SC notice to I-T dept on Rolls Royce plea

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Jun 8 2012, 06:29am hrs
Rolls Royce Singapore Pte Ltd has moved the Supreme Court challenging the Delhi High Courts order that held it liable to pay tax in India on profits attributable to ANR, allegedly its permanent establishment (PE) in the country.

The high court had also asked the assessing authority to examine whether ANR was providing services to other customers also, as claimed by Rolls Royce, so that the agent (ANR) doesnt become PE of the Singapore-based company.

A bench headed by Chief Justice SH Kapadia, while seeking reply from the income tax department on the issue, posted the matter for hearing on July 9.

Rolls Royce (RR) had rendered repair and maintenance services and supplied spares for oilfield equipment, engines and turbines on offshore basis to various PSUs and other companies in India. It had engaged the services of an independent agent M/s ANR to provide support services in India on payment of a fixed fee of $40,000 per annum in January 2002.

RR, in its petition, stated that the finding by the high court that commission paid by RR to ANR could not fit the description of reasonable profits within Article 7(2) of the India-Singapore DTAA should not have been made since the issue of PE determination is pending before by the AO.

The approach adopted by the high court to pronounce upon what constitutes reasonable profits under Article 7, when the basic issue of question of a PE is yet to be determined, it is submitted, is premature and not warranted as a matter of law, the petition stated.

While the income from repairs was offered to tax as fees for technical services, the income from offshore supply of spares was not offered for tax (in India) by RR on the basis that it had accrued outside India. The assessing officer, CIT and IT Appellate Tribunal took the view that the assessee had a permanent establishment on the basis that it had a dependent agent here under Article 5(9) and that the income earned was taxable in India.

The AO computed the profits from sale of spares in India by applying the global profitability percentage and attributed 75 to 100% of such profits to the PE in India.

Besides, it that 25% of the profits on sales of spare parts were chargeable to tax which was reduced to 10% later by the CIT & the tribunal.

ITAT had upheld that ANR constituted a PE of RR in India as the former was its dependent agent and was exclusively working for it. Both the assessee and the revenue department had filed appeals to the HC against the tribunals' order.