2015 (11) TMI 806 - HC - Income Tax

Taxability of income in India - whether income of an assessee arising from contract, in India, be treated as taxable in India as PE of an assessee exists in terms of article 5(2)(A) (B) (C) beside 5(2)(J) of DATA with USA? - Whether interest income earned in India can be treated as Business Income for taxation and can be not taxed as per DATA with USA? - review petition - Held that - It is not in dispute that the Assessing Officer, in this case, proceeded on the basis of Article 5(2)(j). In other words, Article 5(2) (a), (b) & (c) was not in issue. Before the first appellate authority, before whom the assessee carried the matter in appeal, the finding was confirmed with reference to Article 5(2)(j), for the Assessment Year 2002-2003; whereas, in respect of other two years, which are subject matter of other two appeals, the appeals of the assessee were allowed with reference to Article 5(2)(j) and this gave rise to appeals by the Revenue and by the assessee before the Tribunal. Before the Tribunal, we notice that the issue was sought to be raised by the Revenue and the following appears to be the reasoning of the Tribunal in declining to consider the question of Permanent Establishment with reference to Article 5(2) (a), (b) & (c) The Respondent, in fact, would submit that finding of this nature does not even give rise to a substantial question of law. That is to say, according to him, the argument was raised, for the first time, before the Tribunal and there are no facts on record to back-up the plea raised under Article 5(2) (a), (b) & (c). We notice that, in fact, the Revenue did not move any application for admission of additional evidence, as is noted. As we have already noted, a review can be successfully premised in an appeal under Section 260A of the Income Tax Act only on the review petitioner establishing that there is an error apparent on the face of the record. We are unable to perceive any error apparent on the face of the record in the judgment sought to be reviewed. - Decided against revenue.

Summary

Issues:
1. Taxability of income from contract in India as Permanent Establishment (PE) under Double Taxation Avoidance Treaty (DATA) with USA.
2. Treatment of interest income earned in India as Business Income for taxation under DATA with USA.

Analysis:

1. The review petitions involved the question of whether the income of an assessee arising from a contract in India should be treated as taxable in India due to the existence of a Permanent Establishment (PE) as per the Double Taxation Avoidance Treaty (DATA) with the USA. The Court examined the provisions of Article 5(2)(a), (b), (c), and (j) of the Agreement to determine the presence of a PE. The Court agreed with the Tribunal's finding that the rig must be actually used for 120 days to attract Article 5(2)(j) of the Agreement, and mere readiness for use was not sufficient.

2. The appellant contended that the Court did not address the substantial question of law regarding the availability of a Permanent Establishment in India based on the clauses (a), (b), and (c) of Article 5(2) of the Agreement. The Court highlighted that the Assessing Officer had proceeded based on Article 5(2)(j) and not (a), (b), and (c). The Tribunal's reasoning emphasized the need to establish that the business activities were wholly or partly carried out from the alleged office in India to constitute a PE under the relevant provisions.

3. The respondent argued that the Tribunal's finding did not raise a substantial question of law as it lacked factual support and was raised for the first time before the Tribunal. The Court noted that the Revenue did not seek admission of additional evidence to substantiate their claim. The review petitions were evaluated based on the requirement of establishing an error apparent on the face of the record under Section 260A of the Income Tax Act. Since no such error was found in the judgment, the Review Petitions were dismissed, emphasizing the need for factual and legal substantiation in tax disputes under international treaties.

In conclusion, the High Court's judgment addressed the taxability of income from contracts in India under the Double Taxation Avoidance Treaty with the USA, emphasizing the importance of establishing a Permanent Establishment based on the specific provisions of the treaty. The Court's analysis focused on the factual and legal support required to raise substantial questions of law in tax disputes, highlighting the significance of adherence to procedural and evidentiary requirements in such matters.