2012 (11) TMI 765 - HC - Income Tax

Taxability of Income of foreign company - PE - assessee contended that it s income is not taxable in India, inasmuch as, it is a foreign company and has no permanent establishment in India. It was contended by the assessee that it had an assembly project in India, which was carrying out, in addition to assembly, installation of certain items, and that project and other activities were carried out in India for a period less than 9 months. Held that - ITAT had remanded the matter back for ascertaning the facts - in the event, it is held that the assessee had a permanent establishment during the relevant assessment year in India, it goes without saying that the Assessing Authority would be entitled to take such recourse to law as is permissible against such an assessee under the Income Tax Act.

Summary

Issues:
1. Condonation of delay in preferring the appeal.
2. Taxability of income in India for a foreign company with no permanent establishment.
3. Lack of independent inquiry by the Assessing Authority.
4. Remittance of the matter back to the Assessing Authority by ITAT.
5. Clarification on the course of action if a permanent establishment is found in India.

Analysis:

1. The High Court considered the Application for condonation of delay in preferring the appeal. The appellant did not object to the delay, and the Court, after independent consideration, allowed the Application, despite the lack of day-to-day delay explanation.

2. The respondent, a foreign company, argued that its income is not taxable in India due to the absence of a permanent establishment. The company had an assembly project in India for less than 9 months, but the Assessing Authority did not verify the assertions. ITAT remitted the matter back to the Assessing Authority to ascertain the truth of the company's claims.

3. The Court found no legal issue to determine except clarifying that if the company is found to have a permanent establishment in India, the Assessing Authority can take necessary actions under the Income Tax Act. The Court disposed of the appeal accordingly, emphasizing the importance of proper assessment in such cases.

This judgment highlights the significance of proper verification and assessment by tax authorities in determining the taxability of a foreign company's income in India, especially concerning the presence of a permanent establishment. The Court's decision to allow the condonation of delay and remit the matter back for thorough examination underscores the importance of factual accuracy in tax assessments to ensure fair application of tax laws.