Referred Sections:
Section 9(1) of the Income Tax Act
Referred Cases / Judgments:
PLC vs. Director of Income-tax (International Taxation)
M.M.Ipoh vs. Commissioner of Income Tax [1968] 67 ITR 106 (SC).
Formula World Championship Ltd. vs. Commissioner of Income Tax, (International Taxation)-3 Delhi (2017) 394 ITR 80
ADIT vs. E funds IT Solution Inc., (supra),
Formula World Championship Ltd. v. Commissioner of Income-tax, (International Taxation)-3,
$~29, 30, 32, 43 & 44
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 02.12.2019
+ ITA 969/2019
+ ITA 970/2019
+ ITA 972/2019
+ ITA 973/2019
+ ITA 974/2019
ROLLS-ROYCE PLC ..... Appellant
Through: Mr.Percival Billimoria, Mr.SR
Patnaik, Mr.Thangadurai VP and
Mr.Sidharth Thakur, Advocates
versus
DEPUTY DIRECTOR OF INCOME TAX, CIRCLE-2(1),
INTERNATIONAL TAXATION, NEW DELHI ..... Respondent
Through: Ms.Lakshmit Gurung, Senior
Standing Cousnel with Mr.Talha A
Rahman, Mr.Siddharth Gupta and Mr.
Shaz Khan, Advocates
CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI
HON'BLE MR. JUSTICE REKHA PALLI
VIPIN SANGHI, J. (Oral):
1. The present appeal is preferred by the assessee against the common order
passed by the Income Tax Tribunal Delhi Bench "I-2" New Delhi dated 28th
May, 2019, in several ITAs preferred before it, pertaining to the assessment
years 2004-05, 2005-06, 2006-07, 2007-08 & 2009-10. The Tribunal has
rejected the said appeals preferred by the appellant, inter alia, on the premise
that this Court has held in favour of the revenue vide its decision dated 30 th
August, 2011 reported as [2011] 13 taxmann.com 233 (Delhi) Rolls Royce
ITA 969/2019 Page 1 of 8
PLC vs. Director of Income-tax (International Taxation) that the Rolls-
Royce India Ltd (hereinafter referred to as ,,RRIL), a hundred percent
subsidiary of the appellant, constituted Permanent Establishment
(hereinafter referred to as ,,PE) of the appellant/assessee in India. The
Tribunal took note of the fact that the appeal of the appellant against the said
decision of this Court is pending consideration before the Supreme Court.
2. Mr. Billimoria, learned counsel for the appellant submits that the Tribunal
has erred in proceedings on the basis of the said decision of the High Court,
since in taxation matters, concept of res judicata does not apply and each
assessment year has to be treated separately and the issues arising in each
year have to be considered and examined separately. In this regard he placed
reliance on the decision of the Supreme Court in M.M.Ipoh vs.
Commissioner of Income Tax [1968] 67 ITR 106 (SC). He submits that the
Supreme Court decision in Formula World Championship Ltd. vs.
Commissioner of Income Tax, (International Taxation)-3 Delhi (2017)
394 ITR 80 was rendered after the earlier decision of this Court in the case
of the appellant/assessee. He submits that the issue-whether RRIL
constitutes PE of the appellant in the light of that decision, needs
examination afresh. His further submission is that on the same set of facts,
the liaison office of RRIL has been held to be the PE of the appellant, as
well as that of RRIL, which is not possible.
3. We have no difficulty in accepting the legal proposition laid down in
M.M.Ipoh (supra). However, it was for the appellant to point out as to how
the facts pertaining to the relevant assessment years were different from the
facts on which the decision was rendered against the assessee, holding that
ITA 969/2019 Page 2 of 8
RRIL constituted PE of the assessee in India.
4. The earlier decision against the appellant-assessee, holding that RRIL
constituted its PE in India, pertains to the assessment years 1997-98 to 2003-
04. The present appeal pertains to the assessment year 2004-05. The
appellant has not been able to point out any pertinent difference in facts
prevailing in the assessment year in question, and the assessment years to
which the decision of this Court relates.
5. A perusal of the impugned order shows that the Tribunal has, in fact,
considered and rejected the same arguments as advanced by the appellant
before it. We may extract the relevant portion of the impugned order in this
regard:
"10. We have heard the rival submissions and also perused the
relevant findings given in the impugned orders as well as
material referred to before us. Ld. Counsel for the assesse had
set out various reasons as to why RRPL cannot be said to having
any PE in India mainly for the reason that, it was only supplying
aero-engines and spare parts to the Indian customers on
principal to principal basis. The service agreement for carrying
out various other technical services was between RRIL and RR
International and RRIL for has set up a liaison office in India to
undertake the relevant service in India, for which was
compensated on mark up basis. Thus, the activities of the all the
three entities were entirely different. The liaison office of RRIL
was neither negotiating any contract for sales nor was carrying
out any activity relating to sales. Neither the LO was in any
manner at the disposal of RRPL even for its employees. Thus, in
view of the judgment of Hon 'ble Supreme Court in the case of
Formula World Championship Ltd. v. Commissioner of
Income-tax, (International Taxation)-3, Delhi, (supra) and
ADIT vs. E funds IT Solution Inc., (supra), there cannot be any
PE in form of LO. Even though we may slightly feel persuaded by
ITA 969/2019 Page 3 of 8
his argument that PE has to be seen qua the activities carried by
a foreign enterprise in India through a fixed place business or
nay such place which is at its disposal, however, precisely the
same issue had come up for consideration in assessee's own
case before this Tribunal on similar set of facts, wherein
Tribunal after detailed reasoning and finding has held that the
liaison office of RRIL also constitutes a PE for the assesse, i.e.,
RRPL in India. The Hon'ble Delhi High Court though has
upheld the order of the Tribunal, however has noted that the
issue of PE was not pressed or argued. Now that this matter is
pending before the Hon 'ble Supreme Court as informed by the
Ld. Counsel, therefore, as a matter of judicial precedence, we
cannot take a different view and decide the issue a fresh taking
any other view. Another set of argument placed by the ld. counsel
before us is that the PE of assessee was in fact liaison office of
RRIL in India, which is separately assessed to tax in India and its
profit and taxability now has attained finality in the form of
agreement under MAP. It was also submitted that
notwithstanding whether there IS any independent PE of assessee
in India or not, but the same activities arising from the same set
of facts as alleged by the Revenue cannot give rise to two PEs,
i.e., one PE for the assesse and another PE for RRIL. To canvass
this point the ld. counsel has drawn our attention to the various
findings of ld. CIT(A) in the case of RRIL and remand report of
AO as contained in the appellate order dated 15.02.2009. He has
pointed out that in the said order the ld. CIT(A) has relied upon
same contents of report of survey conducted at the LO office of
RRIL and exactly the same material has again been used in the
case of the assessee also; and therefore, for the same activity
there cannot be two PEs for two different entities. As culled out
from the records, the survey of RRIL office in India had revealed
certain facts which has been used by the Revenue authorities for
holding that Rolls Royce Group has a PE in India. The contents
of the survey have been discussed by this Tribunal in its order
and have reached to the following conclusion:-
ITA 969/2019 Page 4 of 8
"It can, therefore, be summarized that in the light of the facts
as well as document mentioned above, RRIL's presence in
India is, a permanent establishment of appellant because:
(a) It is a fixed place of business at the disposal of the Rolls
Royce Plc and its group companies in India through which
their business are carried on.
(b) The activity of this fixed place is not a preparatory or
auxiliary, but is a core activity of marketing, negotiating,
selling of the product. This is a virtual extension/ projection of
its customer facing business unit, who has the responsibility to
sell the products belonging to the group.
(c) RRIL acts almost like a sales office of RR Plc and its group
companies.
(d) RRIL and its employees work wholly and exclusively for the
Roll Royce Plc and the Group.
(e)RRIL and its employees are soliciting and receiving orders
wholly and exclusively on behalf of the Rolls Royce Group
(f)Employees of Rolls Royce Group are also present in various
locations in India and they report to the Director of RRIL in
India
(g) The personnel functioning from the premises of RRIL are
in fact employees of Rolly Royce Plc. This has been admitted by
the MD. Mr. Tim Jones, GM, and can be discerned from
statement of Mr. Ajit Thosar and documents like terms of
employment of GMs.
Thus, the appellant can be said to have a PE in India within the
meaning of Article 5(1), 5(2) and 5(4) of the Indo UK DTAA.
Since we have found that the appellant has a business
connection in India as well as PE in India the income arising
from its operation in India are chargeable to tax in India."
11. Since the finding of fact has been arrived on the basis of
same documents, we cannot subscribe to a different view and
accordingly, respectfully following the same, we hold that
assesse did have a PE in India." (emphasis supplied)
6. Thus, it would be seen that the finding returned by the ITAT-that RRIL
constituted the PE of the appellant is primarily a finding of fact based on the
ITA 969/2019 Page 5 of 8
appreciation of evidence. No change in the factual matrix is pointed out by
the appellant, and the finding returned does not raise a substantial question
of law.
7. The further submission of Mr. Billimoria is that the amendment
incorporated in the second explanation in section 9(1) of the Income Tax
Act with effect from 1st April, 2019 would not have retrospective
application. This submission has no merit. This is for the reason that while
determining the issue whether RRIL constituted the PE of the appellant-
assessee, the authorities have not relied upon the said explanation at all, and
the determination of the said issue was undertaken dehors the said
explanation, upon appreciation of the evidence unearthed during the survey.
The explanation may, or may not, be prospective. In any event, the same
would certainly not have the effect of nullifying the determination made on
the issue of PE on the basis of the evidence collected and the pre existing
law as prevalent prior to the amendment of Section 9(1) with effect from 1 st
April, 2019. That, clearly, is not the purport of the substituted Clause (a) of
Explanation-2 to Section 9(1) of the Act, with effect from 1st April, 2019.
8. Another argument advanced by Mr. Billimoria is that the income of the
assessee, on the basis that RRIL constituted its PE, has already been
subjected to tax in the hands of PE i.e. RRIL, and the revenue is seeking to
tax the same again. This submission has no merit. Firstly, this aspect does
not raise a substantial question of law, since it is clearly a factual issue.
Secondly, the order of the CIT(A) dated 15th February, 2009 was available
when this Court rendered its decision on 30 th August, 2011 in the case of the
ITA 969/2019 Page 6 of 8
assessee, as taken note of hereinabove. No such plea was raised then. It is
not open to the appellant to raise it now. We also find that the Tribunal has
considered this submission in the impugned order in Paragraphs No. 12 and
13, which read as follows:
"12. Lastly, in so far argument of the Ld. Counsel of the
assessee that no further profit attribution of PE should be made
once for the same activity, profit attribution has been agreed
upon in MAP, therefore, no separate attribution can be made in
the hands of the assesse, we are unable to accept the contention
of the ld. Counsel, because there is huge difference between the
activities of RRIL and RRPL. Though, same set of material and
documents have led the revenue for holding LO as PE of RRIL
and also of RRPL. But, if there is no interlacing of activities of
two entities, then activity of one entity cannot result into PE of
another entity, because to establish a PE the business carried out
by a foreign entity alone should be taken into consideration.
Here in this case if it has been found by the Tribunal that
independently also the activity of assessee was somehow linked
with LO, therefore, no interference can be made and since this
issue has been decided against the assesse we do not find any
reason to go into further deep analysis and form a different view,
because there is no material change in facts and circumstances.
RRIL activities was carrying out sales and marketing in India
for RR International and nothing has been produced before us
to show that these activities were also assessed as business PE
on a profit split or appropriate method. The record shows that
RRIL was assessed only as a dependent agent and a service PE
on the cost plus margin basis and therefore, it cannot be
concluded that the attribution of PE in India is fully exhausted
by the assessment of RRIL or nothing remained to be assessed
in the hands of the assessee. Once there is a finding that
activities of LO have resulted in PE in India, then tax
attributable to such activity must be brought to tax in India. If
activities give rise to PE which undertakes marketing and sales
in India then tax attribution of the PE must be made. Here the
attribution in the hands of RRIL was only limited to cost plus
ITA 969/2019 Page 7 of 8
basis, whereas in the case of the assesse the profit which has
been attributed relates to purely sales of engines and parts.
Further, nothing has been brought before us that under the MAP
agreement the profit attribution of sales of RRPL were also
subject matter of consideration or discussion and there cannot be
any assumption that the quantum of tax agreed in the case of
RRIL exhausts the contribution of profit to the PE of assesse in
India.
13. In so far as attribution of profit is concerned, we are of the
opinion that such a blanket attribution as done by the authorities
below does not seems to be on a sound footing, especially when
they have alleged that common activities were carried out from
the LO. Then in that case, it would not possible to distinguish as
to which activities of LO pertains to RRIL or activities of LO
were undertaken on behalf of the assessee and what part of
activities at the LO which assessee itself was executing for its
sale. That being so, then ostensibly attribution of the profit to the
activities in India of the assessee logically should be deducted by
the amount attributed to RRIL. But we do not wish to give any
finding or direction in this regard and we still persuaded by the
earlier years precedence, wherein the Tribunal has separately
attributed profits in the hands of the assesse company wherein
they have adopted 35% of the profit as against 75% of the global
profit in respect of sales affected in India as done by AO."
(emphasis supplied)
9. Therefore, the questions of law urged by the appellant, do not arise for
consideration.
10. The appeals are accordingly, dismissed.
VIPIN SANGHI, J
REKHA PALLI, J
DECEMBER 02, 2019
v
ITA 969/2019 Page 8 of 8
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