Delhi Tribunal rules that a US based company engaged

Transkript

KPMG FLASH NEWS
KPMG IN INDIA
Delhi Tribunal rules that a US based company engaged in the business of
money transfer does not have a Permanent Establishment in India under the
India-USA tax treaty
16 January 2012
Background
Facts of the case
Recently, the Delhi bench of the Income-tax Appellate
Tribunal (the Tribunal) in the case of Western Union
1
Financial Services Inc. (the taxpayer) held that the
taxpayer’s agents in India were independent agents
under Article 5(5) of the India-USA tax treaty (tax
treaty). Accordingly, there was no Dependent Agent
Permanent Establishment (DAPE) of the taxpayer in
India.
•
The taxpayer, a company incorporated in USA, is
engaged in money transfer business world-wide.
For enabling transfer of money to beneficiaries in
India, the taxpayer entered into agreements with
the agents i.e. Department of Posts, commercial
banks, non-banking financial companies and tour
operators.
•
The business process of the taxpayer is as
follows:
Further, the Tribunal observed that the taxpayer did not
have right to enter and make use of the premises of the
agents for its business. Accordingly, it was concluded
that there was no fixed place PE of the taxpayer in
India as per Article 5(1) of the tax treaty.

A person in USA desirous of remitting money
to another person in India approaches the
agents of the taxpayer in USA and pays the
money in dollars together with the charges.
The person is given a receipt by the taxpayer
along with a computer-generated unique 10
digit number referred to as MTCN (Money
Transfer Control Number).

The remitter sends the said unique number to
the beneficiary in India who would approach
the taxpayer's representative/agent in India
with MTCN.
The Tribunal has also distinguished the decision in the
2
case of Amadeus Global Travel Distribution SA in an
elaborate and detailed manner.
____________
1
DDIT v. Western Union Financial Services
1574/Del/2010)
2
Inc (ITA
no.1572 to
Amadeus Global Travel Distribution SA 113 TTJ 767 (Del)
© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.

The agent accesses the mainframe computer of the
taxpayer in USA and verifies the MTCN with the
help of software. After matching the number and
satisfying himself about the identity of the
recipient/claimant, the agent would pay the money
to the beneficiary in India.
•
The taxpayer had opened, with the approval of RBI,
Liaison offices (LO) in India.
•
After perusing the facts the AO held that:




•
The LOs actively participated in the business of the
taxpayer in the form of marketing, appointment of
agents, brand building, providing software to the
agents and imparting training to them in India.
Accordingly, LOs were a virtual projection of head
office in India and thus constituted taxpayer’s PE in
India.
Tax department’s contentions
The tax department relied on the decision in the case
of Amadeus Global Travel Distribution SA to contend
that the Tribunal has taken a different view regarding
existence of PE in a case subsequent to taxpayer’s
case. Further since the vital facts were similar in both
the cases, the tax department contended that matter
should be decided by following later decision of
Tribunal in case of Amadeus Global Travel Distribution
SA.
Tribunal’s ruling
•
The Tribunal relied on the earlier Tribunal decision
in the taxpayer’s own case where it was held that:

Further, dedicated systems installed in the
premises of various agents, through which the
business was carried on, ensured connectivity
between the taxpayer and the premises of the
agent. Hence, these systems also constituted ‘PE’
in India.
The agents viz. the Department of Posts,
commercial banks, non-banking financial
companies and tour operators, have their own
or hired premises from which they operate.

The agents were economically and technologically
dependent on the tax payer and were working
almost wholly and exclusively for the taxpayer.
Further they had the authority to conclude contracts
on behalf of the taxpayer and appoint sub-agents.
Hence, they constituted taxpayer’s DAPE.
The agents only display taxpayer’s board
which could not by any stretch of imagination
amount to taxpayer’s projection in India. The
Department of Posts, or the commercial banks
could not be looked upon as projecting the
taxpayer’s presence in India.

Also there was no evidence that the taxpayer
could, as a matter of right, enter and make
use of the premises of these agents for its
business. Accordingly, it was concluded that
there was no fixed place PE of the taxpayer in
India within the meaning of Article 5(1) of the
tax treaty.

The taxpayer’s agents in India were
independent agents under Article 5(5) of the
tax treaty since:
The taxpayer had a full-fledged office in India which
was conducting aggressive marketing activities
together with negotiations with the agents,
providing software to them and imparting training
about the product. There was continuity of the
transaction which was completed only when the
money was paid the beneficiary in India.
Accordingly, there was ‘business connection’ in
India and the taxpayer was liable under Section
9(1) of the Income-tax Act, 1961 (the Act) to pay
income-tax on the profits arising from its activities in
India.
Commissioner of Income-tax Appeals [CIT (Appeals)]
3
followed the decision in taxpayer’s own case for AY
2001-02 and concluded that since facts of all
assessment years under consideration were the same,
the findings of Tribunal in respect of existence of
‘business connection’ & ‘PE’ shall apply to these
assessment years as well. Accordingly, CIT (A) held
that the taxpayer had a business connection for all the
relevant assessment years but did not have a PE in
India.

-
the agents were acting in the ordinary
course of their business;
-
their activities were not devoted wholly or
almost wholly to the foreign enterprise and
-
the transactions were under arm's length.
There was no express authority given to the
agents in the agreement to conclude
contracts on the behalf of the taxpayer. The
fact that the agents had the authority to
appoint sub-agents did not mean that the
agents had the authority to conclude
contracts.
__________
3
Western Union Financial Services Inc. v. ADIT [2007] 104 ITD 34 (Del)

The fact that the agents complete the taxpayer’s
commitment in India (i.e. remitting money to the
beneficiary in India) could not be considered as an
authority to conclude contracts. The contract was
between the remitter abroad and the taxpayer and
was entered into outside India. The agents merely
carried out the concluding step in the arrangement
embodied in the contract.

By making payment to the beneficiary, the agent in
India was only performing his duty under the
agreement of agency, for which he was
remunerated. Accordingly, the agents were not
exercising any authority to conclude contracts on
behalf of the taxpayer.

•

•
There was business connection and hence the
taxpayer was liable to tax under Section 9(1) of the
Act; but since there was no PE in India under
Article 5 of the tax treaty between India and the
USA, no profits could be attributed to the Indian
operations of the taxpayer and taxed in India.
The Tribunal distinguished the fact of the Amadeus
Global Travel Distribution SA ruling from the taxpayer.

In the case of Amadeus Global Travel Distribution
SA, the taxpayer exercised complete control over
the computers installed at the premises of the
subscribers and this amounted to a fixed place of
business for carrying on the business of the
enterprise in India. Further, the agent was a
dependent agent of the taxpayer and had authority
to conclude contract on behalf of the taxpayer and
in fact, had entered into contact with the travel
agents in India on behalf of the taxpayer. Further,
the ticket, which was the contract between the
passenger and the airlines was made and
delivered in India. The payment for such ticket was
made in India. Therefore the, Tribunal had
concluded that the taxpayer had a PE in India.

In the taxpayer’s case, the taxpayer did not
exercise any control over the computer systems
which were independently owned by agents and
were not provided by the taxpayer. The activities of
the agents were not wholly or almost wholly
devoted on behalf of the taxpayer and that the
agents were not ‘dependent agents’ of the
taxpayer nor had they any authority to conclude
contracts in India on behalf of Western Union.

The contract is between the remitter abroad and
the taxpayer which is entered into outside India.
The agents merely carried out the concluding step
in the arrangement embodied in the contract. In
other words, the taxpayer undertakes outside India
to transfer the money to India and it is only the
payment part of the undertaking that is executed
by the agents in India.
The tax department has not attempted to
explain as to how facts and circumstances in
the ruling of Amadeus Global Travel
Distribution SA are parallel to the facts and
circumstances of the taxpayer’s case.
Accordingly, the Tribunal held that that the
reliance placed by the tax department on the
decision in the case of Amadeus Global
Travel Distribution SA was rendered in
different context and circumstances.
Accordingly, relying on the earlier decision in the
taxpayer’s own case and the above mentioned
distinguishing facts, the Tribunal held that:

The software installed machines did not
constitute fixed place PE of the taxpayer;

The liaison offices did not constitute PE of
the taxpayer;

The representative / agents did not constitute
DAPE of the taxpayer; and

No profits were attributable to the Indian
operations of the taxpayer
Our comments
This is a welcome ruling where the Delhi Tribunal has
analysed the India-USA tax treaty to hold that the
taxpayer did not have a DAPE in India neither did it
have a fixed place PE in India.
.
www.kpmg.com/in
Ahmedabad
Safal Profitaire
B4 3rd Floor, Corporate Road,
Opp. Auda Garden, Prahlad Nagar
Ahmedabad – 380 015
Tel: +91 79 4040 2200
Fax: +91 79 4040 2244
Hyderabad
8-2-618/2
Reliance Humsafar, 4th Floor
Road No.11, Banjara Hills
Hyderabad 500 034
Tel: +91 40 3046 5000
Fax: +91 40 3046 5299
Bangalore
Maruthi Info-Tech Centre
11-12/1, Inner Ring Road
Koramangala, Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999
Kochi
4/F, Palal Towers
M. G. Road, Ravipuram,
Kochi 682 016
Tel: +91 484 302 7000
Fax: +91 484 302 7001
Chandigarh
SCO 22-23 (Ist Floor)
Sector 8C, Madhya Marg
Chandigarh 160 009
Tel: +91 172 393 5777/781
Fax: +91 172 393 5780
Chennai
No.10, Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999
Delhi
Building No.10, 8th Floor
DLF Cyber City, Phase II
Gurgaon, Haryana 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101
Kolkata
Infinity Benchmark, Plot No. G-1
10th Floor, Block – EP & GP,
Sector V Salt Lake City,
Kolkata 700 091
Tel: +91 33 44034000
Fax: +91 33 44034199
Mumbai
Lodha Excelus, Apollo Mills
N. M. Joshi Marg
Mahalaxmi, Mumbai 400 011
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000
Pune
703, Godrej Castlemaine
Bund Garden
Pune 411 001
Tel: +91 20 3050 4000
Fax: +91 20 3050 4010
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
International”),
Swiss entity.
Allarights
reserved.
©(“KPMG
2012 KPMG,
an Indian aPartnership
and
member
firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Delhi Tribunal rules that a US based company engaged

Transkript

Benzer belgeler

2013 – Thinking Beyond Borders

Yes -No Quiz