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Facts
The assessee, Kyocera Document Solutions Asia Ltd (KDAS), a Hong Kong-based company, sold goods to its Indian subsidiary, M/s Kyocera Document Solutions India Private Limited (KDID). The Assessing Officer (AO) treated KDID as a Dependent Agent Permanent Establishment (PE) of KDAS, attributing 35% of offshore sales to India as income. Additionally, the AO treated reimbursements made by KDID to KDAS for various services as Fees for Technical Services (FTS).
Held
The Tribunal held that KDID is not a Dependent Agent PE of KDAS as the principal-agent relationship was not established, and KDID operates on a principal-to-principal basis. Consequently, attributing 35% of offshore sales as income to India was not justified. Furthermore, the reimbursements made by KDID to KDAS for various facilities were considered as cost-to-cost reimbursements for managerial services rather than FTS, especially as the DTAA did not mandate the 'make available' clause for FTS.
Key Issues
Whether the Indian subsidiary constitutes a Dependent Agent Permanent Establishment (PE) of the foreign assessee and whether reimbursements for services rendered constitute Fees for Technical Services (FTS).
Sections Cited
Section 9(1)(vii) of the Income Tax Act, Article 5(5) of the India-Hong Kong DTAA, Article 13 of the India-Hong Kong DTAA, Section 143(3) of the Income Tax Act, Section 144C of the Income Tax Act, Section 270A of the Income Tax Act, Section 234B of the Income Tax Act
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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- The above captioned appeals by the assessee are preferred against the order of the DRP-2, New Delhi u/s 143(3) r.w.s 144C of the Income-
ITA No. 380, 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT tax Act, 1961 [the Act, for short] dated 07.11.2022 pertaining to A.Y 2020-21, 13.09.2023 for A.Y 2021-22, and 24.01.2025 for A.Y 2022-23 respectively.
Most of the grounds raised in all the three appeals of the assessee are identical. Thus, both the parties agreed that the decision in this appeal will apply mutatis mutandis on the identical grounds raised in other assessment years. Accordingly, all the appeals were heard together and are disposed of by this common order for the sake of convenience and brevity. First, we take up the appeal no. 380/DEL/2023 for A.Y 2020-21 as the lead case.
In all these three appeals, two issues are involved:
(i) Treating the Indian AE as PE of the assessee and attributing
35% of Offshore sales to Indian AE as income, and (ii) reimbursement of expenses by Indian AE treated as FTS.
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
Brief facts of the case are that the assessee, Kyocera Document Solutions Asia Ltd [KDAS for short], is a company incorporated in Hong Kong and is a tax resident of Hong Kong under the provisions of Article 4 of India-Hong Kong Double Taxation Avoidance Agreement ('DTAA').
Page 2 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT Kyocera Document Solutions Asia [KDAS for short] was established in July 2010 as the Asian regional sales headquarters in Hong Kong. As the regional headquarter, KDAS supports sales and marketing of Kyocera Document Solutions sales companies and distributors in Asia including Hong Kong, Taiwan, Korea, Thailand, Singapore, India and the Philippines. The Indian AE, M/s Kyocera Document Solutions India Private Limited ('KDID' for short), is 100% subsidiary of the assessee in India and the only customer of the assessee in India.
The assessee furnished its return of Income for Assessment Year.
2020-21 on 11.02.2021 declaring total income of Rs. 5,53,43,380/-. In the course of assessment proceedings, the AO noticed that the assessee has received an amount of Rs. 173,98,69,123/- from M/s Kyocera Documents Solution India Private Limited (KDID) as payment in relation to export of goods by assessee company to KDID. The assessee, out of the total receipt, has offered an amount of Rs.5,53,43,380/- for taxation and has claimed Rs. 168,45,25,743/- as non-taxable in India.
The AO has ultimately, under approval of DRP which considered draft assessment order as well as the Remand report of the AO, treated the Indian subsidiary M/s Kyocera Documents Solution India Pvt. Ltd. as Dependent Agent PE of the assessee in India, applying the provisions contained under article 5(5) of India Hongkong tax treaty. The AO thereafter attributed 35% of the receipts of Rs. 167,22,49,338/- from Page 3 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT KDID, in relation to export of goods by assessee, and taxed Rs.
58,52,87,268/- as income of the assessee in India. Apart from above, the Assessing Officer made an addition of Rs 1,22,76,405/- on account the reimbursement of expenses by KDID to the Assessee as Fees for technical services in the assessment order u/s 143(3) r.w.s 144C(13) dated 21.12.2022, assessing the total income at Rs. 65,29,07,053/-.
The Assessing Officer relying on various clauses of the Sale Agreement between KDAS and KDID dated 01.04.2012, and arrived at the following conclusions as under: KDID maintain adequate sales, warehouse and service facilities for effective distribution of products. KDID maintains an inventory of the products. KDID market, advertise and promote the sale and distribution of the products. Assessee company is liable for warranty on the products sold by KDID to the end customers.
The Assessing Officer observed that the above terms in the sale agreement are similar to that of any standard distributor contract with third party agents and alleged that KDID is a dependent agent PE of the assessee. Further, the Assessing Officer has held that the assessee has a project office in India. The Assessing Officer relied on the judgment in the case of CIT Vs. R.D. Agarwal & Co. (1965) 56 ITR 20 (SC) wherein it Page 4 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT was held that a business connection involves a relation between a business carried on by a non-resident which yields profit or gain and some activity in the taxable territories.
Before us the ld counsel of the assessee submitted that Sales Agreement between KDID and the assessee is on a principal-to-principal basis and therefore, KDID is not an 'Agent' of the assessee. KDID while importing goods into India is acting in the ordinary course of business.
Further, the terms of Sale Agreement between KDID and the assessee are similar to that of any standard distributor contract with third party agents. The ld AR of the assessee submitted that the allegation of the Assessing Officer is on the basis that, KDID maintains adequate sales, warehouse, and service facilities for effective distribution of products, maintains inventory of the products etc. in India. The ld AR stated that the Assessing Officer ought to have appreciated that, the above activities are not being carried out by KDID on behalf of the assessee but on its own account as a principal distributor of the products in India for itself. Subsequently KDID enters into contracts with third party customers in its own name in which the assessee is not a party. The ld. counsel for the assessee relied upon the decision of the co-ordinate bench of the ITAT in the case of Nokia India (P) Ltd 114 taxmann.com 442 for the proposition that Principal-to-Principal transaction does not Page 5 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT involve principal-agent relationship. The ld AR relied on the decision of Supreme Court in the case of Bharati Cellular Ltd (2024) 160 taxman.com 12 (SC) for the elaboration of the concept of principal and agent.
Further, the ld AR of the assessee submitted that during the course of remand proceedings, the assessee had also furnished the copy of invoices and Bill of Lading before the Assessing Officer to substantiate that the goods were imported by KDID in its own name and on FOB basis.
The Assessing Officer has issued the remand report without considering such invoices and bill of lading that substantiate the fact that the sale transaction between the Assessee and KDID was on a principal to principal basis. The assessee does not have an Agency PE in India. The assessee is a Hong Kong based company and renders support to sales and marketing of Kyocera Document Solutions sales companies and distributors in Asian including Hong Kong, Taiwan, Korea, Thailand, Singapore, India, and the Philippines. Accordingly, assessee is not conducting business through any fixed place or any agent in India so as to constitute PE.
The ld. counsel for the assessee further argued that as per Section 90(2) of the Act, in case of a taxpayer who is a tax resident of any country with whom India has entered into a DTAA, provisions of the Page 6 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT relevant DTAA shall apply to the extent they are same or more beneficial as compared to the provisions of the Act. Given that the assessee is a tax resident of Hong Kong, it is eligible to adopt the rates prescribed as
per the provisions of the Act vis-à-vis the corresponding provisions of the India-Hong Kong DTAA, whichever is more beneficial.
In this regard, the ld AR emphasized that the conditions of Article 5(5) of the India-Hong Kong DTAA that for foreign enterprise to have an "Agency PE" in India, such dependent agent in India habitually exercises in India an authority to conclude contracts for or on behalf of the foreign enterprise; or habitually maintains in India a stock of goods or merchandise on behalf of the enterprise; or he habitually secures orders in India, is not satisfied.
The ld. counsel for the assessee further submitted that Article 5(6)
of the DTAA further clarifies that an agent may not constitute a PE of the foreign enterprise, if the agent has an independent status. In order to construe as an independent agent, various conditions need to be satisfied. While these conditions have not been listed in the DTAA or the Act, guidance can be taken from Model Tax Convention on Income and on Capital 2017 issued by OECD ('OECD Commentary') and various judicial precedents wherein conditions of agent being both legally and economically independent of the principal and such an agent is acts in Page 7 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT the ordinary course of its business. The ld AR stressed that such conditions are not met in the case of the assessee.
The ld. counsel for the assessee lastly submitted that even if a Indian AE is held PE of the assessee, even then there is no attribution of profit to the PE whereas 35% attribution made by the Assessing Officer is excessive. The role of PE, if any, is very limited. The ld. counsel for the assessee took another argument that the transaction is only bench marked in the TP document and hence, in accordance with the decision in the case of Morgan Stanley & Co (2007) 292 ITR 416(SC), E-Funds I T Solutions (2017) 399 ITR 34(SC), attribution cannot be made to the India PE.
The ld. counsel for the assessee emphasized that the onus was on the Assessing Officer to establish PE of the assessee which has not been discharged and no ingredient of PE is satisfied. He relied on the decision in the case of Zscaler Inc (2025) 175 taxmann.992(Del-Tri.) available at page 421 Para 12 of the case law compilation.
With respect to Ground No. 3, the ld DRP at page 21 Para 5.1 has stated that allocation between group entities is for standard service which does not lead to FTS. The ld. counsel for the assessee submitted that the arrangement between the assessee and KDID is merely a cost sharing agreement for various IT/server and software license charges
Page 8 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT incurred by the Assessee for availing various standard automated facilities from third parties. The ld. counsel for the assessee continued by saying that the subject remittance received by the assessee towards reimbursement of the cost incurred by the Assessee on behalf of various group companies and reasonably allocated on a proportionate basis and is not for any service received. The assessee has not provided any services to KDID, given the peculiar nature of expenses as stated above, they are clearly not managerial and consultancy services. Further, they cannot be called 'Technical Services' also.
The ld. counsel for the assessee continued by saying that certain portion of such cost reimbursement is towards usage of software license and is on cost to cost basis. In view of the above submissions, reimbursement received from KDID is not in the nature of Fee for technical Services and hence, the same would not be taxable in India under Section 9 of the Act read with Article 13 of India Hong Kong DTAA.
The ld AR relied on the following decision for non-taxability of reimbursement as FTS:
1.Cooper Standard Automotive India (P.) Ltd. v/s ACIT [2017] 84 taxmann.com 200 2.CIT v/s Bharti Cellular Ltd [2009] 319 ITR 139 (Del) (HC) 3.Skycell Communication Ltd v/s Dy.CIT [2001] 251 ITR 53 (Madras)
Page 9 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT 19. Per contra, with respect to Ground no 2, the ld. DR relied upon the orders of the authorities below. With respect to Ground No. 2, the ld. DR stated that the Hong Kong DTAA is different from India-USA DTAA and there exists DAPE of the assessee in India. Clause (5) of Article 5 of the DTAA states that there would exist PE in India if any one of the conditions are satisfied. The ld. DR vehemently stated that in the case of the assessee, condition of PE as per clause (c) of Article 5(5) is satisfied in the instant case.
With respect to Ground No. 3, the ld DR submitted that the table at page 124 of the Paper Book I, shows managerial and technical services under Article 13 of DTAA and relied on the decision in the case of Volvo information Technology AB 162 taxmann.co, 679 at Para 14 and 15 and order of the ITAT in the case of H.J. Heinz Company 108 taxmann.com
Then ld. DR invited our attention to page 21 of the DRP order to buttress his point that the services rendered by the assessee are technical, managerial and consultancy services and hence is covered as FTS. The ld. DR pointed out that ‘make available’ clause is not available in the India-Hong Kong DTAA and hence there is no requirement satisfaction of ‘make available’ clause.
In its rejoinder, the ld. counsel for the assessee contended that the cost of allocation is given at page 124 of the Paper Book 1. For Page 10 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT Ground No. 3, the ld. counsel for the assessee relied on the decision of the Hon'ble Delhi High Court in the case of SFDC Ireland Ltd (2025) 171 taxmann.com 73 (Delhi) on the proposition that the AO has not prima facie established the ingredients of being an Agent.
We have heard the rival submissions and have perused the relevant material on record. We are called upon to adjudicate whether the Indian AE is Agency PE of the assessee in India and consequently 35% of the Offshore sales to Indian AE can be attributed as income of the assessee.
Further whether the reimbursement of expenses by Indian AE to the assessee be treated as FTS.
We find that the stress of the Revenue is that the Indian AE falls under the clause 5(c) of Article 5 whereas the assessee contends that principal-agent relationship is not established. To decide the issue of PE it would be fruitful to refer to the relevant Article 5 of the India-Hong Kong DTAA and the interpretation of relevant provisions in the Sales Agreement between KDAS and KDID dated 01.04.2012 as below.
ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory;
Page 11 of Kyocera Document Solutions Asia Vs. ACIT (e) a workshop; (f) a sales outlet; (g) a warehouse in relation to a person providing storage facilities for others; (h) a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on; and (i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
The term "permanent establishment" also encompasses: (a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months; (b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting Party for a period or periods aggregating more than 183 days within any twelve-month period.
Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include: (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting in a Contracting Party on behalf of an enterprise of the other Contracting Party, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting Party in respect of any activities which that person undertakes for the enterprise, if such a person: (a) has and habitually exercises in the first-mentioned Contracting Party an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or Page 12 of Kyocera Document Solutions Asia Vs. ACIT (b) has no such authority, but habitually maintains in the first-mentioned Party a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) has no such authority, but habitually secures orders in the first-mentioned Contracting Party, wholly or almost wholly for the enterprise or its associated enterprise.
An enterprise shall not be deemed to have a permanent establishment in a Contracting Party merely because it carries on business in that Party through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.
The fact that a company which is a resident of a Contracting Party controls or is controlled by a company which is a resident of the other Contracting Party, or which carries on business in that other Party (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
SALES AGREEMENT This Sales Agreement ("Agreement") is entered into as of the 1st day of April, 2012, by and between Kyocera Document Solutions Asia Limited, a corporation organized and existing under the laws of Hong Kong ("SELLER"), and Kyocera Document Solutions India Private Limited, a corporation organized and existing under the laws of India ("PURCHASER"). RECITALS WHEREAS, SELLER is a supplier of certain. Products, as defined below, and desires that the Products be sold to customers located within the Territory defined below; WHEREAS, PURCHASER has a sales and distribution organization which. can sell the Products in the Territory; WHEREAS, PURCHASER desires to purchase the Products for resale to customers within the Territory and to otherwise act as a distributor for SELLER; and WHEREAS, SELLER desires that PURCHASER acts as its non-exclusive distributor for the Products within the Territory, and that PURCHASER purchases the Products for the purpose of selling them to customers located therein. NOW, THEREFORE, in consideration of the foregoing premises and in consideration of the mutual covenants and conditions contained in this Agreement, the parties hereto agree as follows:
Page 13 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT ARTICLE 2-APPOINTMENT ACCEPTANCE Section 2.01 : SELLER hereby appoints PURCHASER as its non exclusive distributor (with the right to appoint representatives and sub distributors) for the Products within the Territory. Provided, however, ŠELLER shall not appoint any other person, business entity, distributor, or sales representative in the Territory for the Products, or license any party to manufacture or sell the Products in the Territory, without giving PURCHASER three (3) month advance written notice, unless otherwise mutually agreed in writing.
Section 2.02 : PURCHASER hereby accepts the appointment made by Section 2.01 and agrees to use its best, efforts to develop a market for the Product à within the Territory. PURCHASER shall furnish to SELLER such reports and information relating to this Agreement (including, but not limited to; activities and products of competitors, possible new products, and future: customer requirements) which may be requested, from time to time by SELLER or which- PURCHASER shall become aware-of- during the term of this Agreement, PURCHASER shall keep SELLER informed about technological innovations or improvements related to the manufacture or ûse of the Products. At the request of SELLER PURCHASER shall make available to SELLER marketing reports of PURCHASER regarding the Products.
Section 2.03: It is understood that PURCHASER is an independent contractor and shall not have the right to assume or create any obligation of any kind, express or implied, on behalf of SELLER, except as expressly provided for in this Agreement. Nothing herein shall be deemed to establish or otherwise create a relationship of principal and agent between SELLER and PURCHASER.
Section 2.04: Neither party shall possess, nor shall either party hold itself to third persons as possessing, any power or authority to bind the other party in anyway.
Section 2.05: This Agreement is not intended to create, and should not be construed creating. any agency, joint venture, partnership, employer/employee relationship between SELLER and PURCHASER. or ARTICLE 3 TERM AND TERMINATION
Page 14 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT Section 3.01 The term of this Agreement shall he one (1) year. Subject to Section 3.02 below, this Agreement shall be automatically renewed at the end of the first year, and each succeeding year, for an additional year. Section 3.02 This Agreement may be terminated by either party by written notice to the other party given not less than three (3) months prior to the expiration date of the current term. Section 3.03 Either party shall have the right to terminate this Agreement immediately if****
ARTICLE 4 PURCHASER'S RESPONSIBILITIES
Section 4.01 During the term of this Agreement, PURCHASER shall:
(a) Use its best efforts to market, advertise and otherwise promote the sale and distribution of the Products to purchasers throughout the Territory.
(b) Tako all reasonable and necessary actions to satisfy the demand for the Products and applicable accessories throughout the Territory and attempt to increase the demand for the Products by, among other things, servicing all customer accounts with reasonable frequency and soliciting new customer accounts:
(c) Maintain adequate sales, warehouse and service facilities for effective distribution of the Products.
(d) Maintain an inventory of the Products sufficient to meet the purchase requirements of its customers:
(6) Maintain an adequate staff of sales personnel who are trained in and capable of effective demonstration, use and sales of the Products.
10 Make prompt payment of all SELLER invoices for the Products in accordance with Section 7.05.
(g) Comply with all policies and programs of SELLER issued at any time in connection with its Products.
Page 15 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT (h) Immediately forward to SELLER any information concerning all charges, complaints, or claims of damages relating to the performance or function of any of the Products that may come to PURCHASER's attention.
(ⅰ) Assume all market credit i.e.. bad debt) and inventory risks for Products which are merchantable (ie.. suitable for sale).
Section 4.02 PURCHASER shall bear the cost of any taxes, levies, duties or fees of any kind, nature or description whatsoever levied within the Territory applicable to the purchase or resale of the Products sold by SELLER to PURCHASER.
Section 4.03 PURCHASER agrées and warrants that it has obtained and will hereinafter maintain in full force and effect all necessary business licenses, sales permits and other authorizations required by law.
ARTICLE 5 SELLER'S RESPONSIBILITIES
Section 5.01 SELLER shall be obligated to PURCHASER as follows:
(a) to provide, without charge, sales and technical information regarding the Products as SELLER deems reasonably necessary. (b) to provide such samples of the Products as SELLER deems reasonably necessary and appropriate. (c) to perfect the right to export into and sell the Products within the Territory including export licenses, government approvals, and all such other legal requirements related to product design, specifications and safety standards.
Section 5.02 SELLER shall bear the cost of any taxes, levies, duties or fees of any kind, nature or description. levied within the country of origin for shipments of the Products by SELLER to PURCHASER.
ARTICLE 6 SALE OF PRODUCTS
Section 6.01 PURCHASER shall buy and resell the Products for its own account within the Territory.
Section 6.02
Page 16 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT
SELLER shall have the right at any time to effect changes in, or discontinue the sale of, any of its Products without incurring any liability to PURCHASER. Provided, however, SELLER shall use its best efforts to provide PURCHASER with at least ninety (90) days prior written notice of Product discontinuation. PURCHASER will make its best efforts to sell or otherwise liquidate remaining inventory of Products.
ARTICLE 1 PURCHASE ORDER AND SHIPMENT
Section 7.01 SELLER shall have the right, in its sole and absolute discretion, to reject any purchase order, in whole or in part, placed by PURCHASER, and no purchase order shall be binding upon SELLER unless accepted by SELLER in writing or by the delivery of. Products in whole or in partial fülfillment thereof. All purchase orders shall be governed by the provisions of this Agreement.
Section 7:02 SELLER shall ship the Products on an agreed shipping date, In the event that SELLER ships the Products in advance of or late for a scheduled shipping date, SELLER and PURCHASER shall discuss and deal with it
Section 7.03 SELLER warrants that all Products shipped hereunder shall be free from defects in material, workmanship, and design, and shall conform to the applicable specifications, drawings, samples, and descriptions set forth in this Agreement and purchase orders issued hereunder.
Section 7.04 Product title transfer points and freight terms shall be as set forth in Schedule 3inttached hereto.
Section 7.05 Payment terms shall be determined separately by mutual agreement.
All SELLER invoices shall be paid in full without any deductions of credits of any kind. Any requests for credit or deductions by PURCHASER (e.g. for a shortage in shipment quantity, quality defects, or for goods damaged in transit) shall be provided in the form of a separate invoice to SELLER.
Section 7.06 Unless otherwise mutually agreed, all purchase transactions between SELLER afid PURCHASER shall be denominated in US dollar. ARTICLE 8- WARRANTY
Page 17 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT Section 8.01
SELLER shall extend to PURCHASER and PURCHASER's customers SELLER's standard warranties, which apply to the specific Products sold hereunder. Said warranties are outlined in Schedule 4 attached hereto. In no event shall SELLER's warranty to PURCHASER or PURCHASER's customers exceed the value of the Products invoiced by PURCHASER to the customer. Further, in no event shall SELLER have liability for special or consequential damages, unless the laws of the Territory do not allow the exclusion or limitation of such damages.
Section 8.02
PURCHASER shall immediately advise SELLER of any claim for damages or breach of warranty with respect to the Products asserted by a customer of PURCHASER and shall cooperate with SELLER in the defense or handling of such claims.
Section 8.03
PURCHASER shall promptly furnish SELLER with product samples and any related information when a warranty claim is made by a customer of PURCHASER. *****
We examined the relation between the assessee and KDID to see whether and relationship of Principal and agent exist. We find that the AO has attempted to show that there exists a principal-agent relationship between the assessee and KDID by relying on section 4.01 of the Sales Agreement dated 01.04.2012 which provides that KDID would maintain adequate sales, warehouse and service facilities for effective distribution of products; KDID would maintain an inventory of the products; KDID would market, advertise and promote the sale and distribution of the products and section 8.01 which provides that the Assessee company is liable for warranty on the products sold by KDID to Page 18 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT the end customers. On the basis of these provisions in the Sales Agreement, the AO concluded that KDID is the Agency PE of the assessee in India.
We are of the considered view that the AO has read the Sales Agreement selectively without considering various other sections in the Agreement where it is apparent that KDID purchases the Products of the assessee for resale to customers within Indian Territory and to otherwise act as a distributor for the assessee.
25.1 Section 2.03 provides that KDID is an independent contractor and does not have the right to assume or create any obligation of any kind, express or implied, on behalf of the assessee, except as expressly provided for in this Agreement. Further nothing in the Agreement shall be deemed to establish or otherwise create a relationship of principal and agent between KDID and the assessee.
25.2 Section 2.04 provides that neither party shall possess, nor shall either party hold itself to third persons as possessing, any power or authority to bind the other party in anyway. This shows that KDID has obtained the rights of distribution of the products for itself.
Subsequently it had entered into contracts with third party customers in its own name in which the Assessee is not a party which illustrates that no arrangement exists between the Assessee and KDID's customers.
Page 19 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT 25.3 Section 2.05 expressly provides that the Agreement is not intended to create, and should not be construed as creating any agency, joint venture, partnership, or employer/ employee relationship KDID between the assessee.
25.4 With respect to warranty, we find that while the assessee provides warranty related to manufacturing defects on the products supplied to KDID, it is KDID that bears various risks such as entrepreneurial, inventory and distribution risks. The risk of non-performance of its sales staff is borne by KDID. The sales agreement at Section 4.01 provides that KDID would assume all market, credit (i.e., bad debt), and inventory risks for Products which are merchantable (i.e., suitable for sale)."
25.5 The Agreement at section 6.01 and elsewhere provides that KDID shall buy and resell the Products for its own account within the Territory. The purchase by KDID is on FOB basis in its own name which reinforces the argument of the assessee that the transaction between the assessee and the KDID is on principal to principal basis and KDID does not act as an agent of the assessee. In view of the above, we are of the considered view that the relationship between the assessee and that of KDID is as in principal to principal basis.
In so far as terms of Paragraph 6 of the OECD Commentary goes, we find that the AO has not demonstrated with any cogent materials
Page 20 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT that KDID is not both legally and economically independent of the assessee; and that KDID is not acting in the ordinary course of its business. We rather find that the assertion of the assessee that KDID is a separate legal entity and is not subject to significant control by the assessee is nowhere controverted. There is no evidence brought out by the AO that KDID is not economically independent as well as we have seen that KDID bears the entrepreneurial risk of its activities and is acting in ordinary course of business.
In so far as the application of provisions of DTAA is concerned, we find that the Article 5(5) of the India-Hong Kong DTAA, provides that a foreign enterprise may have an "Agency PE" in India if such foreign enterprise performs any of the below mentioned activities through its dependent agent in India. Under this Article the AO has to establish that KDID habitually exercises in India an authority to conclude contracts for or on behalf of the foreign enterprise; or habitually maintains in India a stock of goods or merchandise from which it regularly delivers goods or merchandise on behalf of the enterprise; or habitually secures orders in India, wholly or almost wholly for the enterprise itself or for other enterprises controlling, controlled by, or subject to the same common control, as that enterprise. We find that none of the conditions of Article 5(5) are met in the case of the assessee. We find that the AO has not Page 21 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT provided any evidence/materials to show that KDID habitually binds the assessee or secures order or maintains stock for the assessee. In view of the same, we are of the considered view that no Agency PE exist for the assessee in the form of KDID. Since we have held that the assessee does not have a PE in India in the shape of KDID, consequently the question of attributing 35% of the Offshore sales to Indian AE, as income of the assessee, does not arise. The ground 2 is allowed.
As far as the question of FTS in ground 3 is concerned, we find that FTS under Explanation 2 of section 9(1)(vii) of the Act and Article 13 of India-Hong Kong Double Tax Avoidance Agreement ('DTAA') means consideration for providing any managerial, technical or consultancy services (including the provision of services of technical or other personnel). Income Tax Act defines the FTS under Explanation 2 of section 9(1)(vii) of the Act as under:
Income by way of fees for technical services payable by- [Explanation 2] - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". Article 13 of the DTAA defines FTS as under:
FEES FOR TECHNICAL SERVICES 1. Fees for technical services arising in a Contracting Party and paid to a resident of the other Contracting Party may be taxed in that other Party.
However, such fees for technical services may also be taxed in the Contracting Party in which they arise, and according to the laws of that Party, but if the beneficial owner of the Page 22 of Kyocera Document Solutions Asia Vs. ACIT fees for technical services is a resident of the other Contracting Party the tax so charged shall not exceed 10 per cent of the gross amount of the fees for technical services.
The term "fees for technical services" as used in this Article means payments of any kind as consideration for managerial, technical or consultancy services, including through the provision of services of technical or other personnel, but does not include payments for independent personal services and for dependent personal services as mentioned in Articles 15 and 16 respectively of this Agreement. ******
We find that the payment made to Kyocera Document Solution Asia Limited ('KDAS) by KDID in respect of cost incurred by KDAS are for for arranging various facilities to KDID has been categorized as reimbursement on cost to cost basis. The facilities arranged ranges from Learning courses and PowerPoint development system in the form of Academy Localisation Tool; use of software (Astea); (Ringi); (SBO) for the purpose of Group managed ERP system for resource planning management (support system); use of software (Bliq) which is - comprehensive source of independent research and data.; cloud solution for Computer system resource for data storage on a common server of the company; email hosting for hosting the domain of the company in order to set up a custom email address. For all these facilities, KDAS pays a fee to entities outside India and collects the same from its group entities such as KDID in India availing such facilities on cost to cost basis.
Considering the nature of the activities for which the cost are recovered from KDID and the Assessee’s responsibilities towards KDID as Page 23 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT stipulated in section 5.01 of the Sales Agreement between the assessee and KDID, we are of the considered view that the assessee has rendered a service to KDID in making all such arrangements which KDID, otherwise on its own, could not have availed. In particular, the section 5.01 of the Sales Agreement specifically provides that assessee would provide to KDID sales and technical information. The assessee has provided to KDID various standard automated facilities from the third parties and therefore we are of the considered view that arrangement being made by the assessee for KDID qualifies as rendering of ‘managerial’ service to KDID. We find that though the terms 'managerial', 'technical' and 'consultancy' have not been specifically defined in the Act or the DTAA, various courts have interpreted the meaning of the said term ‘Managerial’ as controlling, directing or administering the business. The expression "managerial services" means managing the affairs by laying down certain policies, standards and procedures and then evaluating the actual performance in light of the procedures so laid down. We are of the opinion that the services which the assessee provides to KDID are towards adoption and carrying out policies of an organization. Our view is strengthened by the fact that the Hong Kong DTTA do not postulate the concept of “make available” as essential ingredient to consider a service as FTS.
Page 24 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT 31. In the factual matrix of the instant case, we find that the assessee is instrumental in providing services of various software to KDID which is used for understanding assessee’s products (copiers/ printers) strengths and weaknesses, competitor's machines as well as environmental factors. The software arranged for KDID enables it to track various tasks in relation to its business functions. The software enables the KDID to support, manage and register customer information and manage key financial and human resources. The payment made by KDID also includes cost of travelling traveling of KDID employees to attend business conferences organized by the assessee which is a service provided by the assessee. The assessee arranges the services of web server and e-mail domain as well as cloud solutions to KDID to improve the overall business of KDID and its own. All such activities which the assessee provides to KDID would fall within the ambit of “managerial services” under Article 13 of India-Hong Kong DTAA. Following the coordinate bench of ITAT decision of Volvo information Technology AB (supra) and that of H.J.
Heinz Company (supra), we therefore uphold the action of the AO in treating the amount paid by KDID towards the above expenses as FTS as it falls under “payments of any kind as consideration for managerial, technical or consultancy services”. The ground 3 is dismissed.
Page 25 of 27 , 3546/DEL/2023 & 1664/DEL/2025 [A.Y 2020-21, 2021-22 & 2022-23] Kyocera Document Solutions Asia Vs. ACIT 32. Ground 4 regarding penalty u/s 270A is premature and ground 5 regarding interest u/s 234B is consequential.
[A.Y 2021-22] [A.Y 2022-23]
The facts in the above appeals being identical, the decision rendered above on the issue of PE and FTS will apply mutatis mutandis to facts of the case.
In the result, the appeal of the assessee in 3546/DEL/2023 and are partly allowed.
The order is pronounced in the open court on 13.01.2026.
Sd/- Sd/- [VIKAS AWASTHY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 13th January, 2026.
VL/