2010 (3) TMI 917 - AT - Income Tax

Summary

Issues:
1. Attribution of profit to supply of hardware and software
2. Profit attribution to PE in India for R & D activities
3. Assessment of income from vendor financing
4. Justification of interest u/s. 234B

Analysis:

Issue 1 - Attribution of profit to supply of hardware and software:
The assessee, a Finnish company, filed returns declaring NIL income for AYs 2002-03 to 2006-07. The AO held the company to constitute a PE in India and taxed revenues from hardware, software, vendor financing, and R & D activities. The CIT(A) attributed 20% of profits to the PE in India, differing from the AO's allocation. The High Court is yet to decide on the attribution rate. The Tribunal directed the assessee to pay &8377;12 crores, considering the disputed amount and pending appeals.

Issue 2 - Profit attribution to PE in India for R & D activities:
The CIT(A) directed a 19.17% profit attribution for R & D activities. The department excluded this profit while calculating the payable amount. The Tribunal considered the disputed profit attribution and directed the assessee to pay &8377;12 crores, pending appeal resolution.

Issue 3 - Assessment of income from vendor financing:
The AO assessed income from vendor financing at &8377;5 crores for AYs 2003-04 to 2006-07. The CIT(A) upheld this assessment. The Tribunal noted the ongoing appeal by the assessee against this assessment but directed the payment of &8377;12 crores, considering all disputed issues.

Issue 4 - Justification of interest u/s. 234B:
The AO charged interest u/s. 234B, disputed by the assessee. The Tribunal acknowledged this dispute but directed the payment of &8377;12 crores, pending appeal resolution.

The Tribunal balanced the interests of both parties and directed the assessee to pay a specified amount pending appeal resolution. The decision aimed to ensure fairness and justice in light of the disputed issues and pending appeals.