|The Tax Publishers2020 TaxPub(DT) 5345 (Del-Trib) : (2021) 085 ITR (Trib) 0170
INCOME TAX ACT, 1961
Section 90 Article 5/12
There was 'business connection' between HC and HI, and as HC deals in sale of telecommunication net work equipment, mobile network equipment, etc., and for erection, installation and commission of the equipment under the supervision of experts of HI there was, therefore, fixed place, service and installation PE, thus, the income from supply of the equipment was, therefore, to be assessed as business income arising from the assessee's business connection/PE in India.
Double taxation agreement - Business connection - Fixed place and service PE -
The assessee company was incorporated in People's Republic of China and was primarily engaged in the business of supplying (on offshore basis) non-terminal products, that is, advanced tele-communication network equipment, namely, core and access network equipment, mobile network equipment and data communications equipment, etc., for use in fixed and mobile phone networks and terminal products, that is, mobile phone handsets to various customers (including customers in India). As alleged, the said supplies were made on principal-to-principal basis and property in equipment was transferred to Indian customers outside India. The assessee company, Huawei China (HC) had subsidiary in India, namely, Huawei Telecommunications India Company Private Ltd. (HI). During the year under consideration, HC provided services to HI under the terms of Technical Service Agreement [TSA]. HI was involved in the provision of integration, installation and commissioning services in relation to telecom network equipment supplied from outside India. The assessee offered revenues accrued from provision of technical services to HI on gross basis and paid taxes in accordance with the provisions of Article 12 of the Double Taxation Avoidance Agreement [DTAA]. The assessee had also earned revenue on account of sale of telecom network equipment and terminal equipment/mobile handsets but had not offered the revenue for taxation. Held: The facts on record show that real and intimate relationship exists between HC and HI, in as much as, the sale of telecommunication network equipment would serve no purpose of a buyer unless the telecommunication network equipment were installed and commissioned and this was done by HI in India. Hence, the activities of HC continued till the telecommunication network equipment were installed and commissioned in India. This entire sequence contributes directly to the earning of income of HC in its business even if the sale transaction had been concluded outside India. The Indian buyers business purpose would not conclude merely on purchasing of equipment from HC, the same had to be customised and commissioned to the satisfaction of the Indian telecom service providers. Thus, the dominant purpose was to set up the equipment as per requirement of the telecom service providers. The evidence on record clearly showed that Indian resource was involved in deal negotiations on behalf of the assessee. Moreover, the joint bidding team included resources from Indian entity as well as HC, which clearly highlights that the Indian resources were participating the bid process including deal negotiations alongwith Chinese resources. This also disproved the claim of the assessee that installation was not their scope of work. Having decided the business connection, the AO proceeded by examining whether the assessee had any PE in India. The AO found that the statements of senior employees, analysis of survey documents, analysis of agreements and analysis of submissions of the assessee established that how the business of the assessee was carried out in India with the help of their employees who regularly work from the premises in India belonging to HI and thereby creating a fixed place PE under Article 5(1) of the DTAA. AO further observed that the employees of the assessee have visited India to perform activities relating to the installation projects, which have lasted for more than 183 days thereby creating 'installation PE' of the assessee in India under article 5(2)(j). A perusal of the key statements recorded at the time of survey operations showed that HI resources were involved in negotiations with customers in India. HI was not technically equipped to do installation and commissioning on its own and thus requisitioned the foreign experts to supervise the installation process at site in India. Therefore, considering the facts on record, it was a wrong claim that the Indian entity was independent to carry out the installation and commissioning of the equipment.
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