BOOZ & COMPANY (M.E) FZ-LLC THROUGH THE OFFICIAL LIQUIDATOR BUSINESS MIDDLE EAST,MUMBAI vs. DDIT (IT) 3(2), MUMBAI

Facts relating to the issue are stated in brief. The assessee-company belongs to Booz group. It is engaged in the business of providing management and technical consultancy services. It is incorporated in United Arab Emirates (UAE). During the year under consideration the assessee provided technical/professional personnel to its Indian associated enterprise named Booz & Company India Private Limited (Booz India). The assessee received a fee of ` 112.83 lakhs from Booz India. The assessee did not offer the same for 2 Booz & Company (ME) FZ-LLC taxation. The assessee contended that it is governed DTAA entered between India and UAE. The said DTAA does not have any specific clause on taxability of fees for technical services and hence the said receipt is taxable as business income. However, since it did not have Permanent Establishment (PE) in India, above said fee is not taxable in India.

The Assessing Officer noticed that the Booz group is a global network group of companies having subsidiaries all over the world. He noticed that some of the group companies have approached Authority for Advance Ruling (AAR) in order to determine the taxability of their receipts from Indian entities. The AAR has given its Ruling on 14.2.2014 in AAR No. 1018 to 1027 of 2010, wherein the AAR has held that the above said companies are having “permanent establishment” in India and income received by them from Indian companies are taxable as business profit under Article 7 of Tax agreement of India and respective countries. The group of companies which obtained AAR ruling included M/s. Booz & Company (ME). The Assessing Officer noticed that the assessee herein is 100% subsidiary of Booz & Company (ME) Ltd., Hence the AO, by following the decision of AAR, held that ‘Booz India’ (Indian AE) to whom services were provided is the PE of the assessee. Accordingly the AO held that the income of ` 112.83 lakhs is taxable as business income of the assessee. The assessee had claimed expenses to the tune of ` 62.61 lakhs. Since the assessee did not furnish supporting documents, the Assessing Officer restricted deduction for expenses to the tune of ` 40 lakhs. Accordingly, he determined the total income of the assessee at ` 72.83 lakhs. The learned CIT(A) also confirmed the same and hence the assessee has filed the appeal before us.

The Ld A.R submitted that the tax authorities have mainly placed reliance on the ruling given by AAR in respect of certain group companies. He submitted that the question of availability of PE has to be examined on the basis of facts available in the present case and hence the tax authorities are not correct in merely placing reliance on the ruling of AAR without examining

We heard Ld D.R on this issue and perused the record. We find merit in the contentions of the assessee. Accordingly we hold that the ruling given by the AAR in the group concern’s case should not have been taken by the tax authorities as the basis for determining the existence or otherwise of PE of the assessee herein.

The Ld A.R submitted that the assessee has provided certain technical/professional personnel to M/s Booz India. Referring to the agreement entered between the assessee and M/s Booz India, the Ld A.R submitted that the said personnel were provided on “Principal to Principal” basis and further they shall not be entitled to work for any other projects. The agreement further clearly provides that no specific part of the office premises of Booz India or the premises of the client of Booz India is at the specific disposal of the technical/professional personnel of the assessee. Further Booz India is not under an obligation to earmark or provide a dedicated office or any other space to the personnel of the assessee. Accordingly he submitted that there is no fixed place of business in India through which the business of assessee was carried on in India. Accordingly he submitted that none of the conditions prescribed in Article 5 of the India-UAE treaty on PE shall be applicable to the assessee herein. In this regard, the Ld A.R placed reliance on the decision rendered by Hon’ble Supreme Court in the case of E-Funds IT Solutions Inc. (Civil Appeal No.6082 of 2015 dated 24-10-2017).

He also submitted that the employees of the assessee has worked for only 156 solar days only and hence there is no Service PE also in terms of Article 5 of DTAA. He further submitted that the concept of dependent agent PE is also not applicable since the Indian company (Booz India) is recipient of services from the assessee and not providing any service to the assessee. Accordingly he submitted that there is not PE in India and hence the income received by the assessee from Booz India is not taxable in India.

On the contrary, the Ld D.R strongly supported the order passed by the tax authorities.

We have heard the parties on this issue and perused the record. There is no dispute between the parties that the fees received by the assessee from M/z Booz India for provision of technical/professional personnel are in the nature of business receipts. As per article 7 of the Indian-UAE DTAA, the business receipts are taxable in India only if the assessee has PE in India. We have earlier noticed that the tax authorities have held that there is PE in India only on the basis of ruling given by AAR. In the earlier paragraph, we have held that the ruling given by AAR should not have been followed by the tax authorities for the reasons furnished by the Ld A.R.

The term “Permanent Establishment” is defined in Article 5 of the tax treaty. As per Article 5(2)(i), the PE includes “the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve month period.”

The assessee has also stated that it does not have any fixed place of PE and also shown M/s Booz India has also not earmarked any specific place under the control or disposal of the assessee. Hence it cannot be said that the assessee did carry on any business in India through the Fixed place of business. Since the assessee has provided service to M/s Booz India and did not receive any service, the question of dependent agent PE also does not arise in India.

In view of the foregoing discussions, we are of the view that there is merit in the contentions of the assessee that there is no PE for it in India, in which case, the impugned receipt is not taxable in India. Accordingly, we set aside the orders passed by the tax authorities and direct the AO to delete the addition made by him.

In the result, the appeal of the assessee is allowed. Order has been pronounced in the Court on 19.1.2018.