JC BAMFORD INVESTMENTS ROCESTER Vs. DDIT

JUDGEMENT

(1.) THIS appeal by the assessee and the Cross Objection by the Revenue arise out of the order passed by the AO u/s. 143(3) read with section 144C(13) of the Income -tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 2008 -09.

(2.) GROUND Nos. 1 and 2 of the assessee's appeal are against the holding that the assessee has a Service Permanent Establishment (PE) in India within the meaning of Article 5 of Indo -UK Double Taxation Avoidance Agreement (DTAA).

(3.) WE have heard the rival submissions and perused the relevant material on record. It is observed that in the earlier years, JCBE licensed intellectual property rights for manufacture of excavators under the brand name 3DX to JCBI. However, by virtue of new Agreement entered on 17.12.07 w.e.f. 01.04.07 amongst the assessee, JCBE and JCBI, the intellectual property rights came to be sub -licensed to the assessee without interfering in any manner its actual exploitation by JCBI. All the terms and conditions for the use of such rights by JCBI under TTA and IPAA are same. The only difference that came into the hitherto arrangement was that whereas earlier JCBI was paying royalty directly to JCBE, now it is being routed through the assessee with the deduction of 0.05%. The question of a service PE of JCBE in India came up for consideration before the Tribunal for assessment years 2006 -07 and 2007 -08. Vide its order for the AY 2006 -07, the tribunal categorized employees of JCBE on deputation to India on assignment basis in the first category and those doing stewardship activities and inspection and testing in the second category. JCBI has been held to be constituting a service PE of JCBE in India because of the employees of the first category. The matter of the establishment of PE for the current year would have become a covered matter for the current year if there had not been the new factor of the tripartite agreement dated 17.12.2007, under which JCBE sub -licensed the intellectual property right to the assessee to 'manage the licensing of JCB UK's intellectual property to JCB India going forward.'. To buttress the view that the employees of JCBE constituted service PE of the assessee in India, the AO has observed that the employees of JCBE, earlier seconded to JCBI, continued to render services to JCBI during the year in question in the same way as they were doing in the past. This position was noticed by virtue of Clause (d) of the new Agreement and Clause 4.2 of this Agreement which clarifies that the delivery of technical documentation and making available of technical personnel as set out in earlier clauses III and IV of the Technology Agreement shall remain unaffected by this agreement and shall continue as rights and obligations between JCBE and JCBI under the Technology Agreement. The AO held that the above details coupled with the fact that JCBE received 99.5% of royalty from the assessee left nothing to doubt that there was service PE of the assessee as per Article 5(2)(k) of the DTAA covered within the ambit of 'other personnel'. Since this position has been candidly accepted by the ld. AR as well, we, therefore, refrain from any independent evaluation of this aspect. The ld. AR accentuated that his objections against the holding of the service PE of the assessee in India were practically the same which were taken for the earlier years. The tribunal has discussed and jettisoned such objections in its order for the A.Y. 2006 -07. Under such circumstances and following the precedent, we hold that all the requisite conditions for attracting the mandate of Article 5(2)(k) are satisfied inasmuch as (i) there is furnishing of services including managerial services; (ii) such services are other than those taxable under Article 13 (royalties and fees for technical services); (iii) such services are rendered out of India; (iv) such services are rendered by 'other personnel'; and (v) such activities continued for a period of more than 90 days within 12 months' period. It is thus held that the service PE of the assessee is established in India. These grounds are, therefore, not allowed.