2000 (10) TMI 963 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of part of the income u/s 9(1)(i) for the assessment years 1989-90 and 1990-91.
2. Existence of a business connection in India for the assessment year 1989-90.
3. Existence of a permanent establishment in India for the assessment year 1990-91 under the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands.

Summary:

1. Taxability of part of the income u/s 9(1)(i) for the assessment years 1989-90 and 1990-91:
The common issue in these appeals is the taxability of part of the income of the respondent in India u/s 9(1)(i). The respondent, DHL Operations B.V. Netherlands, entered into a new agreement with Airfreight Ltd., an Indian company, effective from 1-1-1989. The Assessing Officer attributed income to the respondent based on the activities carried out in India by Airfreight Ltd. The CIT(A) accepted the respondent's appeal, holding that they had no business connection in India for the assessment year 1989-90 and no permanent establishment for the assessment year 1990-91.

2. Existence of a business connection in India for the assessment year 1989-90:
The Tribunal found that the respondent had a business connection in India through Airfreight Ltd. The relationship between DHL Netherlands and Airfreight Ltd. was continuous and regular, and Airfreight Ltd. acted as an agent of DHL Netherlands for delivering parcels in India. The Tribunal held that the respondent was liable to tax in India u/s 9(1)(i) for the income attributable to inbound consignments, as there was a business connection in India.

3. Existence of a permanent establishment in India for the assessment year 1990-91 under the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands:
For the assessment year 1990-91, the DTAA between India and Netherlands was in force. The Tribunal held that the respondent had a permanent establishment in India through Airfreight Ltd., as the activities of the respondent in India were carried out through a fixed place of business. The Tribunal concluded that the profits attributable to the permanent establishment in India were taxable in India under Article 7 of the DTAA. However, the Tribunal upheld the CIT(A)'s decision that no part of the income attributable to outbound consignments was taxable in India, as no activities related to outbound consignments were carried out in India by the respondent.

Conclusion:
The Tribunal partly allowed the revenue's appeals, holding that the respondent was liable to tax in India u/s 9(1)(i) for the income attributable to inbound consignments for the assessment year 1989-90 and under Article 7 of the DTAA for the assessment year 1990-91. The Tribunal confirmed the CIT(A)'s decision that no income attributable to outbound consignments was taxable in India for both assessment years.