LM WIND POWER AS ,DENMARK vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX 2(2)(1), DELHI

At the outset, ld. AR of the assessee brought to our notice the relevant facts of the case,the assessee is a foreign company incorporated in Denmark and is a tax resident of Denmark. The assessee is a part of the LM group, which is in the business of manufacturing rotor blades for wind turbine generators. Since the said business is capital intensive in nature, it is dominated by few large global customers who have operations in major territories around the world (e.g., Siemens Gamesa, GE, etc.). He submitted that during the relevant previous year, the assessee had following receipts from LM India:

Ld. AR further submitted that LM India, an Indian company incorporated in 1993, is the only company of LM group in India, which is engaged in the business of manufacturing rotor blades for wind turbines. LM India carries out its manufacturing activity in two plants located in the state of Karnataka (Dobaspet) and Gujarat (Vadodara). For its manufacturing operations, LM India purchases raw materials/ fixed assets and hires its own employees. As per the aforesaid Sales Commission Agreement, the assessee for sales support function, has agreed with LM India, for developing and maintaining the customer relationship, which in turn helps LM India to sale its product without any marketing efforts. He submitted that as part of sales support function, the assessee finalizes a global framework agreement with its global customer after taking the inputs from each manufacturing location worldwide. Post finalization of global sales agreement, the details of the contract are shared with LM group companies worldwide. Thereafter, the production team of LM India connects with the customers in India (Indian company of global customer) to understand the requirements, manufacture the blades in India and deliver the same to the customer’s locations in India.

He further submitted that the assessee along with LM India enters into Agreements/ Memorandum of Understanding (“MoU”) with the global customers having entities in India and abroad, for supply of rotor blades for wind turbines. LM India does not make any sales directly to foreign customers; in said cases of customers outside India, LM India supplies the rotor blades to the assessee at arm’s length price, which are then further sold to foreign customers by the Assessee. He submitted that in case of sales to Indian counterpart of global customers, LM India makes sales directly to the Indian counterpart and receives payment for the same, the profits earned by LM India on the sale of blades is offered to tax by it in India. He submitted that during the subject assessment year, no sales were made by LM India to independent local customers, which were not part of any global group. He submitted that in terms of the Sales Commission Agreement dated 01.01.2010, LM India pays sales commission to the Assessee as per the following percentage of sales of LM India: Category Sales commission % Corresponding sales of LM India in Indian market Global customer 6% Seimen Gamesa, Senvion, Vestas, etc. Local customer 2% No local customer

He submitted that during the impugned assessment year, the assessee received Rs.69,28,86,504 from LM India as sales commission, being 6% of sales made by LM India to Indian counterparty of the global customers. In the return of income filed in India for the captioned assessment year, the said amount of sales commission was not offered to tax by the assessee, as the same was not taxable in India in the absence of any business connection and/ or Permanent Establishment (“PE”) in India. He submitted that in the assessment order dated 29.07.2024, it has been held that premises of LM India were under the control and at the disposal of the assessee for carrying out its business in India and hence, LM India constituted Fixed Place PE of the assessee in India. The assessing officer, further, held that the sales commission received by the assessee is attributable to the PE and thus, taxable in India. In that manner, the assessing officer proposed to tax sales commission receipt in India by making addition of Rs.16,97,57,193 to the returned income. The working of the addition is tabulated hereunder:

Further to summarize, he submitted that it may be appreciated that the business of the Assessee is purely sales support function in terms of the Sales Commission Agreement dated 01.01.2010 entered into between the Assessee and LM India. Under the said agreement, the Assessee is concluding sales to global customers on behalf of companies in the LM Group, including LM India so that companies in the LM Group do not need to perform any sales activity towards the customer. In terms of the agreement, the Assessee is considered as the sales department of companies in the LM Group, for which it is remunerated @ 6% of revenue on blade sales to external global customers. The said agreement also makes it clear that the Assessee and LM India remain independent contractors and nothing in the agreement shall be construed to place the parties in the relationship of partners, joint ventures, fiduciaries or agents.No part of the aforesaid scope of services, it is submitted, required the Assessee to be present in India or have presence in the form of premises of LM India. As a matter of fact, no such presence in India even existed during the relevant assessment year to give rise to the allegation that the Assessee had control over the premises of LM India and that the same constituted Fixed Place PE of the Assessee in India.Once the Assessee negotiates and concludes contracts with global customers, the orders for supply of blades are required to be fulfilled by LM India by making supplies directly to Indian counterpart companies of global customers, such as GAMESA. The consideration for such supply is also directly received by LM India and offered to tax in the income-tax return. The aforesaid is evident from copies of the purchase orders and invoices.

Regarding Ground No.3.1, no business connection of the Assessee in India, ld. AR submitted that without prejudice to the foregoing submissions, in absence of ‘Business Connection’ in India, the sales commission received by the Assessee from LM India cannot be brought to tax in India. He submitted that as per the provisions of section 9(1)(i) of the Act, any income earned by a non-resident through or from any Business Connection in India shall be deemed to be an income deemed to accrue or arise in India. The expression ‘Business Connection’ undoubtedly means something more than ‘business’. A Business Connection involves a relation between a business carried on by a non- resident, which yields profits or gains and some activity in the taxable territory which contributes directly or indirectly to the earning of those profits or gains. He further submitted that it predicates an element of continuity between the business of the non-resident and the activity in the taxable territories; a stray or isolated transaction is normally not to be regarded as a Business Connection.Accordingly, he submitted that as has been judicially interpreted and held, Business Connection is a concept which has to be viewed only from a bilateral angle and Business Connection, as contemplated by section 9 of the Act, contemplates existence of an activity of the non-resident in the taxable territories of India that yields income to it. He further submitted that business activity leading to sales commission, i.e., identifying business opportunities, liaison and negotiation with the global customers and entering into contract with them and other sales support activity happens outside India and no part of the activity giving rise to sales commission receipts are undertaken in India by the Assessee, whether directly or through fixed place of business in India. He submitted that in view of the well-settled position in law and applying the principles laid down by Hon’ble Apex Court in the case of CIT vs R D Aggarwal and Co reported in (1965) 56 ITR 20 (SC) to the facts of the present case, the conclusion is inescapable, i.e., the Assessee does not have any Business Connection within the meaning of section 9(1)(i) of the Act with respect to the sales commission received from LM India. He submitted that in view thereof, no portion of sales commission can be taxed in India. He submitted that reliance in this regard is also placed on the decision of the Supreme Court in the case of CIT vs Toshoku Ltd: 125 ITR 525 (SC). In view of the above, he submitted that sales commission is not liable to tax in India as the Assessee does not have ‘Business Connection’ in India.

With regard to Ground No.3.2, assessee does not have Fixed Place PE in India, he submitted that even otherwise, in terms of section 90(2) of the Act, the provisions of the Act are overridden by the provisions of the India-Denmark DTAA, to the extent the provisions of the latter are more beneficial to the Assessee.In this regard, he submitted that sales commission received by the Assessee, being 6% of sales made by the LM India to entities apart from the Assessee are not taxable in India under the India-Denmark DTAA and therefore, for this reason too, provisions of the Act have no application to the present case. He submitted that in the impugned final assessment order, it is held that there exists PE of the Assessee in India. The said allegation, it is submitted, is completely unsustainable and cannot be countenanced. He further submitted that the impugned sales commission has been received from LM India itself, therefore, alleging LM India to be PE of the Assessee by holding that LM India is at the disposal of the Assessee and that business of sales commissioning activity of Assessee has been carried out through those premises, is grossly incorrect. It is submitted that there are no premises at the disposal of the Assessee in India and the sales commission activity of the Assessee is carried out from Denmark only; none of the activities for sales support function have been carried out from India. In this regard, he made referenceto Article 5 of the India-Denmark DTAA, which defines PE as under: “1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

He submitted that Paragraph 1 of Article 5 of the Tax Treaty, which defines the term PE to mean a “fixed place of business through which the business of an enterprise is wholly or partly carried on”, is similarly worded as paragraph 1 of Article 5 of the OECD Model Convention. He submitted that the OECD Commentary on Article 5 of the OECD Model Convention states that the following conditions should exist in order to constitute “fixed place of business” for the purpose of paragraph 1 of that Article:

He submitted that the term “fixed place of business” is not defined. However, reference may be made to the OECD Commentary on the OECD Model Convention which explains “fixed place” as a link between the place of business and a specific geographical point. It is emphasized that to constitute “fixed place of business”, the foreign enterprise must have at its disposal certain premises or a part thereof, from which its business is carried on. He further submitted that the AAR in the case of Pintsch Bamag - 318 ITR 190 (AAR), while holding that work place set up by an independent sub-contractor to carry out the works entrusted to him by the Assessee, a German company, did not result in a permanent establishment of the German company, observed as follows:

In the case of CIT vs Vishakhapatnam Port Turst (Supra), the expression “Permanent Establishment” was construed in more or less similar manner. The learned judges observed that PE connotes “a virtual projection of the foreign enterprise into the soil of another country. …………………………” (emphasis supplied) 17. He submitted that The Hon’ble Supreme Court in the case of DIT vs Morgan Stanley & Co: 292 ITR 416 (SC) while dealing with Article 5(1) of the India-USA DTAA, held as under:

It is further submitted that the DTAAs characterize a fixed place of business as a PE only if the enterprise undertakes business activity through such place of business. This is referred to as the ‘business activity’ test. However, an exception is carved out in Article 5(4)(f) in order to exclude the preparatory and auxiliary activities. The ‘core business’ of the foreign enterprise should be conducted through the place of business. Thus, there should be a nexus between the place of business and carrying on of business.

He submitted that in order that the foreign enterprise resident of a Contracting State can be said to have a Fixed Place PE in the other Contracting State, it is essential to demonstrate that the foreign enterprise has a fixed place available at its disposal in the other Contracting State, which is used for purposes of undertaking core business activities of that foreign enterprise in that other contracting State.

He further submitted that the Hon’ble Courts have in the undernoted cases emphasized the importance of disposal test, i.e., the fixed place must be available to the foreign enterprise for its use without any hindrance and further that such fixed place must be used for carrying on the core business of the foreign enterprise in the other contracting State:-  The Hon’ble Supreme Court in the case of Formula One World Championship Ltd vs CIT: 394 ITR 80 (SC), after referring to the OECD Model Tax Convention, Commentaries by Professor Philip Baker and Professor Klaus Vogel, and international tax jurisprudence, observed that in terms of Article 5(1) of the India-UK Tax Treaty, a Fixed Place PE is constituted in India, if the following twin conditions are satisfied, viz.: (i) Existence of a fixed place of business at the disposal of the foreign enterprise in India; and (ii) through which the business of the foreign enterprise is wholly or partly carried on.  The Hon’ble Delhi High Court in the case of CIT vs eFunds IT Solution: 364 ITR 256 (Del), while deciding the issue as to whether outsourcing of services to an Indian affiliate results in a PE in India for the foreign company under the provisions of the India-US Tax Treaty, held that for the purposes of existence of fixed place PE under Article 5(1), there must be a fixed place of business at the disposal of the enterprise. It was further held that since a subsidiary is an independent legal entity, the relationship of holding-subsidiary or control exercised by the foreign parent on its Indian subsidiary by itself does not result in PE of the foreign company in India.  Reliance is also placed upon the decision of the Hon’ble Delhi High Court in the case of National Petroleum Construction Company vs DIT: 383 ITR 648 (Del)  He further submitted that to the same effect is the decision of the Hon’ble Delhi High Court in the case of Nortel Networks India International Incvs DIT: 386 ITR 353 (Del). Further, in this regard, he placed reliance on the recent decision passed by the Hon’ble Delhi High Court in the case of Progress Rail Locomotive Inc vs DCIT: [2024] 466 ITR 76 (Del).

He submitted that Hon’ble Delhi High Court in the case of DIT vs Western Union Financial Services Inc (Del): [2025] 472 ITR 220 (Del), following the decision in the case of Progress Rail (supra) held as under: “49. For the purposes of being acknowledged as a PE, the said office would have had to qualify the provisions of sub-paras 1 and 2 of Article 5. It would thus have to be held to be a 'fixed place' through which the business of the enterprise was being wholly or partly carried out. In order to constitute a Fixed Place PE, it would have to satisfy the tests of virtual projection, a takeover of the premises as well as the precepts of control and disposal and the undertaking of core business activity of the enterprise. …………………………………. 68. On an overall conspectus of the various decisions handed down by this Court as well as the Supreme Court insofar as Fixed Place PE and DAPE are concerned as well as the language of Article 5, we have no hesitation in holding that the LO failed to meet the threshold requirements so as to constitute a PE.

In summation, we come to the firm conclusion that the LO did not meet the criteria established in sub-paras 1 and 2 of Article 5, so as to constitute a 'fixed place' of business or meet the tests of virtual projection, a takeover of the premises as well as the precepts of control and disposal in order to be a Fixed Place PE. The activities undertaken by the LO even otherwise were clearly auxiliary in character and would thus clearly fall within Article 5(3)(e) of the DTAA. The LO also did not meet the requirements of a DAPE as per of clauses (a), (b) and (c) of para 4 of Article 5. Furthermore, the software utilised for the purpose of connecting the Indian agents to the mainframe, being intangible property, would invariably be excluded from the threshold of PE. The argument of the premises of the Indian agents constituting a PE is clearly misconceived since these were independent third parties having their own business portfolio. Their premises, in any case, would not satisfy the test of virtual projection.” (emphasis supplied) 23. From the aforesaid submissions, he brought to our notice that to constitute a fixed place of business, there has to be right to use the premises for carrying out its own business by the enterprise and not for the purpose of business of the owner of the premises. Further, the premises or part thereof should be available at the constant disposal of the enterprise notwithstanding that the same is situated in the business facilities of another enterprise.

He further submitted that in the present case, the premises of LM India were not at the constant disposal of the Assessee ‘through’ which business of the Assessee, i.e., business of sales support & marketing is carried out and thus, the allegation of the Assessee having Fixed Place PE is incorrect. In fact, the Assessee has not conducted any part of the activities of sales support function in India and was not even required to do so. The negotiation of contracts happened with global customers, who are themselves situated outside India and the allegation that the Assessee used the premises of LM India to finalize such contracts is not sustainable and not supported by any evidence. He submitted that during the relevant previous year, there were no premises available to the Assessee in India, which satisfied the tests laid down by the Supreme Court and various other Courts for constitution of Fixed Place PE. He further submitted that the assessing officer has made incorrect allegations on the basis of Global Agreement, which, it is submitted, is not even relevant for the captioned assessment year. He submitted that on proper appraisal of the relevant agreements, it would be evident that LM India and the Assessee act independently on principal-to-principal basis and it is not a case where the Assessee exercises control over the premises of LM India, for the latter to constitute Fixed Place PE of the Assessee in India.

With regard to Ground No.3.3 regarding wrong agreements relied upon by the assessing officer, ld. AR submitted that in the assessment order, adverse findings have been recorded based on the following agreements: 1. “Blade Development and Supply Agreement” dated 13.01.2021 entered into between the Assessee and Siemens Gamesa Renewable Energy Innovation and Technology, S.L Unipersonal, Spain (“SGRE Spain”) for the development and supply of blades (hereinafter referred to as “Global Agreement”). 2. “Agreement on supply of Wind Turbine Blades” dated 01.04.2019 entered into between the Assessee and LM India (hereinafter referred to as “Supply Agreement”) 3. Global Framework Agreement dated 24.07.2019 (hereinafter referred to as “Global Framework Agreement”) entered into between the Assessee alongwith its group entities (collectively referred as “LM Group entities”) and Siemens Gamesa Renewable Energy along with its group entities, (collectively referred as “SGRE Group entities”).

Global Agreement The assessing officer has laid much emphasis on the Global Agreement to hold that the Assessee has business connection in India and that premises of LM India constitutes Fixed Place PE of Assessee in India. It is submitted that the assessing officer was conscious of the fact that the said agreement was entered into only on 13.01.2021, which is evident from the noting in the assessment order at various places. However, despite being aware of the non- applicability of the Global Agreement to the subject assessment year, the assessing officer recorded adverse findings and concluded that LM India constituted Fixed Place PE of the Assessee in India inasmuch as the Assessee has made all production related commitments to the customer without LM India being party to the Global Agreement, which allegedly establishes that the Assessee exercised control over the premises of LM India, as the manufacturing was to be undertaken at the factories of LM India itself.

Global Framework Agreement dated 24.07.2019 Global Framework Agreement dated 24.07.2019 was entered into between (1) SGRE group entities, viz., SG Spain, SG India, SG China, SG Brazil, SG Denmark, and (2) LM group entities, viz the Assessee, LM India, LM Brazil & LM China. The purpose of entering into the aforesaid Global Framework Agreement was to amend and review certain provisions of the agreements signed originally, in relation to the committed Rotor volumes. On the basis of the fact that the said Global Framework Agreement was signed by employees of the Assessee, i.e., Dorte Kamper, VP Sales & Marketing and Duncan Berry, CEO, LM Wind Power, on behalf of LM India, the assessing officer alleged that there is no independent existence of LM India.

Name of Mr. Arun Sasidharan, on Purchase Order issued by Siemens Gamesa Renewables Power Private Limited, i.e., the Indian customer It is alleged in the assessment order that in the Purchase Order issued by Siemens Gamesa Renewables Power Private Limited to LM India, Mr. Arun Sasidharan is the contact person for LM India, whereas, as per LinkedIn profile of Mr. Arun Sasidharan, it is evident that he is an employee of the Assessee. Basis the above, the assessing officer held that the Assessee exercises control over LM India, as its employee is acting on behalf of LM India. In this regard, it is respectfully submitted that Mr. ArunSasidharan is an employee of LM India itself and not of the Assessee. In this regard, copies of LinkedIn profile and Form No.16 of Mr. ArunSasidharan for assessment year 2020-21 were filed before the DRP.

With regard to Ground No.3.4 regarding error in assuming 35% profit rate in the sales commission receipt and in holding 70% of the said profits to be attributable to the alleged PE in India, he submitted that notwithstanding the above, the assessing officer in the final assessment order not only proceeded on the erroneous assumption that the Assessee carries on business in India through PE constituted by LM India, but also assumed net profit rate @ 35% of sales commission and further attributed 70% of the profits to LM India, which is not sustainable.

With regard to Ground No.3.5, without prejudice, no attribution to alleged PE, ld. AR submitted that without prejudice to the aforesaid submissions that the Assessee does not have PE in India, in terms of Article 7 of the DTAA, the business profits arising to a Denmark enterprise are taxable in India only if there exists PE of the Denmark enterprise in India. In case PE is established in India, profits are taxable in India, to the extent the same are attributable to: (a) the Indian PE; (b) sales in India of goods or merchandise of the same or similar kind as these sold through the PE; or (c) other business activities carried on in India of the same or similar kind as those effected through the PE. Assuming arguendo, even if the allegation of the assessing officer that the Assessee has PE in India is accepted, it is submitted that no part of the sales commission can be brought to tax in India for the reasons submitted hereunder:- Firstly, the Assessee submits that the sales commission is not attributable to the PE in India inasmuch as the Assessee has undertaken various activities relating to sales support, negotiation with global customers, etc. outside India, without any presence of the Assessee or its employees in India and such sales related activities also have no connection with the alleged Fixed Place PE of the Assessee in India, viz., the premises of LM India. Thus, no part of the receipt by way of sales commission can be said to be attributable to the alleged PE in India. Secondly, since no sales of rotor blades are made directly by the Assessee in India, it is submitted that the sales commission cannot be said to be attributable to sales in India of goods or merchandise of the same or similar kind as these sold through the PE. Thirdly, there are no business activities carried out by the Assessee in India and thus, the sales commission is not attributable to ‘other business activities carried on in India of the same or similar kind as those effected through the PE’.

Ld. AR submitted that the sales commission is earned by it for providing sales support services to LM India by negotiating and entering into agreements with global customers and all such activities are undertaken by the Assessee outside India, without presence of any of its employees/ personnel in India or use of any premises in India. Accordingly, no part of the profit with respect to sales commission is attributable to the alleged PE in India and consequently, no part of sales commission is taxable in India.

With regard toAssessing officer has wrongly attributed 70% of the sales commission receipt to alleged PE in India, further, it is submitted that the assessing officer has grossly erred in holding that 70% of the sales commission is attributable to the alleged PE in India. The assessing officer has erred in not appreciating that since all activities were undertaken by the Assessee outside India, no part of the same could have been said to be connected to the alleged PE in India. He submitted that having regard to Article 7 of the DTAA, even though 30. India accepts the separate entity approach with respect to existence of PE (once established), the attribution of the profit to the PE liable to tax in India, is based on functional analysis, having regard to the functions performed, assets used or risks assumed by the PE. In this regard, it is submitted that even if the Assessee is alleged to have PE in India, the attribution of income to the alleged PE has to be basis transfer pricing exercise, taking into account the functions performed, the assets employed and the risks assumed by the alleged PE. In this regard, the Hon’ble Supreme Court in the case of CIT vs Ahmedbhai Umarbhai & Co: 18 ITR 472 (SC) observed that where a person is carrying on manufacture and sale, the profits received relate firstly to his business as manufacturer and secondly, to his trading operations; profit or loss has to be apportioned in a business-like manner and according to well established principles of accountancy. He submitted that in such cases, the Supreme Court held that it will be doing no violence to the meaning of the words ‘accrue or arise’ if the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of sale are said to arise at the place where the sales are made. He further submitted that the aforesaid view was reiterated by the Hon’ble Supreme Court in the case of The Anglo French Textile Co Ltd vs CIT: 25 ITR 27 (SC), wherein it was observed that though profits may not be realized until the manufactured article is sold, profits are not wholly made by the act of sale and do not necessarily accrue at the place of sale. It was further observed that to the extent profits are attributable to the manufacturing operations, profits accrue at the place where the business operations are carried on. The question whether a particular part of income, profit or gain arose or accrued within the taxable territories or without the taxable territories would have to be decided having regard to the general principles as to where the income, profit or gain could be said to arose or accrue, the apex Court held. Further he submitted that Hon’ble Madras High Court in the case of Annamalais Timber Trust and Co vs CIT: 41 ITR 781 (Mad) held that the apportionment of profits under the above provisions should not be arbitrary but on a rational basis. Where the only operation within the taxable territory was the negotiation and conclusion of the contract, there was no justification for apportioning 50% of the profits to the operation carried out within the taxable territory. The High Court held that there was justification only for apportioning 10% of the Assessee’s share of the profits to the trading operations carried out in the taxable territory. He further relied on Hon’ble Calcutta High Court in the case of CIT vsBertrams Scotts Ltd: 31 Taxman 444 (Cal) wherein it is upheld the order of the Tribunal wherein it was held that since a large number of services were to be performed outside India as compared to the comparatively fewer services rendered in India, 10% of the net profits could be estimated to be income accruing or arising in India. He further placed reliance in this regard on the decision of the Hon’ble Uttarakhand High Court in the case of Samsung Heavy Industries Co Ltd vs DIT: 265 CTR 109 (Uttarakhand).

He submitted that the aforesaid judgment in the case of Samsung Heavy Industries (supra) was affirmed by the Hon’ble Supreme Court in 426 ITR 1 (SC).

It is submitted that even in terms of Explanation 1(a) of section 9(1)(i), though overridden by the beneficial provisions of the DTAA, in the case of a business of which all the operations are not carried out in India, the income of the business deemed under section 9(1)(i) of the Act to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. He submitted that in that view of the matter, without prejudice to the argument that the Assessee does not have PE in India, that sales commission is not attributable to the alleged PE and that there is not profit embedded in the sales commission receipt on account of global net loss, it is submitted that since the relevant activities were carried out by the Assessee from outside India only, the assessing officer has grossly erred in attributing 70% of the assumed profits embedded in sales commission to the alleged PE in India.

In view of his above submissions, he pleaded that the addition of Rs.16,97,57,193 made to the income returned by the Assessee for the subject assessment year on account of attribution of sales commission receipt to the alleged PE, therefore, deserves to be deleted in entirety.

On the other hand, ld. DR of the Revenue brought to our notice page 103 of the paper book, which is agreement of Know how transfer, he specifically brought to our notice the clause Responsibility of both parties on the issue of specification and quality requirements which are communicated by the assessee to the LM India. He submitted that the above clearly shows that the assessee was controlling the LM India and there is business connection. Further, he objected to the submissions of the Ld AR on the aspect of no visit by the employees of the assessee to LM India, he submitted that the Global contract was finalized by the Employee of the assessee. He brought to our notice page 57 of the paper book in this regard. He submitted that the same person signs the agreement for both the companies. He heavily relied on the findings of lower authorities.

Considered the rival submissions and material placed on record. We observe from the submissions and observe that the assessee is a Denmark based company, which is into the business of manufacturing of rotor blades for wind turbine generators. As per group strategy, the assessee is involved in the sales and marketing support services to the whole group. It finalizes the global agreements with the large customers based outside India. This fact was also brought on record by the TPO at page 4 of the order. We observed that the assessee enters into global framework agreements with global customers outside India and the assessee after finalizing the global framework based on the group manufacturing capacity, it forwards the relevant agreements to its other group companies. LM India having manufacturing capacity, based on the global framework agreements, it supplies directly to the subsidiaries of the Global Customer in India. The framework is such that the subsidiaries of the global customers will place direct order to LM India and LM India will execute the requirements of the Indian entities of the Global Customer in India, the relevant payments were also receives from the Indian entity of the Global customers. We observe that during this year under consideration, the LM India had dealt with Siemens Gamesa, Senvion, Vestas etc. These transactions are directly coming under the Global Framework agreement, which was finalized by the assessee, the above framework was entered by the assessee outside India. This is the framework on which the group entities are habitually functions. For the above sales and marketing services, the assessee claims commission at the rate of 6%. The LM India is also allowed to sell the products manufactured by it to the local customers, on which, it has to pay 2% for which the assessee will claim the same. This year, it was brought to our notice that there is no sales made to the local customers. This is not the issue under consideration in the present appeal.

The only issue is that the tax authorities treated the above services offered by the assessee is taxable in India with the observation that the assessee is having PE in India for the reason that the source of Income is thru India. Accordingly, the TPO observed from the framework agreements entered by the assessee effective from January 2010 and from July 2019. With the above facts on record, he drawn conclusion that the assessee is having PE in India as per the provisions of DTAA and he also held that the assessee is having business connection in India. He also drawn conclusion on the basis that the assessee had represented the LM India and finalized the framework based on the manufacturing capacity in India. Against the above findings of tax authorities, the assessee had filed a detailed note, which is reproduced by us in this order itself.

After considering the facts on record, we observe that this type of inter group services are common in the MNC set up and MNCs having global presence. The main entity involved in the marketing functions for the group will finalize the framework for execution of contracts/sales by the rest of the group entities. We observe that in the given case, the assessee has finalized the broad framework for execution of the contracts entered by it with the other customers who had global presence. In this case, the assessee had entered into contract with Siemens, who also executing various contracts in various countries where it has presence. Accordingly, the siemens had finalized the broad framework with the assessee company and places order directly to the Indian entity, LM India and the same are executed directly without involving the assessee. Now the question raised by the revenue that this type of transactions falls under business connection for the simple reason that the assessee had represented the Indian entity and finalized the framework based on the manufacturing capacity or facility available in India. We observed that the purchase orders were placed by the Siemens India to the LM India. These kind of transactions are commonly executed by the group entities who utilizes their resources for the benefit of group entities.

Further, we observed that the global framework agreements were finalized outside India with the Global customer outside India. There is no material brought on record by the revenue that the relevant agreement was finalized at India. Secondly, the basis for determining the presence of the assessee in India to invoke the Permanent establishment or business connection in India. The TPO had reviewed the Article 1 of the global agreement and merely because the assessee represented the LM India to finalize the framework and volume commitment, he presumed that the assessee has complete control over the LM India, further, LM India has not signed the global agreement in its independent capacity. This observation of the TPO against the purpose of even framing the global framework to work harmoniously with the group entities. In the global economies, this type of working with the global framework is common.

It is clear from the above that the assessee had exhibited that it has carried on the functions of sales support services to the LM India as a service provider and accordingly claimed the commission for the services rendered outside India. The revenue had not brought on record how the assessee is treated as having PE or Business connection in India, merely observing certain clause of global agreement. There is no record brought on record with regard to fixed place of business or service PE or any employee of the assessee company had visited in India to execute any of the contracts or utilize the place of business in India. In absence of any material, we are inclined not to accept the findings of revenue authorities. Therefore, the commission income is not taxable in India.

With regard toattribution of commission income earned by the assessee in India to extent of 35% of the commission income, since we already held this transaction is executed outside India, the same cannot be charge to tax in India, attribution of such commission is ruled out.

It was further submitted that the assessee had claimed the above commission based on the global framework and commission agreement entered into with the LM India and the other agreement for Dobaspet Facilities Extension dated 10.12.2015 was with tripartite agreement, this was not executed this year. Therefore, the TPO had relied on the wrong agreement. The assessee had extended purely the sales support function based on the sales commission agreement dated 01.01.2010 entered with LM India. Based on the above agreement, the assessee had concluded the sales on behalf of LM India. Therefore, it was submitted that the TPO had applied the wrong agreement for this year. Since, we already held that the agreement on which the commission earned by the assessee is finalized and entered by the assessee outside India and there is no PE and Business connection in India, therefore, the grounds raised

He submitted that in the impugned assessment order, regarding the allegation that royalty being effectively connected with the PE in India, it has been held that LM India provides research & development services, services relating to wind turbine blades and components including finite element analysis, core engineering, product equipment design, quality testing, etc. in India and that the provision of said services by LM India plays a substantial role in generation of know-how by the Assessee, for which it receives royalty from LM India. The relevant extracts of the assessment order are as under: “19.6 The assessee’s contention that royalty is not linked to the PE in India is not acceptable. The assessee in its Transfer Pricing Memo and form 3CEB has indicated that the assessee pays LM India for carrying out R& D Services (Engineering and Support Services). The assessee has also entered into an agreement called the Master Service Agreement with LM Wind Power Technologies India Private Limited (merged with LM Wind Power Blades India Private Limited: LM India) for provision of services relating to wind turbine blades and components including finite element analysis, core engineering, product equipment design, R& D related activities, quality testing, etc. Hence, R&D activities being carried out in LM India are playing a substantial role in generation of the know how for which royalty is paid to the assessee. Therefore, since manufacturing of blades is taking place in LM India using the technical knowhow and LM India is the PE of the assessee in India, royalty paid by LM India to the assessee of Rs.57,80,29,420/- is taxable under section 44DA of the Act as business income. Penalty proceeding u/s 270A are also proposed to be initiated as the assessee has under reported its income.”

In this regard, it is submitted that the aforesaid assumption of the assessing officer is far-fetched and without any basis; even assuming for the sake of argument that the know-how has been generated as a result of R&D services rendered by LM India to the Assessee, it has not been appreciated by the assessing officer that LM India has been compensated at arm’s length price by the Assessee and that the know-how generated becomes the sole property of the Assessee. Furthermore, the assessing officer ought to have appreciated that for the application of section 44DA to the receipt of royalty, the alleged PE must have effective connection with the right, property in respect of which royalty has been received by the Assessee, i.e., patented and non-patented (propriety) technology and production rights, Trademark and distribution rights of Rotor Blades must effectively be with the alleged PE. In this regard, he made to the following extracts of the commentary of Klaus Vogel on Double Taxation Conventions [Fifth Edition] (at page 893) for meaning of the term ‘effectively connected’:

In light of the aforesaid decisions, he submitted that the right or property in respect of which royalty has been received by the Assessee has no effective connection with LM India, hence provisions of section 44DA have no applicability.It is submitted that receipt of royalty by the Assessee in the present case has no connection with the alleged PE in India on account of the following reasons: (c) Services provided by LM India under the Master Service Agreement (“MSA”) dated 01.04.2015 to various LM Group companies The assessing officer relied upon the MSA dated 01.04.2015 to hold that the rendering of services by LM India results into generation of know-how for the Assessee, for which subsequently, royalty is paid by LM India to the Assessee.

On the other hand, Ld DR relied on the findings of lower authorities and submitted that this is connected to the PE in India.

Considered the rival submissions and material placed on record. We have already held that the assessee does not have any PE in India. Therefore, the provisions of section 44DA are applicable only when the transfer of rights over the license of patented and non-patented technologies, production rights, Trademarks and distribution rights are attributable to the PE in India. There is no material to demonstrate that the assessee has fixed place of business in India or place is at the disposal of the assessee nor any service PE was established by bringing on record by the revenue authorities, except certain observations from the global framework agreements and MOU entered by the assessee and LM India. Since there is no PE and particularly there is no connection for granting the patented license for technology and production rights or trade mark connected to the PE in India, there is no avenue to apply provisions of section 44DA of the Act. We observed that the Indian entity had deducted the tax and also offered to tax based on the provisions of section 115A of the Act. Therefore, we direct the AO/TPO to delete the adjustment or attributions applied. In the result, grounds raised

Accordingly, he submitted that on the basis of order dated 08.06.2023 passed under section 92CA(3), the assessing officer in the impugned draft assessment order has proposed initiation of penalty proceedings under section 271AA of the Act alleging non-disclosure of certain international transactions.In this regard, he brought to our notice the provisions of Section 271AA of the Act which read as under: “Penalty for failure to keep and maintain information and document, etc., in respect of certain transactions. 271AA. (1) Without prejudice to the provisions of section 270A or section 271 or section 271BA, if any person in respect of an international transaction or specified domestic transaction,— (i) fails to keep and maintain any such information and document as required by sub-section (1) or sub-section (2) of section 92D; (ii) fails to report such transaction which he is required to do so; or (iii) maintains or furnishes an incorrect information or document, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of each international transaction or specified domestic transaction entered into by such person. (2) If any person fails to furnish the information and the document as required under sub-section (4) of section 92D, the prescribed income-tax authority referred to in the said sub-section may direct that such person shall pay, by way of penalty, a sum of five hundred thousand rupees.” (emphasis supplied) 54. He submitted that in terms of section 271AA(1)(ii), penalty of 2% of the value of each international transaction may be levied for failure to report international transaction in Form No.3CEB.In this regard, reference is made to section 92E which provides that parties, who have entered into an international transaction during the previous year, shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by an accountant setting forth, such particulars, as may be prescribed in Rule 10E of the Income-tax Rules, 1962. The report is required to be prepared and submitted in the prescribed Form 3CEB. He further brought to our notice relevant extracts of section 92E of the Act which is reproduced hereunder: “Report from an accountant to be furnished by persons entering into international transaction or specified domestic transaction. 92E. Every person who has entered into an international transaction or specified domestic transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.” It is respectfully submitted that in terms of section 92E of the Act, the 55. assessee is required to report only those transactions which have resulted in generation of taxable income of the assessee; international transactions which have not resulted into taxable income in India are not required to be reported in Form No. 3CEB, for the reason that section 92(1) of the Act provides for computation of ‘income’ arising from an ‘international transaction’ having regard to the ‘arm’s length price’ Therefore, for a transaction to come within the purview of Chapter X of the Act, the preliminary condition is that some income must arise from the transaction. He further submitted that in the absence of any income arising from the transactions of sale of raw materials, components and tangible assets to LM India and purchase of raw materials & spares and rotor blades from LM India, it is submitted that the transfer pricing provisions as contained in Chapter X of the Act are not attracted. Therefore, there was no obligation on the assessee to report the said transactions in Form No.3CEB filed for the subject assessment year. In this regard, he placed on the decision of the Bombay High Court in the case of Vodafone India Services (P) Ltd vs UOI: 368 ITR 1 (Bom) wherein the High Court held that income arising from an international transaction is a condition precedent for application of Chapter X of the Act and in the absence of any impact on income, a the transaction cannot be brought within the purview of Chapter X of the Act. Further he submitted that the Hon’ble High Court further held that 56. Chapter X of the Act is a machinery provision and in the absence of the transaction of issue of shares giving rise to any income chargeable under the substantive provisions of the Act, the said transaction cannot be brought within the purview of transfer pricing provisions.

Therefore, in the absence of any income chargeable to tax in India arising from the aforementioned transactions undertaken with LM India, he submittedthat non-reporting of transactions of sale of raw materials, components and tangible assets to LM India and purchase of raw materials & spares and rotor blades from LM India cannot be brought within the ambit of Chapter X and proposed to initiate penalty proceedings under section 271AA of the Act is misconceived and uncalled for. He placed specific reliance in this regard on the decision of the Bombay High Court in the case of Shell India Markets (P) Ltd: [2014] 369 ITR 516 (Bom), wherein the High Court was adjudicating the action of the TPO in computing arm’s length price of shares issued by the assessee to a foreign company. In the said case, the assessee had not reported the said transaction of issuance of shares in Form No.3CEB filed. The High Court held that the case of the assessee is squarely covered by the decision in the case of Vodafone (supra) and not reporting the transaction of issuance of shares in Form No.3CEB would not result into bringing into tax the differential receipt of share capital, as the said receipts are capital receipts, the same being falling outside the scope of Chapter X.Ergo, it is submitted that the requirement to report a transaction in Form No. 3CEB arises only when the following three conditions are met, namely: a) There is an international transaction within the meaning of the definition under section 92B of the Act; b) Income arises from the said international transaction, and c) Such income is chargeable to tax under the Act.

He submitted that since in the present case, the aforesaid transactions between LM India and the assessee do not result in income in the hands of the assessee which is taxable in India, it is submitted that the assessee was not required to report the said international transactions in Form No.3CEB under section 92E of the Act. Further he placed reliance in this regard on the decision of the Authority for Advance Ruling in the case of Dana Corporation (AAR No. 778 of 2008) wherein the AAR explained the import of provision of section 92 and allied provisions contained in Chapter X of the Act, in the following words: “8. The Revenue then endeavored to bring the transaction within the fold of and there is a "fair consideration" for the transfer, it cannot be said there is no income, submits the counsel for Revenue. The income needs to be computed under Section 92 of the Act having regard to the arm's length price. The transaction, it is pointed out, is an international transaction between two or more associated enterprises as defined in Section 92A of the Act. The international transaction is defined by Section 92B as to mean a transaction between two or more associated enterprises, either or both of whom are non- residents, in the nature of purchase, sale or lease of tangible or intangible property or provision of services etc. or any other transaction having a bearing on the profits, income, losses or assets of such enterprises. The computation of arm's length price is provided by Section 92C. Relying on these provisions, it is submitted on behalf of the Revenue that the income has to be necessarily computed on arm's length basis "irrespective of whether the assessee has identified the consideration for transfer of shares or not". The computational provisions do not therefore fail, according to the Revenue. This argument is based on the obvious assumption that the transfer of shares is for fair consideration or atleast there is some consideration. If no consideration hadpassed from or on behalf of the transferee Companies to the transferor company and the charge under Section 45 fails to operate for want of consideration or determinable consideration, obviously, the provisions in Section 92 etc. do not come to the aid of the Revenue. It must be noted that Section 92 is not an independent charging provision. As the Section heading itself shows, it is a provision dealing with "Computation of income from international transactions". The opening part of Section 92 says that "any income arising from an international transaction shall be computed having regard to the arm's length price". The expression 'income arising' postulates that the income has arisen under the substantive charging provisions of the Act. In other words, the income referred to in Section 92 is nothing but the income captured by one or the other charging provisions of the Act. In such a case, the computation aspect is taken care of by Section 92 and other related provisions in Chapter X. It must be noted that the income chargeable under the Act is divided into various heads under Section 14. The heads of income specified in that Section are:- 14. Heads of Income:- A - Salaries B - [Omitted by the Finance Act, 1988] C - Income from house property D - Profits and gains of business or profession E - Capital gains F - Income from other sources 8.1. The income in the present case, if at all, is traceable to 'Capital gains' which is one of the heads of income. If by application of the provisions of Section 45 read with Section 48 which are integrally connected with each other, the income cannot be said to arise. Section 92 of the Act does not come to the aid of Revenue, even though it is an international transaction. The expression 'income' in Section 92 is not used in a sense wider than or different from its scope and connotation elsewhere in the Act. Section 92 obviously is not intended to bring in a new head of income or to charge the tax on income which is not otherwise chargeable under the Act. The interpretation sought to be placed by Revenue would amount to reading words into S.92. I have, therefore no hesitation in rejecting the Revenue's contention.” (emphasis supplied) 59. Further he placed reliance on the decision of the AAR, New Delhi in the case of Vanenburg Group B.V.: [2007] 289 ITR 464 (AAR, Delhi), wherein it was held as under:

On the other hand, ld. DR of the Revenue relied on the findings of lower authorities.

Considered the rival submissions and material placed on record. We observed that the assessee had entered into certain transaction with the LM India which includes transactions which are taxable in India like Royalty, the other transactions like sale of raw materials/components, purchase of raw materials/spares and sale of tangible assets to LM India are not taxable in India. Therefore, there is no requirement for the assessee to report the same in the prescribed format in India. These transactions are taxable in the country of origin. Therefore, we are inclined to delete the imposition of penalty u/s 271AA of the Act. In the result, ground raised