Distinction between ‘Dependant Agents’ & ‘Dependant Agent PEs’ brought out in eBay case – Mum ITAT


eBay International AG v DDIT [IT APPEAL NO. 8907 (MUM.) OF 2010 dated 11.09.13] Mumbai ITAT

Background:

The Assessee is a company incorporated under law of Switzerland and is a tax resident of Switzerland. The assessee operated India specific websites (www.ebay.in and www.b2motors.ebay.in) that provides an online platform for facilitating the purchase and sale of goods and services to users based in India. The assessee has entered into marketing support agreements with eBay India and eBay Motors which are eBay group companies, for availing certain support services in connection with its Indian specific websites. Assessee earned revenues amounting to Rs. 12,00,39,045/- from the operations of these websites during the year.

The assessee contended that these revenues are taxable as business profits in India as per the provisions of Article 7 of the Treaty only if the assessee has a permanent establishment (‘PE’) in India as per provisions of Article 5 of the Treaty i.e. DTAA. The assessee contended that did not have any PE in India and as such no amount would be taxable in respect of the consideration received from the operations of the above mentioned websites. 

AO’s order:

  • Assessee had connection in India as eBay India and eBay Motors as group companies rendered services to assessee in India. 
  • The payments received by the assessee is mainly in the nature of fees for technical services (FTS) in course of operating the websites which are covered as FTS under section 9(1)(vii) of the Act.
  • As per the direction of DRP the AO held that the assessee has a permanent establishment in India in the form of its entities eBay India and eBay Motors. 

Assessee’s contentions:

  • FTS v/s Business profits – Similar issue has been considered by the Tribunal in assessee’s own case for A.Y. 2006-07 by its order dated 21.9.2012. The Tribunal held that fees received by the assessee cannot be described as FTS but is in the nature of ‘business profits’.
  • Attribution of Business profits to PE – Similar issue has been considered by the Tribunal in assessee’s own case for A.Y. 2006-07.  eBay India and eBay Motors are dependent agent but do not constitute ‘dependent agent PEs’ of the assessee in terms of Article 5 of the DTA.
HELD:
  • FTS v/s Business profits- The Tribunal has considered similar issue on identical facts in assessee’s own case for AY 06-07. The Tribunal after considering the modus operandi of the transactions undertaken through the websites operated by the assessee has held fees accrued to the assessee on successful completion of the transactions between the buyer and seller cannot be described as FTS as the assessee has no role to play in effecting sales. That it is in the nature of business profits
  • Attribution of Business profits to PE –  Relevant extracts of the Tribunal’s order is reproduced hereunder:
  • On a careful perusal of the responsibilities of eBay India along with the actual expenses incurred by it which have been reimbursed at a mark-up by the assessee, it becomes clear that eBay India is involved in making awareness in India about the websites of the assessee and also in the collection of payments from the Indian sellers on behalf of the assessee and thereafter, remitting the same.  
  • All the expenses incurred by eBay India and the nature of activities as provided in the agreement evidently point out that the website of the assessee, through which the actual business operations are carried on, are not directly or indirectly controlled by eBay India in any manner.
  •  There is no dispute about the fact that eBay India and eBay Motors are providing their exclusive services to the assessee.  In view of that  fact, they definitely become dependent agents of the assessee.
  • Clause (ii) of para 5 of Article-5 of the DTA refers to the dependent agent habitually maintaining a stock of goods or merchandize for or on behalf of the enterprise. This clause has no application in this case because the goods or merchandize are delivered by seller to the buyer directly who enter into contract through the assessee’s website. 
  • Clause (iii) applies where the dependent agent manufactures or processes the goods or merchandize in that State for the enterprise. Obviously, this clause is also not applicable
  • Clause (i) of para 5 of the DTA provides that the dependent agent “has and habitually exercises in that State, an authority to negotiate and enter into contracts for or on behalf of the enterprise”. Simply by providing marketing services to the assessee or making collection from the customers and forwarding the same to eBay AG, it cannot be said that eBay India entered into contracts on behalf of the assessee. Thus the test laid down as per clause (i) of para 5 of Article 5 of the DTA also fail in the present case.
  • As eBay India and eBay Motors, albeit the dependent agents as per para 6 of Article 5, did not perform any of the functions enumerated in clauses (i) to (iii) of para 5 of Article 5 of the DTA, they cannot be described as a ‘Dependent agent Permanent Establishments’ of the assessee.
  • With regard to the para 2(a) of Article 5 of the DTA, as eBay India and eBay Motors are required to perform only market support services for the assessee, it cannot be said that they form ‘place of management’ of the assessee’s overall business.
  • Since the assessee has no PE as per Article 5 of the DTA, there can be no question of computing business profits of the assessee as per Article 7 of the DTA in relation to the revenue generated from India.

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