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2011 (5) TMI 1030 - AT - Income Tax

Issues involved: Taxability of assessee's income u/s 44BBB and chargeability of interest u/s 234B of the Income Tax Act.

Taxability of Income u/s 44BBB:
The ITAT held that the assessee had a Permanent Establishment (PE) in India based on the observations that the assessee's activities were limited to supervision only, without evidence of physical activities related to assembly, erection, testing, or commissioning. As the assessee did not engage in the physical activities specified under section 44BBB, the receipts were not eligible for taxation under this provision. The ITAT upheld the findings that the business profits were from supervision charges, considered as "fees for technical services." The CIT(A)'s application of Article 7 of the DTAA along with sections 44D and 115A of the Act to the business profits was also upheld. Consequently, grounds 2 to 5 of the assessee's appeal were dismissed.

Chargeability of Interest u/s 234B:
The ITAT noted that the assessee's receipts were liable for tax deduction at source under section 195 of the Act, and M/s OHPC had deducted tax at source on payments to the assessee. While the correctness of the Tax Deducted at Source (TDS) was not the issue, the fact that TDS was done on the receipts was acknowledged. Therefore, the ITAT held that interest under section 234B was not leviable on the assessee as the receipts were subject to TDS. Citing a decision of the Special Bench, the ITAT deleted the interest levied under section 234B. Consequently, ground No. 6 of the assessee's appeal was partly allowed.

High Court Decision:
The Revenue's appeal challenging the ITAT's order regarding the non-levy of interest u/s 234B was dismissed by the Hon'ble Delhi High Court in ITA No.1872/2010 on 1.12.2010.

In conclusion, the ITAT partly allowed the assessee's appeal, holding grounds 2 to 5 against the assessee and ground 6 in favor of the assessee based on the High Court judgment. Grounds 1 and 7 were dismissed as they were general in nature.

Decision pronounced in the open Court on 9th May, 2011.

 

 

 

 

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