2007 (11) TMI 626 - AT - Income Tax

Summary

Issues involved: Determination of tax liability on profit derived by the USA branch of the assessee company.

Summary:
The appeal by the Revenue challenges the order related to the assessment year 2003-04, questioning the taxability of the profit earned by the USA branch of the assessee company in India. The main contention was whether the profit derived by the overseas branch should be taxed in India despite being assessed in the USA. The Double Taxation Avoidance Agreement (DTAA) between India and the USA was crucial in determining the tax treatment of the USA branch's profit.

The assessee, being a resident in India, argued that the profit of the USA branch should not be taxed in India again as per the DTAA provisions. The DTAA specified the tax credit method for eliminating double taxation, allowing for a deduction of the income tax paid in the USA from the Indian tax liability. The Revenue contended that the profits of the USA branch should be taxable in India unless the assessee carries on business in the USA through a permanent establishment. The DTAA outlined methods for attributing profits to a permanent establishment and did not exempt such profits from taxation in India.

Ultimately, the Tribunal ruled in favor of the Revenue, upholding the Assessing Officer's application of the tax credit method to avoid double taxation. The appeal of the Revenue was allowed, affirming the tax liability on the profit derived by the USA branch of the assessee company.