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5. We will now turn to the progress made in the case of SEC pursuant to the notice issued to it under section 148 on 28-3-2011. A draft assessment order was passed by the assessing officer on 30-12-2011, holding that SEC had a fixed place PE in India as its employees who were deputed to the petitioner had a fixed place allotted to them in the office of the petitioner. In the draft assessment order, the view taken was that 10% of the salary paid (by the petitioner) to the expat-employees was attributable to the fixed place PE and was taxable in India. It needs to be mentioned that no part of the sales made by the SEC to the petitioner (high-seas sales) was held attributable to the PE (permanent establishment) and chargeable to tax on that basis. SEC filed its objections to the draft assessment order to the DRP under section 144C of the Act. The DRP called for a remand report from the assessing officer on the submissions made by SEC. In the remand report dated 7-9-2012 by the assessing officer (of SEC), he reiterated that SEC had a fixed place PE in India and submitted that (a) there was such a continuity of dealings between the petitioner and SEC as would amount to a "business connection" between them; (b) SEC was carrying on business in India through its employees seconded to the petitioner and that the business of supply of equipment, raw materials etc. is intertwined with the supply of technology and marketing of the products and (iii) the petitioner, though incorporated in India as a company, is an agent of SEC. On the basis of these submissions, it was contended by the assessing officer in the remand report that all the sales made by the petitioner were sales made by SEC in India. In its order dated 29-9-2012, the DRP agreed with the assessing officer that SEC had a fixed place PE in India but rejected the plea that the petitioner is the agency PE of SEC in India and hence the (income from the) sales by SEC in India are chargeable to tax in India. That order of the DRP would appear to have attained finality. An assessment order was accordingly passed on SEC on 18-10-2012 computing its income at Rs. 1,07,22,431/-; needless to add that no income from its sales made in India was brought to tax.

i) Permanent Establishment alongwith it there is

ii) Fixed Place PE and

iii) May be dependent agent PE The DRP has confirmed the order of AO in this regard. Final order was passed by AO of Samsung Electronics Corporation on 18.10.2012.

A show cause dated 30.03.2013 in the proceedings u/s 201/201(1A) read with section 195 of the Income Tax Act, 1961 in the case of Samsung India Electronics Pvt. Ltd has been issued by DDIT, International Tax, Circle 2(2) , New Delhi, in the light of judgment of Hon'ble Supreme Court in the case of Transmission Corpn of AP and GE Technology Cen Pvt. Ltd. The assessee company was liable to deduct tax on appropriate portion of the total payments which were chargeable to tax under the provisions of the IT Act,1961. As the assessee company has failed to withheld tax on payments made to Samsung Electronics Corporation, the expenditure claimed in this account is not allowable in view of provisions of section 40(a)(i) of the Income Tax , 1961. It is observed from assessment record that M/s Samsung India Electronics has made huge payments to its parent company M/s Samsung Electronics Corporations without deducting tax u/s 195 of the Act which are to be disallowed and added back to the taxable income of the assessee company. There is failure on the part of the assessee company to disclose fully and truly all the material facts necessary for the assessment of its correct taxable income.

DECISION:

10. The key to the decision is the answer to the question whether any income arose or accrued to SEC through its PE in India in respect of the sales made in India. If the answer is in the affirmative, both the notices would be good notices; if the answer is in the negative, both the notices would be bad. The answer in our opinion should be in the negative, because even as per the revenue, as reflected in the order passed by the DRP in the reassessment proceedings of SEC, no income accrued to SEC in India. In this regard, the DRP rejected the specific request made by that assessing officer in his remand report that the petitioner be treated as the permanent establishment (PE) of SEC and the income of SEC be computed on that basis. The DRP however held that as regards attribution of income to the "fixed place PE", a rough and ready basis would be to estimate 10% of the salary paid to the expat-employees of the petitioner as the mark-up, as was done by the assessing officer in the draft assessment order. The remuneration cost in respect of such employees seconded to the petitioner amounted to Rs. 10,72,24,310; this was taken as the base and a mark-up of 10% had been applied by the assessing officer and the income was taken as Rs.1,07,22,431/-. This was approved by the DRP in its order dated 29-9-2012; the other claims made by the assessing officer in the remand report were rejected.

11. Thus the basis of both the notices (section 148 and 201) has been knocked out of existence by the DRP's order in the reassessment proceedings of SEC for the same assessment year. On the date on which notices were issued to the petitioner under Sections 148 and 201(1)/(1A), there was an uncontested finding by the revenue authorities (i.e., the DRP) in the case of SEC that SEC cannot be taxed in respect of the sales made in India through the petitioner on the footing that the petitioner is its PE. If no income arose to SEC on account of sales in India since the petitioner cannot be held to be its PE in India, two consequences follow: