Ge Energy Parts Inc v. Commissioner Of Income Tax (International Taxation), Delhi-I

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 24.05.2018 Pronounced on: 21.12.2018 ITA 621/2017; ITA 627/2017; ITA 628/2017; ITA 629/2017; ITA + 671/2017; ITA 674/2017, C.M. APPL.29470/2017; ITA 675/2017, C.M. APPL.29471; ITA 677/2017 GE ENERGY PARTS INC. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents ITA 643/2017; ITA 646/2017; ITA 655/2017; ITA 669/2017 & + ITA 685/2017 GE GENBACHER GMBH & CO. ...... Appellant ..... Respondents Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents ITA 644/2017; ITA 652/2017, C.M. APPL.29312/2017; ITA + 653/2017; ITA 666/2017 & ITA 837/2017 GE ENGINE SERVICES MALAYSIA SDN BHD....... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents ITA 645/2017; ITA 654/2017; ITA 657/2017; ITA 668/2017; ITA + 684/2017 & ITA 688/2017 GE PACKAGED POWER INC. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 647/2017; ITA 670/2017; ITA 686/2017 & ITA 687/2017 GE TRANSPORTATION PARTS LLC ...... Appellant ..... Respondents Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 648/2017; ITA 649/2017; ITA 660/2017; ITA 661/2017; ITA 678/2017; ITA 679/2017 & ITA 836/2017 GE ENGINE SERVICES DISTRIBUTION LLC ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 650/2017; ITA 651/2017; ITA 662/2017; ITA 663/2017; ITA 664/2017; ITA 680/2017; ITA 681/2017 & ITA 682/2017 GE ENGINE SERVICES INC. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 656/2017; ITA 665/2017; ITA 683/2017 & ITA 838/2017GE JAPAN LTD. ...... Appellant ...... Appellant ..... Respondents Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 828/2017, C.M. APPL.35327/2017 GE ELECTRIC CANADA COMPANY ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 839/2017 GE AIRCRAFT ENGINE SERVICES LTD. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 840/2017; ITA 841/2017 & ITA 842/2017 GE AVIATION SERVICE OPERATION LLP ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 843/2017; ITA 844/2017; ITA 845/2017; ITA 846/2017; ITA 847/2017; ITA 848/2017; ITA 849/2017 & ITA 850/2017GE AVIATION MATERIALS LP ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 851/2017 GE CALEDONIAN LTD. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 852/2017GE ELECTRIC POWER SYSTEMS INC. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 853/2017; ITA 854/2017; ITA 855/2017; ITA 856/2017 & ITA 857/2017;GENERAL ELECTRIC CANADA COMPANY ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents ITA 858/2017& ITA 859/2017 + GE MULTILIN ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 860/2017; ITA 861/2017; ITA 862/2017; ITA 863/2017 & ITA 864/2017;GE PACIFIC PVT. LTD. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondent Through: Mr. Sachit Jolly and Mr. Siddharth Joshi, Advocates, for appellants. Mr. Ruchir Bhatia, Sr. Standing Counsel, for the respondent. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A.K. CHAWLA MR. JUSTICE S. RAVINDRA BHAT % ITA 858/2017& ITA 859/2017 + GE MULTILIN ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondents + ITA 860/2017; ITA 861/2017; ITA 862/2017; ITA 863/2017 & ITA 864/2017;GE PACIFIC PVT. LTD. ...... Appellant Versus COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), DELHI-I ..... Respondent Through: Mr. Sachit Jolly and Mr. Siddharth Joshi, Advocates, for appellants. Mr. Ruchir Bhatia, Sr. Standing Counsel, for the respondent. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A.K. CHAWLA MR. JUSTICE S. RAVINDRA BHAT % 1.The present statutory appeals, under Section 260A of the Income Tax Act, 1961 (hereafter “the Act”) are directed against the order dated 27.01.2017 (hereafter “impugned order”) passed by the Income Tax Appellate Tribunal (hereafter “ITAT”) in ITA No. 67/DEL/2011 for the AY 2001-2002 whereby the ITAT held that the GE Energy Parts Inc. (hereafter “Appellant”) had a fixed place Permanent Establishment (hereafter “PE”) and DAPE in India under the DTAA. 2.The appellants in these groups of appeals under Section 260A of the Act comprise the General Electric group of companies: GE Energy Parts Inc (“GEP” hereafter); General Electric International Operations Company Inc. (“GEIOC” hereafter); GE India Industrial Pvt. Ltd and (GEIIPL). All challenge a common order of the Income Tax Appellate Tribunal (“ITAT”) which concluded that the appellant PE in India and were, therefore, liable to file income tax returns in the country. 3.GE Energy Parts Inc (GEP) is incorporated in and is a tax resident of the USA. It is engaged in the business of manufacture and offshore sale of highly sophisticated equipments such as gas turbine parts and sub- assemblies. GEP and the other appellant/assessees are hereby collectively referred to as “GE” or “the assessees”, as the context demands. GE sells its products offshore on a principal to principal basis to customers all over the world, including to customers located in India, whereby the title to the goods sold to Indian customers passes from it outside India. GEIOC, another US incorporated company, set up a liaison office (LO) in 1991 in New Delhi with permission of the Reserve Bank of India (“RBI” hereafter) only to act as a communication channel and not carry on any business activity. GEIIPL is an India incorporated company and is party to the Global Service Agreement (GSA) with GEIOC, for providing limited market support services to GE and its affiliates (including GEPI.). In exchange, it was remunerated on a cost-plus basis. It was assessed to income tax and also subjected to arms‟ length price (ALP) determination by a Transfer Pricing Officer (hereafter “TPO”) who held that the transaction with its associated enterprise (AE) was at arm‟s length. The GSA forbids GEIIPL from: (a)entering into any contract on behalf of GE Group companies (GEIOC and affiliates); (b)from acting as an agent for any GE Group company (GEIOC and affiliates). 4.GE International Inc, i.e GEII is a U.S. incorporated entity; it assumes and performs payroll responsibility for expatriates who work in India to support various businesses of the GE Group. GEIOC had on its payroll more than 50 employees and the designation of such employees was mostly as Head India Operations. These assessees contended that employees are deputed to various GE companies and they work as their employees and they remain on the payroll of GEIOC till their transfer to other entities. In terms of the application made to RBI and permission obtained, the liaison office was to act as a communication channel between the head office and the customers in India. The assessees did not file returns of income for any year. (b)from acting as an agent for any GE Group company (GEIOC and affiliates). 4.GE International Inc, i.e GEII is a U.S. incorporated entity; it assumes and performs payroll responsibility for expatriates who work in India to support various businesses of the GE Group. GEIOC had on its payroll more than 50 employees and the designation of such employees was mostly as Head India Operations. These assessees contended that employees are deputed to various GE companies and they work as their employees and they remain on the payroll of GEIOC till their transfer to other entities. In terms of the application made to RBI and permission obtained, the liaison office was to act as a communication channel between the head office and the customers in India. The assessees did not file returns of income for any year. 5.A survey under Section 133A of the Act was conducted on 02.03.2007 in the premises of GEIOC at its AIFACS, 1 Rafi Marg, New Delhi and it was concluded that GEIOC‟s liaison office ('LO") started operating in India from July 01, 1987. It was set up to undertake liaisonactivities. From the information available, it is seen that GEIOC has employed various persons and is sending these employees on assignments to GE entities located worldwide. From these premises, other entities, incorporated in India as well as non-resident entities of the GE group were also operating. During the course of survey statement of Shri Rupak Saha, who is employed with GE Capital Services, India as Tax Manager, but having extended responsibilities of tax matters relating to all companies of GE Group in India was recorded. Statement of Shri Chandan Jain, working with GEIOC, who provides interface between GE, USA and GE,India, was also recorded. During the course of survey, photocopies of various documents were obtained and the same were inventoried as Annexures 'A' to 'G'. 6.The GE group was asked to furnish various information by summons under Section 131 of the Act. The assessee furnished the information through its representative - RSM & Co./Pricewaterhouse Coopers Pvt. Ltd. vide letters dated 16.03.2007, 09.04.2007, 27.02.2008, 24.03.2008 and 26.03.2008. The GE Group is a diversified technology, media and financial services company with products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and advanced materials. GE serves customers in more than 100 countries and employs more than 300,000 people worldwide. GE had been in India since 1902. Its global businesses had a presence in India and the group had become a significant participant in a wide range of key services, technology and manufacturing industries. Employment across India exceeds 12,000. Over 1 billion dollar of exports from India support GE's global business operations around the world. It has sourced products, services and intellectual talent from India for its global businesses. It pioneered the concept of software sourcing from India and was one of the largest customers for the IT service industry of India. 7.Based on these observations, the AO continued the reassessment proceedings. The assessees resisted the move to assess them, contending that they were not subjected to income tax laws of India as they had no permanent establishment. The AO by order dated 31.12.2008 held that the appellant has a fixed place PE and DAPE in India. Further, the AO also deemed 10% of the value of supplies made to the clients in India as the profits arising from such supplies and attributed 35% of such profit to the Appellant‟s PE in India. These findings were appealed against by the assessees, to the Commissioner of Income Tax [CIT (A)]. 8.The CIT(A) upheld the order of the AO with respect to the initiation of proceedings under Section 147/148 of the Act and existence of PE and 7.Based on these observations, the AO continued the reassessment proceedings. The assessees resisted the move to assess them, contending that they were not subjected to income tax laws of India as they had no permanent establishment. The AO by order dated 31.12.2008 held that the appellant has a fixed place PE and DAPE in India. Further, the AO also deemed 10% of the value of supplies made to the clients in India as the profits arising from such supplies and attributed 35% of such profit to the Appellant‟s PE in India. These findings were appealed against by the assessees, to the Commissioner of Income Tax [CIT (A)]. 8.The CIT(A) upheld the order of the AO with respect to the initiation of proceedings under Section 147/148 of the Act and existence of PE and attribution of income but allowed appeal on the issue of levy of interest under Section 234B of the Act. Aggrieved by the order dated 30.09.2010, the appellants preferred an appeal before the ITAT. GE Group submission to the ITAT 9.The Appellant submitted that the technology and not marketing –enabled it to be successful in their business since products are so sophisticated, marketing is a minimal component of the sale. All strategy –decisions reside with the applicant outside India work in India is only limited to providing market inputs and interface. In this case, the LO is only collecting information about potential customers in India and passing on this information to its non-resident businesses; and creating awareness of the business products. 10.Further, the Appellant submitted that mere participation in negotiations or even negotiation of some terms of the contract by employees of non-resident tax payer does not result in a PE unless all terms of the contract are negotiated and finalized by such employees. The OECD Commentary goes on to state that mere attendance/participation in negotiations is regarded as a preparatory and auxiliary activity and, therefore, cannot by itself create a Fixed Place PE. It also urged that no inferences could be drawn with respect to negotiating and finalizing the critical terms of the contract. GE placed reliance on the case of U.A.E. Exchange Centre Ltd. vs. Union of India and Ors. (2009) 313 ITR 94 –(Del) 10 and submitted that subsidiary activities do not count even if such activities are necessary for the completion of the contract. It was urged that such a reading would render the core purpose of the clause null and void. Similar reliance is placed on National Petroleum Construction Company vs. Director of Income Tax (International Taxation) 2016 (383) ITR 648 (Del). where it is held that mere participation in negotiations is –not sufficient it is necessary to actually be responsible for the conclusion of negotiations. Impugned findings by ITAT 11.On appeal, before the ITAT, the assessee-GE‟s contentions were negatived. The ITAT considered the Indo-US Double Tax Avoidance Agreement („DTAA‟) to examine the provisions concerning of 'Fixed Place PE‟ (Article 5.1 to 5.3) and observed that on a conjoint reading of the relevant parts of Article 5, a PE meant a fixed place of business through which the business of an enterprise is wholly or partly carried on and such fixed place is not maintained for activities of a preparatory or auxiliary character. Based upon its analysis of the facts, the ITAT held that GEII‟s expatriates permanently used its liaison office at the premises. It was also held that those expats and GEIIPL employees working under expats were so working and the same was never denied by the assessee. It further stated that the primary, specific and original proven material in the form of survey documents, self-appraisals, manager assessment, etc., and showed that GE overseas concerns were selling its products in India and the core activities in regard to sale, namely, pre-sale, during-sale and post-sale were being carried out in India by GE India. 12.The ITAT held that all conditions for constituting a fixed place PE in terms of paras 1, 2 and 3 of the Article 5 were met with, as the AIFCAS building was a “fixed place” from which business of GE overseas entities was partly carried on in India and the activities carried out from such fixed place are not of preparatory or auxiliary character. It was also held that Article 5 (4) stated that where a person, other than an agent of independent status to whom Article 5 (5) applies, and fulfils the conditions as set out in the Article 5(4), that person will constitute a PE of the enterprise. It was furthermore held that the first part of Para 5 refers to an agent of independent status and the second part of that para refers to an agent of independent status who is not considered an agent of independent status because of the conditions set out in the said paragraph. Thus, it follows, that the „person‟ referred to in para 4 refers to an agent of dependent status and also an agent of an independent status who is covered in part 2 of para 5. Exception to the first part of para 5 created in part 2 is restricted only to 'an agent of independent status‟. On the other hand, if there is an agent of dependent status per se whose activities are devoted to one or multiple related enterprises, he will be directly covered within the scope of para 4 of Article 5 of the DTAA. Therefore, ITAT observed that the nature of activities done by GE India, were of a core nature, and they demonstrated its authority to conclude contracts on behalf of GE overseas entities. The ITAT held, therefore, that GE India constituted agency PE of all the GE overseas entities in India. 13.The ITAT observed that the AO was correct in its approach in estimating total income at 10% of sales made in India due to unavailability of year-wise, and entity-wise profits of GE overseas entities for the operations carried out in India. Further, the impugned order held that GE India conducted core activities and the extent of activities by GE Overseas in making sales in India is roughly one fourth of the total marketing effort. It, therefore, estimated that the 26% of total profit (i.e. 10% of sales) in India, as attributable to the operations carried out by the PE in India, instead of 35% estimated by the AO. 14. The following questions of law were framed for consideration, in all these appeals: (1) Did ITAT fall into error in its findings with respect to existence of a fixed place Permanent Establishment (PE) of the assessee in India? (2) Did ITAT fall into error in concluding that the assessee/appellants separately had an independent agent PE, located in India; and, (3) Whether on the facts and the circumstances of the case and the law, the ITAT was justified in attributing as high as 35% of the profits to the alleged marketing activities and thereafter, attributing 75% of such 35% profits to the alleged PE of the Appellant in India Submission of parties 15.It is argued that GE is incorporated in the United States of America ("USA") and its tax resident for the purposes of the DTAA between India and USA. The Appellant is engaged in the business of manufacture and supply of highly sophisticated components and sub-assemblies of gas turbines to various clients all over the world. Similarly, other entities, part of the present batch of appeals are engaged in manufacture and supply of various equipments in the oil and gas, aviation and energy sector. Some entities are also engaged in rendering offshore services to various clients across the world. Submission of parties 15.It is argued that GE is incorporated in the United States of America ("USA") and its tax resident for the purposes of the DTAA between India and USA. The Appellant is engaged in the business of manufacture and supply of highly sophisticated components and sub-assemblies of gas turbines to various clients all over the world. Similarly, other entities, part of the present batch of appeals are engaged in manufacture and supply of various equipments in the oil and gas, aviation and energy sector. Some entities are also engaged in rendering offshore services to various clients across the world. 16.Mr. Sachit Jolly, arguing for GE, states that it is an undisputed position that research and development, design, fabrication and manufacture of all equipments are done outside India. It is also undisputed that title to the goods passes outside India. It is also not the allegation or finding by any of the lower authorities that any marketing activity is undertaken by any of the appellants in India. However, the AO found [and the CIT confirmed- as did the Dispute Resolution Panel ("DRP")] and later, the ITAT that a part of the sales function is done in India through expatriates, which are deputed by the appellants along with a team of employees of GEIIPL and, therefore, the office space occupied by such expatriates along with the employees of GEIIPL constitute a fixed place PE. The lower authorities also held that such expatriates along with GEIIPL‟s employees had authority to conclude contracts on behalf of the appellants and, therefore, constituted Dependent Agent PE ("DAPE"). 17.Counsel stated that to conclude the existence of a fixed place (PE) and DAPE, the ITAT relied upon three sets of documents: (a) Appraisal Reports of the expatriates and the employees of GEIIPL; (b) Certain e-mails collected during survey conducted at the liaison office of GE International Operations Company ("GEIOC") in India and statements recorded during survey; and (c) submissions dated 14.11.2008 filed by the appellant before the AO. GE urges that ITAT‟s findings are incorrect, both on law and facts. As to fixed place PE, it is submitted that in terms of Article 5(1) of the DTAA, a fixed place (PE) is said to exist when a foreign enterprise has a fixed place at its disposal in India and carries on business through such fixed place in India. However, in terms of Article 5(3)(e) of the India-US DTAA, activities that have a preparatory or auxiliary character for the foreign enterprise as a whole do not constitute a fixed place PE. Therefore, notwithstanding the presence of a fixed place, if the activity carried on through such place of business is preparatory and auxiliary for the foreign enterprise then no PE can be said to exist. In other words, in order to constitute a fixed place PE, both the disposal test and the business function test must be cumulatively specified. In this regard, reliance is placed on Formula One World Championship v Commissioner of Income Tax [2017] 390 ITR 199 [affirmed in Formula One World Championship v Commissioner of Income Tax CIT 2017 (394) ITR 80 (SC)]; Director of Income Tax v. E-Funds IT Solution 2014 (364) ITR 256 [affirmed in Additional Director International Taxation v. E-Funds IT Solutions Inc. 2017 (399) ITR 34 (SC) and National Petroleum Construction Company v. DIT 2016 (383) ITR 648]. 18.It is argued that the expatriates and employees of GEIIPL, no doubt, participated in the negotiation for conclusion of contracts, but never had the authority, whether expressed or implied, to finalize any contract on their own volition. These personnel, even though highly qualified did not have any authority to bind the foreign enterprises. Due to the complex equipment being supplied by the appellants, to understand the technical specifications of the product, issues pertaining to warranty, pricing, time of delivery, etc., technically qualified personnel were required in India to understand the needs of the clients. 18.It is argued that the expatriates and employees of GEIIPL, no doubt, participated in the negotiation for conclusion of contracts, but never had the authority, whether expressed or implied, to finalize any contract on their own volition. These personnel, even though highly qualified did not have any authority to bind the foreign enterprises. Due to the complex equipment being supplied by the appellants, to understand the technical specifications of the product, issues pertaining to warranty, pricing, time of delivery, etc., technically qualified personnel were required in India to understand the needs of the clients. 19.Mr. Jolly urged that it is a settled law that the onus on proving the existence of PE lies on the Revenue. [Refer E-Funds IT Solutions Inc (supra)]. In the present case, the fixed place PE is alleged only in respect of the sales function, which function is a small part of the overall business of research and development, design, fabrication and manufacture all of which happened outside India. Therefore, mere participation of the expatriates and employees of GEIIPL in the negotiations, (without any authority to conclude contracts) which is a small part of the sales function, cannot be said to be the core business activity for the appellants. The revenue, having failed to prove that the personnel in India had the authority to close and conclude contracts on their own volition and accord, could not have proceeded to treat the existence of the personnel as constituting a PE in India. 20.Counsel emphasized that it is settled law that the question whether an activity constitutes preparatory and auxiliary activity or core business function is not to be judged from the viewpoint of importance of the function but from the viewpoint of its role in the overall business of the foreign enterprise. [Refer UAE Exchange Centre Ltd. v. Union of India 2009 (313) ITR 94 (Del). In the present case, it is undisputed that research and development, design, fabrication and manufacture of equipments all happened outside India. It is also undisputed that title of the goods passes of the Indian customers outside India and no marketing activity is done in India. Therefore, if a small portion of the sales function, i.e. participation in negotiation takes place inside India, no fixed place (PE) can be set to exist because such activity which is performed in India has preparatory and auxiliary character for the business as a whole of the Appellants herein. Reliance is placed on Director International Taxation v. Mitsui & Co. Ltd. [2017] 399 ITR 505. 21.It is argued that the ITAT in this regard erred in disregarding the OECD Commentary on Model Tax Convention (paragraph 33 on Article 5) which unambiguously states that mere participation in negotiation does not lead to either a fixed place PE or a dependent agent PE ("DAPE"). The view taken by the ITAT is not only contrary to the OECD Commentary but also the UN Commentary on Model Tax Convention (paragraph 24 on Article 5) as well as settled jurisprudence under Indian Contract Law, wherein it is specifically recognized that authority to negotiate is different from authority to conclude contracts and that unless the agent is authorized to conclude all elements (or at least critical elements of the contract), he cannot be said to have the authority to bind the principal. Therefore, even if the OECD Commentary was not considered relevant by the ITAT, it should have referred to the position of law under the Indian Contract Law to interpret and adjudicate on the existence of fixed place (PE) in the present context. Reliance is placed on Black's Law Dictionary10th Edition, (Pgs 350, 1199, 1200); Major Law Lexicon P.R. Aiyar 4th Edition 2010, (Pgs 1361 (Vol2), 4530 (Vol4) and Devkubai N. Mankar v. Rajesh Builders AIR 1997 Bom 142. 22.Coming next to the question of DAPE it is argued that Article 5(4) of the DTAA between India and USA states that notwithstanding the provisions of paragraphs 1 & 2, where a person acts on behalf of a foreign enterprise in India and he has the authority to conclude contracts on behalf of the foreign enterprise and he habitually exercises such authority then the foreign enterprise can be set to have a DAPE in India. However, if the activities of the so-called agent in India are preparatory and auxiliary in character then even the authority to conclude contracts does not lead to the formation of a DAPE in India. In other words, the DAPE acts as an alternative to the fixed place PE, i.e., even without the existence of a place at the disposal of the foreign enterprise, a PE can exist if the foreign enterprise carries on core business through a dependent agent in India. In support, Paras 31 and 32 of the OECD Model Tax Commentary on Article 5 are relied upon by Mr. Jolly. 23.It is argued that Article 5(5) further restricts Article 5(4) and states that if the agent in India is not dependent on the foreign principal and the agent acts in ordinary course of business, then no DAPE can be said to exist. Counsel submitted that in present case, the revenue alleges that the same set of expatriates and employees of GEIIPL render services to more than 24 foreign enterprises. This submission of the revenue that these expatriates together constitute dependent agents of 24 entities is self-defeating. In fact, GEIIPL, apart from rendering these services, for which it is compensated on arm's length basis, has 12 different business divisions and they cannot be said to be dependent, whether economical or legal, on the various appellants herein. On that ground alone, the case of the revenue, insofar as the existence of DAPE must fall. Learned counsel relied on Varian India (P) Ltd. v. Additional Director Income Tax 2013 (142) lTD 692 (Mum). 24.It is urged by the appellants that in any case, the expatriates and employees of GEIIPL neither had the authority, whether expressed or implied to conclude contracts in India nor was such authority exercised habitually in India. It is urged that the expatriates and employees of GEIIPL participated in negotiations for conclusion of contracts but that by itself did not lead to the conclusion that the said personnel had the authority to conclude contracts in India. The authority to negotiate, without any authority to conclude contracts, cannot be treated as fulfilling the requirements of Article 5(4)(a) of the India USA DTAA. Reference is made to Para 33 of the OECD Commentary on Article 5; Para 24 of the UN Commentary on Article 5 and Protocol to the India-USA DTAA interpreting the term "secure orders"). 25. Referring to the appraisal reports it is urged that neither ITAT nor any of the lower authorities have been able to point out a single document, which demonstrates that the expatriates or the employees of GEIIPL had any authority to close and conclude contracts in India. The ITAT has purely based its conclusion on the educational qualifications and designation of the expatriates to infer the role which they may have played in the conclusion of contracts on behalf of the Appellants herein. In fact, none of the expatriates referred to by the lower authorities were in India until AY 2005-06 and, therefore, the reliance on the appraisal sheets of such expatriates for AY 2001-02 to AY 2004-05 is entirely misplaced. 26.Dealing with the material found during survey, reference is made to pages 175-182 of the point by point rebuttal of each e-mail made by appellants before the ITAT. Counsel complains that however, the ITAT, 26.Dealing with the material found during survey, reference is made to pages 175-182 of the point by point rebuttal of each e-mail made by appellants before the ITAT. Counsel complains that however, the ITAT, in the impugned order has not even referred to those submissions. Reliance is placed on the detailed rebuttal made before the ITAT incorporated at Pages 54-64 of the Appeal. For instance, it is urged that the e-mail at Pg.127 of the Survey Documents-1, referred to by the ITAT in the impugned order clearly shows that personnel from Italy, i.e., La Motta, Nicoletti and Paolo negotiated and concluded contracts with prospective clients and Riccardo was merely marked on the correspondence without any authority to negotiate or finalize contracts. Similarly, e-mail at page no.195 of the Survey Documents-I, referred to by the ITAT, -if read with page no. 23 of the Survey Documents-, the proposal, both technical and commercial, were sent by Danila Araniti directly to BHEL on 28.02.2007 which is reflected in the e-mail@ page no.23.Similarly, the statements of Mr. Chandan Jain or Mr. Rupak Saha do not even remotely suggest that the expatriates or the employees of GEIIPL had the authority to conclude contracts on behalf of the appellants herein. 27.It is submitted that the impugned order has obfuscated the authority to negotiate and participate in negotiation, with the authority to conclude contracts. It is apparent from a bare perusal of the submissions filed by the Appellant that the expatriates and the employees of GEIIPL merely provided sales support and participated in negotiation, without any express or implied authority to conclude contracts. Therefore, the reliance placed upon the submissions dated 14.11.2018 is out of context and perverse. 28.It was next argued that pursuant to the Global Services Agreement dated 26.01.2001, GEIIPL was required to render sales support services to GEIOC and all affiliates of GEIOC including the appellants here. It is also an admitted position that for rendering such services, GEIIPL was remunerated at arm's length. In fact, transfer pricing orders were passed in the case of GEIIPL both pre and post survey and continue to be passed till date and it has never been alleged that GEIIPL has rendered services beyond the scope of GSA. Transfer Pricing orders till AY2013-14 have been passed in the case of GEIIPL and scope of services rendered by GEIIPL has never been doubted by the TPO. If that be the case, it is the submission of the appellant that once the so-called agent is remunerated at arm's length, no further attribution can be made. Counsel relies on E-Funds IT Solutions Inc. (supra) and Honda Motor Company Ltd. v. Commissioner of Income Tax 2018 (6) SCC 70. It is urged that the undisputed position is that title to the goods passes outside India and, therefore, the profits arising from such sales which accrue outside India cannot be taxed in India since admittedly the sales made to independent third parties (the clients herein like Reliance, BHEL etc.) are at arm's length. Reference is made to Commissioner of Income Tax v. Hyundai Heavy Industries Ltd.2007 (291) ITR 482 (SC). 29.It is submitted that ITAT erred in attributing as high as 35% of the profits to the alleged sales function performed in India. As submitted earlier, research and development, design, fabrication and manufacture of equipments all took place outside India. It is also undisputed that title to the goods passes of the Indian customers outside India and no marketing activity is done in India. Therefore, the ITAT erred in confirming the orders of the lower authorities in attributing as high as 35% of the profits 29.It is submitted that ITAT erred in attributing as high as 35% of the profits to the alleged sales function performed in India. As submitted earlier, research and development, design, fabrication and manufacture of equipments all took place outside India. It is also undisputed that title to the goods passes of the Indian customers outside India and no marketing activity is done in India. Therefore, the ITAT erred in confirming the orders of the lower authorities in attributing as high as 35% of the profits as alleged PE in India. At best, 10-15% of the overall profits could have been held to be attributable to the alleged PE in India. Reliance is placed on Director of Income Tax v. Galileo International Inc. 2011 (336) ITR 264 (Del); Anglo-French Textile Company Ltd. v. CIT 1954 (25) ITR 27 (SC). It was argued that without prejudice, even if 35% profits are to be attributed to the alleged sales function, admittedly not the entire sales function is carried on in India. A bare perusal of the e-mails which have been relied upon by the Revenue leads to the inescapable conclusions that majority of the sales function is carried outside India. Accordingly, not more than 20% of the 35% profits attributable to the sales function can be attributed to the alleged PE in India. The ITAT, therefore, erred in attributing profits equivalent to 75% of the sales function to the activities done in India. 30. On behalf of the Revenue, Mr. Ruchir Bhatia, learned counsel argued that the lower authorities correctly refused to accept the assessee‟s contentions that sale consideration was not taxable in India as the title in respect of the equipments was transferred outside India and the payments were also received outside India. It was pointed out that several activities relating to marketing and sales took place in India. Expatriates from GEII along with employees of GEIIPL constituting the Indian team were mostly involved and participated in the negotiation of prices. These price negotiations took place in India. The Indian customers discussed MOD terms with the Indian team. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. It was also argued that the revenue authorities found that GE Overseas, by remotely sitting in foreign countries, could not make any sales, without the active involvement of GE India. This was held to be a business connection of GE Overseas in India under Section 9 of the Act. The AO, therefore, correctly held that all the profits did not accrue or arise to the assessee on foreign soil, but part of such profits arising in India, corresponding to the activities carried out in India, was chargeable to tax under the Act. Considering the fact that sales were made to Indian customers on a regular basis and the GE overseas entities were physically present in some form or the other in India and such physical presence had full role in these sales, the AO held that the business connection of GE Overseas was established in India and, consequently, income accrued or arose to them in India. Mr. Bhatia stated that the position about the taxability under the Act has not been challenged by the assessee before us inasmuch as it assailed only the existence of PE in terms of the DTAA, more particularly, the activities carried out in India, which were of preparatory or auxiliary character. It was argued that all the GE overseas entities had PE in India in all the years under consideration in two forms, namely, AIFACS premises of GEIOC, constituting a 'fixed place PE'; 'GE India' comprising of expatriates of GEII and employees of GEIIPL constituting 'dependent agent PE'. The learned AR argued that none of the activities carried out by the assessee in India lead to the creation of PE. 31.Mr. Bhatia relied on the ITAT‟s findings, particularly in Para 27 to submit that facts on record show the following, i.e. that firstly GEII‟s expats were highly qualified (and some even with double qualifications), worked in India for different business interests of the GE group; their activities were not confined to the business of a particular entity and secondly, they were heading the operations of GE overseas entities in India. From the description of their job and appraisal reports with the Manager assessment, wherever given, it was clear that these expats were India “country heads” or working at the leading positions, managing business, securing orders and doing everything that was feasible which was needed to carry GE overseas entities‟ India operations. It was submitted that the assessee did not and could not deny that its business model and GEII‟s expats‟ role is similar in respect of all businesses in India. Furthermore, the expats were not confined to a particular GE entity but working for one of its three major business lines, viz., Infrastructure, Industrial and Healthcare. 32.The revenue relied on the following findings and submitted that they are factual, which ought not to be disturbed: “27.4 Now, we will discuss the role of the employees of GEIIPL in assisting the expats in Indian operations of GE overseas entities, as unfolding from the survey documents. i. Nalin Jain - Pages 247 and 264 of the Survey documents PB contain profile of Nalin Jain duly signed by him which shows his designation in India as 'Sales Director' of GE Transportation, Aircraft engines. 'Job description' has been given as 'Market Intelligence and Support to Headquarters.' He has indicated his 'Reporting Manager' as William Blair, who is one of the seven expats from GEII working in India for GE overseas. ii. Pritam Kumar - Page 277 of the Survey documents PB is a profile of Pritam Kumar, an employee of GEIIPL with the designation of 'Market Strategy Manager'. He is reporting to Pierre Cante. iii. Yashdeep Sule - Page 280 contains details of Yashdeep Sule, again an employee of GEIIPL. His job description is 'Sales and Marketing for signaling and locomotives.' His reporting manager is Pritam Kumar as discussed immediately hereinabove, who, in turn, is reporting to Pierre Cante. iv. Janak Chaudhary - Page 292 is report of Janak Chaudhary with designation of 'Vice President' and job description of 'Sector analysis for growth in India.' His reporting manager is again some foreign employee. 27.5. Above narration of the nature of jobs carried out by these employees of GEIIPL makes it amply clear that they were at the higher positions in the general administration and, more specifically, sales of GE Overseas, reporting directly to the expats, who, in turn, were India country heads or occupying the peak positions in GE Overseas in India.” 33.It was argued by the revenue that a proper application of the principles enunciated in the authorities show that the assessee regularly sold equipments to its customers in India which were documented and detailed in the course of survey and assessment proceedings. All sales related activities sales are not carried out from outside the country; some important sales activities took place within India. GEHPL employees are intensely involved in those activities. They are involved right through the negotiation process in India. Indian customers discuss the MOU terms and other items with these expats and GEHPL employees. The GE Overseas entities submit their bids in India. The overseas entities would not have been able to make any sales in India without involvement of Indian team constituted by employees of GEHPL along with expatriates heading the relevant team. It is, therefore, held that the appellant has a business connection in India in terms of the principles laid down through various judicial pronouncement discussed above, in view of the presence of the expatriates who are working for the business of the appellant in India along with employees of GEIIPL. The business activities carried out through GEHPL results into a business connection of the nature referred to in Explanation 2 of Section 9(1)(i) of the Act. 34.It was argued that the activities carried out by the expatriates and the activities of GEIOC, LO are not preparatory or auxiliary in nature as claimed by the appellant. The activities of various GE entities in India, carried out through their expatriate employees, are related to marketing and sales which is a core activity and integral part of any business. Marketing and sales activities of the GE entities in India contribute to the income of the concerned entity. According to the appellants GEIOC, LO acts as a communication channel only and is providing support services. However, all the employees (of the LO) are deputed to different GE entities. Its office space, facilities and staff are being used by GE Overseas entities for their business. The agreement for providing support services by GEHPL to GEIOC and affiliates is with GEIOC which means that GEIOC, LO is providing all the facilities and support in India for the business of GE Overseas entities. For that reason too the benefit of preparatory and auxiliary clause to GEIOC, LO is not available in terms of para 26 of the Commentary on Article 5 of OECD Model Tax Convention as discussed in detail by the AO and affirmed by the lower appellate authorities. 35.It was argued that marketing and sales activities, controlled and monitored by the assessee‟s expats, which were on its payroll, is a core management activity. The two premises, from where these activities were undertaken, and the deep and pervasive nature of control, at every stage, leading to finalization of all technical specifications in regard to supply of equipments and customized machinery, its pricing and all material details involved the active and detailed involvement of these expats. If any consultations did take place, it was only a part of the process. Therefore, activities such as scouring the market, development, market strategy (which is specific to each geographic sector having regard to its peculiarities) negotiations, price adjustments etc were integral to contract formation. It could not be termed as mere negotiation, with the final “yes” or approval by the overseas entity. The end of the process, i.e the formal approval, might in fact be a ritualistic one, where every part of the meaningful negotiation phase took place, or significant parts of it, took place in India. Learned counsel relied upon the Allahabad High Court judgment in Brown & Sharpe Inc v Commissioner of Income Tax 2014 (369) ITR 704 in support of his submissions. Reliance was also placed on the Division Bench judgment in Rolls Royce Plc v Director of Income Tax 2011 (339) ITR 147 (Del). 36.As regards the assessees‟ submission with respect to agency PE it was argued that GE India is an agent of independent status and it is both legally and economically independent of the GE Overseas entities. It provided marketing support to GE Overseas entities. Further, GE India performs activities on its own account, independently and without any detailed instructions and control from GE Overseas entities. Reliance was also placed on AAR ruling in the case of AI Nisr Publishing 1999 (239) ITR 879 (AAR). 37.Mr. Bhatia also refuted Mr. Jolly‟s submission with respect to attribution and argued that the margin of 35% was correct and reasonable. Analysis and Conclusions: 38.The relevant provision of the DTAA, i.e the Indo-US DTAA reads as follows: “Article 5.1. For the purposes of this Convention, the term „permanent establishment' meansa fixed place of business through which the business