2016 (8) TMI 1200 - AT - Income Tax

Income accrued in India - Existence of P.E. in India - Held that - As submitted the appeal of the assessee is squarely covered by the decision of ITAT in assessee s own case for assessment year 2003-04 and 2004-05 2014 (11) TMI 102 - ITAT DELHI as stated that the ITAT has not accepted the assessee s contention that there is no PE in India. The ITAT has given the direction how the profit is to be attributed to the PE in India. He therefore submitted that for the year under consideration also the income may be computed as per the direction of the ITAT in earlier years. Thus we set aside the orders of authorities below in respect of the issues raised before us and direct the Assessing Officer to recompute the income of the assessee in the light of the decision of ITAT in assessee s own case supra

Summary

Issues:
1. Failure to provide a reasonable opportunity to the appellant by the CIT(A)
2. Existence of Permanent Establishment (PE) in India under DTAA
3. Attribution of profits to the PE in India
4. Assessment of income for the appellant as a Branch of a US Nonresident
5. Application of Section 92C of the Income Tax Act, 1961
6. Validity of the assessment made by the AO
7. Adoption of markup rate for profit attribution
8. Status of the appellant as an individual or foreign company

Analysis:

1. The appellant contended that the CIT(A) failed to provide a reasonable opportunity by not keeping the proceedings in abeyance. The appellant argued that without any dismissal of the request, the CIT(A) did not act reasonably. This issue raised concerns about procedural fairness and the right to be heard.

2. The appellant challenged the levy of tax by the AO, claiming that there was no Permanent Establishment (PE) in India as per the Double Taxation Avoidance Agreement (DTAA). The appellant argued that without a PE in India, the alleged profits could not have accrued, making the tax imposition arbitrary and unjust. This issue delved into the interpretation and application of international tax treaties.

3. The appellant, functioning as a Branch of a US Nonresident, disputed the income assessment of ?33,63,300, claiming it was arbitrary and far from reality. The appellant argued that as a cost center involved in preparatory and auxiliary activities, the income attribution was unjustified. This issue raised questions about the proper attribution of profits to a PE in India.

4. The appellant further contended that the assessment at ?33,63,300 was invalid as there was no income embedded in the amount reimbursed by the US Nonresident to its Branch. The appellant emphasized that as a branch engaged in reimbursed activities, the assessment lacked legal basis. This issue questioned the basis for determining taxable income for branches of foreign entities.

5. The appellant disputed the application of Section 92C of the Income Tax Act, 1961, arguing that there was no international transaction with an Associated Enterprise (AE). The appellant asserted that no income should have been deemed under Section 92C, challenging the legality of the income attribution. This issue involved the interpretation and applicability of transfer pricing regulations.

6. The appellant raised concerns about the arbitrary and excessive assessment made by the AO. The appellant argued that the assessment at ?33,63,300 was unjust and lacked a proper legal basis. This issue focused on the correctness and validity of the income assessment by the tax authorities.

7. The appellant challenged the adoption of a markup rate of 10% for profit attribution, questioning the rationale behind this decision. The appellant argued that the markup rate was unreasonably high compared to the global rate used in earlier years. This issue highlighted the methodology for determining profit margins for tax purposes.

8. Lastly, the appellant argued that the authorities should have recognized the appellant as an individual instead of a foreign company. This issue raised questions about the classification and treatment of the appellant for tax assessment purposes.

In the final decision, the ITAT set aside the orders of the lower authorities and directed the Assessing Officer to recompute the appellant's income in line with the ITAT's decision in the appellant's own case for assessment years 2003-04 and 2004-05. The appeal was deemed partly allowed for statistical purposes, emphasizing the importance of consistent application of legal principles in tax assessments.