2014 (2) TMI 737 - AT - Income Tax

Liability to tax u/s 9(1)(vii) of the Act r.w Article 12 of India-Switzerland Tax Treaty - Revenues earned considered as Fees for Technical Fees (FTS) Held that - The decision in eBay International AG Versus Assistant Director of Income-tax, Range - 3(2) 2012 (9) TMI 807 - ITAT MUMBAI followed - The Tribunal after considering the modus operandi of the transactions undertaken through the websites operated by the assessee has held fees accrued to the assessee on successful completion of the transactions between the buyer and seller cannot be described as FTS as the assessee has no role to play in effecting sales - That it is in the nature of business profits Decided in favour of Assessee. Permanent Establishment in India - Attribution of profits Held that - The decision in eBay International AG Versus Assistant Director of Income-tax, Range - 3(2) 2012 (9) TMI 807 - ITAT MUMBAI followed - The Tribunal in view of the above has held that though eBay India and eBay Motors are dependent agents of the assessee, but do not constitute dependent agent PEs of the assessee in terms of Article 5 of the DTA - these concerns cannot be treated as the PEs of the assessee in terms of Article 5(2)(a) of the DTA - Since the assessee has no PE as per Article 5 of the DTA, there can be no question of computing business profits of the assessee as per Article 7 of the DTA in relation to the revenue generated from India the business profit of the assessee which has been held to be business profit of the assessee but it cannot be taxed in India as the assessee has no PEs as per Article 5 of the DTA Decided in favour of Assessee. Non granting of credit for taxes deducted at source Availability of credit of taxes u/s 199 of the Act Held that - The decision in Escorts Ltd. v. Dy. CIT 2007 (5) TMI 362 - ITAT DELHI followed Decided in favour of Assessee. Levy of interest u/s 234B of the Act Held that - The decision in DIT (International Taxation) Vs. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT followed - when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee thus, the assessee is not liable for payment of any advance tax and hence no interest u/s. 234B of the Act is attracted Decided in favour of Assessee.

Issues Involved:
1. Classification of Revenues as Fees for Technical Services (FTS) versus Business Profits.
2. Existence of Permanent Establishment (PE) in India and Attribution of Profits.
3. Non-granting of Credit for Taxes Deducted at Source.
4. Levy of Interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Classification of Revenues as Fees for Technical Services (FTS) versus Business Profits:

The primary issue was whether the revenues earned by the assessee, a Swiss company operating India-specific websites, should be classified as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act and Article 12 of the India-Switzerland Tax Treaty, or as business profits under Article 7 of the Treaty. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) had classified the revenues as FTS, liable to a 10% tax.

The Tribunal referred to its previous decision for the assessment year (AY) 2006-07, where it had analyzed the modus operandi of the assessee's operations. The Tribunal noted that the assessee merely provided an online platform for transactions between buyers and sellers and did not render any managerial, technical, or consultancy services. The fees received were for providing access to the platform, not for technical services. Therefore, the Tribunal concluded that the revenues should be classified as business profits, not FTS.

2. Existence of Permanent Establishment (PE) in India and Attribution of Profits:

The second issue was whether eBay India and eBay Motors constituted a Permanent Establishment (PE) of the assessee under Article 5 of the India-Switzerland Tax Treaty. The AO and DRP had concluded that these entities were PEs, thus making the assessee's revenues taxable in India.

The Tribunal again referred to its decision for AY 2006-07, where it had held that eBay India and eBay Motors were dependent agents but did not constitute dependent agent PEs under Article 5. The Tribunal found that these entities provided market support services and did not have the authority to negotiate or enter into contracts on behalf of the assessee. Consequently, the Tribunal held that the assessee did not have a PE in India, and thus, its business profits could not be taxed in India.

3. Non-granting of Credit for Taxes Deducted at Source:

The assessee had claimed credit for taxes deducted at source amounting to Rs. 57,03,876/-. The AO denied this credit, arguing that it was only available if the assessee accepted that its income was taxable in India.

The Tribunal referred to the decision of the ITAT Delhi Bench in Escorts Ltd. v. Dy. CIT, which supported the assessee's claim for credit of taxes deducted at source. Consequently, the Tribunal allowed the assessee's claim for credit of the taxes deducted.

4. Levy of Interest under Section 234B of the Income Tax Act:

The AO had levied interest of Rs. 39,61,289/- under Section 234B of the Income Tax Act. The Tribunal noted that the assessee was a non-resident, and its entire income was subject to tax deduction at source. Citing the Bombay High Court's decision in DIT (International Taxation) Vs. NGC Network Asia LLC, the Tribunal held that no interest could be imposed on the assessee as the duty to deduct tax at source was on the payer. Additionally, since the Tribunal had held that the assessee's income was not taxable in India, no interest under Section 234B was applicable.

Conclusion:
The Tribunal allowed the appeal of the assessee, reversing the orders of the lower authorities on all grounds. The revenues were classified as business profits, not FTS. The assessee was held not to have a PE in India, and thus, its business profits were not taxable in India. The Tribunal also allowed the credit for taxes deducted at source and held that no interest under Section 234B was applicable.

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