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AIT-2008-10-ITAT IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ‘C’: NEW DELHI
BEFORE Shri N.V. Vasudevan & Shri Deepak R. Shah ITA NOS. 1496 TO 1501/DEL OF 2007
Asstt. Years : 1997-98 to 2000-01, 2002-03 & 2003-04 M/s Rolls Royce Plc
C/o Luthra & Luthra, CAs,
16/9, Vasant Vihar, New Delhi | Vs. | Dy. Director of Income-Tax
Circle 2(1), International Taxation, New Delhi | (Appellant) | (Respondent) |
Appellant by: S/Shri Vikas Srivastava, Arvind Dubey & Jatin Dedwani
Respondent by : S/Shri Devender Shankar and Smt. Smita Jhingran AIT Head Note: The appellant is a company incorporated in United Kingdom ('UK') and is a tax resident of that country. The appellant is a non-resident foreign company for the purpose of its tax assessment in India. The appellant was not filing any return of income in India. It was found by the AO that the appellant was supplying aero-engines and spare parts of Indian Customers, mainly to M/s. Hindustan Aeronautics Limited (HAL), Indian Navy and Indian Air force. AO was of the view that the appellant was having a business connection in India u/s 9 of the Act as well as permanent establishment under article 5 of the Double Taxation Avoidance Agreement between India and UK. The business connection and permanent establishment were found to be in existence in India in the form of a UK incorporated subsidiary company of the appellant which was having its offices in India. It was found by the AO that the marketing and sale of goods to Indian customers were carried out by the appellant through the said permanent establishment situated in India. As the appellant was found to have carried out its business activities through the permanent establishment situated in India, the AO was further of the view that the profits attributable to the permanent establishment was liable to tax in India in terms of article 7 of the DTAA. The AO, accordingly, invoked rule 10 of the Income-tax Rules, 1962 and attributed 100% of the profits arising from sale of goods to Indian customers in India We shall, therefore, allocate 50% of the profits towards manufacturing activity which cannot be taxed in India as no such manufacturing activity is carried out in India. In respect of other activities apart from marketing of goods in India, the assessee has also carried out research and development activity outside India. In a product in which the assessee deals in Research and Development activities are as important as manufacture. R&D activities are on an ongoing basis which results into development of newer products. We, therefore, allocate 15% of the profits to such R&D activities. Balance of the profit can be attributable to the marketing activities which are in India. Though contracts are signed outside India yet the negotiations and other discussions are in India and hence, all other profits can be said to accrue or arise into directly or indirectly through the operations of PE in India. We, therefore, direct the AO to adopt 35% of the profit as against 75% of the global profits in respect of sales effected in India as chargeable to tax in India. (Para 24) ORDER Per: Deepak R. Shah, AM : 1. All these appeals by assessee are directed against the common order of learned CIT(A)-XXIX, New Delhi dated… Click here for Full Text of Judgment
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