do with so far as distribution agreement is concerned, which is evident from Article 3 of the said agreement itself as incorporated above. There is no furnishing of services by the Bureau Chief to the RIPL which has lead to earning of a distribution fee to the assessee. Here, what we have to see is, whether the assessee is furnishing services as postulated under Article 5(2)(k) through Bureau Chief to RIPL who has been deputed by the assessee to work as an employee of the Indian company. As per terms of clause 3 of the agreement, the assessee is merely delivering Reuters services to the distributors. The Bureau Chief has nothing to do for providing of Reuters services to the distributor i.e. RIPL. The Bureau Chief is only acting as a Chief reporter and Text Correspondent in India in the field of collection and dissemination of news. Thus, it cannot be held that the News Bureau Chief constitute a service PE in India for the assessee to the Article 5(2)(k) as he has not furnished any services in India on which the assessee has earned the distribution fee. In view of our findings given above, we hold that neither under Article 5(2)(k) nor under Article 5(4) read with 5(5), the assessee has a PE in India and, therefore, the distribution fee received by the assessee can not be held to be taxable in India. Accordingly, the ground raised by the assessee on this score stands allowed.
16. In view of our aforesaid finding, the other grounds relating to computation of income in India on gross basis and u/s 44D becomes purely academic.
17. So far as ground relating to levy of interest u/s 234B, it has been admitted by both the parties that same is covered by the decision of Hon'ble Bombay High Court in the case of DIT (International taxation) v. NGC Network [2009] 313 ITR 187.
18. Regarding ground no. 7, which relates to levy of interest u/s 234D, the Ld. Counsel submitted that no refund was granted at all to the assessee and no interest has been originally charged by the Assessing Officer, therefore, provision of section 234D does not get triggered at all. In support, Ld. Counsel also referred to page 64 of the paper book, which is a computation of total income, wherein assessee has not claimed any refund. Accordingly, the Assessing Officer is directed to verify the contention of the assessee and accordingly no interest u/s 234D should be charged.
19. In the result, appeal filed by the assessee is treated as allowed.