Indian-Subsidiary Which Is Compensated At Arm's Length Can't Be Construed As Dependent Agent PE: Delhi High Court
Finding that subsidiary company (KIPL) is only undertaking marketing enterprise, whereas contracts are finalized and signed by the assessee (Principal company) outside India, the Delhi High Court held that KIPL cannot be said to be habitually securing and concluding order on behalf of assessee, and hence it is not Dependent Agent PE (DAPE) of Assessee. The Division Bench...
Finding that subsidiary company (KIPL) is only undertaking marketing enterprise, whereas contracts are finalized and signed by the assessee (Principal company) outside India, the Delhi High Court held that KIPL cannot be said to be habitually securing and concluding order on behalf of assessee, and hence it is not Dependent Agent PE (DAPE) of Assessee.
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “for an enterprise to be considered as habitually securing orders wholly for the other enterprise, it is essential that the enterprise frequently accepts orders on behalf of the other enterprise or habitually represents to persons offering to buy goods or merchandise that acceptance of an order by such enterprise constitutes the agreement of the other enterprise to supply goods or merchandise”.
Facts of the case:
The Revenue Department had approached the High Court challenging the order whereby the Tribunal had held that when KIPL has been remunerated by the assessee for commission activities on arm's length basis, no further attribution is required.
Observations of the High Court:
The Bench observed that for characterising one enterprise as DAPE, it is mandatory that the other enterprise takes actions that give purchasers the basis for a reasonable belief that such person has authority to bind the other enterprise.
The Bench observed that AO had found that for completion of various agreements entered into by assessee, and which entailed installation and commissioning of machinery or providing after sales services, the Indian subsidiary had been adequately compensated at arm's length.
However, the AO had also observed that KIPL was undertaking activities/functions that were beyond the scope of activities leading to earning of commission, and to claim that KIPL has been compensated at arm's length is also not acceptable, added the Bench.
The Bench referred to ITAT's conclusion that observations made in KIPL's TP Study Report regarding scope of its business activities do not result in holding KIPL as assessee's DAPE.
Since KIPL has been remunerated by assessee for commission activities on arm's length basis, no further attribution is required, added the Bench.
Hence the High Court dismissed Revenue's appeal against Tribunal's order with respect to existence of Dependent Agent PE (DAPE).
Counsel for Appellant/ Revenue: Advocates Sanjay Kumar and Easha
Counsel for Respondent/ Assessee: Senior Advocate Ajay Vohra with Advocates Neeraj Jain, Anshul Sachar and Tavish Verma
Case Title: CIT vs KRONES AKTIENGESELLSCHAFT
Citation: 2024 LiveLaw (Del) 977
Case Number: ITA No. 622/2023