2015 (5) TMI 760 - AT - Income Tax

Permanent establishment (PE) of the assessee in India - whether receipts on account of advisory services and guarantee commission had to be assessed in India? - Whether particular articles of the Agreement of the Avoidance of Double Taxation between India and Netherlands were applicable or not? - Held that - We find that Rabo India RI had made payment to the assessee for providing advisory services to it and under the head guarantee commission,that RI was paying the assessee more than 30% of its income,that the basic dispute between the AO and the asessee is as to whether the assessee had permanent establishment in India or not and as to whether the services rendered by RI could be treated activities carried out by the assessee. Before proceeding further, we are of the opinion that there is nothing on record to prove that provisions of Article5(1)of the Agreement are applicable. Article 5(1) stipulates that PE for the purpose of convention meant a fixed of business through which the business of the enterprise was wholly or partly carried on. Thus it is clear that the asessee was not having fixed place of business in India. FAA had rightly held that provisions of said Articles i.e.5(1)were not applicable. - Decided in favour of assesse. Whether particular articles of the Agreement of the Avoidance of Double Taxation between India and Netherlands were applicable or not? - None of the receipts comprising in total amount of ₹ 1,30,21,079/-, is taxable in India as held by CIT(A) - hHeld that - The agreements entered into by RI with outsiders and the agreements entered in to by RI with the asessee have to examined to understand the real nature of the transaction.It also appears that some material was made available to the FAA,but it is found that he did not call for a remand report from the AO in that regard.The role of expatriate Director deputed to India has not been inquired in to.What were his duties and what function actually he had performed,is not known. Similarly, the circumstances in which guarantee commission was paid by RI to the asessee are not discussed by the FAA.The circumstances,under which RI for approached the asessee which entitled it to get roughly one third of the commission,are not known.In short,the appeal has been decided by discussing the principles governing DTAA and not mentioning as to how those principles were applicable to the facts of the case.In our opinion,the matter needs further investigation.Therefore, in the interest of justice, the matter is restored back to the file of the AO to determine the issue afresh after affording a reasonable opportunity of hearing to the asessee - Decided partly in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Permanent Establishment (PE) of the assessee in India within the meaning of Article 5(1), 5(2), 5(3), and 5(5) of the DTAA.
2. Taxability of Rs. 1.30 Crores in India.
3. Taxability of business profits of the assessee in India in the absence of any PE within the meaning of Article 5 of the DTAA.
4. Deletion of addition made of Rs. 1,50,75,790.

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE) in India:
The Assessing Officer (AO) argued that the assessee had a PE in India through Rabo India (RI) under Article 5(1), 5(2), 5(3), and 5(5) of the DTAA. The AO held that RI acted as an agent of the assessee and was dependent on it, thus constituting an agency PE. The AO noted that RI was intertwined with the assessee's business, and a significant portion of RI's income was passed on to the assessee. The First Appellate Authority (FAA) disagreed, stating that the assessee did not have a fixed place of business in India and that RI acted independently. The Tribunal found that the FAA did not fully examine the nature of the transactions and the relationship between RI and the assessee. The Tribunal restored the matter to the AO for further investigation.

2. Taxability of Rs. 1.30 Crores:
The AO assessed receipts from advisory services and guarantee commission as taxable in India, attributing 80% of Rs. 1.30 Crores to India. The FAA held that the services were provided outside India and that RI acted independently. The Tribunal noted that the FAA did not sufficiently examine the agreements and the actual work done. The Tribunal restored the matter to the AO for a fresh determination.

3. Taxability of Business Profits:
The AO held that the business profits of the assessee were taxable in India due to the presence of a PE. The FAA disagreed, stating that in the absence of a PE, the business profits were not taxable under Article 7(1) of the DTAA. The Tribunal found that the FAA did not fully investigate the nature of the transactions and the relationship between RI and the assessee. The matter was restored to the AO for further investigation.

4. Deletion of Addition of Rs. 1,50,75,790:
The AO added Rs. 1,50,75,790 to the assessee's income for AY 2003-04, which was deleted by the FAA. The Tribunal noted that the facts and circumstances were similar to the earlier years and restored the matter to the AO for fresh adjudication.

Conclusion:
The Tribunal restored the matters to the AO for fresh determination after a thorough investigation, allowing the appeals filed by the AO in part for all the assessment years. The Tribunal emphasized the need for a detailed examination of the agreements, the actual work done, and the relationship between RI and the assessee to determine the applicability of the DTAA provisions.