2016 (3) TMI 1208 - AT - Income Tax

Stay of demand - Income attributed in India - period of sty in India - Held that - Assessing Officer has assessed the income of ₹ 20 crore (appx), i.e., about 10 times to the returned income, violating CBDT Instruction No.96 dated August 21, 1969, therefore requisite demand is required to be stayed and also law settled in Soul v. DCIT 2008 (8) TMI 502 - DELHI HIGH COURT as refereed.

Summary

Issues:
1. Taxability of management fees under India-Singapore Double Tax Avoidance Agreement (DTAA).
2. Determination of Permanent Establishment (PE) in India.
3. Disputed tax demand and stay application.

Issue 1: Taxability of management fees under India-Singapore DTAA:
The case involved Dimension Data Asia Pacific Ptd. Ltd. (DD Asia) claiming management fees received from its Indian subsidiary as non-taxable in India under the India-Singapore DTAA. DD Asia contended that the fees did not constitute Fees for Technical Services as per the DTAA. The dispute arose from the assessment attributing the entire management fees to a Permanent Establishment (PE) in India, leading to a tax demand of INR 98,239,480. The appellant argued that the Assessing Officer's assessment was excessive, violating CBDT Instruction No.96, and cited relevant case laws to support the claim.

Issue 2: Determination of Permanent Establishment (PE) in India:
The assessment considered DD Asia to have a PE in India based on the presence of its employees for 98 days during the Assessment Year 2011-12. The appellant contended that the 9 days of services provided did not meet the threshold for a PE as per the India-Singapore DTAA. Additionally, the 89 days spent in connection with a project for the Indian subsidiary, where no fees were charged, were argued not to be relevant for PE determination. The disagreement also extended to the allocation of expenses, with the appellant contesting the Assessing Officer's decision to tax 90% of the management fees as business income.

Issue 3: Disputed tax demand and stay application:
The appellant filed an appeal before the Income Tax Appellate Tribunal challenging the tax demand. The Tribunal, after considering the arguments and relevant facts, granted a stay on the demand in the interest of justice. The decision was based on the excessive assessment by the Assessing Officer, discrepancies in the PE determination, and the appellant's prima facie case supported by case laws and the DTAA provisions. The stay was ordered until the appeal's disposal, with the next hearing scheduled for 11th April, 2016.

In conclusion, the judgment addressed the taxability of management fees under the India-Singapore DTAA, the determination of a Permanent Establishment in India, and the disputed tax demand, ultimately granting a stay on the demand pending the appeal's resolution. The detailed analysis covered the arguments presented by the parties, relevant provisions of the DTAA, assessment discrepancies, and the Tribunal's decision to provide interim relief to the appellant.