Rolls Royce PLC v. Director of IT (International Taxation)

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The Tax Publishers2012 TaxPub(DT) 0508 (Del-HC) : (2011) 339 ITR 0147 : (2011) 244 CTR 0372 : (2011) 202 TAXMAN 0309 : (2011) 061 DTR 0145 INCOME TAX ACT, 1961 --Double taxation relief--Agreement between India and UKPermanent establishment (PE)--Assessee, non-resident company, supplied certain parts and equipment to Indian custoemrs. PRIL was assessee's 100 per cent subsidiary set up in India. Marketing and sale of goods to Indian customer were carried out by assessee through PRIL substituted in India. AO after holding that PRIL substituted in India. AO after holding that PRIL was PE of the assessee, attributed 100 per cent of profits earning from sale of goods from Indian customer Tribunal restricted the attribution to 35 per cent, by holding that profit attributed to manufacturing activity and research and development activities, i.e., 50 per cent and 15 per cent respectively had to be excluded. Assessee argued that net research and development expenses should also be reduced while computing operating profits. Further, argued that Tribunal ahd not considered properly the objections as well as documents filed by it on aspect of PE. Therefore, matter should be remanded to it for fresh consideration. *Held: ,/i>Was not justified, after taking into cosndieration all the relevant aspects Tribunal hold that PRIL constituted PE of assessee in India. The attribution to 35 per cent, by holding that profit attributed to manufacturing activity and research and development activities, i.e., 50 per cent and 15 per cent respectively had to be excluded. Thus the expenses on research and development were already taken care of when remuneration @ 35 per cent was attributed to marketing activities in India on which global profits was apportioned and there was no question of setting off the research and development expenses again in respect of marketing activities. Income Tax Act,* 1961 Section 9 IN THE DELHI HIGH COURT A.K. SIKRI & M.L. MEHTA, JJ. Rolls Royce PLC v. DIT IT Appeal Nos. 743 of 2006, 493 To 498, 584, 647 To 650 & 663 of 2008 30 August, 2011 Appellant by : S. Ganesh, Mukesh Butani, H. Raghavendra Rao and Arjit Prasad Respondent by : Sanjeev Subharwal ORDER *A.K. Sikri, J.* These appeals of the assessee were admitted on the following questions of law vide orders dated 25-9-2008: '1 Whether the Income-tax Appellate Tribunal was correct in holding that the reassessment proceedings under section 147/148 of the Income-tax Act 1961 were valid? '2. Whether the office of Rolls Royce India Limited at New Delhi constituted a permanent establishment of the assessee under Article 5 of the Double Taxation Avoidance Agreement between India and the United Kingdom? 3. If the answers to questions No. 1 & 2 are against the assessee, then what would be the appropriate amount of profits attributable to the permanent establishment of the assessee in India? 4. Whether the findings of the Income-tax Appellate Tribunal with regard to the existence of the permanent establishment of the assessee in India are perverse?' SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0508 (Del-HC) : (2011) 339 ITR 0147 : (2011) 244 CTR 0372 : (2011) 202 TAXMAN 0309 : (2011) 061 DTR 0145

INCOME TAX ACT, 1961

--Double taxation relief--Agreement between India and UKPermanent establishment (PE)--Assessee, non-resident company, supplied certain parts and equipment to Indian custoemrs. PRIL was assessee's 100 per cent subsidiary set up in India. Marketing and sale of goods to Indian customer were carried out by assessee through PRIL substituted in India. AO after holding that PRIL substituted in India. AO after holding that PRIL was PE of the assessee, attributed 100 per cent of profits earning from sale of goods from Indian customer Tribunal restricted the attribution to 35 per cent, by holding that profit attributed to manufacturing activity and research and development activities, i.e., 50 per cent and 15 per cent respectively had to be excluded. Assessee argued that net research and development expenses should also be reduced while computing operating profits. Further, argued that Tribunal ahd not considered properly the objections as well as documents filed by it on aspect of PE. Therefore, matter should be remanded to it for fresh consideration. Held: ,/i>Was not justified, after taking into cosndieration all the relevant aspects Tribunal hold that PRIL constituted PE of assessee in India. The attribution to 35 per cent, by holding that profit attributed to manufacturing activity and research and development activities, i.e., 50 per cent and 15 per cent respectively had to be excluded. Thus the expenses on research and development were already taken care of when remuneration @ 35 per cent was attributed to marketing activities in India on which global profits was apportioned and there was no question of setting off the research and development expenses again in respect of marketing activities.

Income Tax Act, 1961 Section 9

IN THE DELHI HIGH COURT

A.K. SIKRI & M.L. MEHTA, JJ.

Rolls Royce PLC v. DIT

IT Appeal Nos. 743 of 2006, 493 To 498, 584, 647 To 650 & 663 of 2008

30 August, 2011

Appellant by : S. Ganesh, Mukesh Butani, H. Raghavendra Rao and Arjit Prasad

Respondent by : Sanjeev Subharwal

ORDER

A.K. Sikri, J.

These appeals of the assessee were admitted on the following questions of law vide orders dated 25-9-2008:

'1 Whether the Income-tax Appellate Tribunal was correct in holding that the reassessment proceedings under section 147/148 of the Income-tax Act 1961 were valid?

'2. Whether the office of Rolls Royce India Limited at New Delhi constituted a permanent establishment of the assessee under Article 5 of the Double Taxation Avoidance Agreement between India and the United Kingdom?

3. If the answers to questions No. 1 & 2 are against the assessee, then what would be the appropriate amount of profits attributable to the permanent establishment of the assessee in India?

4. Whether the findings of the Income-tax Appellate Tribunal with regard to the existence of the permanent establishment of the assessee in India are perverse?'