The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to the Gemological Institute of America, as the Indian subsidiary operating in an independent manner would not constitute a Permanent Establishment (PE).
The appellant, Gemological Institute of America has filed an appeal against the order holding that the appellant had a ‘Permanent Establishment” (PE) in India. The Assessing Officer/ the Dispute Resolution Panel had erred in holding that appellant had a ‘Permanent Establishment’ in India. The Appellant submitted that the Assessing Officer/the Dispute resolution Panel had erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India.
J.D. Mistry, on behalf of the assessee, submitted that the DRP by following its directions for A.Y. 2017-18 held that the assessee had PE in India. He submitted that the DRP concluded by following previous directions i.e., A.Y.2016-17, 2011-12 and 2010-11.
He further submitted that the issue under considering had been considered by the Co-ordinate Bench of this Tribunal in the assessee’s case for the A.Y. 2010-11 dated 21.06.2019 and for the A.Y. 2017-18 and had decided that the assessee had no Permanent Establishment in India.
Hement Kumar on behalf of the revenue had fairly accepted the submissions of the appellant.
Analyzing the provisions of Article 5(4) of India – US/DTAA, an agency PE was created where a person other than an agent of an independent status is acting in India on behalf of an enterprise of the USA, that enterprise shall be deemed to have a permanent establishment in
India, if:
(a) he has and habitually exercises in India an authority to conclude on behalf of the enterprise, unless his activities are limited which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions.
(b) he has no such authority but habitually maintains in India a stock of goods or merchandise
from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise; or (c) he habitually secures orders in India wholly or
almost wholly for the enterprise.
The definition excludes from the ambit of a PE any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such a broker, general commission agent or any other agent having an independent status in the ordinary the course of its business
The two-member Bench of Shukla, (Judicial Member) and S. Rifaur Rahman, (Accountant Member) allowed this ground of appeal observing from the record that an identical issue was decided in favor of the assessee in the A.Y.2010-11 and held that assessee did not have a Permanent Establishment in India.
The Bench further observed that GIA India Lab was an independent/separate legal entity in which was engaged in the rendering of grading services. Further, considering the functions and the risks assumed by GIA India Lab visà-vis its business activities in India, GIA India Lab an independent entity which was rendering grading services to its clients in India. GIA India Lab also had beare service risk and all client facing risks vis-à-vis the stones sent to the assessee company for grading purposes so, GIA India Lab was not acting in India on behalf of the assessee company.
The Bench also held that the Assessing Officer had erred in invoking section 9 of the Income Tax Act Act or Article 5 of the India USA DTAA to say that the assessee company had a PE in India.
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