1. The appeals are filed by the Assessee and Revenue against order dated 24.03.2022 in Appeal No. CIT(A), Delhi-42/10010/2020-21 assessment year 2017-18 passed by Commissioner of Income Tax (appeals)-42, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 28/02/2020 u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 passed by ITO, Ward-1(2)1, International Taxation, New Delhi (hereinafter referred to as the Assessing Officer or ‘AO’).
2. The facts of the case is that appalent and assessee Concentrix CVG Customer Management Group Inc. (Formerly known as “Convergys Customer Management Group Inc.”) is a company incorporated in the United States of America (“USA”) and is a tax resident thereof. The Appellant provides information technology enabled customer management services by utilizing its advanced information system capabilities, human resource management skills and industry experience. Appellant has claimed to be entitled to the benefits of the Double Taxation Avoidance Agreement between India and United States of America (hereinafter referred to as “the DTAA”). Tax residency certificates were furnished during the course of the assessment proceedings and was accepted as such. The Appellant has a subsidiary in India by the name of Convergys India Services Private Limited (hereinafter referred to as ‘CIS’). To service its customers, the Appellant claims that it procures services from India and does not carry out any operations in India.
2. 3 Based on the assessment history of the case and the facts observed during the course of assessment proceedings, the following issues emerged for determination in the case for relevant FY :-
(i) Whether M/s. Convergys India Services Pvt. Ltd. (CIS) constitutes a Permanent Establishment of the assessee in India ?
(ii) If so, how much profits are attributable to the said PE ?
(iii) Whether the IPLC charges received by the assessee are taxable in India ?
3. Ld. AO observed that the assessee does not even admit the existence of a PE in India, although the appellate authorities have been consistently held in the assessee’s case, that the assessee has a PE in India. The second issue was of link charges taxable as equipment royalty or process royalty. Ld. AO observed in para 41 as follows :-
“41. The Assessee’s reply is duly considered. The assessee has received an amount of Rs. 1,76,86,085 (USD 263,568) on account of IPLC cost. Following the assessment order’s for the AYs 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 it is held that this consideration is taxable as equipment royalty at the rate of 10% as per the DTAA.”
4. Ld. CIT(A) however has taken into consideration the orders of Tribunal and held that CIS did not constitutes a dependent agent PE of the appellant in Indian and does not have a service PE but sustained the fix placed PE in India and that assessee has business connection in India to be covered under the provisions of Section 9 of the Act. However it directed AO to rework the profit attribution as follows :
“ 9.4 Respectfully following the Hon’ble IT Appellant's own case for AY 2006-07 and AY 2008-09; and subsequent ITAT orders in AY 2002-03 & AY 2009-10, AY 2003-04 & AY 2004-05, AY 2007-08, and AY 2013-14 and concurring with the Ld. CIT(A)-42, Delhi order in AY 2013-14 and AY 2014-15, I hold that the profits attributable to the PE of the appellant in Indian on account of assets is to be made as under:
Step 1: Compute Global operating income percentage of the customer care business as per annual report of the Company.
Step 2: This percentage should be applied to the end-customer revenue with regard to contracts/projects where services were procured from CIS. The amount arrived at is the Operating Income from Indian operations.
Step 3: The operating income from India operations is to be reduced by the profit before tax of CIS. This residual is now attributable between US and India.
Step 4: The profit attributable to the PE would be 15% of residual profits as determined under Step 3 above.”
5. Ld. CIT(A) however decided the issue of link charges in favour of the assessee by following findings :-
“10.7 Respectfully following the Hon’ble IT Jurisdictional High Court’s decision of New Skies Satellite BV (supra) wherein it is held that the amendment in section 9 will not affect DTAA, and concurring with Ld. CIT(A)-42, Delhi order in AYs 2013-14 and 2014-15, I conclude that the payment of link charges received by the appellant from Convergys India Services Pvt. Ltd. would not qualify even as “process” Royalty in terms of Article 12 of the India-US DTAA. This ground of appeal is allowed.”
6. The appeal of assessee ITA no. 1086.Del./2022 raises following grounds :-
“1. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals)-42, New Delhi [‘CIT(A)’] erred in confirming the order of the Ld. Assessing Officer (‘AO’) that the Appellant has a Permanent Establishment (‘PE’) in India in the nature of a Fixed Place PE under Article 5 of the Double Taxation Avoidance Agreement between India and United States of America (‘DTAA’).
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the Appellant has a business connection in India as per section 9 of the Income Tax Act, 1961 (‘Act’).
3. That the Ld. CIT (A) failed to appreciate that in view of the nature of transaction which was procuring of computer software (IT enabled services) within the meaning of section 10A of the Act from its Indian Subsidiary for the purposes of export, no income could accrue or arise in the hands of the Appellant in India in view of clause (b) of Explanation 1 of sub-section (1) of section 9 of the Income- tax Act, 1962 (‘Act’) read with Article 7(4) of the DTAA.
4. That the Ld. CIT (A) erred in law in holding that profits could be attributed to the alleged PE on account of provision of/allowing use of project specific assets/software by the Appellant to its Indian subsidiary for the purpose of executing specific projects/activities, which, in itself could not have created a PE of the Appellant in India.
5. That the Ld. CIT (A) after accepting that the attribution of profits to the PE should be made by applying transfer pricing principles erred in law in holding that profits could be attributed to the alleged PE of the Appellant in India on account of provision of/allowing use of assets to its Indian subsidiary.
The above grounds of appeals are independent of, and without prejudice to each other. The Appellant craves leave to add, alter, amend, rescind, modify or withdraw any ground(s) herein above or produce further documents either before or at the time of hearing of this appeal.
6.1 While the appeal of revenue ITA no. 1281.Del.2022 raises following grounds :-
“(i) Whether in facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee does not have a Dependent Agent PE (Permanent Establishment) in India.
(ii) Whether in facts and circumstances of the case, and in law, the ld. CIT(A) erred in holding that the assessee does not have a Service PE in India.
(iii) Whether in facts and circumstances of the case and in law, the Ld. CIT(A) erred not accepting, and in reducing, the profit attribution done by the AO.
(iv) Whether in facts and circumstances of the case, and in law, the Ld. CIT(A) erred in holding that receipt toward IPLC/ Link charges are not taxable as royalty in India. The Ld. CIT(A) further erred in not considering AO’s finding that receipts toward IPLC/Link charges are taxable as equipment royalty, and alternatively taxable as process royalty in India.
(v) The appellant craves to add, amend, modify, or alter any grounds of appeal at the time or before, the hearing of the appeal.”
7. Heard and perused the record.
8. Ld. AR of the assessee at the outset submitted that the issues stand covered by the co-ordinate Bench orders. Ld. DR could not dispute the same.
9. It can be appreciated that the ground no. 1 and 3 of the assessee’s appeal ITA No. 1086/Del/2022 by which assessee has raised the issue of holding fixed place permanent establishment of the assessee in India, in assessee’s own case the Tribunal for assessment year 2013-14, 2014-15 has upheld the following findings of Ld. CIT(A) by following these findings of AY 2006-07 and 08-09; as reproduced in para 6.2 of order for A.Y. 2013-14 :-
“6.2 After duly considering the submissions of both the sides as well as the impugned order, we are of the considered opinion that the Tribunal in assessee’s own case for Assessment Years 2006-07 and 2008-09 has reached the conclusion that there was a fixed place PE of the assessee in India and that profit attribution had to be made in the hands of the assessee due to such fixed place PE. Although, the assessee has approached the Hon’ble High Court against the said order of the Tribunal holding that the assessee had fixed place PE in India, the appeals are yet to be disposed of by the Hon’ble High Court. Thus, as of date, the order of the Co-ordinate Bench of the Tribunal for Assessment Years 2006-07 and 2008-09 have a binding precedential value for us because bound by judicial discipline, we are to follow the decisions of the Co-ordinate Bench, especially if the same have been rendered in assessee’s own case. The relevant observations and findings of the ITAT in assessee’s own case for Assessment Years 2006-07 and 2008-09 are contained in para 9.8 of the said order and the same are reproduced herein under for a ready reference :-
“9.8 Looking at the entirety of facts and circumstances, we are of the view that the Ld. CIT(A)’s order on the proposition of PE deserves to be upheld. The employees of the assessee frequently visited the premises of CIS to provide supervision, direction and control over the operations of CIS and such employees had a fixed place of business at their disposal. CIS was practically the projection of assessee’s business in India and carried out its business under the control and guidance of the assessee and without assuming any significant risk in relation to such functions. Besides assessee has also provided certain hardware and software assets on free of cost basis to CIS. Thus, the findings of the CIT(A) that assessee has a fixed place PE in India Article 5(1) of the DTAA is upheld.”
9.1 The assessee may be agitating the same before Ld. High Court however, as of today the relevant observations and findings of the Tribunal in assessee’s own case for aforesaid AY need to be followed on principle of consistency.
Accordingly these grounds are decided against the assessee.
10. In regard to ground no. 4 and 5 of the assessee’s appeal ITA No. 1086/Del/2022 and ground no. 3 of department’s appeal ITA No. 1281/Del/2022, again the Tribunal has affirmed for A.Y. 2013-14 and 2014-15 the findings in favour of the assessee for A.Y. 2006-07 and 2008-09 while restoring the issue to the file of AO. The relevant findings in para no. 6.4 for AY 2013-14 are reproduced below :-
“6.4 As far as the methodology of profit attribution is concerned, the Co-ordinate Bench in assessee’s own case for Assessment Years 2006-07 and 2008-09 has laid down the methodology in paragraphs 11.17 to 11.26 of the said order and respectfully following the same, the TPO is directed to adopt the same methodology as enumerated by the Co-ordinate Bench. Thus, the issue to attribution of profits is restored to the file of TPO for computing the attribution of profits with respect to the fixed place PE after giving due opportunities to the assessee to submit its computation and calculations. Thus, Ground Nos.3 & 4 in assessee’s appeal and Ground No.3 in Department’s appeal stand allowed for statistical purposes.”
10.1 Accordingly the grounds are decided for statistical purposes with directions to the Ld. AO to follow the Tribunal directions in AY 2006-07 to 2014-15.
11. In regard to ground no. 2 of department’s appeal ITA No. 1281/Del/2022 for issue of service PE of assessee and ground no. 1 in regard to dependent agent PE in India, again the issues are covered in favour of the assessee and the relevant findings from order of AY 2013-14 are reproduced :-
“7.0.1. We also note that the Ld. CIT(A) has returned a finding based on the order of the ITAT and has also noted that even in assessment year 2006-07, the Ld. CIT(A) had held that there was no service PE in Indianandn that the AO had not challenged this before the ITAT. The findings of the Ld. CIT(A) are a ready reference :-
“On the issue of service PE, AO has mentioned in the assessment order for AY 2013-14 that the Appellant is providing services to CIS and these services are not in the nature of fee for included services. In this regard, the appellant has submitted that, the personnel of the Company visited India for rendering services that qualify as Fee for Included Services under Article 12 of the DTAA and the company has accordingly offered such income to tax in its tax return. Even in the assessment order the Ld. AO has accepted the returned position and taxed the said amount as Fee for Included Services in terms of Article 12 of the DTAA. Even in I AY 2006-07, the CIT(A) has held that there is no Service PE in India and the AO had not challenged this before ITAT. Accordingly, I hold that the Appellant does not have a Service PE under Article 5(2X1) of the DTAA. Accordingly, Ground no 5.12 is allowed. ”
7.0.2 Therefore, in absence of the department pointing out any distinguishing facts in this year, on identical facts, we dismiss the related grounds raised by the department”.
“7.1 As far as the issue of dependent agent PE is concerned, it is again seen that this issue was decided in favour of the assessee by the Tribunal in assessee’s own case in assessment year 2006-07 and the relevant observations are contained in Para 4.26 which are reproduced here in under for a ready reference:-
“4.26. In the light of above, even assuming, CIS is not an agent of CMG, it does not have any authority to conclude contracts or secure orders on behalf of CMG and hence CMG does not have a Dependent Agent PE in India.”
In this case also, the department has not been able to bring out any distinguishing facts in this year under consideration and, therefore, following the order of the ITAT in earlier assessment years, we dismiss the related grounds in department’s appeal in this year also.
7.1.1 We also note that the Ld. CIT(A) has duly taken note of this order of the Tribunal as has made the following observations :
“Regarding the constitution of dependent agent of PE (DAPE) of the Appellant in India, I am in agreement with the submission of the Appellant and the order of the ITAT in Appellant’s own case for AY 2006-07 and AY 2008-09. In view of the business model of the Appellant and in absence of any material on record that the conditions mentioned in Article 5(4) of the DTAA is satisfied viz. habitually exercising authority to conclude contracts or maintaining stock of goods or habitually securing orders. I am of the view that CIS did not constitute a dependent agent PE of the Appellant in India. In view of this, Grounds 5.9 to 5.11 are allowed.”
Consequently, these grounds are decided against the revenue.
12. In regard to ground no. 4 of department appeal ITA No. 1281/Del./2022 again the issue is decided in favour of the assessee in the previous year AY 2013-14, by the Tribunal with following relevant findings :-
“7.2 Similarly, the issue of payment link charges / IPLC charges being taxable under royalty has been decided in assessee’s favour by the Tribunal in assessment year 2006-07 in para 3.5 of the said order. The same is being reproduced here in under for a ready reference :-
“3.5. In view of the foregoing observations we hold that there is no transfer of the right to use, either to the assessee or to CIS. The assessee has merely procured a service and provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. Therefore, it is held, that the said payments do not constitute Royalty under the provisions of Article 12 of the tax treaty and the ground is allowed in favour of assessee.”
Thus, this ground raised by the revenue is decided against the revenue.
13. Nothing was submitted on behalf of the assessee on ground no. 2 of its appeal, same is decided as not pressed.
14. Consequently, the appeal of revenue is dismissed and that of assessee is partly allowed with consequential effects as per directions above in para10.1.
