Contract For Extended Warranty Of Bentley Cars, Entered Into By Exclusive Dealer With Indian Customers, Does Not Constitute A Dependent Agent PE In India: ITAT

The Bench of Saktijit Dey (Judicial Member) and Dr. Brr Kumar (Accountant Member) noted that the assessee/exclusive dealer of Bentley Cars purchased the extended warranty from a unit of the Bentley Pre-Administrative Services, which it further sold to the Indian customers. While observing that the sales invoices raised by the assessee to the Indian customers towards the extended warranty, were drawn in the assessee's own name, the ITAT ruled that the privity of contract was only between the dealer and its Indian customers. Thus, the Tribunal held that the assessee could not be construed as a dependent agent PE of the said unit.

The assessee- M/s. Exclusive Motors Pvt. Ltd., a resident corporate entity, is an exclusive dealer of Bentley Cars in India. In the course of the assessment proceedings, the Assessing Officer (AO) found that the assessee, in addition to the payment made towards purchase of Bentley Cars, had also remitted an amount towards purchase of extended warranty to an Overseas Entity, namely, Car Care Private Ltd. (CCPL). CCPL is a unit of Bentley Pre-Administrative Services.

The AO observed that the assessee entered into contracts for extended warranty with the Indian customers on behalf of CCPL, since the assessee was not authorized to enter into such contracts by M/s. Bentley Ltd. Thus, the AO ruled that the assessee merely acted as a dependent agent of CCPL for providing extended warranty services and therefore, the amount remitted to CCPL towards extended warranty was taxable in India through the Permanent Establishment (PE). Since the assessee had failed to deduct tax at source under Section 195 of the Income Tax Act, 1961, the AO disallowed the payment made for purchase of extended warranty under Section 40(a)(i) of the Income Tax. Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who deleted the disallowances made by the AO .

The CIT(A) held that the assessee had its own independent status and that it was not a dependent agent of CCPL. Further, the CIT(A) opined that the CCPL had no business connection or PE in India. Therefore, since there was no income chargeable to tax in India in the hands of CCPL, the assessee had no obligation to deducted tax at source on the remittances made to CCPL. The revenue department filed an appeal before the ITAT against the order of the CIT(A).

The ITAT observed that the AO had opined that a part of the remittances made by the assessee to CCPL, towards extended warranty services, were in the nature of profits attributable to the PE in India and hence, the assessee was required to deduct TDS on such remittances.

While noting that the assessee was an exclusive dealer of Bentley Cars manufactured by the UK based entity- Bentley Ltd., the Tribunal observed that the extended warranty was an additional feature provided to the customers at their option. Further, the price at which the extended warranty was sold to the customers by the assessee was different from the warranty claimed to CCPL.

The ITAT took into account that there was no compulsion on the assessee to buy extended warranty only from CCPL or from any other Bentley recommended party, and that it could buy extended warranty from anyone. The ITAT added that the sales invoices raised by assessee to the Indian customers towards extended warranty were drawn in assessee's own name, without mentioning the name of CCPL. Hence, the privity of contract was only between the assessee and its Indian customers, and that the CCPL had no role to play.

Thus, the Tribunal ruled that the assessee cannot be construed as a dependent agent PE of CCPL.

The ITAT, therefore, dismissed the appeal.

Case Title: ACIT versus M/s. Exclusive Motors Pvt. Ltd.

Dated: 26.09.2022 (ITAT Delhi)

Representative for the Appellant: Ms. Grima Sharma, Sr. DR

Representative for the Respondent: Ashish Batra, Advocate

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