No Dependent Agency PE Can Be Said to Be Constituted If There Was No Transaction Between Two Entities | ITAT

Case Details: Western Digital Technologies Inc. vs. Deputy Commissioner of Income Tax (International Taxation) - [2024] 165 taxmann.com 805 (Bangalore-Trib.)

Judiciary and Counsel Details

• Beena Pillai, Judicial Member & Laxmi Prasad Sahu, Accountant Member
• Ajay Rotti, CA for the Appellant.
• Sunil Kumar Agarwal, CIT-DR for the Respondent.

Facts of the Case

The assessee, a non-resident leading developer, manufacturer and provider of data storage devices and solutions, completed its acquisition of the SanDisk Group. Accordingly, the assessee became SanDisk India’s ultimate holding company.

A survey was conducted at SanDisk India’s premises. Based on the survey proceedings, the Assessing Officer (AO) issued a notice under section 148 on the assessee for the year under consideration because Sankdisk India’s sales and marketing team created an agency PE of the assessee in India. The AO treated SanDisk India’s reimbursement of salary expenses of the seconded employees as FTS in the assessee’s hands.

On appeal, CIT(A) upheld the AO’s order, and the matter was brought before the Bangalore Tribunal.

ITAT Held

The Tribunal held that the reassessment proceeding was initiated on the assessee post survey conducted on SanDisk India. It was admitted that the assessee acquired SanDisk Corporation USA, thereby becoming the holding company of SanDisk India. No related party transaction existed between the assessee and SanDisk India. The transfer pricing study report of SanDisk India reveals the transaction between SanDisk India and SanDisk LLC, USA, along with other group entities.

Based on the survey materials collected, the AO cannot impute any relation between the assessee and SanDisk India for the year under consideration, which is prior to the date of acquisition. The financials of the assessee and SanDisk India, along with their respective TP study reports, speak contrary to the factual observations of the Assessing Officer in the remand report.

The AO tried to make a business connection between the assessee and SanDisk India for the year under consideration by concluding that the marketing support services rendered by SanDisk India constitute an agency PE of the assessee in India. However, the AO should have appreciated that there has been no transaction in any manner whatsoever between the assessee and SanDisk India; there is no question of creating an agency PE of the assessee in India through SanDisk India.

Since AO did not record any interrelated transaction between the assessee and SanDisk India to establish that they were associated enterprises during the financial year, SanDisk India cannot be held to be a dependent agency PE of the assessee.