GEBR.PFEIFFER SE ,GERMANY vs. ACIT CIRCLE 2(3)(2) , INTERNATIONAL TAXATION, MUMBAI

That the Learned Assessing Officer/DRP has grossly erred both on facts and in law in the interpretation of Article 5 and Article 7 of the DTAA between India and Germany while passing the impugned order.

That the Learned Assessing Officer/DRP has grossly erred both on facts and in law in considering M/s GEBR Pfeiffer India Private Limited (GPI) as Permanent Establishment (PE) of the Appellant without appreciating the fact that "GPI" is merely a subsidiary company of the Appellant and PE is not constituted by merely having a subsidiary as per Article 5 of the DTAA between India and Germany;

That the Learned Assessing Officer/DRP has grossly erred both on facts and in law in considering "GPI" as PE of the Appellant without appreciating the fact that "GPI" is an independent entity and has no contribution or attribution to the profits of Appellant in India or elsewhere;

That the Learned Assessing Officer/DRP has grossly erred both on facts and in law in considering that the Appellant maintains a fixed place of business at the premises of "GPI" from where significant core activities of the Appellant are being carried out which is without any basis and purely based upon the assumption and surmises;

That the Assessing Officer/DRI has growly erred in considering that the Appellant has business connection in India through its AE namely "GPI" which helps in business development to the Appellant Company without any contrary evidence or issuance of any show cause before coming to such a conclusion:

That the Assessing Officer/DRP has grossly erred both on facts and in law in considering that "GPI is working as agent to facilitate Appellant's business in India without appreciating the fact that the Indian Subsidiary of the Appellant is not a Dependent Agent/Dependent Permanent Establishment of the Appellant and could not be treated as a Permanent Establishment (PE) of the Appellant. Further the observation made in the impugned order (Page 15) are totally incorrect and based on surmises,

That the Assessing Officer has grossly erred both on facts and in law in the interpretation of various judicial decisions of the courts and the reports of OECD in the impugned assessment order passed and in applying the same to the facts and circumstances of the case of the Appellant company.

That the Assessing Officer/DRP has grossly erred both on facts and in law in appreciating that the Appellant company satisfies the conditions of a fixed place PE under Article 5(1) of the Treaty without any basis and any contrary evidence;

That the Learned Assessing Officer/DRP has grossly erred in not appreciating the fact that the Appellant has Gross revenue from Business of Rs.1,31,81,590/ in India inspite of the documentary evidences submitted by the Appellant. The Learned Assessing Officer/DRP has grossly erred in holding that the gross revenue declared by the Appellant in the Return of Income is the net profit of the business of the Appellant from India which is factually incorrect.

That the Learned Assessing Officer/DRP has grossly erred in attributing 100% of the gross revenue of the Appellant to the alleged PE by erroneously considering gross revenue from Business as the net profit of the Appellant from India, which is without any basis and based on assumptions without any contrary evidence or issuance of any show cause before coming to such a conclusion;

That the Learned Assessing Officer/DRP has grossly erred in not appreciating the fact that the Appellant has not claimed any expenses in the Return of Income in India hence the Gross Revenue declared in the Return of Income is reflected as the net profit of the Appellant under the head profit and gains from business or profession in the computation of income. The Learned Assessing Officer/DRP has failed to understand that computation of income only reflects the Profit before tax and not the gross Revenue of the Appellant.

That without prejudice to above, the appellant has filed an application for rectification of mistake against the Directions of the DRP issued u/s 144C(5) of the Income Tax Act, 1961 read with section 154 of the Income Tax Act, 1961 with respect to considering the Gross Revenue declared in the Return of Income as the net profit of the Appellant in India, which is pending adjudication.

That the Learned Assessing Officer/DRP has grossly failed in applying the rule of consistency without appreciating the facts that in the earlier assessment years 25% of the gross revenue declared by the Appellant in the return of income was attributed to the PE and 10% of the revenue attributed was estimates as attributed profit taxable in India as compared to 100% of the gross revenue of the Appellant has been considered as the profit of the appellant and attributed the same to the alleged PE in the year under consideration which is arbitrary, extraneous and without any basis.

That the Assessing Officer/DRP has grossly erred in rejecting the claim of tax credit which is in fact the relief claimed by the appellant under the DTAA between India and German without appreciating the true facts and circumstances of the Appellant company;

That the learned Assessing Officer has grossly erred in levying of interest under section 234A, 234B, 234C & 234D which in any case could not been charged;

Fact in brief is that the assessee is a tax resident of Germany having its office at Barbarossastr 50-54, Kaiserlautern, 676550 Germany. The assesse has filed return of income for the year under consideration on 17.11.2017 declaring total income of Rs.2,97,33,239/-. The assessee company was into the business of providing design and engineering services and supply of equipment relating to the setting up of cement & allied industries. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 13.08.2018. During the year under consideration the assessee received receipt on account of the supervision, installation and commissioning of equipment. A part of these income Rs.1,65,51,649/- assesse has claimed to be in the nature of royalty/fee for technical services (FTS) on gross basis and offered the income for taxation as per provisions of Article 12 of the India-Germany DTAA. The remaining income received as supervision charges was declared as business income chargeable to tax on gross basis. In the return of income filed the assessee has offered Rs.1,31,81,590/- as income under the head profit and gains from business or profession chargeable to tax @ 40% on gross basis and Rs.1,65,51,649/ - as fees for technical services chargeable to tax @ 15% on gross basis. While working of tax on total income the assessee determined gross tax including surcharge and education cess

Against the draft assessment order the assessee has raised the objection before the Dispute Resolution Panel. The ground of object raised by the assessee are as under:

During the course of appellate proceedings before us the ld. Counsel contended that assessee company was engaged in business of manufacturing and supply of core components relating to cement plant whereas its subsidiary company based in India was engaged in the business of non-core items which were also required for cement plants. The ld. Counsel submitted that because of different function performed by these company the A.O has failed to establish that how the assessee was having permanent establishment in the form of its subsidiary company in India when both these companies have performed separate function directly to their client. The ld. Counsel has also referred different pages of paper book in respect of various submission made before the A.O and DRP during the course of assessment proceedings and DRP proceedings. The ld. Counsel referred letter dated 27.11.2019 filed before the A.O wherein with various details it was explained that assesse has no activity based permanent establishment in India. The ld. Counsel also submitted that P a g e | 9 ITA No.1507/Mum/2021 & 54/Mum/2022 Ltd., Emami Cement and also submitted that assessee’s subsidiary company has also executed such contracts for supplying of non-core items directly with some of such clients. The ld. Counsel submitted that all the supporting and relevant document furnished by the assessee were not taken into consideration by the DRP while adjudicating the objection filed by the assessee against the draft assessment order made by the A.O. The ld. Counsel has also placed reliance on the various judicial pronouncements as under:

Heard both the sides and perused the material on record. The assessee is a resident of Germany and engaged in the P a g e | 10 ITA No.1507/Mum/2021 & 54/Mum/2022 GEBR PFEIFFER Se Vs. ACIT, Circle 2(3)(2) business of design, engineering and supply of machinery, spare, supervision, erection and commissioning grinding plant for cement manufacturing company. Without reiterating the facts as elaborated supra in this order, the assessee has declared income from supervision services of Rs.1,31,81,590/-for inspection/optimization/erection/commissioning repair in India to other parties. The assessee claimed that such income was not subjected to tax by virtue of provision of Article 7 r.w.Article 5 of the DTAA between India & Germany. However, the DRP was of the view that the assessee and its subsidiary Gebr Pfeiffer India P. Ltd. were operating in the same segment of industry and stated that it was possible for both the assessee and its associate enterprise to work with same clients. The DRP further stated that both these companies were working in the same industry and their supply line compliment each other perfectly. Therefore, the ld. DRP held that the core activities of the assesse have been performed throughout the year through a fixed place of business through its subsidiary company in India, therefor it has a PE in India in terms of Article 5(1) of the DTAA between India & Germany. However, we find that before the A.O & DRP the assessee has specifically furnished the copy of contract executed between the assesse and their client and between its subsidiary company and their client separately for the different nature of work. The detail of such document furnished before the lower authorities were as under: