Income Tax Appellate Tribunal - Delhi
Uop Llc vs Additional Director Of Income Tax on 8 December, 2006
Equivalent citations: [2007]108ITD186(DELHI), (2007)110TTJ(DELHI)619
ORDER
P.M. Jagtap, A.M.
1. This appeal by the assessee is directed against the order of learned CIT(A)-XXIX, New Delhi, dt. 1st Dec., 2005.
2. The relevant facts of the case giving rise to this appeal are as follows. The assessee in the present case is a company incorporated in United States of America. It is in the business of supply of engineering design and process technology to the petroleum refining, petrochemical, gas processing and chemical related industries. The services incidental to the said supply right from the setting up of the unit as well as its start up and initial phase of operation to achieve the performance to UOP specifications are also rendered by it to the customers as an integral part of transfer of process technology as well as supply of engineering design. During the year under consideration, the assessee had supplied engineering design as well as process technology and had also rendered all the services incidental thereto as indicated above to the Indian customers, viz., Indian Oil Corporation, Reliance Petroleum Limited, Nagarjuna Oil Corporation Ltd. and Tamil Nadu Petro Products Limited as per the agreements entered into with them. The amount received as consideration from the Indian customers under the said agreements aggregating to Rs. 104,98,05,305 was declared by the assessee company in its return of income as 'royalty' and 'fees for included services' liable to tax at the rate of 15 per cent in India as per the Indo-American tax treaty on the basis that it was not having any permanent establishment (PE) in India during the year under consideration. Besides the supply of engineering design and process technology, the assessee company had also supplied equipment directly to the Indian customers and the profit arising from such sale being the commercial/business profit was claimed to be not taxable in India as per Article 7 of the DTAA between India and USA. During the course of assessment proceedings, it was noticed by the AO that there was another entity of UOP group operating in India, viz., UOP India (P) Ltd., which was stated to be principally formed with the object of rendering technical and engineering services to the Indian customers on its own. It was also stated that the said entity is also engaged in the business of procuring and selling the UOP proprietary equipment to the Indian customers on its own account. It was further found by the AO that there has been one more entity of the UOP group in India, viz., UOP Asia Limited which was claimed to be operating only its liaison office duly approved by the RBI for the entire UOP group in India. It was also noticed by the AO that the agreement entered into by the assessee company with Indian Oil Corporation on 16th May., 2000 has been signed by Mr. Nigel J.D. Orchard, director, UOP Ltd. on behalf of the assessee. During the course of assessment proceedings, a statement of Mr. Keith J. Aspray, managing director of UOP India (P) Ltd. was recorded by the AO on oath and relying on the depositions made by him in the said statement especially while replying question Nos. 3 and 11, it was inferred by the AO that the entities of UOP group based in India were interacting, negotiating and finalizing the contracts with the Indian customers within the terms and conditions and guidelines provided by the assessee and only after finalizing the said contracts, the same were sent to the assessee for signatures. He also held that both these entities, viz., UOP Asia Limited and UOP India (P) Ltd. were working wholly and exclusively for the assessee in India and they were habitually negotiating and finalizing all the terms and conditions of the contract with the Indian customers including the negotiation of the contract price. Taking note of these findings recorded by him as well as relying on the relevant portion of the commentaries from OECD and Klaus Vogel reproduced in his assessment order, the AO held that both these entities i.e., UOP Asia Ltd. and UOP India (P) Ltd. were working as dependent agent PE of the assessee in India within the meaning given in para 4 of Article 5 of the DTAA between India and USA. He, therefore, held that the royalty income and business income earned by the assessee in India were chargeable to tax in India as per the provisions of IT Act, 1961 by virtue of Article 12(6) r/w Article 7(3) of the DTAA between India and USA. Accordingly, he worked out the tax payable by the assessee on the income from royalties and fees for included services amounting to Rs. 104,98,05,305 at the rate of 20 per cent relying on the provisions of Section 44D r/w Section 115A. As regards the supply of equipment by the assessee directly to the Indian customers of the value of Rs. 2,49,34,953, the AO found that similar equipments were supplied by the assessee to the Indian customers even through UOP India (P) Ltd. allowing a profit margin of 17.62 per cent to the said Indian company. He, therefore, found it reasonable to adopt a net profit of 15 per cent on such supply and worked out the income of the assessee liable to tax in India from the supply of equipment directly to the Indian customers at Rs. 37,40,243 with a tax payable at the rate of 48 per cent thereon. Accordingly, the total tax payable by the assessee company in India was worked out by the AO at Rs. 21,17,56,377 in the assessment completed under Section 143(3) as against Rs. 1,57,47,076 shown by the assessee in its return of income.
3. Aggrieved by the aforesaid order of the AO passed under Section 143(3), the assessee company preferred an appeal before the learned CIT(A) and it was submitted on its behalf before him at the outset that UOPIPL was a separate legal entity and the statement recorded by the AO of Mr. Aspray, managing director of the said company, being a third party evidence, was not of much evidentiary value to draw any adverse inference against the assessee. It was submitted that the said deponent was neither authorized by the assessee company to make any statement on its behalf nor was he competent to comment on the affairs of the assessee company. It was also submitted that it was incumbent upon the AO to provide an opportunity to the assessee to cross-examine Mr. Aspray before relying on his statement and having failed to give such opportunity, his statement could not be admitted and relied upon to draw any adverse inference against the assessee. It was further submitted that the engineering design and technology were supplied by the assessee company as per the contracts directly entered into with the Indian customers and there was no interface or solicitation required in this regard since the technology possessed by the assessee is one of the best in the world. It was also submitted that once the technology is made available to the customer, he is free to get the required equipment designed and manufactured from a third party or he can get the equipment designed by the assessee company and manufactured by a third party. It was submitted that when the customer goes for the second option, UOPIPL comes into picture and either it gets the equipment fabricated in India based on the design provided by the assessee company or it procures such equipment from the appellant for further supply to the customers. It was emphasized that the UOPIPL thus never comes into picture at all with regard to the provision of technology by the assessee company to the Indian customers. Its role is limited only in respect of supply of equipment and that too, independently on its own as per the arrangement or agreement with the Indian customers. It was contended that the deposition made by Mr. Aspray thus was limited only in respect of the equipment supply and the same was misconstrued by the AO to cover the supply of technology part also. It was also contended that the interfacing did by the UOPIPL was limited to the supply of equipment only and the same could not be extended for supply of technology. It was further submitted on behalf of the assessee that there are three features which must be prevalent in the arrangement so as to treat a person as a dependent agent within the meaning of Article 5(4) of the Indo-American DTAA and since none of these three elements was present in the arrangement between the assessee company and UOPIPL, the AO was patently wrong in holding UOPIPL as the dependent agency PE of the assessee in India. Reliance was placed on behalf of the assessee on the decision of Authority for Advance Rulings in the case of TVM Ltd., In re (1999) 151 CTR (AAR) 492 : (1999) 102 Taxman 578 (AAR) to contend that neither the UOPIPL nor the UOP Asia Limited having carried out any activity which could be construed of creating a dependent agency PE of the assessee in India, the AO was not justified in holding that the assessee company had a dependent agency PE in India and in working out its tax liability in India by applying the provisions of Section 115A r/w Section 44D. All the relevant details of the visits of assessee's employees to India and their participation in the negotiation meetings with the Indian customers were also furnished on behalf of the assessee company before the learned CIT(A) in an attempt to show that the persons who participated in the negotiations and approved/signed the contracts were its own employees and not the employees of UOPIPL. It was also brought to the notice of the learned CIT(A) by the assessee that Mr. Aspray whose statement was relied upon by the AO had joined UOPIPL only on 4th Oct., 2002 i.e., much after the period in which the relevant agreements/contracts were entered into by the assessee company with the Indian customers.
4. The aforesaid submissions made on behalf of the assessee company were forwarded by the learned CIT(A) to the AO seeking his comments. Accordingly, the AO offered his comments vide his letter dt. 19th Nov., 2004 which can be summarized as under:
(a) There was nothing on record to suggest that the relationship between the assessee company and UOPIPL had undergone any change after the joining of Mr. Aspray.
(b) The statement of Mr. Aspray clearly shows that while contracts were being negotiated in India by UOPIPL on behalf of the assessee, they were only being signed by the assessee outside India.
(c) Article 1.1 of the Equipment Trading Agreement dt. 29th Dec, 1999 entered into between the assessee company and UOPIPL clearly shows that UOPIPL was to solicit customers, maintain good customer relationship, identify opportunities in current and future market and also to perform engineering, technical and inspection services for the assessee on a sub-contract basis in connection with licensed UOP process and other transactions with petroleum refineries, petrochemical facilities and other customers in India.
(d) The aforesaid agreement dt. 29th Dec, 1999 also clearly shows that UOPIPL, a wholly owned subsidiary of the assessee, owes its entire existence to the business of the assessee in India and has no independent activity. UOPIPL thus was working exclusively for and on behalf of the assessee in execution of the contract signed by it and the same thus was constituting an agency PE of the assessee in India.
(e) The assessee was carrying on installation work at various projects in India. Moreover, the huge receipts shown by the assessee were mainly on account of designing of the projects as well as their commissioning which could not have been done without regular site visits by its staff. The assessee was also regularly holding meetings in India and was providing training in India to the employees of the Indian customers.
(f) The news releases dt. 4th June, 2002 and 4th March, 2003 downloaded from the assessee's website also show clearly that the assessee company had physical presence in India as its teams were regularly present at the sites of Jamnagar refinery of Reliance Petroleum Limited during execution of the said project.
(g) All the aforesaid facts taken together clearly show that the assessee company also had an installation PE in India within the meaning of Article 5(2)(k) of DTAA between India and USA.
5. The aforesaid comments offered by the AO were confronted by the learned CIT(A) to the assessee and in the counter-comments, it was reiterated on behalf of the assessee company that Mr. Aspray's statement was with regard to supply of the equipment and not with regard to providing of technology by the assessee. It was also reiterated that no opportunity was given by the AO to the assessee company to rebut the statement of Mr. Aspray. It was submitted that UOPIPL and UOP Asia Ltd. had only a limited role in the negotiations between the assessee company and its Indian customers and at no times, the employees of UOPIPL did have the authority to conclude contracts and/or to accept orders on behalf of the assessee company or otherwise to bind the assessee company to commercial contractual terms. On the other hand, the said company was having substantial business on its own which was conducted independently whereas UOP Asia Ltd. was operating as liaison office for all the UOP group companies and not solely for the assessee company. As regards the new stand taken by the AO in respect of the installation PE, it was submitted that the assessee company was never involved in the installation process and it was only responsible for the supply of basic design. It was also submitted that the detailed designs and/or the blue prints were not supplied by the assessee to the Indian customers and therefore, there was no necessity of any physical inspection to be done by it at the sites. It was submitted that only the technical support services were rendered by the assessee company to the Indian customers at the time of commissioning of the plant or in connection with start-up process in order to ensure that the UOP process technology would fit into the overall refinery or chemical plant. It was contended that this part of the services rendered by the assessee company constituted "included services" and it could not be said on the basis of rendering of such services that the assessee company was having an installation PE in India within the meaning of Article 5(2)(k). It was also contended that the assessee company had not undertaken the job of execution of any project in India and therefore, it also cannot be said that the assessee had a fixed place of business in India merely on the basis of on-site visits of its employees. As regards the news releases downloaded from its website and relied upon by the AO, it was submitted on behalf of the assessee company that the said news releases were general in nature often meant for layman and the same, therefore, could not be treated as an accurate basis for determining the tax liability.
6. After taking into consideration the submissions made on behalf of the assessee company before him as well as the comments of the AO and the counter-comments of the assessee in the light of material available on record, the learned CIT(A) held that UOPIPL could not be treated as an independent entity and that it was rather a wholly owned subsidiary of the assessee company. It was also noted by him that Mr. Aspray was working with the assessee company in different capacities before joining as managing director of UOPIPL and he therefore, was fully conversant with the nature of activities of the group and its business model. He also held that in the capacity of managing director of UOPIPL, Mr. Aspray was competent to throw light on the nature of business relationship between UOPIPL and the assessee company and there was no evidence brought on record by the assessee company to show that such relationship had undergone any change after the joining of Mr. Aspray as the managing director of UOPIPL. He held that Mr. Aspray thus was fully conversant with the nature of business activities of the assessee company in India and also with the type of business relationship between the assessee and UOPIPL. He noted from the statement of Mr. Aspray recorded by the AO on oath that the depositions made therein were sufficient to show that the contracts in India were being negotiated by UOPIPL on behalf of the assessee company and only the signing of the said contracts was done by the assessee company outside India. As regards the details furnished by the assessee company about the visits of its staff to India and participation in the negotiation meetings, he held that no independent evidence was filed on behalf of the assessee either before the AO or before him to prove that the negotiations with the Indian customers were finalized by its own employees and the employees of UOPIPL had no role to play in the negotiations. He observed that even the copies of minutes of such negotiation meetings had not been placed on record either before the AO or before him. As regards the affidavits of some of its employees filed by the assessee stating therein that they had participated in the negotiations with the Indian customers and the personnel of other two entities in India had only a limited role acting as an interface, the learned CIT(A) held that these affidavits were self-serving documents of interested parties and no reliance, therefore, could be placed on them. The learned CIT(A) then referred to the Equipment Trading Agreement dt. 29th Dec, 1999 between the assessee company and UOPIPL and taking note of the scope of the said agreement especially as defined in Clause 1.1, he observed that UOPIPL was to perform engineering, technical and inspection services for the assessee company on sub-contract basis in connection with licensed UOP processes and other transactions with petroleum refineries, petrochemical facilities and other customers in India. He held that the scope of work entrusted to UOPIPL as per the said agreement clearly shows that UOPIPL which was wholly owned subsidiary of the assessee company did not have any independent activity and rather the same was working exclusively for and on behalf of the assessee 'company in execution of the various contracts signed by it with customers in India. He also held, having regard to the deposition made by Mr. Aspray in his statement and overall conduct of business of the assessee company with the various parties in India, that although the contracts were signed outside India, but short of signing the contracts, all the negotiations were carried out by the UOPIPL personnel in India. Relying on the decision of Authority for Advance Rulings in the case of TVM Ltd. (supra), he, therefore, upheld the action of the AO in holding that the assessee had an agency PE in India within the meaning of Article 5(4) of the DTAA between India and USA.
7. The learned CIT(A) also observed that the assessee company was actively involved in designing and installation of machinery as well as commissioning of projects in India and as evident from page No. 9 of the UOP brochure filed before him, the technical employees of the assessee company were also involved in providing training to the customers' personnel, product testing, equipment inspection and project management. He held that rendering of these types of services could not have been possible without the frequent presence of the engineers of the assessee company at the sites of the customers in India and the substantial receipts could not have been earned by the assessee company by simply supplying process technologies developed outside India without active participation of its personnel in the designing of plants in India and without their frequent visits to the sites of these plants. He observed that even the major supply of equipment by the assessee company directly to the Indian customers as well as through UOPIPL for some of the projects in India was clearly demonstrative of the active participation of the assessee in installation work at the plants of the customers. In this regard, he referred to the engineering agreement entered into by the assessee company with Indian Oil Corporation Ltd. on 16th May, 2000 to point out that the active participation of the employees of the assessee company in the design and installation of machinery as well as commissioning of project was contemplated. He also noted from the various agreements entered into by the assessee company with the various parties in India that the employees of the assessee company were regularly holding meetings in India with the employees of the Indian customers and were also providing training to them. He also referred to the news releases downloaded by the AO from the official website of the assessee company to point out that the technical personnel of the assessee company were regularly present at the site of Reliance Petroleum Refinery at Jamnagar to provide technical and support services to the complex from the pre-commissioning stage to start-up of the integrated complex in record time. Having regard to all these findings recorded by him, he held that the assessee company had a continuous physical presence in India which could safely be taken as for a period of more than 120 days and the assessee thus was also having an installation PE in India in terms of Article 5(2)(k) of the DTAA between India and USA. He, therefore, upheld the action of the AO in holding that the assessee company had a PE in India and that its income on account of 'royalty' and 'fees for included services' was taxable in India as per Article 12(6) of the DTAA; whereas the profit from sale of equipment directly to the Indian customers was taxable in India as per Article 7(3) of the DTAA. Accordingly, he confirmed the tax liability of the assessee company as computed by the AO in his assessment order @ 20 per cent on the income from royalty and fees for included services in accordance with the provisions of Section 44D r/w Section 115A and @ 48 per cent on the profit from the turnover of supply of equipment directly to the Indian customers determined by applying a net profit rate of 15 per cent. The quantum of such turnover of supply of equipment was actually found to be more by the learned CIT(A) than what was taken by the AO in the assessment order and since this revised figure of turnover was furnished by the assessee company itself, the learned CIT(A) directed the AO to enhance the income of the assessee taxable in India on account of profit from the supply of equipment directly to the Indian customers taking the revised figure of turnover of the said activity. Aggrieved by the order of learned CIT(A), the assessee company has preferred this appeal before the Tribunal.
8. The main issue involved in this appeal is whether the assessee company could be said to have a PE in India during the year under consideration. The other issues relating to attribution of profits to the PE and the ascertainment of the liability of the assessee company on account of tax payable in India as well as interest payable under Section 234B thereon are mainly consequential to the main issue.
9. In connection with the main issue relating to PE, the Department has sought to file additional evidence before the Tribunal. In this regard, it has moved an application dt. 9th May, 2006 under Rule 29 of Income-tax (Appellate Tribunal) Rules, 1963 for admission of additional evidence comprising of pp. 1A to 3 of Annex.-A, pp. 12 to 24 of Annex.-B, pp. 28 to 80 of Annex.-C and pp. 81 to 84 of Annex.-D. While supporting the said application, the learned CIT-Departmental Representative submitted that the nature of additional evidence sought to be produced by the Department does not give rise to any new principle and by filing the same, the Department is not seeking to make any fresh line of enquiry. He submitted that the said additional evidence merely supports the case of the Revenue further and thus, would be of help to enable the Tribunal to adjudicate the issue relating to PE involved in the present appeal.
10. The learned Counsel for the assessee, on the other hand, raised a strong objection for entertaining the application moved by the Department under Rule 29 for admission of the additional evidence. He contended that as per Rule 29, there is a complete bar for the Revenue to furnish any additional evidence unless it is so required by the Tribunal. In this regard, he submitted that no additional or fresh evidence can be furnished by the Revenue in an appeal filed by the assessee before the Tribunal as per the mandate of Rule 29 and only the assessee alone can be allowed to adduce additional evidence provided that he establishes before the Tribunal that his case has been decided without giving sufficient opportunity to him by the authorities below and the Tribunal is satisfied on this aspect for the reasons to be recorded in writing. He submitted that the Tribunal no doubt has the discretion to allow the production of fresh evidence if it requires the same to enable it to pass an order or for any other substantial cause. However, the Tribunal in the present case has not required the Revenue to furnish any document as additional evidence.
11. The learned Counsel for the assessee submitted that the words "or for any other substantial cause", as held by Hon'ble Supreme Court in the case of Mahavir Singh v. Naresh Chandra AIR 2001 SC 134, must be read with the word "requires" so that it is only where the appellate Court requires additional evidence, the rule will apply. He also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT v. Rao Raja Hanut Singh to contend that the Revenue is obviously not entitled to place any fresh or additional evidence before the Tribunal under Rule 29. According to him, the Revenue is not even entitled to make a prayer for admission of additional evidence as placed in the form of a bunch of papers and that too after the conclusion of arguments from the side of the assessee. If at all it was entitled to do so, then also such evidence ought to have been initially placed on record with the leave of the Tribunal before the commencement of hearing.
12. The learned Counsel for the assessee further submitted that none of the documents sought to be filed as additional evidence by the Revenue pertain to the year under consideration i.e., asst. yr. 2001-02 and the same are also not complete or self contained documents which could be relied upon to draw any inference. He contended that the said documents, therefore, cannot be said to be relevant evidence which may be required by the Tribunal for adjudicating upon the issues involved in the present appeal filed by the assessee and since the Tribunal has neither required any such documents nor it could have required the same, the mandate of Rule 29 clearly prohibits the Department to produce the same.
13. Referring to Rule 27 of Order 41 of CPC, the learned Counsel for the assessee submitted that the said rule, which is absolutely pari materia to Rule 29 of the ITAT Rules, 1963, the production of additional evidence is permitted only under the following three circumstances:
(a) where the trial Court had refused to admit the evidence though it ought to have been admitted;
(b) where the evidence was not available to the party despite exercise of due diligence; and
(c) where the appellate Court required the additional evidence so as to enable it to pronounce better judgment or for any other substantial cause of like nature.
He contended that none of the aforesaid conditions, however, is satisfied in the present case so as to warrant the admission of additional evidence even under Rule 27 of Order 41 of CPC much less under Rule 29 of the ITAT Rules which specifically prohibits the Revenue from producing such additional evidence.
14. The learned Counsel for the assessee also argued that the discretion given to the appellate authority i.e., Tribunal to allow the production of additional evidence is strictly circumscribed by the limitations specified in the aforesaid rule and the said rule is not intended to enable a party to patch up the weak points of his case as held in the case of Muneswari v. Jugal Mohini and in the case of N. Kamalam v. Ayyasamy . He also relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Gram Panchayat, Kanehi, Tehsil & District Gurgaon v. Ram Kumar (2001) 2 Punj. LR 186 (P&H) to contend that the additional evidence in an appellate Court cannot be produced by a party as a matter of right and the essentials of Order 41 Rule 27 have to be satisfied.
15. The learned Counsel for the assessee submitted that there was no evidence available on record before the AO to support the adverse findings recorded in the order of assessment to the effect that assessee has an agency PE in India and the additional evidence now being sought to be produced by the Revenue seeks to patch up this weak part of the case attempted to be made out by the AO. He contended that it is thus a clear attempt being made by the Revenue to get the assessment set aside to be made de novo by seeking the admission of additional evidence and thereby it fills up the omission by having a second innings which is not permissible as held by Tribunal in the case of Asstt. CIT v. Anima Investment Ltd. (2000) 68 TTJ (Del)(TM) 1 : (2000) 73 ITD 125 (Del)(TM).
16. The learned Counsel for the assessee emphasized that none of the authorities cited by the learned Departmental Representative support the contention of the Department that it is entitled to lead additional evidence before the Tribunal. On the other hand, the statement giving details of the various decisions of High Courts as well as the Tribunal placed at page Nos. 28 and 29 clearly show that in none of the cases, the additional evidence sought to be produced by the Department was admitted by the Tribunal and even such a request made by the assessee also was not acceded to in some cases. He submitted that even the assessee has not been able to find any case decided wherein an application has been made by the Revenue under Rule 29 of the Tribunal Rules and the Tribunal, on an interpretation of Rule 29, has held that the Revenue is entitled to produce additional evidence before it. He contended that this position clearly supports the stand of the assessee that under Rule 29 of the Tribunal Rules, there is a complete bar for the Revenue to adduce any additional evidence and its application made for admission of the additional evidence, therefore, is liable to be rejected.
17. In support of his aforesaid contentions raised while strongly opposing the application moved by the Department for admission of additional evidence, the learned Counsel for the assessee has also cited the following case laws:
(i) Syed Abdul Khader v. Rami Reddy .
(ii) Municipal Corporation of Greater Bombay v. Lala Panchan .
(iii) Gurudev Singh v. Mehnga Ram .
(iv) Arjan Singh v. Kartar Singh .
(v) Natha Singh v. Financial Commr., Taxation .
(vi) Krishna Reddi v. Ramireddi .
(vii) Smt. Girijamma v. Kamala Engg. Works .
(viii) Mandala Madhava Rao v. Mandala Yodagiri AIR 2001 AP 407.
(ix) CTT v. Motilal Himbhai Spg. & Wvg. Co. Ltd. .
(x) Charbhai Biri Works v. Asstt. CIT (2003) 80 TTJ (Pune)(TM) 483 : (2003) 87 ITD 189 (PuneXTM).
(xi) CIT v. Smt. Kamal C. Mehboobbani .
18. The learned CIT-Departmental Representative contended that the Tribunal may refuse to admit additional evidence raised before it by any of the parties only if the said evidence leads to investigation into fresh facts or the same was within the Knowledge of the party and could have been produced earlier. He also contended that the additional evidence being sought to be produced by the Revenue in the present case, however, does not lead to investigation into fresh facts and the same having been come to the knowledge and possession of the Department only during the course of survey carried out at the liaison office of the assessee as well as at the office of UOPIPL on 10th March, 2006, it could not have been produced earlier before the authorities below. In support of this contention, he placed reliance on the decision of Hon'ble Supreme Court in the case of Manji Dana v. CTT . He also cited the decision of Hon'ble Madras High Court in the case of Anaikar Trades & Estates (P) Ltd. v. CIT wherein certain affidavits given by the five purchasers affirming receipt of excess consideration than shown in the documents were sought to be filed by the Revenue as additional evidence to support its case that the provisions of Section 52(2) were applicable and the Tribunal admitted the same and restored the matter to the AAC observing that in order to decide the question of applicability of Section 52(2) which was the subject matter of appeal before it, it would be necessary in the interest of justice to consider the said affidavits. On appeal preferred by the assessee against the order of the Tribunal, Hon'ble Madras High Court held that the Tribunal had discretion to allow production of additional evidence under Rule 29 of the ITAT Rules, 1963 if the same was found to be required to enable it to pass orders or for any other substantial cause.
19. The learned CIT-Departmental Representative submitted that there are various cases decided by the different High Courts wherein the additional evidence sought to be filed by the Revenue was allowed to be admitted before the Tribunal and the same, therefore, clearly shows that there is no merit in the contention raised by the learned Counsel for the assessee that there is a complete bar for the Department to even seek the admission of additional evidence. In this regard, he cited the decision of Hon'ble Gujarat High Court in the case of Smt. Urmila Ratilal v. CIT wherein it was held after examining the issue of admission of additional evidence under Rule 29 of the ITAT Rules, 1963 that the Tribunal was within its jurisdiction in allowing Revenue to produce additional evidence, subject however to the condition, that an opportunity should be given to the assessee to explain or rebut the said evidence. He also cited the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Saligram Prem Nath , wherein it was held that the Tribunal is vested with requisite authority and jurisdiction to admit additional evidence and material in order to do substantial justice between the parties. He submitted that to the similar effect are the decisions of Hon'ble Delhi High Court in the case of R. Dalmia v. CIT and that of Hon'ble Bombay High Court in the case of Smt. Suhasinibai Goenka v. CIT which fully support the application moved by the Revenue for admission of additional evidence.
20. Reliance was also placed by the learned CIT-Departmental Representative on the decision of Hon'ble Calcutta High Court in the case of ITO v. B.N. Bhattacharya wherein it was held that appellate Courts have power to allow additional evidence not only if they require such evidence "to enable it to pronounce judgment" but also for "any other substantial cause". Further reliance was also placed on the decision of Hon'ble Madras High Court in the case of R.S.S. Shanmugam Pillai & Sons v. CIT , wherein it was held that if the Tribunal finds that the documents filed are quite relevant for the purpose of deciding the issue before it, it would be well within its powers to admit the evidence, consider the same or remit the matter to the lower authorities. The learned CIT-Departmental Representative contended that the additional evidence being sought to be produced by the Department in the present case was not available for production before the lower authorities for the reason that the same was recovered during the course of survey carried on subsequently on 10th March, 2006 and the same, therefore, deserves to be admitted accepting the application filed under Rule 29 of ITAT Rules, 1963 as held by Hon'ble Kerala High Court in the case of Asstt. CIT v. Gautam Investments (P) Ltd. .
21. We have considered the rival submissions and also perused the relevant material on record in the light of various case laws cited at the Bar. In the present case, the application moved by the Department under Rule 29 for admission of additional evidence comprising documents found during the course of survey carried out subsequently at the assessee's premises has been strongly opposed by the learned Counsel for the assessee. First of all his contention is that as per Rule 29 of ITAT Rules, 1963 there is a complete bar for the Revenue to furnish any additional evidence unless it is so required by the Tribunal. In effect, his argument is that only if the Tribunal requires any additional evidence for the purpose of disposing of an appeal before it, it can direct the Department to furnish the same available in its possession and it is not permissible to the Revenue to move any application suo motu under Rule 29 seeking admission of additional evidence. In support of this contention, he has cited six cases decided by the various High Courts and five cases decided by the Tribunal as enumerated at page Nos. 28 and 29 of his paper book-IV wherein the issue relating to admission of additional evidence was considered and decided. As rightly pointed out by him, out of these eleven cases, there were only two cases wherein the Revenue had moved an application under Rule 29 for admission of additional evidence and in both these cases reported as Rao Raja Hanut Singh (supra) and Smt. Kamal C. Mahboobbani (supra), the Department was not allowed to produce the additional evidence and its applications for admission thereof were rejected. However, a perusal of decisions rendered by the Hon'ble High Court in both these cases shows that it was nowhere laid down that there is a complete bar for the Revenue to seek admission of additional evidence as sought to be contended by the learned Counsel for the assessee before us.
22. For instance, in the case of Rao Raja Hanut Singh (supra), the assessee was a renowned international polo player and a distinguished sportsman. He frequently used to visit Britain especially during the polo session and had bank accounts in Britain throughout the relevant period. He received certain payments in the said bank accounts from companies and the said amounts had been utilized by him for meeting his expenses. The assessee claimed that the amounts so deposited in his bank accounts were not any consideration or remuneration but only for reimbursement of expenditure incurred by him in UK. This claim of the assessee, however, was. negated by the AO and entire deposits were included by him in the taxable income of the assessee. On appeal, the AAC, however, deleted the said additions. The Revenue appealed to the Tribunal and moved an application for permission to produce additional evidence to prove that the deposits made by the companies in the bank accounts of the assessee were in the nature of commission paid to him and not by way of reimbursement of expenses as claimed by' him. The Tribunal found that there was no necessity of fresh evidence and accordingly, declined to admit the fresh evidence sought to be produced by the Revenue. Aggrieved by the order of the Tribunal, the Revenue preferred a reference application before the Hon'ble Rajasthan High Court which was rejected by their Lordships holding that the discretion to admit the additional evidence was that of the Tribunal as circumscribed by Rule 29 of the ITAT Rules, 1963 and the Tribunal having exercised the said jurisdiction in accordance with the said rule, no question of law arose from its order. In this context, Hon'ble Rajasthan High Court referred to the relevant Rule 29 of the ITAT Rules, 1963 and observed on p. 535 of the report that the second limb of the condition of Rule 29 is if the IT authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. It was observed by the Hon'ble Rajasthan High Court that a case before it was not a case where the assessee had raised any grievance that the assessing authority has decided the case without giving sufficient opportunity to adduce evidence on any specified or unspecified points and therefore, this limb of the conditions obviously was not invoked at all. These observations of the Hon'ble Rajasthan High Court clearly indicate that insofar as the second limb of the conditions specified in Rule 29 relating to "deciding the case without giving sufficient opportunity to adduce evidence" is concerned, the assessee and assessee alone can be permitted to adduce additional evidence simply because the situation as contemplated in this condition can cause prejudice only to the assessee. Insofar as the first condition in the Rule 29, viz., "if the Tribunal requires the additional evidence to enable it to pass orders or for any other substantial cause" is concerned, Hon'ble Rajasthan High Court, however, noticed on p. 535 of the report that this expression is often used in the statute in clothing the appellate Courts or Tribunals with powers to allow "parties" to lead additional evidence provided the same enables it to pass orders or for any substantial cause. It is pertinent to note here the expression used by the Hon'ble Rajasthan High Court in this context is "parties" which includes the Department also in its capacity as appellant or respondent.
23. Similarly, in the case of Smt. Kamal C. Mabhoobbani (supra) cited by the learned Counsel for the assessee, the facts involved were that the assessee was an individual who declared of having 21 high denomination notes of Rs. 1,000 each totalling to Rs. 21,000. Her contention of having withdrawn the equivalent amounts of lower denomination notes from her bank account and kept the same at home before converting into high denomination notes through a family friend was not found acceptable by the AO on scrutiny of her passbook. He, therefore, treated the amount of Rs. 21,000 as income of the assessee from undisclosed sources and added the same to her total income. On appeal, this addition, however, was deleted by the AAC accepting the stand of the assessee. This relief given by the AAC to the assessee was challenged by the Revenue in an appeal before the Tribunal and additional evidence in the form of a letter dt. 3rd April, 1979 was sought to be produced by it by way of additional evidence before the Tribunal. The Tribunal, however, did not admit the said additional evidence mainly on the ground that it required investigation of facts and proceeded to uphold the order of the AAC. Aggrieved by the refusal of the Tribunal to admit the additional evidence sought to be produced by it, the Revenue filed a reference application before the Hon'ble Bombay High Court and considering that the additional evidence sought to be produced by the Revenue was not found to be required by the Tribunal to pass the orders, no fault was found by their Lordships with the order of the Tribunal refusing to admit the additional evidence sought to be produced by the Revenue. It was observed by the Hon'ble Bombay High Court that although the parties to appeal are not entitled to produce additional evidence before the Tribunal, it has been given a power to require any document to be produced or any witness to be examined to enable it to pass order or for any other sufficient cause as per Rule 29 of the ITAT Rules, 1963.
24. It is thus clear none of the decisions cited by the learned Counsel for the assessee lays down a proposition that there is a complete bar for the Revenue to adduce any additional evidence before the Tribunal under Rule 29 of the ITAT Rules, 1963 as sought to be canvassed by him while opposing the application moved by the Revenue for admission of additional evidence in the present case.
25. Before us, the learned Counsel for the assessee has submitted that he has not been able to find any case wherein an application moved by the Revenue under Rule 29 has been accepted by the Tribunal allowing it to produce the additional evidence on interpretation of Rule 29. He has also submitted that none of the authorities cited by the learned CIT-Departmental Representative supports the contention of the Department that it is entitled to lead additional evidence before the Tribunal. On perusal of the decisions cited by the learned CIT-Departmental Representative, we, however, find it difficult to accept these submissions of the learned Counsel for the assessee. For instance, in the case of Anaikar Trades & Estates (P) Ltd. (supra) cited by learned CIT-Departmental Representative, the assessee had sold several plots of land to various parties and the value of properties shown in the documents of sale was Rs. 2,58,338. The Valuation Officer of the Department estimated the market value of the property sold at Rs. 4,17,000 and adopting the said value under Section 52(2), the difference of Rs. 2,76,066 (Rs. 4,17,000--Rs. 1,40,934 as the cost of acquisition of the properties) was brought to tax by him as capital gains. On appeal, the AAC held that it was not established that anything more than the disclosed consideration had been received by the assessee and accordingly, he directed the ITO to recompute the capital gain taking the sale consideration at Rs. 2,58,338. On appeal to the Tribunal by the Department, it was contended that the provisions of Section 52(2) were clearly applicable and reliance in support of this contention was placed on certain affidavits given by the concerned purchasers affirming therein on oath that the sale consideration received by them was actually more than what was shown in the document. The said affidavits were sought to be produced by the Revenue as additional evidence before the Tribunal which was objected by the assessee on the ground that the said affidavits were available at the time of assessment proceedings and also at the time of consideration of appeal by the AAC and still the Revenue did not make use of that material. The Tribunal, however, took the view that in order to decide the question of the applicability of Section 52(2) of the Act which was the subject-matter of appeal before it, it would be necessary in the interest of justice to consider these affidavits and in that view, directed the restoration of the matter before the AAC after allowing the Revenue to produce the said affidavits as additional evidence. The matter was carried before the Hon'ble Madras High Court and their Lordships upheld the action of the Tribunal in admitting the additional evidence filed by the Revenue observing that under Rule 29 of the ITAT Rules, if the Tribunal required any document to be produced or affidavit to be filed to enable it to pass order or for any other substantial cause, it may allow the document to be produced or the affidavits to be filed. It was also held by the Hon'ble Madras High Court that this power conferred upon the Tribunal under Rule 29 was properly exercised by it in the facts and circumstances of the case.
26. Similarly, in the case of R. Dalmia v. GIT (supra) cited by the learned Departmental Representative, the assessee was in control of a number of companies in particular "JT". The ITO held certain cash credits appearing in the name of the JT as unexplained and treated the same as the income of the assessee. When the matter went in second appeal, the learned Counsel for the Revenue sought the permission of the Tribunal to place on record the balance sheets and P&L a/c of JT for the relevant periods as additional evidence which was vehemently opposed by the counsel for the assessee. The Tribunal was of the opinion that the additional evidence sought to be adduced by the Revenue was relevant to the points at issue and would be of assistance to it in deciding the appeal. The objection of the counsel for the assessee, therefore, was overruled by the Tribunal and the additional evidence produced by the Revenue was admitted. At the same time, the Tribunal thought that it was only fair that the assessee should be given an opportunity to explain the additional evidence and the AAC, therefore, was directed by the Tribunal for giving the assessee to offer his explanation on the additional evidence and also to lead any further evidence which he may wish to produce to rebut the said additional evidence. This action of the Tribunal in admitting the additional evidence comprising balance sheets and P&L a/c of JT was challenged by the assessee before the Hon'ble High Court submitting that the Tribunal was in error in admitting the said additional evidence at the time of hearing of the appeal. This submission made on behalf of the assessee, however, was found to be devoid of foundation by the Hon'ble Delhi High Court observing that whether to admit the additional evidence or not was in the discretion of the Tribunal and no prejudice was caused to the assessee because the matter was remitted to the AAC for affording an opportunity to the assessee to explain the said additional evidence as well as for recording such further evidence as the assessee might wish to offer.
27. Even in the case of ITO v. B.N. Bhattacharya (supra) cited by the learned CIT-Departmental Representative, the production of the record of the process server by the Department at the first time before the Hon'ble Calcutta High Court during the course of hearing was strongly objected by the counsel for the assessee contending that such additional evidence could not be relied upon or should not be allowed to be relied upon in view of the provisions of Order 41 Rule 27 of the CPC. Relying on the decision of Hon'ble Supreme Court in the case of K. Venkataramiah v. A. Seetharama Reddy , it was, however, held by the Hon'ble Calcutta High Court that under Rule 27(1) of Order 41 of the CPC, the appellate Court has the power to allow additional evidence not only if it requires such an evidence "to enable it to pronounce judgment" but also for "any other substantial cause". Explaining further, it was also observed by the Hon'ble Calcutta High Court that there might well be cases where even though the Court found that it was able to pronounce judgment on the state of record as it was and so it could not strictly say that it required additional evidence to enable it to pronounce judgment, it still considered that in the interest of justice something which remained obscure should be filled up so that it could pronounce the judgment in a more satisfactory manner, such a case would be one for allowing additional evidence for any other substantial cause under Rule 27(1)(b) of Order 41 of the Code. To the similar effect is the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Saligram Prem Nath (supra) cited by the learned CIT-Departmental Representative wherein it was held that a Tribunal is vested with the requisite authority and jurisdiction to admit additional evidence and material in order to do substantial justice between the parties. Accordingly, the Tribunal was directed by Hon'ble Punjab & Haryana High Court to decide the matter afresh by taking into account the material placed on record by the Revenue after affording an opportunity to the assessee to rebut it, if necessary by adducing additional evidence. It was also clarified by their Lordships that it would be open to the Tribunal either to deal with the matter itself or to remand the case for this purpose to the ITO.
28. The decision of Hon'ble Kerala High Court in the case of Midas Rubber (P) Ltd. v. CIT also supports the case of the Revenue that it can move an application for admission of additional evidence before the Tribunal. In the said case, additional evidence comprising of work sheets showing calculation of surtax was filed by the Department and admitting the same, the issue relating to change of previous year under the IT Act was decided by the Tribunal against the assessee relying thereon. When this decision of the Tribunal was challenged by the assessee, Hon'ble Kerala High Court upheld the action of the Tribunal in admitting the additional evidence filed by the Department. However, keeping in view the facts of the case, it was held by the Hon'ble Kerala High Court that while deciding the appeal of the assessee, proper procedure was not followed by the Tribunal in the sense that the matter should have been remanded by it to the AO.
29. Keeping in view the aforesaid decisions of various High Courts cited by the learned CIT-Departmental Representative which were decided after taking into consideration Rule 29 of the ITAT Rules, we find it difficult to accept the contention of the learned Counsel for the assessee that there is a complete bar for the Revenue to produce any additional evidence suo motu and it can be permitted to do so only if the Tribunal requires such evidence and accordingly directs the Department to produce the same. In our opinion, the first limb of condition stipulated in Rule 29 clearly permits both the parties to the appeal to produce additional evidence and seek the leave of the Tribunal for admission thereof making out a case that the same shall enable it to pass orders or for any substantial cause and if the Tribunal is satisfied that the additional evidence so produced is required to enable it to pass orders or for any other substantial cause, it can allow the parties including the Revenue to produce such additional evidence exercising its discretion in terms of the said rule.
30. It is a settled position that production of additional evidence at the appellate stage is not a matter of right to litigating public and allowing of production of additional evidence is in the discretion of the Tribunal. The said discretion however, is to be exercised judicially and not arbitrarily. As held by Hon'ble Madhya Pradesh High Court in the case of CIT v. Kum. Satya Setia it is within the discretion of the appellate authority to allow production of additional evidence if the said authority requires any document to enable it to pass orders or for any other substantial cause. The Tribunal is the final fact-finding body under the scheme of the IT Act and powers, therefore, have necessarily to be exercised by it for deciding the questions of fact. While exercising its powers, if the Tribunal is of the opinion that additional evidence is material in the interest of justice for deciding a particular issue, its discretion cannot be interfered with unless it has been exercised on non-existing or imaginary grounds. In the case of Mahavir Singh (supra) cited by the learned Counsel for the assessee, it was held that Section 107 of CPC enables an appellate Court to take additional evidence or to require such other evidence to be taken subject to such conditions and limitations as are prescribed under Order 41 of Rule 27 of CPC. It was also held that the parties are not entitled, as of right, to the admission of such evidence and the matter is entirely in the discretion of the Court which is of course to be exercised judicially and sparingly. It was observed that Order 41 Rule 27 of CPC envisages certain circumstances when additional evidence can be adduced and one of such circumstances is where the appellate Court requires any document to be produced or any witness to be examined to enable it to pronounce judgment or for any other substantial cause. It was also clarified that the expression "to enable it to pronounce judgment" contemplates a situation when the appellate Court finds itself unable to pronounce judgment owing to a lacuna or defect in the evidence as it stands. In this context, it was further clarified that the ability to pronounce a judgment is to be understood as the ability to pronounce a judgment satisfactory to the mind of Court delivering it. This position was reiterated again by the Hon'ble Supreme Court in the case of Syed Abdul Khader v. Rami Reddy (supra) cited by the learned Counsel for the assessee. In the case of Municipal Corporation of Greater Bombay v. Lala Panchan (supra) cited by the learned Counsel for the assessee, it was observed by the Hon'ble Supreme Court that the power to admit additional evidence does not entitle the appellate Court to let in fresh evidence only for the purpose of pronouncing judgment in a particular way and it is only for removing a lacuna in the evidence that the appellate Court is empowered to admit additional evidence. In the case of Arjan Singh v. Kartar Singh (supra), it was held that the discretion given to the appellate Court by Order 41 Rule 27 of CPC to receive and admit additional evidence is not an arbitrary one but is a judicial one circumscribed by the limitations specified in that rule. It was also held that the legitimate occasion for the application of the said rule is when on examining the evidence as it stands some inherent lacuna or defect becomes apparent. To the similar effect is another decision of Hon'ble Supreme Court in the case of Natha Singh v. Financial Commr., Taxation (supra)
31. As per Rule 29 of the Tribunal Rules, 1963, the Tribunal has the power to allow additional evidence not only if it requires such evidence "to enable it to pronounce judgment" but also "for any other substantial cause". There may be cases where even though the Tribunal finds that it is able to pronounce judgment on the state of record as it is and so it cannot strictly say that it requires additional evidence to enable it to pronounce judgment, it still considers that in the interest of justice, something which remains obscure, should be filled up so that it can pronounce the judgment in a more satisfactory manner. Such requirement of the Tribunal is likely to arise ordinarily when some inherent lacuna or defect becomes apparent upon its appreciation of the evidence. The power of the Tribunal to admit additional evidence in support of the claim in appeal is discretionary and no fetters can be imposed on the exercise of such power. However, as held by Hon'ble Allahabad High Court in the case of Ram Prasad Sharma v. CIT and by the Hon'ble Andhra Pradesh High Court in the case of A.K. Babu Khan v. CWT , it is not an arbitrary power but it is a judicial one circumscribed by the limitations given in Rule 29 of the ITAT Rules, 1963. The conditions precedent for the exercise of power under Rule 29 must, therefore, be found to have been established. However, where there is no lack of evidence but yet the plea in support of admitting the evidence is so decisive and of clinching value with reference to the points at issue, it is open to the Tribunal to invoke its power of allowing additional evidence to render substantial justice and not to deprive the party of such justice on technical grounds. Further, as held by Hon'ble Bombay High Court in the case of Velji Deoraj & Co. v. CIT , when the evidence was available to the party at the initial stage and had not been produced by him, the mere fact that evidence sought to be produced is vital and important does not provide a substantial cause to allow its admission at the appellate stage. The admissibility of additional evidence depends on whether or not the Tribunal requires it to enable it to pass orders or for any other substantial cause and not to enable the assessee or the Department to tender fresh evidence to support a new point or to make out a new case. In the case of N. Kamalam (supra) it was held that the provisions of Rule 27 of Order 41 of CPC, 1908, are not designed to help parties to patch-up weak points and make up for omissions earlier made.
32. In the case of Smt. Girijamma v. Kamala Engg. Works (supra), it was held that when there was a failure on the part of the applicant to produce the documentary evidence during trial in spite of having knowledge as to its existence, he could not be permitted to adduce the same as additional evidence in appeal. This position has been reiterated in the case of Mandala Madhava Rao v. Mandala Yodagin (supra) wherein it was held that additional evidence can be adduced, inter alia, where the party seeking to produce additional evidence establishes that notwithstanding the exercise of due diligence, such evidence was not within their knowledge or could not after the exercise of due diligence be produced by him at the time when the decree appealed against was passed and the appellate Court requires the said evidence to be produced to enable it to pronounce the judgment. Similarly, in the case of Ram Kumar (supra) cited by the learned Counsel for the assessee, it was held by the Hon'ble Punjab & Haryana High Court that additional evidence cannot be claimed as a matter of right in the appellate Court and it has to be shown by the litigants that the proposed additional evidence was not in their power or possession or was not in their knowledge.
33. It is also well settled that once additional evidence is taken into consideration, it has to be read as part of the record and before drawing any inference on the basis of contents of that document admitted as additional evidence, an opportunity has to be given to the other side to explain or rebut the same. As held by Hon'ble Madras High Court in the case of R.S.S. Shanmugam Pillai & Sons v. CFT (supra), if the Tribunal finds that the documents filed are quite relevant and for the purpose of deciding the issue before it, it would be well within its powers to admit the evidence, consider the same on merits or remit the matter to the lower authorities for examining the same. In the case of Smt. Urmila Ratilal v. CIT (supra), Hon'ble Gujarat High Court has held that when the additional evidence filed by the Revenue was admitted by the Tribunal overruling the objection raised by the assessee, interest of justice demanded that the assessee was given an opportunity to explain or rebut the additional evidence before relying on the same. In the case of Charbhai Biri Works v. Asstt. CIT (supra) cited by the learned Counsel for the assessee, it was held by Pune Bench of Tribunal in its Third Member decision that when the documents which were not available before the AO were produced before the Tribunal for the first time and the same were admitted as additional evidence being material and relevant for adjudicating the matter, the issue was required to be restored to the file of the AO to verify correctness and authenticity of such documents and to adjudicate the matter afresh after providing adequate opportunity to the assessee of being heard.
34. Keeping in view the legal position as regards the matter of admission of additional evidence by the appellate authority as emanating from the various judicial pronouncements discussed above, we can now endeavour to examine the various documents being sought to be filed by the Revenue in the present case as additional evidence by appreciating and ascertaining their relevancy as well as requirement to adjudicate upon the issue in dispute in the present appeal or for any other substantial cause in terms of Rule 29 of the ITAT Rules, 1963.
35. When the application seeking admission of additional evidence under Rule 29 was moved by the Department during the course of hearing before us and arguments were also advanced by the learned representatives of both the sides in respect of the said application, it was insisted by the learned Counsel for the assessee that the said application may be disposed of by the Bench at that stage itself. It was, however, felt by the Bench that the same can appropriately be disposed of along with the appeal only after hearing the arguments of both the sides on merits because it would be then only the relevance as well as the requirement of the additional evidence for the purpose of disposing of the present appeal could be well appreciated and both the sides also agreed with the same as noted in the order-sheet entry recorded on 22nd May, 2006. Accordingly, the arguments of both the sides were heard on merits in the light of evidence already available on record as well as the additional evidence sought to be filed by the Revenue elaborately and they were also given an opportunity to place on record all their submissions in writing. Availing the said opportunity fully, the learned representatives of both the sides have made elaborate submissions before us, inter alia, on the main issue relating to PE, the point-wise gist of which is given below:
Point - UOPIPL and/or UOP Asia Limited (Liaison Office) as a dependent agency PE of the assessee in India as per Article 5(4) of the Indo-US DTAA.
Contentions raised on behalf of the assessee company:
(i) UOPIPL was principally formed with the object of rendering technical and engineering services on its own account to Indian customers. It was also to procure orders and sell proprietary equipments of the assessee company on its own account in India. It was also entrusted the job of promoting the process technology of the assessee company in the contract area including India with particular reference to engineering and technical services being offered by the assessee company. It was thus economically and legally independent of the assessee company and majority of its income in the year under consideration came from independent third parties. Moreover, the said company acted in its ordinary course of business and was also remunerated by the assessee company for its services at arm's length. UOPIPL thus was an agent of an independent status in terms of para 5 of Article 5 of the DTAA. [TVM India Ltd. (supra) and UI Nisr Publishing v. CIT (1999) 154 CTR (AAR) 268 : (1999) 105 Taxman 308 (AAR) relied upon].
(ii) UOPIPL is primarily for supply of equipment where it acts as a trader or supplier of equipment. However, when it comes to supply of process technology by the assessee company to the Indian customers, it merely acts as a communication interface/channel between the assessee company and potential customers as and when required.
(iii) The activities of UOPIPL were not devoted wholly or almost wholly to the assessee company and the transactions were carried out between them at arm's length as evident from the transfer pricing prder passed in the case of UOPIPL (copy at Annex.-3 page Nos. 132 and 133). UOPIPL thus was an agent of independent status and there was no question of it being treated as dependent agency PE of the assessee company in India. [Motorola Inc. v. Dy. CIT (2005)96 ITJ (Del)(SB) 1 : (2005) 95 ITD 269 (Del)(SB) relied upon].
(iv) There is no evidence brought on record by the Revenue to establish that the concerned contracts were negotiated and concluded by UOPIPL on behalf of the assessee company in India. The technology supplied by the assessee company is a complex one and the negotiations for the supply of the same are long drawn involving analysis of the process technology which is done by technical personnel. Such negotiations and deliberation on each and every aspect of technology is a specialized job and it would be wholly unrealistic to assume that the officers of small liaison office or of an Indian subsidiary would be able to do or provide with an authority to conclude contract. None of the conditions prescribed in para 4 of Article 5 were satisfied so as to treat UOPIPL as a dependent agency PE of the assessee company in India.
(v) In any case, UOPIPL was remunerated for services rendered by it at arm's length price and as such, there was no case of attributing any additional profits to the assessee company in India. Reliance is placed on Circular No. 23 (F. No. 7A/38/1969-IT(A-II)) dt. 23rd July, 1969, Circular No. 5 of 2004, dt. 28th Sept., 2004 [(2004) 191 CTR (St) 133] and Morgan Stanley & Co., In re (2006) 201 CTR (AAR) 67 : (2006) 152 Taxman 1 (AAR).
(vi) UOP Asia Limited is a company, incorporated in USA and after obtaining permission from RBI, it established a liaison office in India at New Delhi in May, 1996. UOP Asia Limited is thus a separate legal entity and the activities carried on by its liaison office in India were purely of a preparatory or auxiliary nature. As per para 4 of the OECD Model Commentary 2005, an enterprise of one State carrying on activities of such nature in other State is not liable to tax in the other State. By virtue of this para 4, the maintenance of fixed place of business solely for the purpose listed therein which, inter alia, includes preparatory or auxiliary services, is deemed not to constitute a PE in terms of para 5 of Article 5. It is to be noted here that as per the approval given by the RBI, the liaison office in India was not permitted to carry on any revenue generating activity. It therefore, cannot be said that UOP Asia Limited (LO) was dependent agency PE of the assessee in India under Article 5(4) of Indo-US DTAA. Contentions raised on behalf of the Department:
(i) UOPIPL and UOP Asia Limited are not only 100 per cent subsidiary of the assessee company but even their business activities carried out in India were devoted entirely for the business of the assessee company. Even the employees of these concerns are getting transferred amongst the UOP group companies and, therefore if the corporate veil is lifted, it would be clearly evident that all these concerns including the assessee company are one and the same. The engineering and technical employees of UOPIPL and UOP Asia Limited (liaison officer) were also sent to the assessee's office at USA for training on regular basis. As per Clause 1.1 of the equipment trading agreement dt. 29th Dec, 1999 between UOPIPL and the assessee company, the employees of UOPIPL were engaged in performing contracts of consultancy services, engineering agreements and miscellaneous service agreements entered into between the assessee company and its Indian customers. UOPIPL and UOP Asia Limited (LO) thus had carried out a significant part of the main work of the assessee company in India and the work undertaken by them for the assessee company could not be characterized as auxiliary.
(ii) Moreover, there were two other agreements entered into by the assessee company with UOPIPL during the year under consideration on 29th Dec, 1999, viz., "Equipment Trading Agreement" and "Agreement for Sub-contracting of Services". As per the scope of services agreed to be rendered by UOPIPL to the assessee under the said agreements (cl. 1.1 of ETA and Article 1 of ASS), UOPIPL was to act as dependable agent of the assessee for securing orders from the customers in India and was to act as virtual projection of the assessee in India. This position evidenced by the said agreements was further corroborated by the written submissions made by the assessee company itself on 2nd March, 2004 before the AO stating therein that UOPIPL was principally formed with the object of rendering technical and engineering services to Indian customers and it was also procuring and selling on its own account UOP proprietary equipment. It was further evident from the copy of the sale promotion agreement between assessee and UOPIPL that the latter had an authority to submit bid on behalf of the former and was also authorized to negotiate contract on its behalf.
(iii) All the expenses incurred by UOPIPL and UOP Asia Limited (LO) were reimbursed by the assessee and it is matter of record that all the customers of the assessee with whom technology agreement was entered into had necessarily signed agreement for supply of equipment, etc. with UOPIPL. These subsidiaries thus did not have any independent existence and they were dealing only with the products of the assessee. Even the assessee has failed to cite even one example showing that these two concerns had dealt in a product other than its own product.
(iv) Additional evidence impounded subsequently during survey clearly proves that employees of UOPIPL and UOP Asia Limited (LO) were wholly engaged in negotiating contracts on behalf of the assessee with various customers in India and were also engaged in securing orders virtually acting as agent of the assessee company. The orders so secured from the Indian customers after completing all the formalities and after getting signature of Indian customers were sent to USA for the counter-signature of the assessee. It also shows that the managing director of UOPIPL had an authority to negotiate and conclude contracts in India on behalf of the assessee company. It can also be seen from these documents that the employees of UOP Asia Limited (LO), Mr. Prabhakar Nair and Mr. Mark Purowicz were actually involved in contract negotiations with various customers in India under the guidance and control of Mr. K.J. Aspray, current CEO of UOPIPL.
(v) Additional evidence impounded during the survey shows that the consolidated contract with Indian customers was initially negotiated and finalized by UOPIPL and UOP Asia Limited (LO) and the same was subsequently split into various contracts amongst the assessee and UOPIPL in such a manner that presence of PE in India could be avoided. Further, it also shows that various changes were made by Mr. K.J. Aspray, managing director of UOPIPL in the draft MoU sent by the assessee and after making such changes, the MoU was sent to the assessee for signature. It clearly shows the involvement of Mr. K. J. Aspray in negotiation and conclusion of contract on behalf of the assessee. Other documents forming part of additional evidence are the guidelines for UOP contracting parties which clearly show that the contracts were being entered in a manner so as to have a minimum tax exposure. Further, it talks about preparation, distribution and execution of legal agreements and contemplates improvement in the agreement turn around time. The example of movements of recent agreement given therein in this context clearly shows that the contracts were finalized in India by the employees of UOPIPL and after getting the same signed from the Indian customers, they were sent to the head office of the assessee for the counter-signature.
(vi) A careful perusal of all the aforesaid documents constituting additional evidence impounded during survey prove beyond doubt that UOPIPL and UOP Asia Limited (LO) were acting as virtual projection office of the assessee in India and their employees had negotiated and finalized contracts on behalf of the assessee with various customers in India. It is also proved that agreement between assessee and the Indian customers were being drafted and approved by the chief executive officer of UOPIPL and UOP Asia Limited (LO) and after getting the same signed from the Indian customers, final agreements were sent to USA for the signature of the assessee. These documents thus clearly corroborate the deposition made by Mr. K. J. Aspray in his statement recorded by the AO wherein it was clearly stated by him that UOPIPL was acting as interface with customers in India at pricing, terms and conditions set by the assessee and it was also interacting with the said customers under the guidelines given by the assessee. It was thus proved beyond doubt that both the subsidiaries had actually acted as dependable agent of the assessee which clearly represent its PE in India as per Article 5(4) of DTAA. Reliance in support of this contention is placed on the decision of Authority of Advance Rulings in the case of TVM Ltd. (supra).
(vii) The technical qualification and experience possessed by the employees posted in UOPIPL and UOP Asia Limited (LO) were sufficient to show that they were not capable of liaison work but were technically specialized to negotiate contracts and render technical services to the Indian clients on behalf of the assessee company. The claim of the assessee that these employees were posted in India to carry out only the liaison work and they did not have any role to play in negotiation of contract and rendering technical services was apparently wrong and unbelievable on the face of it. Mr. Paul McCormick and Mr. S. Varadarajan, employees of UOP Asia Limited (LO) and UOPIPL, respectively, had not only accompanied the officials of the assessee company during the course of commercial negotiations but they had actually participated in such commercial negotiations on behalf of the assessee company as per the details available on pp. 364, 394 and 395 of assessee's paper book 2. Both these concerns as well as their employees, therefore, were dependable agent of the assessee company in India in terms of Article 5(4) of the DTAA.
Point - Whether the assessee company was having an installation PE in India ?
Contentions raised on behalf of the assessee company:
(i) The assessee company was not engaged in any construction, installation or assembly project or in supervision activities in connection with any such project. As evident from the relevant agreements, the activities of the assessee company were confined to provision of technical know-how, drawings and basic designs and the provision of services which are ancillary and subsidiary to the application of technical know-how drawings and basic designs. It supplied basic design only and not the detailed design which would be required for undertaking building construction, etc. The actual installation or assembly project was undertaken by a contractor selected by the customers and not by the assessee. Clause (k) of Article 5(2) of the DTAA thus has no application to the case of the assessee and the assessee having not undertaken any installation or assembly or project or supervising activities in connection thereto, the period of stay of the employees of the assessee in India is not relevant at all. The Revenue authorities have failed to appreciate the different roles performed by each of the parties i.e., assessee company as technology provider, EPC contractor for the equipment procurement as well as construction and operator as end refiner.
(ii) All the services provided by the assessee to the Indian customers as per the agreement were "included services" as defined in Article 12(4) of the DTAA and the duration of the services in India for any length of time thus would not result in PE. The inference drawn by the Revenue authorities on the basis of receipt of huge amounts by the assessee from the Indian customers that such huge amounts could not have been earned without performing part of its activity in India are based on mere surmises and conjectures without any substance or supporting evidence. Even if it is assumed that there were some site visits made by the employees of the assessee company for gathering of information for the design of the process, the same would constitute "included services" only irrespective of the duration of these visits and would not create a PE of the assessee in India since the furnishing of included services has been specifically excluded from the purview of Clause I of Article 5(2). Same is the position as regards imparting of technical training which again constituted "included services" under para 4(a) of Article 12 of the Indo-US DTAA.
Contentions raised on behalf of the Department:
(i) The assessee company offers a wide range of services to a global array of companies within the hydrocarbon process industries. It provides such services in areas of its expertise which include planning, operational support, technical service, catalyst and absorbent services, reliability, availability, inspection and maintenance support and human resource services. It also gets involved in providing training to the personnel, equipment inspection and project management. The details of the scope of services to be rendered by the assessee as stipulated in the relevant engineering agreements with Indian customers clearly show that technology transfer did involve substantial manpower deployment at the customer's site in India (Clauses 1.4, 7.1, 7.2 and 7.3 of engineering agreement dt. 16th May, 2000 with IOC and Clause 1.4 of consultancy service agreement with Tamil Nadu Petro Products Ltd.).
(ii) The aforesaid position clearly apparent from the said agreements gets fortified from the two press notes released by the assessee on 4th June, 2002 and 4th March, 2003 and it can be easily inferred by applying the test of human probabilities that the assessee had a physical presence in India for installation related activities for a period of more than 120 days in the year under consideration and there was thus an installation PE of the assessee company in India within the meaning given in Article 5(2)(k) of DTAA. The very fact that the assessee received a substantial amount of Rs. 104.98 crores on account of technology consultancy fees from the customers in India also supports the case of the Revenue on this issue since it was highly improbable for the assessee company to garner such huge receipts on account of technology consultancy fees without deployment of its own employees at the customer's plant regularly.
(iii) Reliance in support is placed on the decision of Hon'ble Supreme Court in the case of Shree Meenakshi Mills Ltd. v. CIT and in the case of the CIT v. Karam Chand Thapar & Bros. (P) Ltd. .
Point - Whether the assessee company was having a fixed place PE in India ?
Contentions raised on behalf of the assessee company:
(i) At the outset, the new case being sought to be made out by the learned Departmental Representative by contending that there was a fixed place PE of the assessee company in India is strongly objected to as neither the AO nor the learned CIT(A) has given any finding on this issue in their orders. As held by Delhi Special Bench of Tribunal in the case of Motorola Inc. (supra), the Revenue is not entitled to enlarge the scope of enquiry in an appeal filed by the assessee without having filed any cross-appeal.
(ii) Without prejudice to the aforesaid objection and on merits, there was no place of business in India which could be said to be available to the assessee company for its disposal so as to create a fixed place PE situation. As held by Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust , the PE postulates the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of the business in that country.
(iii) As stated in the OECD Model Convention, in order to constitute a fixed place PE, there should be distinct "situs in India" and the word "fixed" refers to a distinct place with a certain degree of permanence. The mere fact that the employees of the assessee company at times sat in the office of UOPIPL/UOP Asia Limited (LO) during their visit to India does not satisfy this requirement. For such occupations, the permission of UOPIPL/UOP Asia Limited (LO) would have been necessary and since the assessee company had no right to occupy the said premises without the permission of UOPIPL/UOP Asia Limited (LO), it could not be said that the said place constituted fixed place PE of the assessee company in India.
(iv) The lower authorities have not recorded any finding to the effect that the assessee company was having a fixed place of business in India with a right to use the same and since the permission of UOPIPL/UOP Asia Limited (LO) would have been necessary for the employees of the assessee company to use their premises, the said premises could not constitute a fixed place PE of the assessee company.
(v) Even if it is assumed for the sake of argument that the premises of UOPIPL/UOP Asia Limited (LO) was being used by the employees of the assessee company at times during their visit to India, it was only the facility offered by them to the employees of the assessee company gratis which did not create any right in favour of such employees to enter the said office as they pleased for the purpose of carrying out the activities of the assessee company. It was thus not a case of fixed place PE of the assessee company in India as held by Delhi Special Bench of Tribunal in the case of Motorola Inc. (supra).
(vi) In any case, only the activities of a preparatory or auxiliary character were carried out from the office premises of UOPIPL/UOP Asia Limited (LO) in India and in terms of para 3 of Article 5 of the DTAA between India and USA, the said office premises even though held as fixed place of business of the assessee company, will not constitute a PE in India.
Contentions raised on behalf of the Department:
(i) UOPIPL and UOP Asia Limited (LO) are 100 per cent subsidiaries of the assessee company operating in India which were under its direct control and supervision. The same have been projected as the office of the assessee company in India on its own official website meant for the Indian customers.
(ii) All the employees of the assessee company visiting India did visit the Delhi office of UOPIPL and UOP Asia Limited (LO) and held meetings therein. [Reliance on pp. 365 to 387 (paper book 2) filed by the assessee]. The said office belonging commonly to UOPIPL and UOP Asia Limited was situated at Delhi during the year under consideration which was later on shifted to Gurgaon. UOPIPL and UOP Asia Limited thus represented a fixed place of business of the assessee company in India.
(iii) UOP Asia Limited was maintaining the so-called liaison office at the premises of UOPIPL and the same was headed by Mr. K.P. McCormick, a chartered chemical engineer. From the duties assigned to him during the year under consideration as admitted in his statement (p. 450 of assessee's paper book volume-2), it could be seen that the said liaison office actually acted as a communication centre of the assessee company in India which carried out commercial negotiations for the contracts entered into between the assessee company and the Indian customers. This conclusion was further corroborated by statement of Mr. K. J. Aspray, managing director of UOPIPL as well as the details of persons involved in concluding contract furnished by the assessee at pp. 364, 394 and 395 of paper book volume-2. The said liaison office thus played an important role in concluding the transactions and also acted as communication centre on behalf of the non-resident company and the same, therefore, was the PE of the assessee company in India as held in the case of UAE Exchange Centre LLC, In re (2004) 189 CTR (AAR) 467 : (2004)268 ITR 9 (AAR).
(iv) The aforesaid liaison office of UOP Asia Limited was not only engaged in collecting information on behalf of the assessee in India but was also discharging services as part of performance of contracts entered into between the assessee company and its Indian customers. The affidavit filed by Mr. Nigel Orchard, employee of the assessee company stating otherwise was merely self-serving evidence which could not be relied upon. On the other hand, the liaison office was clearly involved in providing secretarial, administrative and logistical services to the assessee company and the employees of the said liaison office were also engaged in commercial negotiation of the contract on behalf of the assessee company. These services, therefore, could not be classified as merely of preparatory or auxiliary nature as sought to be contended by the learned Counsel for the assessee. In fact, the said liaison office had not only acted as communication centre but also carried out essential commercial negotiation for finalizing contracts on behalf of the assessee company and the same, therefore, represented PE of the assessee company as held in the cases of UAE Exchange Centre LLC, In re (supra) and Sutron Corporation In re (2004) 189 CTR (AAR) 366 : (2004) 268 ITR 156 (AAR).
36. Keeping in view the aforesaid submissions made by both the sides as well as the legal position emanating from the various judicial pronouncements discussed hereinabove on the issue of admission of additional evidence under Rule 29, we now proceed to dispose of the application moved by the Department for admission of additional evidence in the present case.
37. The various documents sought to be produced by the Revenue as additional evidence are classified into four bunches which are identified as pp. 1A to 3 of Annex.-A, pp. 12 to 24 of Annex.-B, pp. 28 to 80 of Annex.-C and pp. 81 to 84 of Annex.-D. The relevance and requirement of these documents for the purpose of adjudicating upon the main issue relating to PE are therefore being discussed and considered Annexure-wise as follows:
Annex.-A (Pages 1A to 3)
38. It is a letter dt. 10th Dec, 2005 sent by the assessee company to Indian Oil Corporation intimating that the service-tax due on the invoices raised by it should continue to be paid by the group companies. It was further stated in the said letter that since service-tax was introduced under Indian tax laws, UOP non-resident group companies filed services tax returns and settled their respective service-tax liabilities on the basis that they each had an office in India for service-tax purposes. It was also stated that the Indian liaison office of UOP Asia Limited is the office acting as an office of the UOP group companies for service-tax purposes. As regards the applicability of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, it was stated that the said rule only effected nonresident service providers which did not have any office in India and did not effect non-resident companies which did have an office in India for service-tax purposes. It was thus admitted in the said letter by the assessee company that it did have an office in India for service-tax purposes and it was also mentioned in this context that the RBI has given permission to the liaison office of UOP Asia Limited to collect and pay the service-tax component of the invoices issued by all the UOP companies including the assessee in a letter dt. 17th Nov., 2000. Although the permission so granted by RBI under its letter dt. 17th Nov., 2000 itself i.e., during the year under appeal was subject always to the condition that liaison office would not indulge in any business activities, the fact remained to be seen is that it was admitted by the assessee company in the aforesaid letter dt. 10th Dec, 2005 that it did have an office in India for service-tax purposes which read with the other additional evidence appears to be relevant for the purpose of deciding the issue as to whether the assessee company was having a fixed place PE in India and/or whether the liaison office of UOP Asia Limited was a dependent agency PE of the assessee company in India during the previous year relevant to asst. yr. 2001-02.
Annex. -B (Pages 12 to 24)
39. These are the copies of various e-mails exchanged between employees of the UOP group including the assessee company and employees of UOPIPL and UOP Asia Limited (LO). One of such e-mails placed at p. 12 was sent by Keith J. Aspray, managing director of UOPIPL to the assessee company forwarding a draft agreement for approval by Norm and then by Carlos suggesting that the same is what is required for consultant agreements prior to sending execution copies to them. It was also mentioned by Mr. Aspray in the footnote that he would be sending a note to Norm and Carlos giving his input before the agreement comes their way. In another e-mail dt. 24th Feb., 2005 received by Mr. Aspray placed at p. 13 of Annex.-B, the pre-IPL position was discussed stating finally that the tax people of the UOP group had some PE concerns with the said arrangement. It was also mentioned that since now IPL exists, the Indian portion is bought from IPL and the second option of having one PO on NV was not being practiced because of PE/tax concern. The approach of Mr. Aspray to ask for separate orders on NV and IPL thus was stated to be approved in the said letter. This e-mail was received by Keith Aspray in response to his original message sent on 23rd Feb., 2005 informing that he has given two options to the customers, viz., all INR via IPL or one PO on NV with split Euros/INR components. It was also mentioned by him that option 2 could be given only because of having a local entity i.e., UOPIPL that does work in this area. It was stated that the acceptance of option two, however, would be difficult for UOP as the same could create a PE/tax issue for NV in India if the INR order is placed on UOPIPL. Although this communication was pertaining to NV, another entity belonging to UOP group and not to the assessee company as pointed out by the learned Counsel for the assessee, the modus operandi being followed to split the contracts between the different entities belonging to UOP group apparently to avoid PE issue was reflected therein and the same, therefore, seems to be relevant to decide a similar issue relating to PE involved in the case of the assessee. This aspect of arrangement/adjustments between the various entities belonging to UOP group to serve the desired purpose was also reflected in the copy of another e-mail received by Keith Aspray on 28th Sept., 2005 which is placed at p. 15 of Annex.-B along with the original message sent by Mr. Aspray wherein it was mentioned that the UOPIPL had in the past taken low to zero margins on several projects to the benefit of UOP on a global basis. There are other communications also between Keith Aspray of UOPIPL and employees of UOP group of companies including the assessee company sent through e-mail placed at pp. 16 to 21 giving feedback about the various meetings held with the Indian customers from time to time in connection with execution of their project by the assessee company. Document placed at pp. 22 to 24 of Annex.-B is the draft of minutes of meeting of IOC/UOP Steering Committee and as mentioned therein, Keith J. Aspray, managing director of UOPIPL and Mr. P. Nair, general manager of UOP Asia Limited, New Delhi were members of UOP Steering Committee with remaining two members of the said committee being the employees of the assessee company.
Annex. -C (Pages 28 to 80)
40. Page 28 of Annex.-C is a memorandum issued by the UOP group on 16th May, 2002 laying down the guidelines for UOP contracting party in the international region for R&P contracts. A copy of the said memorandum was marked, inter alia, to K. Aspray. The guidelines so issued in the said memorandum were as follows:
During the latter part of the 1990's and through the year 2000, a thorough evaluation of tax issues, as they relate to contracts, was carried out. It was decided that starting January 2001, that new contracts in the International Region should be concluded with UOP Limited so long as there was no loss of financial benefit, whereas we have historically contracted with UOP LLC (e.g. for new projects). The prime driving force for this change is that if UOP Limited staff functioned essentially as UOP LLC employees by negotiating contracts on behalf of UOP LLC, there would be an increasing risk of UOP LLC creating a taxable presence in the U.K. (There are two primary exceptions to this decision : India because UOP Ltd. may not be able to take full advantage of withholding tax receipts whereas UOP LLC can; Saudi Arabia where we have a negotiated tax arrangement for UOP LLC reporting which we do not want to change. In both cases there could be a loss of financial benefit).
41. It was also mentioned in the concluding portion of the said memorandum that there are multiple agreements between all the various legal entities for tax purposes and the persons who are not familiar with such inter company agreements were remanded to get familiarize themselves with such agreements before conducting business in their respective territories. Page 29 is a message received by Keith Aspray on 22nd Dec, 2005 informing him that the proposed mega stock agreement was being delayed deliberately because of potential tax implications it might have for UOPLLC i.e., the assessee company and UOPIPL and past exposures. The possibility of exposing past years to such potential tax implications was also mentioned therein keeping in view that position taken up till then was based upon some old opinion/advice which was needed to be reviewed. A concern was also expressed in the said letter about this issue opening a big can of worms in UOPLLC, the exposure of which as apprehended therein could be very high. The remaining pages of Annex.-C except page Nos. 65 and 66 are mainly the communications between the employees of UOPIPL and the employees of the assessee company as sell as the drafts of MoU between the assessee company and its Indian clients found from the office of UOPIPL which apparently suggest that the agreements were being drafted and finalized in India by the employees of UOPIPL. Pages 65 and 66 give a list of suggestions given by Delhi office in connection with preparation, distribution and execution of legal agreements and one of the suggestions so made at serial No. 11 is with regard to improvement of agreement turnaround time for execution which reads as under:
11. How do we improve agreement turnaround time for execution between Delhi-Guildford-DP-Guildford-Delhi. In the example cited below, it took approx. 48 days for a customer executed agreement to make its way from Delhi, executed in DP and then make its way back to Delhi.
An example of movements of a recent agreement (#03D0837):
Signed by Customer 8 Sept., 2004 (Uday) Sent by Delhi to Guildford 9 Sept., 2004 (Uday) Received in Guildford 13 Sept., 2004 Sent by Guildford to DP Legal 14 Sept., 2004 Received in DP Legal 16 Sept., 2004 (Sally) Received at CAC office 16 Sept., 2004 (Sally) Sent by CAC to COM 4 Oct., 2004
42. The aforesaid suggestion made by the Delhi office giving an example of movement of recent agreement also suggests prima facie that the agreements with Indian customers were being finalized in India and only after getting the same signed from the Indian customers, they were sent to US for signatures.
43. All the aforesaid documents identified as pp. 12 to 24 of Annex.-B and pp. 28 to 80 of Annex.-C prima facie suggest or indicate that the employees of UOPIPL and UOP Asia Limited (LO) were involved in negotiating and finalizing contract on behalf of the assessee company with its customers in India and may lend support to the case made out by the Department on the basis of statement of Mr. Keith Aspray already on record that the agreements between the assessee company and its Indian customers were negotiated and finalized by the employees of UOPIPL and UOP Asia Limited (LO) and after getting the said agreements signed from the Indian customers, they were sent to USA merely for signatures of the authorized signatory of the assessee company. Since this aspect is vital to decide the issue as to whether UOPIPL and/or UOP Asia Limited (LO) constituted the PE of the assessee company in India as involved in the present appeal, we are of the view that this additional evidence is very much relevant to decide the said issue satisfactorily and the same, therefore, can be admitted under Rule 29. The said additional evidence also appears to be relevant to consider and decide the issue as to whether the Indian concerns belonging to UOP group i.e. UOPIPL and UOP Asia Limited (LO) were operating independently and whether the price paid to them for services rendered to the assessee company was at arms' length.
Annex.-D (Pages 81 to 84)
44. Pages 81 and 82 of Annexure D is the printout of pages downloaded from the official website of the UOP group. It gives information about the various locations of the group companies of UOP group under the title "Company Overview" and the location in India as given under the heading "Asia" clearly indicates the office address of UOP India (P) Ltd./UOP Asia Limited at New Delhi. Pages 83 and 84 are a copy of news release issued by the assessee company with the header "UOP India's new location strengthens ties to customers". It mentions in para 1 that UOP India (P) Ltd., a fully owned subsidiary of UOPLLC, has relocated its office to the Unitech Trade Centre in Gurgaon, Haryana to better serve the customers in India's growing market. It also mentions Mr. Keith Aspray, managing director of UOP India as saying that UOP India has grown into one of UOP's major overseas operations and has more than doubled its staff in three years. He is also stated to have said that UOP India is committed to further growth of its Indian operations and this move brings us closer to our customers.
45. At this juncture, it is relevant to once again refer to the issue involved in the present appeal which is whether the assessee company was having a PE in India during the year under consideration. The case of the Revenue is that the common office of UOPIPL and UOP Asia Limited (LO) in Delhi was virtually the projection of the assessee company in India and the additional evidence sought to be filed by the Revenue in the form of relevant pages of assessee's official website as well as press release issued by the assessee company itself, in our opinion, are apparently relevant to consider and decide the case being made out by the Revenue. It was also a case of the Revenue that the employees of UOPIPL and UOP Asia Limited (LO) were working for the assessee company in India and the nature of services rendered by them on behalf of the assessee company to the Indian customers including negotiation and finalisation of contracts could not be classified as merely preparatory or auxiliary. This case of the Revenue was based on a statement of Mr. K. J. Aspray, managing director of UOPIPL recorded on oath. The additional evidence comprising of various of documents forming part of Annexs.-B and C, as already discussed, is relevant in this context inasmuch as it apparently supports the case of the Revenue on this aspect and the same, therefore, in our opinion, takes a shape of requirement to decide the issue relating to PE involved in the present appeal more satisfactorily.
46. The stand of the Revenue in support of its case that UOPIPL and UOP Asia Limited (LO) constituted the PE of the assessee company in India was that the employees of the said concerns were wholly engaged in negotiating contracts on behalf of the assessee company with its customers in India and were also engaged in securing orders from them virtually acting as agent of the assessee company. It was also the stand of the Revenue that the employees of the said concerns had an authority to negotiate and conclude contracts in India on behalf of the assessee company and the contracts were sent to USA just for obtaining the signatures of the assessee company. In our opinion the various documents forming part of Annexs.-B and C sought to be filed by the Revenue as additional evidence are relevant to appreciate and consider the stand of the Revenue on this aspect which ultimately will have bearing on the issue relating to the assessee's PE in India which is involved for consideration and decision in the present appeal.
47. As already observed, some of the documents are related to the earlier period including the year under appeal. Moreover, there is a specific mention in some of the documents about the possibility of tax implications of the earlier years due to affairs arranged within the group companies in the particular manner. As rightly pointed out by the learned CIT-Departmental Representative, this evidence in any case would be available to the Revenue while deciding the issue relating to PE in the subsequent years and if the same is not allowed to be used in the year under consideration involving a similar issue on technical ground, it will result in an anomaly giving rise to inconsistency. It is, therefore, all the more necessary in the interest of justice that the said additional evidence is allowed to be produced and relied upon for deciding the present appeal.
48. As already noted, the additional evidence would be relevant to consider and deciding the case already made out by the Revenue and it is, therefore, not a case of tendering of fresh evidence by the Department to support a new point or to make out a new case. According to us the additional evidence filed by the Revenue is quite relevant for the purpose of deciding the issue before us and the same, therefore, can be admitted as per Rule 29 of ITAT Rules 1963 as held by Hon'ble Madras High Court in the case of R.S.S. Shanmugam Pillai & Sons (supra). The said additional evidence also needs to be taken into consideration in the interest of justice for deciding the issue relating to the PE.
49. Before us, it has been vehemently contended by the learned Counsel for the assessee relying on the decision of Hon'ble Supreme Court in the case of Mahavir Singh (supra) that the expression used in the relevant rule is "to enable it to pronounce judgment" and the same contemplates a situation when the appellate Court finds itself unable to pronounce judgment owing to a lacuna or defect in the evidence as it stands. However, as further clarified by the Hon'ble Supreme Court in the said judgment, the ability to pronounce a judgment is to be understood as the ability to pronounce a judgment satisfactory to the mind of Court delivering it. In our opinion, the additional evidence sought to be produced by the Revenue in the present case is not only helpful but is also relevant and material to decide the issue relating to PE satisfactorily and appropriately and this being so, the same deserves to be admitted under Rule 29 of the ITAT Rules, 1963. It is pertinent to note here that even as per Rule 27 of Order 41 of CPC which is admittedly pari materia to Rule 29 of ITAT Rules 1963, the production of additional evidence is permitted where the said evidence was not available to the party earlier despite exercise of due diligence. The said rule thus envisages certain circumstances when additional evidence can be adduced and one of such circumstances is where the additional evidence was not available to the party at the relevant time. In the present case, the additional evidence sought to be produced by the Revenue was collected during the course of survey carried out in the premises of UOPIPL/UOP Asia Limited (LO) only after the filing of this appeal by the Revenue before the Tribunal and the same being not available to it when the case of the assessee came to be decided by the authorities below, we find that the situation envisaged in Order 41 Rule 27 of CPC for allowing the production of additional evidence was very much obtained in the present case. As held by Hon'ble Andhra Pradesh High Court in the case of Mandala Madhava Rao (supra), additional evidence can be adduced, inter alia, where the party seeking to produce additional evidence establishes that notwithstanding exercise of due diligence, such evidence was not within their knowledge or could not after exercise of due diligence be produced by him at the time when the decree appealed against was passed and the appellate Court requires the said evidence to be produced to enable it to pronounce the judgment. To the similar effect is the decision of Gram Panchayat Kanchi, Tehsil & District Gurgaon (supra) wherein it was held by Hon'ble Punjab & Haryana High Court that additional evidence cannot be claimed as a matter of right in the appellate Court and it has to be shown by the litigants that the proposed additional evidence was not in their power or possession or was not in their knowledge.
50. In the present case, the documents being sought to be produced by the Department as additional evidence were not in its possession or power at the relevant time when the matter came to be decided by the authorities below and the same having come to their possession as a result of survey carried out in April 2006, it cannot be disputed that they came to the knowledge of the Department subsequently. Moreover, neither the ownership of the said documents in the hands of the concerned persons from whose possession the same have been found and seized and nor the contents thereof have been denied before us.
51. We are, therefore, of the view that if the peculiar facts of the present case as discussed hereinabove are considered in the light of legal position emanating from the various judicial pronouncements on the issue of admission of additional evidence, it is a fit case wherein the additional evidence sought to be produced by the Revenue be allowed to be admitted having regard to its relevancy and requirement for the purpose of deciding the point in issue raised in the present appeal before us as well as for the substantial cause of justice. In that view of the matter, we allow the application filed by the Revenue seeking admission of additional evidence and admit the said evidence on record.
52. As already noted, the assessee was given an opportunity during the course of hearing to advance the arguments on the admission of additional evidence as well as on merits of the issue taking into consideration the said additional evidence and availing this opportunity, the learned Counsel for the assessee has not only raised elaborate arguments on both these aspects but has also filed detailed written submissions. In the said written submissions, an attempt has been made by him to explain each and every document sought to be filed by the Revenue as additional evidence in order to rebut the case sought to be made out by the Revenue relying on the same on merits. Keeping in view the fact that the additional evidence so produced by the Revenue as well as elaborate explanation offered by the assessee to rebut the same is voluminous running into several pages which requires indepth examination, we find that it would be fair and proper and in the interest of justice to restore the issue relating to PE to the file of the AO for deciding the same afresh after examining the additional evidence as well as explanation offered by the assessee while rebutting the same. The assessee shall also be at liberty to adduce further evidence to support its case before the AO who shall take into consideration the same in accordance with law. Since the other issues raised in this appeal are related to the main issue of PE, we deem it appropriate to restore these issues also to the file of the AO for fresh decision along with the main issue. Insofar as the issue relating to levy of interest under Section 234B is concerned, the learned Counsel for the assessee has contended before us that the same is squarely covered in favour of the assessee by the decision of Delhi Special Bench of Tribunal in the case of Motorola Inc. (supra). We, therefore, direct the AO to decide the issue relating to levy of interest under Section 234B in the light of the decision of Special Bench in the case of Motorola Inc. (supra). The impugned order of the learned CIT(A) on all the issues involved in the present appeal is accordingly set aside and the matter is restored to the file of the AO for fresh decision as per the directions given hereinabove.
53. Before we part with our order, it would be appropriate on our part to deal with another objection raised by the learned Counsel for the assessee as regards the application moved by the Revenue for admission of additional evidence stating that the same was moved by the learned CIT-Departmental Representative only after the conclusion of arguments from the side of the assessee. In this regard, we may observe that a survey was carried out in the premises of the assessee just before the commencement of hearing of the present appeal of the assessee before the Tribunal. During the course of the said hearing, the factum of survey was brought to the notice of the Bench by the learned CIT-Departmental Representative and it was also indicated that the documents impounded during the course of the said survey, if found relevant and material for deciding the issue involved in the present appeal, might be sought to be produced as additional evidence. Having already granted a stay of outstanding demand in this case, the Bench proceeded to hear the arguments advanced by the learned Counsel for the assessee without prejudice to the right of the Revenue to move an application for admission of additional evidence, if required. The Revenue finally decided to move such application and accordingly, the same came to be filed only after the conclusion of first round of arguments advanced on behalf of the assessee. The assessee, however, was given sufficient opportunity not only to raise his objections in relation to Revenue's application for admission of additional evidence but he was also allowed to argue the entire case again on merits in the light of the additional evidence and was also allowed to file written submissions. In these circumstances, we are of the view that no grievance can be said to have caused to the assessee on this issue and the objection raised on behalf of the assessee in this regard at this stage after having heard the arguments at length during a period of nearly six months, cannot be sustained.
54. In the result, the appeal of the assessee is treated as allowed for statistical purposes.