Income Tax Appellate Tribunal - Delhi
Ncr Global Solutions Limited, Ireland vs Dcit, Circle-2(2)(2) Int.Tax., New ... on 10 April, 2023
Author: G.S.Pannu
Bench: G.S.Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI "D" BENCH: NEW DELHI
BEFORE SHRI G.S.PANNU, PRESIDENT &
SHRI KUL BHARAT, JUDICIAL MEMBER
ITA Nos.1756 & 1776/Del/2022
[Assessment Years : 2018-19 & 2019-20]
NCR Global Solutions Limited., vs DCIT,
Lakeview Dr.Airside Business Circle 2(2)(2),
Park, Swords Co. Dublin Ireland, International
Dublin 999999 Taxation, New Delhi.
PAN-AADCN5762E
APPELLANT RESPONDENT
Appellant by S/Shri Nageshwar Rao &
Akshay Uppal, Advocates
Respondent by Shri Bhuvnesh Kulshrestha, CIT DR
Date of Hearing 28.02.2023
Date of Pronouncement 10.04.2023
ORDER
PER KUL BHARAT, JUDICIAL MEMBER :
Both appeals filed by the assessee are directed against the separate orders of Assessing Officer passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 ("the Act") dated 06.06.2022 and 09.06.2022 for Assessment Years ("AYs") 2018-19 and 2019-20 respectively. Since identical grounds have been raised, both appeals were taken up together for hearing and are being disposed off by way of this consolidated order for the sake of brevity. ITA No.1756/Del/2022 [Assessment Year : 2018-19]
2. First, we take up assessee's appeal in ITA No. 1756/Del/2022 pertaining to Assessment Year : 2018-19. The assessee has raised following grounds of appeal:-
"Based on the facts and circumstances of the case and in law, NCR Global Solutions Limited ("NCR GSL" or "the Company" or "the Appellant") respectfully craves, leave to prefer an appeal under Section 253(1)(d) of the Income-tax Act, 1961 ("the Act") against final assessment order dated 6 June 2022 ("impugned order") (received by the Company on 7 June 2022) issued under Section 143(3) read with Section 144C(13) of the Act, by the Deputy Commissioner of Income-tax, Circle-2(2)(2), International Tax, New Delhi ("Ld. AO") purportedly in pursuance of the Directions dated 17 May 2022 issued under Section 144C(5) by the Dispute Resolution Panel -2 ("Ld. DRP"), New Delhi, interalia on the following grounds which are without prejudice to each other:
1. That Ld. AO/ Ld. DRP erred, in law and on facts, in computing the total income of the Appellant at INR 72,81,14,426 as against returned income of INR 28,89,94,067.
2. Impugned Order and Directions issued by Ld. DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law.
3. Impugned order and Directions issued by Ld. DRP, grossly erred, in alleging that Appellant has a Fixed place Permanent Establishment ("PE") for business in India, to carry on the business of sale of software products without indicating any basis for same.
3.1. Ld. AO! Ld. DRP have failed to provide even a vague indication on why contentions of Appellant are incorrect and further in substituting their own imaginary facts as basis for alleging that the Appellant has a Fixed place of business in India to carry on the business.
3.2. Impugned order erred in ignoring relevant and complete facts brought on record explaining Appellant's business with Indian entity and proceeded on unsubstantiated and imaginary presumptions to hold existence of PE and further perpetuated such error by attributing income on imaginary and baseless presumptions.
2|Page 3.3. Ld. AO erred and Ld. DRP erred in confirming existence of a Fixed place of business in India through NCR Corporation India Private Limited ("NCR India"), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant.
3.4. Impugned order erred in assuming that the Appellant is procuring orders and executing sales to Indian customers through NCR India without appreciating that NCR India transacts with Indian customers on its own account on a principal-to-principal basis and not as an Agent of the Appellant.
3.5. Ld. AO! Ld. DRP have lightly ignored the fact on record that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India itself in its manufacturing business and thus, the allegation of NCR India procuring orders and executing sales on behalf of Appellant is ex- facie erroneous and without any basis consequently destroying very basis of allegation on existence of Agency PE.
4. Ld. AO erred and Ld. DRP erred in confirming the allegation that NCR India is acting as a agent on behalf of the Appellant and thus, the Appellant has an Agency PE in India without any factual foundation / citing any basis.
4.1. The Ld. AOI Ld. DRP has failed to prove on facts or provide any cogent reason or basis for concluding that the Appellant has an Agency PE in India.
4.2. The Ld. AOI Ld. DRP has erred, in law and on facts, in alleging Agency PE on the surmise that NCR India works mainly or wholly on behalf of the Appellant, NCR India has
3|Page authority to conclude contracts on behalf of the Appellant and NCR India habitually secures orders in India, mainly or wholly for the Appellant.
4.3. Impugned order has failed to appreciate that business activities undertaken by the Appellant and NCR India are on principal-to-principal basis and that NCR India is not an agent appointed by the Appellant.
5. Ld. AO/Ld. DRP has failed to discharge the burden of proof while arbitrarily holding that Appellant has a place of business in India and that NCR India has satisfied the conditions to be treated either as a Fixed place PE or has an Agency PE in India.
5.1. Ld. DRP has erred in law and on facts, in drawing adverse conclusion on existence of Agency PE and Fixed place PE merely by placing reliance on clause 6.1 (a) and 6.1 (b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India.
5.2. Both Ld. AOI Ld. DRP have erred, in law and on facts, by not passing a speaking order, not considering material brought on record and assuming facts without bringing on record any material to establish the allegations made against Appellant.
6. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on fact, in attributing income to alleged PE without indicating any valid basis, purely based on speculations and without taking cognizance of the fact that profits/ income earned in relation to activities in India (by alleged PE, i.e., NCR India), have already been offered to tax in India and margin earned on such activities has been accepted to be at arm's length.
7. Without prejudice to the above grounds of appeal, Ld. AO/Ld. DRP have erred, in law and on fact, in attributing the profit to the alleged PE in India, in an arbitrary manner and not as per the authorized
4|Page OECD approach, which is based on a separate and distinct enterprise approach.
8. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP erred, in law and on fact, in including consideration received towards sale of hardware amounting to INR 37,10,69,493 while computing the alleged income attributable to the PE without appreciating that existence of PE has been alleged only in respect of the software distribution activities and sale of hardware has not even been alleged to be connected to the PE.
9. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP has erred, in law and on fact, in assuming 35% of the gross amount of international transactions as the business income accruing from the business of Appellant in India on an arbitrary basis without any basis, explanation and reasoning.
10. Without prejudice to the above grounds of appeal, Id. AO/ Ld. DRP has erred, in law and on fact, in arbitrarily considering 70% of the business income to be attributable to the alleged PE in India, on the pretext that substantial sales and marketing activities are being carried out in India.
Other grounds:
11. The Ld. AO has erred in levying interest of INR 2,43,96,870 under Section 234B of the Act.
12. The Ld. AO has erred, in law and on facts, in initiating penalty proceedings under Section 270A of the Act.
The Appellant submits that each of the above grounds is independent and without prejudice to one another.
The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with law."
5|Page
3. Facts giving rise to the present appeal are that the assessee filed its revised return of income on 30.11.2018 declaring income amounting to Rs.28,89,94,067/- and offered to tax at special rate @ 10% under the provisions of Double Taxation Avoidance Agreement ("DTAA") between India and Ireland. The case was selected for scrutiny assessment. The Assessing Officer ("AO") passed a draft assessment order dated 29.09.2021 u/s 143(3) of the Income Tax Act, 1961 ("the Act"). During the course of assessment proceedings, the AO observed that the assessee company during the relevant Assessment Year, had earned revenue from CIPL in the form of sale of software, export of goods, reimbursement and Royalty for use of technology and brand. Accordingly, he issued a show cause notice, calling upon the assessee as to why the end user license fee from software products and updates should not be considered Royalty and Fees for technical services and taxable on gross basis. In response thereto, the assessee filed its reply dated 23.04.2021. After having considered the reply of the assessee, the AO proposed for addition of business income related to Permanent Establishment ("PE") @ 40% amounting to Rs.43,91,20,359/- and proposed assessed income at Rs.72,81,14,426/-. The assessee filed its objection before Ld. Dispute Resolution Panel ("DRP") against such additions. Ld.DRP rejected the objection of the assessee. Thereafter, the impugned assessment order was passed by the AO, assessing the income of the assessee at Rs.72,81,14,426/-.
4. Aggrieved against this, the assessee is in appeal before this Tribunal.
5. The assessee has taken various sub-grounds in Ground Nos. 1 to 10 related to ground against addition of Rs.43,91,20,359/- as an income from
6|Page business or profession related to PE of the assessee. Ld. Counsel for the assessee apropos to these grounds, vehemently argued that the authorities below failed to appreciate the facts in right prospective. He reiterated the submissions as made in the written submissions. Ld. Counsel for the assessee submitted that the finding of Ld.DRP in respect of existence of fixed place/agency PE of the appellant in India is without any factual foundation and basis. He further contended that the Revenue failed to discharge initial burden of proof to establish PE of appellant in India. He placed reliance on the judgment of Hon'ble Supreme Court in the case of ADIT vs E-Funds IT Solution Inc. [2017] 399 ITR 34 (SC). Further, reliance was placed on the judgement of Hon'ble Supreme Court in the case of Formula One World Championship [2017] 394 ITR 80 (SC). On a without prejudice basis, it was submitted that the impugned transactions of sale of software/hardware was undertaken from outside India to group company in India i.e. NCR Corporation India Pvt.Ltd. were subjected to transfer pricing scrutiny in hands of the alleged PE and were accepted to be at arm's length, nothing further would be attributable to the alleged PE in India as per decision of Hon'ble Supreme Court in case of DIT vs Morgan Stanley & Co. [2007] 292 ITR 416 (SC). In support of the alternate plea of the assessee, Ld. Counsel for the assessee took us through the chart furnished by him regarding the treatment of the revenue in earlier years related to the similar transaction. For the sake of clarity, the relevant contents are reproduced a sunder:-
7|Page MAY IT PLEASE YOUR HONOURS It is respectfully submitted that the captioned appeals were heard by the Hon'ble Bench on 28 February 2023. During the hearing, the Authorised Representative on behalf of the Appellant submitted that conclusion of ld. Assessing Officer (Ld. AO")/ ld. Dispute Resolution Panel ("ld. DRP") on existence of fixed place/ agency PE of the Appellant in India was without any factual foundation and basis. It was submitted that tax department has failed to discharge initial burden of proof to establish PE of Appellant in India. Reliance in this context was placed on decisions of Hon'ble Supreme Court in case of ADIT vs. E-Funds IT Solution Inc. [2017] 399 ITR 34 (SC). It was further submitted that the basic tests laid down for constitution of a fixed place PE in the case of Formula One World Championship [2017] 394 ITR 80 (SC) were not satisfied in the present case.
On a without prejudice basis (ground of appeal no. 6), it was submitted that since the impugned transactions of sale of software/ hardware undertaken from outside India to group company in India i.e., NCR Corporation India Pvt. ltd. ("NCR India") were subjected to transfer pricing scrutiny in hands of the alleged PE and were accepted to be at arm's length, nothing further would be attributable to the alleged PE in India as per decision of Hon'ble Supreme Court in case of DIT vs. Morgan Stanley & Co. (2007) 292 ITR 416 (sq. In support of the alternate plea of the Appellant, we furnish a summary of litigation history in case of the Appellant vis-a-vis NCR India, which would highlight the inconsistent stand being adopted in hands of Appellant compared to earlier years for the very same transactions carried out over the years and secondly, the inconsistent stand of department for very same transaction in hands of Appellant vis-a-vis NCR India:
Assessment Name of Date of Income Offered Scrutiny Assessment Transfer Pricing Assessment Year Entity filing ROI to tax (Rs.) Remarks Date of Remarks Order 2015-16 NCR GSL 30.11.2016 130,89,24,300 17.12.2018 No adverse 24.10.2018 NO adverse inference (Pg 451-452 of inference drawn (Pg 455-456 drawn.
Factual PB-AY of Factual
2018-19) PB-AY 2018-
19)
NCR India 08.06.2019 10,38,50,770 25.02.2019 ld.AO incorporated 29.10.2018 In the TP Study report,
8|Page
(modified transfer pricing NCR India
ROI) adjustments made considered cost of
towards margins import of software
earned in software and hardware
development purchases from NCR
segment and GSL as part of
disallowed payment Operating cost for
of Royalty, and benchmarking of
disallowed provision Complete solution
for product support Provider ("CSP")
and service Segment. After TP
expenses. Scrutiny, ld. TPO did
not find fault with
above approach, and
arm's length price was
accepted. The only
adjustment made by
Ld. TPO was towards
software development
segment.
2016-17 NCR GSL 30.11.2016 82,18,98,550 30.11.2019 No adverse 29.03.2019 No adverse inference
(Pg 453-454 of inference drawn (Pg 457-458 drawn
Factual PB-AY of Factual
2018-19) PB-AY 2018-
19)
NCR India 30.04.2019 2,24,45,12,240 Not applicable as not picked up for scrutiny assessment.
(modified
ROI)
2017-18 NCR GSL 20.11.2017 97,43,97,690 Not applicable as not picked up for scrutiny assessment.
(revised ROI)
NCR India 08.06.2019 150,43,99,820 26.10.2022 Ld. AO incorporated 29.10.2021 In the TP Study report,
(modified transfer pricing NCR India considered
ROI) adjustments made cost of import of
towards margins software and
earned in software hardware purchases
service provider from NCR
segment and GSL as part of
imputed notional Operating cost for
interest on benchmarking of CSP
outstanding Segment. After TP
receivables, and Scrutiny, Ld. TPO did
disallowed not find fault with
depreciation on above approach, and
goodwill arm's length price was
accepted. The only
adjustment made by
Ld. TPO was towards
software development
segment.
2018-19 NCR GSL 30.11.2018 28,89,94,067 06.06.2022 Ld. AO held that No TP reference made
(Currently in (Pg 70-99 of NCR India
dispute Appeal Set) constitutes fixed
before the place/ agency PE
Hon'ble of NCR GSL in India
Tribunal) and attributed
receipts from export
of goods and sale of
software to NCR
India. While the Ld.
TPO and Ld. AO of
NCR India continued
with earlier year's
characterisation of
transaction of
software and
hardware to NCR
India as a sale
on Principal-to-
Principal basis, Ld.
AO of NCR GSL
deviated from the
Same and alleged
that NCR India is an
agent/PE of NCR
GSL.
NCR India 10.06.2019 63,51,84,590 29.07.2022 Ld.AO incorporated 29.03.2019 In the TP Study of NCR
(modified transfer pricing (pg 342-444 India (Pg 215-
ROI) adjustments made of Factual 341 of Factual PB -
towards margins PB-Ay 2018- AY 2018-19), the
earned in software 19) same consistent
service provider approach as in earlier
segment and years of treating
9|Page
imputed notional purchase of
interest on software and hardware
outstanding from NCR GSL as
receivables. Principal-to-principal
transaction, and
including in operating
cost for TP
benchmarking of CSP
Segment was
continued.
Consistently, Ld. TPO
did not find fault with
above approach, and
arm's length price was
accepted. The only
adjustment made by
Ld. TPO was towards
software development
segment.
2019-20 NCR GSL 24.09.2020 23,25,76,760 09.06.2022 Ld. AO held that No TP reference made
(currently in (Currently (Pg 10-39 of NCR India
dispute in dispute Appeal set) constitutes fixed
before the before the place/ agency PE
Hon'ble Hon'ble of NCR GSL in India
Tribunal) Tribunal) and attributed
receipts from export
of goods and sale of
software to NCR
India. While the Ld.
TPO and Ld. AO of
NCR India continued
with earlier year's
characterisation of
transaction of
software and
hardware to NCR
India as a sale
on Principal-to-
Principal basis, Ld.
AO of NCR GSL
deviated from the
same and alleged
that NCR India is
an agent/PE of NCR
GSL.
NCR India 24.09.2020 2,70,05,12,950 Not Applicable as not picked up for scrutiny assessment. However, in the TP Study of
(revised ROI) NCR India, the same consistent approach as in earlier years of treating purchase of
software and hardware from NCR GSL as Principal-to-principal transaction, and including in operating cost for TP benchmarking of CSP Segment was continued. The transaction was substantiated to be at arm's length in TP Study report.
2020-21 NCR GSL 15.02.2021 29,49,38,230 23.12.2022 Ld.AO held that NCR No TP reference made
India constitutes
Fixed place. Agency
PE of NCR GSL in
India and attributed
receipts from export
of goods and sale of
software to the
alleged PE.
NCR India 31.03.2021 3,00,54,16,460 Currently Not Applicable Currently The case is selected for
(revised ROI) ongoing ongoing scrutiny and the
proceedings are
ongoing. However, in
the TP Study of NCR
India, the same
consistent approach
as in earlier years of
treating purchase of
software and
hardware from NCR
GSL as Principal-to-
principal transaction,
and including in
operating cost for TP
benchmarking of
Complete Solution
Provider Segment was
continued. transaction
was substantiated to
be at arm's length in TP
Study report.
10 | P a g e
It is respectfully submitted that sale of software from outside India in absence of PE was being contested as taxable in India as Royalty, however, after the decision of Hon'ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. vs CIT: [2021] 432 ITR 471 (SC) such consideration for sale of software cannot be lawfully characterised as Royalty and subjected to tax under the Act read with Article 12 of India- Ireland DTAA. Further, existence or otherwise of permanent establishment is a factual exercise and the onus is on department to establish the same. In this regard, Appellant relies on decision of Hon'ble Delhi high court in case of Nortel Networks India International Inc. vs. DIT: [2016] 386 ITR 353 (Delhi). As per the documents and submissions on record, it cannot be denied that sale of software/ hardware by Appellant was to NCR India only and to no other party. The routine and perfunctory allegation of NCR India being a Dependent Agent Permanent Establishment concluding sales on behalf of Appellant is without any factual foundation and contrary to facts. Moreover, no material whatsoever is cited by department in support of claim of Fixed Place PE during the period in appeal. For all these reasons there is no merit in the contentions of the Department. Ld. DRP and following therefrom the final assessment order concludes without any basis to the contrary and further proceeds to arbitrarily attribute huge amounts to non-existent Permanent Establishment. Reference to synopsis filed before Ld. DRP (item 13 of factual PB for AY 2018-19 & item 12 of Factual PB for AY 2019-20) and cryptic conclusions on attribution without any reasoning further perpetuate the injustice to Appellant. Same deserves to be deleted and the Appellant's appeal allowed in toto, for which we respectfully pray.
Submitted for kind consideration."
6. On the other hand, Ld. CIT DR opposed these submissions and supported the orders of the authorities below.
11 | P a g e
7. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. In respect of transfer pricing adjustment related to sale of software/hardware, the contention of the assessee are multifold. It is stated that the assessee has no fixed place/PE during the period in appeal. The entire sale was executed at off shores and without prejudice, it was submitted that the impugned transaction of sale of software/hardware that was executed outside India to group company in India i.e. NCR Corporation India Pvt. Ltd. were subjected to transfer pricing scrutiny in the hands of alleged PE and were accepted to be at arm's length. Therefore, nothing further would be attributable to the alleged PE in India. In respect of this contention, reliance is placed on the judgement of the Hon'ble Supreme Court in the case DIT vs Morgan Stanely & Co. (2007) 292 ITR 416 (SC). It is contended that in the facts and circumstances of the present case, the AO was not justified in making the transfer pricing adjustment. Consequently, making addition of Rs.43,91,20,359/- being the business income of PE taxable @ 40% plus applicable surcharge and cess. Ld. Counsel for the assessee has pointed out various discrepancies in the findings of the authorities below. Some of them being that the finding that the assessee concluded sales of software/hardware through its PE and affiliates. In India, NCR GSL has appointed a group entity namely, NCR Corporation India Pvt. Ltd. for executing software products and services and hardware services in exchange of payments of CIPL distribution activities. The say of the assessee is that sale affected in India is principal to principal. There is no evidence placed by the authorities below that the sales 12 | P a g e were affected through NCR Corporation India Pvt.Ltd. since no invoice was raised in the name of the assessee by the Indian customers. Moreover, the Revenue failed to rebut the fact that impugned transaction of sale of software/hardware was undertaken outside India to group company in India and were subjected to transfer pricing scrutiny in the hands of the alleged PE and same was accepted to be at arm's length price. Therefore, nothing further would be attributable to the alleged PE. Hon'ble Supreme Court in the case of DIT vs Morgan Stanely & Co. (supra) has held as under:-
33. "To conclude, we hold that the AAR was right in ruling that MSAS would be a Service PE in India under Article 5(2)(l), though only on account of the services to be performed by the deputationists deployed by MSCo and not on account of stewardship activities. As regards income attributable to the PE (MSAS) we hold that the Transactional Net Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS. We accept as correct the computation of the remuneration based on cost plus mark-up worked out at 29% on the operating costs of MSAS. This position is also accepted by the Assessing Officer in his order dated 29.12.06 (after the impugned ruling) and also by the transfer pricing officer vide order dated 22.9.06. As regards attribution of further profits to the PE of MSCo where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case,
13 | P a g e there would be need to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represents the value of the profit attributable to his service. In this connection, the Department has also to examine whether the PE has obtained services from the multinational enterprise at lower than the arm's length cost? Therefore, the Department has to determine income, expense or cost allocations having regard to arm's length prices to decide the applicability of the transfer pricing regulations.
34. Economic nexus is an important aspect of the principle of Attribution of Profits.
35. In the light of what is stated above, the impugned ruling by AAR stands modified to the extent indicated hereinabove. Accordingly, both the civil appeals filed by the applicant (MSCo) and by the Department are partly allowed with no order as to costs."
8. It is also argued that since the sale of software was affected outside India in the absence of PE, it would not be taxable in India as Royalty. Moreover, after the judgement of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs CCIT [2021] 432 ITR 471 (SC), such consideration for sale of software cannot be lawfully categorized as Royalty and subjected to tax under the Act r.w. Article 12 of the India Ireland DTAA. The Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs CCIT (supra) has held as under:-
169. "Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution 14 | P a g e agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment."
9. Looking to the facts of the present case, we find merit into the contention of the assessee that the Assessing Authority was not justified in making addition in the hands of the assessee when in the case of alleged PE of the assessee, the transactions have been treated to be arm's length price. Furthermore, the assessee has pointed out that while making addition, the AO has also included the transaction related to hardware whereas allegation of PE is related to software. In the light of the binding precedents, we are of the considered view that the authorities below erred in making the impugned additions. We therefore, direct the AO to delete the same. Ground Nos. 1 to 10 raised by the assessee are hence, allowed.
10. Ground No.11 raised by the assessee is against the levy of interest u/s 234B of the Act. The levy being consequential in nature we hold, accordingly.
11. Ground No.12 raised by the assessee is against the initiation of penalty us/ 270A of the Act. This ground being premature hence, dismissed.
12. In the result, the appeal of the assessee is partly allowed.
15 | P a g e ITA No.1776/Del/2022 [Assessment Year : 2019-20]
13. Now, we take up assessee's appeal in ITA No. 1776/Del/2022 pertaining to Assessment Year : 2019-20. The assessee has raised following grounds of appeal:-
"Based on the facts and circumstances of the case and in law, NCR Global Solutions Limited ("NCR GSL" or "the Company" or "the Appellant") respectfully craves, leave to prefer an appeal under Section 253(1)(d) of the Income-tax Act, 1961 ("the Act") against final assessment order dated 9 June 2022 ("impugned order") (received by the Company on 10 June 2022) issued under Section 143(3) read with Section 144C(13) of the Act, by the Deputy Commissioner of Income-tax, Circle-2(2)(2), International Tax, New Delhi ("Ld. AO") purportedly in pursuance of the Directions dated 17 May 2022 issued under Section 144C(5) by the Dispute Resolution Panel -2 ("Ld. DRP"), New Delhi, interalia on the following grounds which are without prejudice to each other:
1. That ld. AO/ Ld. DRP erred, in law and on facts, in computing the total income of the Appellant at INR 86,99,01,785 as against returned income of INR 23,25,76,760.
2. Impugned Order and Directions issued by Ld. DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law.
3. Impugned order and Directions issued by Ld. DRP, grossly erred, in alleging that Appellant has a Fixed place Permanent Establishment ("PE") for business in India, to carry on the business of sale of software products without indicating any basis for same.
3.1. Ld. AO/ Ld. DRP have failed to provide even a vague indication on why contentions of Appellant are incorrect and further in substituting their own imaginary facts as basis for alleging that 16 | P a g e the Appellant has a Fixed place of business in India to carry on the business.
3.2. Impugned order erred in ignoring relevant and complete facts brought on record explaining Appellant's business with Indian entity and proceeded on unsubstantiated and imaginary presumptions to hold existence of PE and further perpetuated such error by attributing income on imaginary and baseless presumptions.
3.3. Ld. AO erred and Ld. DRP erred in confirming existence of a Fixed place of business in India through NCR Corporation India Private Limited ("NCR India"), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant.
3.4. Impugned order erred in assuming that the Appellant is procuring orders and executing sales to Indian customers through NCR India without appreciating that NCR India transacts with Indian customers on its own account on a principal-to-principal basis and not as an Agent of the Appellant.
3.5. Ld. AO/ Ld. DRP have lightly ignored the fact on record that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India itself in its manufacturing business and thus, the allegation of NCR India procuring orders and executing sales on behalf of Appellant is ex- facie erroneous and without any basis consequently destroying very basis of allegation on existence of Agency PE.
4. Ld. AO erred and Ld DRP erred in confirming the allegation that NCR India is acting as an agent on behalf of the Appellant and thus, the Appellant has an Agency PE in India without any factual foundation / citing any basis.
17 | P a g e 4.1. The Ld. AOI Ld. DRP has failed to prove on facts or provide any cogent reason or basis for concluding that the Appellant has an Agency PE in India.
4.2. The Ld. AOI Ld. DRP has erred, in law and on facts, in alleging Agency PE on the surmise that NCR India works mainly or wholly on behalf of the Appellant, NCR India has authority to conclude contracts on behalf of the Appellant and NCR India habitually secures orders in India, mainly or wholly for the Appellant.
4.3. Impugned order has failed to appreciate that business activities undertaken by the Appellant and NCR India are on principal-to-principal basis and that NCR India is not an agent appointed by the Appellant.
5. Ld. AO/Ld. DRP has failed to discharge the burden of proof while arbitrarily holding that Appellant has a place of business in India and that NCR India has satisfied the conditions to be treated either as a Fixed place PE or has an Agency PE in India.
5.1. Lo. DRP has erred in law and on facts, in placing reliance on its directions issued for AY 2018- 19 wherein adverse conclusion on existence of Agency PE and Fixed place PE is drawn merely by placing reliance on clause 6.1 (a) and 6.1 (b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India.
5.2. Both Ld. AO/ Ld. DRP have erred, in law and on facts, by not passing a speaking order, not considering material brought on record and assuming facts without bringing on record any material to establish the allegations made against Appellant.
6. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on facts, in attributing income to alleged PE without indicating any valid basis, purely based on speculations and without taking cognizance of the fact that profits/ income 18 | P a g e earned in relation to activities in India (by alleged PE, i.e., NCR India), have already been offered to tax in India and margin earned on such activities has been accepted to be at arm's length.
7. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on facts, in attributing the profit to the alleged PE in India, in an arbitrary manner and not as per the authorized OECD approach, which is based on a separate and distinct enterprise approach.
8. Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP erred, in law and on facts, in including consideration received towards sale of hardware amounting to INR 1,08,21,81,046 while computing the alleged income attributable to the PE without appreciating that existence of PE has been alleged only in respect of the software distribution activities and sale of hardware has not even been alleged to be connected to the PE.
9. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP has erred, in law and on facts, in assuming 35% of the gross amount of international transactions as the business income accruing from the business of Appellant in India on an arbitrary basis without any basis, explanation and reasoning.
10. Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP has erred, in law and on facts, in arbitrarily considering 70% of the business income to be attributable to the alleged PE in India, on the pretext that substantial sales and marketing activities are being carried out in India.
Computation of tax payable:
11. Ld AO has erred, in law and on facts', in calculating tax on income from royalty at the rate of 20% (plus surcharge at the rate of 5% and education cess at the rate of 4%) as against the applicable tax rate of 10% under Article 12 of the India-Ireland Tax Treaty, applicable to royalty income.
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12. Ld. AO has erred, in law and on facts, in considering INR 75,09,484, representing tax at source deducted ("TDS") by the Revenue on interest on income-tax refund which is not issued to the Appellant, as a refund already issued to the Appellant and has thereby, erred in raising a tax demand in this regard.
Other grounds:
13. The Ld. AO has erred in levying interest of INR 6,75,854 under Section 2340 of the Act in respect of TDS on interest on income-tax refund which refund is neither issued nor received by the Company.
14. The Ld. AO has erred in levying interest of INR 5,65,62,675 under Section 2348 of the Act.
15. The ld. AO has erred, in law and on facts, in initiating penalty proceedings under Section 270A of the Act.
The Appellant submits that each of the above grounds is independent and without prejudice to one another.
The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with law."
14. We have heard Ld. Authorized representatives of the parties and perused the material available on record. We find that the facts and issues are similar and identical to the ITA No.1756/Del/2022 [AY 2018-19]. Ld. Representatives of the parties have adopted the same arguments in respect of grounds of appeal. Since the facts are identical and no change into the facts and circumstances has been pointed by the Revenue in the year under appeal, the grounds raised in this appeal filed by the assessee are partly allowed. Our decision in ITA No.1756/Del/2022 [AY 2018-19] would apply Mutatis Mutandi in this appeal filed by the assessee as well.
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19. In the result, the appeal of the assessee is partly allowed.
20. In the final result, both appeals filed by the assessee in ITA Nos. 1756 & 1776/Del/2022 [Assessment Years 2018-19 to 2019-20] are partly allowed.
Order pronounced in the open Court on 10 th April, 2023.
Sd/- Sd/-
(G.S.PANNU) (KUL BHARAT)
PRESIDENT JUDICIAL MEMBER
*Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI
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