The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that Mitsui India is not a Dependent Agent PE In India (DAPE) under India-Japan Tax Treaty.
The assessee, M/s. Mitsui & Co. Ltd. (MIPL) is a company incorporated in Japan and is one of the biggest trading houses in the world. The assessee is involved in trading from needle to airplane engines.
Assessee also undertakes several projects in connection with big industrial installations power projects. It filed its return of income on 29th September, 2012 declaring income of Rs.19,54,96,219/-. AO during the course of assessment proceedings noted that the assessee has three project offices in India namely TISCO, Purulia, and Teesta Projects.
The AO asked the assessee to explain why Mitsui India Pvt. Ltd. (MIPL) should not be treated as a Dependent Agent Permanent Establishment (DAPE) in India and also why the assessment should not be completed as per the preceding assessment year since the facts remain the same.
Rejecting the various explanations given by the assessee the AO held that MIPL is DAPE of Mitsui & Co. Japan. The AO noted from the details furnished by the assessee that the total supplies made by Mitsui Japan to Indian customers amount to Rs. 39,67,73,32,478. Applying the GP rate of 2.07% the AO determined the gross profit at Rs. 82,13,20,782 and held that an amount of Rs. 41,06,60,391 is the profit attributable to the PE being 50% of such gross trading profit.
The two-member bench of Judicial Member Suchitra Kamble and Accountant Member R.K. Panda held that no profit could be attributable since the assessee is not a DAPE.
The tribunal held that MIPL is not a DAPE and opined that no attribution of income should be made to MIPL.
The tribunal found that Mitsui India Pvt. Ltd. has been paid a commission of Rs.84,06,07,736/- on the total sale.
The ITAT found that the AO restricted this commission to Rs. 35,33,48,865 by applying the profit rate as applied by him in the preceding assessment year.
“First of all this issue becomes academic in nature in view of our finding that MIPL is not dependent agency PE and therefore no income is attributable to the assessee and therefore when there is no income there is no question on any disallowance,” the ITAT said.
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