Yum! Restaurants India do not constitute DAPE in India: ITAT Delhi [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that Yum! Restaurants (India) Private Limited and Yum! Restaurants Marketing Pvt. Ltd. does not constitute Dependent Agent PE (DAPE) in India.

The assessee, M/s. Yum! Restaurants (Asia) Pvt. Ltd. is an entity in Singapore and has entered into Technology License Agreement (TLA) with only YRIPL, which was in charge of operations of Pizza Hut and KFC restaurants in India.

In order to run its business, YRIPL franchised different outlets and was also running its own stores. YRMPL was set up for undertaking AMP activities on behalf of YRIPL and its franchisees. 

The assessee company was not a party to this Agreement which was exclusively between the Indian concern and its marketing company.

The Assessing Officer was of the view that the marketing activities also benefit the assessee company and hence DAPE.

The issue which is arising in the present appeal is whether there is DAPE.

The Assessing Officer has alleged the existence of DAPE on account of alleged marketing activities undertaken by the Indian entity on behalf of the assessee company.

The condition which needs to be fulfilled in Article 5(8) of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore for holding of DAPE says, “notwithstanding the provisions where a person other than an agent of an independent status is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise in two circumstances. 

Firstly, he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise”.

Secondly, if he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise.

The conditions need to be satisfied for establishing DAPE in India and in the absence of the same, it cannot be said that the assessee company had DAPE.

The two-member bench headed by Vice President Shushma Chowla held that the Assessing Officer has failed to establish his case and where none of the conditions specified in Article 5(8) of the DTAA have been satisfied, then it cannot be said that the assessee had any DAPE in India.

“In any case, the marketing activities undertaken by the YRMPL were on behalf of the YRIPL and its franchisees and in the absence of any link whatsoever with the business of the assessee company, there is no merit in attribution of the contribution made by the Independent third-party franchisees, to constitute PE of the assessee company in India,” the ITAT said.