2010 (3) TMI 1189 - AT - Income Tax

Summary

Issues involved: The judgment involves the interpretation of Article 12(4) and Article 7 of the India USA Double Taxation Avoidance Agreement (DTAA) in relation to the taxation of services rendered by a US-based entity to its Indian branch, and the determination of whether the entity had a Permanent Establishment (PE) in India for the assessment year 2006-2007.

Interpretation of Article 12(4) of DTAA:
The Revenue raised common grounds challenging the CIT(Appeals) decision regarding the classification of services rendered as 'included services' under Article 12(4) of the India USA DTAA. The assessee argued that the income should be taxed as 'business profits' under Article 7 since it did not constitute 'fees for included services' or 'royalty'. The AO disagreed and taxed the income as 'fees for included services'. However, the CIT(A) referred to previous Tribunal decisions in the assessee's favor for similar assessment years, where it was held that such payments did not qualify as fees for included services under Article 12(4) of the Treaty.

Presence of Permanent Establishment (PE) in India:
The issue of whether the assessee had a PE in India was crucial for determining the tax liability under Article 7 of the DTAA. The assessee contended that since it did not have a PE in India, its income was not liable to be taxed in India. The CIT(A) concurred, stating that in the absence of a PE, the receipts were not taxable under Article 7 of the Treaty. The Tribunal upheld this decision based on consistent precedents in the assessee's favor and the similarity of facts and circumstances in the instant appeals to previous cases.

Conclusion:
After considering the submissions and relevant precedents, the Tribunal dismissed all 13 appeals by the Revenue, upholding the CIT(A) orders. The Tribunal found that the income received by the assessee did not qualify as 'fees for included services' under Article 12(4) of the DTAA and since the assessee did not have a PE in India, the receipts were not taxable under Article 7 of the Treaty. The decision was based on the consistent favorable rulings in the assessee's own cases and the similarity of facts across the appeals.

Judges: R.K. Gupta, Judicial Member and R.S. Syal, Accountant Member.

Date of Order: 24.3.2010.