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[2013] 40 taxmann.com 20 (Mumbai - Trib.)/[2014] 61 SOT 62 (Mumbai - Trib.)

IT/ILT : Revenues earned by foreign company through its dependent agents who
were assisting said company in operating websites in India was in nature of
business profits as per article 7 of Indo-Swiss DTAA but could not taxed as
assessee had no PE in India

■■■

[2013] 40 taxmann.com 20 (Mumbai - Trib.)

IN THE ITAT MUMBAI BENCH 'L'
eBay International AG
v.
Deputy Director of Income-tax (IT), Range -3(2), Mumbai*
B.R. MITTAL, JUDICIAL MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
IT APPEAL NO. 8907 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
SEPTEMBER 11, 2013

Section 9 of the Income-tax Act, 1961, read with articles 7, 12 and 5, of DTAA between
India and Switzerland - Income - Deemed to accrue or arise in India [Business
profits/Permanent establishment/Fees for technical services] - Assessment year 2007-08 -
Assessee, a foreign company, operated specific websites to provide an on-line platform
for facilitating purchase and sale of goods and services to users based in India - It
entered into a marketing support agreement with two concerns, namely, eBay India and
eBay motors, for availing certain support services for its websites - It claimed that
revenues earned from operations of websites were business profits but they could not be
taxed in India since assessee had no PE in India - However, Assessing Officer after
examining said support agreement concluded that payments received by assessee were
mainly in nature of fees for technical services (FTS) which were covered under section
9(1)(vii) - Further, Assessing Officer also held that assessee had a permanent
establishment in India in form of its entities - Tribunal on identical facts in assessee's
own case for earlier year had held that fees accruing to assessee on successful
completion of transactions between buyer and seller could not be described as FTS as
assessee had no role to play in effecting sales and that it was in nature of business
profits - Further, he also held that eBay India and eBay motors were dependent agents as
they were assisting assessee in carrying on business in India but they did not constitute
dependent agent PE in terms of article 5 and, thus, profits earned by assessee could not
be taxed as per article 7 - Whether in view of said decision, order passed by Assessing
Officer was to be reversed - Held, yes [Paras 10, 15 and 16] [In favour of assessee]
FACTS

■ The assessee, a company incorporated under law of Switzerland operated in India specific websites
that provided an online platform for facilitating the purchase and sale of goods and services to users
based in India. For the purpose, the assessee had entered into marketing support agreements with eBay
India and eBay motors, which were eBay group companies, for availing certain support services in
connection with its websites. During the year, the assessee earned revenues from the operations of
these websites. It was claimed that though the revenues were taxable as business profits as per article
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7, but since assessee had no PE in India as per article 5, no amount would be taxable in respect of said
income.
■ The Assessing Officer noticed that the agreement with eBay India and eBay motors was for providing
certain services which included giving inputs and facilitating marketing penetration strategies and
giving inputs and facilitating advertising and promotion activities within India and forwarding
appropriate contracts for review and conclusion to effectuate those strategies and activities.
■ He concluded that the payments received by the assessee was mainly in the nature of fees for technical
services (FTS) under section 9(1)(vii) and, accordingly, was to be taxed at 10 per cent as per article 12.
Further, the Assessing Officer also held that the assessee had a permanent establishment in India in the
form of its entities namely, eBay India and eBay motors.
■ On appeal, the DRP held that the Assessing Officer was right in coming to the conclusion that the fees
received for services provided to the customers for permitting them right to use software platform was
fees for technical services and the Assessing Officer had rightly taxed same under article 12.
■ On appeal 2006-07:
HELD

Fee for technical services v. Business profits

■ The Tribunal has considered similar issue on identical facts in assessee's own case. The Tribunal after
considering the modus operandi of the transactions undertaken through the websites operated by the
assessee, had held that fees accruing to the assessee on successful completion of the transactions
between the buyer and seller could not be described as FTS as the assessee had no role to play in
effecting sales and that it was in nature of business profits. Respectfully following the said orders of
the co-ordinate Bench of the Tribunal in assessee's own case for assessment year 2006-07, the orders
of the authorities below was reversed. [Para 10]
Permanent Establishment
■ The Tribunal has also examined the issue as to whether the business profits that has accrued to the
assessee in relation to its operation in India are chargeable to tax in India. The Tribunal has considered
Article 7 and stated that the business profits of an enterprise of the contracting State shall be taxable in
other contracting State only if the enterprise carries on its business in such other State through a PE.
When the business is carried on by the enterprise in the other State through a PE, then only so much of
the profits can be taxed which are directly or indirectly attributable to that permanent establishment.
Therefore, existence of permanent establishment as per article 5 of the DTAA is must for bringing to
charge any business profits as per article 7. The Tribunal after considering Article 5 and also
considering functions performed by eBay India and eBay motors about the websites of the assessee,
had held that the assessee had no PE in India as per Article 5.
■ Though eBay India and eBay motors were dependent agents of the assessee, but do not constitute
'dependent agent PEs' of the assessee in terms of Article 5. It is held that these concerns cannot be
treated as the PEs of the assessee in terms of article 5(2)(a). Since the assessee has no PE as per
Article 5, there can be no question of computing business profits of the assessee as per Article 7 in
relation to the revenue generated from India. Respectfully following the same, it was to be held that
said business profit of the assessee of Rs. 12,00,39,045 cannot be taxed in India as the assessee has no
PEs' as per Article 5. [Para 16]
CASES REFERRED TO

Escorts Ltd. v. Dy. CIT [2007] 15 SOT 368 (Delhi) (para 19) and DIT (International Taxation) v. NGC
Network Asia LLC [2009] 313 ITR 187 (Bom.) (para 21).
M.P. Lohia for the Appellant. Narender Kumar for the Respondent.

ORDER

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