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2. Under the facts and circumstances of the case and in law, the Ld. DRP and Ld. AO has erred in holding that Appellant has a service Permanent Establishment ("PE") in India within the meaning of Article 5 of India UK Double Taxation Avoidance Agreement ("DTAA").

3. Under the facts and circumstances of the case and in law, the Ld. AO erred in proposing that the Appellant has a service PE in India under Article 5(2)(k) of the DTAA without appreciating that:

6. Under the facts and circumstances of the case and in law, without prejudice to the above grounds, the Ld. DRP and Ld. AO has failed to appreciate that the Indian company i.e. JCB India is a profitable company and as long as the same is earning profit at arm's length, no further attribution is possible even in case of an alleged PE.

7. Under the facts and circumstances of the case and in law, the Ld. DRP and Ld. AO has erred in not following the Hon'ble Income Tax Appellate Tribunal order in Appellant's case for AY 2006-07 where it has been held that Royalty earned by the Appellant is not effectively connected to alleged service PE of the Appellant in India.

S.       Particulars                            Amount in INR
No.
1       Royalty received from Model 3DX           1,71,22,15,010/-
2       Royalty received other than Model           2,55,62,494/-
       3DX
       Total                                     1,73,77,77,504/-

It is noteworthy that JCBE used to receive Royalty in the earlier years, i.e. A.Y. 2006-07 & A.Y. 2007-08, it was held by the Assessing Officer in the case of JCBE that the secondment of employees by JCBE to India resulted in establishment of a Permanent Establishment (PE) or a 'service PE' of the JCBE as per article 5(2)(k)(i) of the DTAA between India and UK. And further to it, based on the facts of the case, it was held that the payment of Royalty made by JCB India to the JCBE in respect of the rights granted by the JCBE to JCB India under the TTA, is effectively connected with the such 'service PE' of the assessee in India. And accordingly, the taxation of such royalties was held to be governed by Article 7 of the Treaty and was taxed accordingly.

"16.5 In so far as the question of royalty representing consideration for the transfer of IP Rights simplicitor is concerned, it is clear that the service PE representing eight deputationists had absolutely no role to play either in creating or making it available to JCB India. It is not even the case of the A.O. that these eight deputationists had anything to do in the grant of IP Rights to JCB India. The service PE, as the very name suggests and the actual position indicates, is concerned only with the activities of rendering services after the grant of IP Rights. The ld. DR was also fair enough to candidly accept this position. Thus, it follows that albeit the amount of royalty received by the assessee arises out of IP Rights which are in the nature of right or property but the same cannot be considered under para 6 of Article 13 because it is not effectively connected with the service PE of the assessee in India.