2016 (6) TMI 1441 - AT - Income Tax

Income deemed to accrue or arise in India - PE in India - taxability of income earned by the assessee in respect of the contract entered into with ONGC - assessee is a tax resident of UAE and is eligible to opt for taxability of its income under the Indo-UAE Tax treaty ( the treaty ) as per the provisions of section 90 (2) - According to the revenue, the income from the said contract is liable to be taxed in India as the assessee is stated to have a PE in India - as per the assessee the income from the contract in question is not taxable under the act by virtue of double taxation avoidance agreement (DTAA) between India and UAE - HELD THAT - As decided in own case 2016 (2) TMI 47 - DELHI HIGH COURT agreed to the contention of the assessee that it does not have a PE in India. Further the Hon ble High Court has held that since there is no PE in India the receipts from the contract with ONGC is also not taxable in India the question of attribution does not arise. As AR submitted that there exist identical facts for the year under consideration. Respectfully following the decision of Hon ble Jurisdictional High Court, we are of the considered view that the assessee does not have a PE in India and the revenue from the contract cannot be taxed accordingly the ground numbers raised by the assessee stand allowed. Levying the interest u/s 234B of the Act while computing the total demand - HELD THAT - This issue has been dealt by Hon'ble High Court in the case of DIT VS. GE Packaged Power Inc 2015 (1) TMI 1168 - DELHI HIGH COURT holds that the view taken by ITAT was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that of the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act. 8.1 Respectfully following the decision of this tribunal in GE packaged power Inc. (Supra), we are inclined to allow the ground of appeal raised by the assessee. Non grant of TDS credit - AO did not give credit to the TDS paid. - AR has submitted that the AO may be directed to grant appropriate credit of TDS as claimed by the assessee in its return - HELD THAT - We accordingly direct the AO to grant credit of TDS in accordance with law. Accordingly this ground raised by the assessee stands statistically allowed.

Issues Involved:
1. Determination of the income of the appellant.
2. Taxability of offshore supplies.
3. Adjustment of income from onshore activities.
4. Applicability of section 44BB.
5. Existence of Permanent Establishment (PE) in India.
6. Attribution of income to PE.
7. Determination of Arm's Length Price (ALP).
8. Estimation of profit from offshore and onshore activities.
9. Levying of interest under section 234B.
10. Granting credit of TDS.
11. Initiation of proceedings under section 271(1)(c).

Detailed Analysis:

Issue 1: Determination of Income
The appellant contested the determination of its income at ?39,40,98,560/- against the returned income of ?1,01,29,714/-. The tribunal examined the facts and arguments presented by both parties.

Issue 2: Taxability of Offshore Supplies
The appellant argued that the inclusion of ?1,07,12,284/- as income taxable in India for offshore supplies was erroneous. It was contended that no income accrued to the appellant under section 9(1) read with Explanation-1 of the Income Tax Act, 1961, or under Article 7(2) of the DTAA between India and UAE. The tribunal, referencing the jurisdictional High Court's decision in the appellant’s own case for previous assessment years, agreed that the offshore supplies were not taxable in India as the functions performed by the project office were merely auxiliary in character.

Issue 3: Adjustment of Income from Onshore Activities
The appellant challenged the adjustment of ?37,32,56,566/- made by the DDIT on account of onshore activities. The tribunal noted that the appellant had already returned income from onshore activities at 10% of the receipts after deducting expenditure. The enhancement by adopting an average OP/OR of 21.91% was deemed arbitrary and unjustified.

Issue 4: Applicability of Section 44BB
The tribunal found that the DDIT erred in holding that the provisions of section 44BB were not applicable to the appellant. The activities undertaken fell within the scope of section 44BB, which deals with the computation of profits and gains in connection with the business of exploration, etc., of mineral oils.

Issue 5: Existence of Permanent Establishment (PE) in India
The appellant contended that the project office in India did not constitute a PE as it was only used for communication purposes. The tribunal, following the High Court's decision, concluded that the project office activities fell within the exclusionary clause of Article 5(3)(e) of the DTAA, and thus, the appellant did not have a PE in India.

Issue 6: Attribution of Income to PE
Since it was established that the appellant did not have a PE in India, the question of attributing any income to the PE did not arise. The tribunal upheld the High Court’s view that the receipts from the contract with ONGC were not taxable in India.

Issue 7: Determination of Arm's Length Price (ALP)
The tribunal noted that the determination of ALP by the DDIT was erroneous as the provisions of section 92 were inapplicable. The TP attribution report was furnished only to justify the income declared by the appellant at arm's length.

Issue 8: Estimation of Profit from Offshore and Onshore Activities
The tribunal found that the estimation of profit by citing non-comparable cases was incorrect. The appellant's income from offshore and onshore activities was not underestimated, and the adjustments made were arbitrary.

Issue 9: Levying of Interest under Section 234B
The tribunal referenced the High Court's decision in DIT vs. GE Packaged Power Inc., which held that the primary liability of deducting tax is on the payer. The tribunal allowed the appellant's ground, noting that the interest under section 234B was calculated incorrectly and excessively.

Issue 10: Granting Credit of TDS
The appellant's claim that the AO did not grant credit for TDS paid was upheld. The tribunal directed the AO to grant appropriate credit of TDS as claimed by the appellant in its return.

Issue 11: Initiation of Proceedings under Section 271(1)(c)
The appellant did not press this ground, and thus, the tribunal did not adjudicate on this issue.

Conclusion:
The tribunal allowed the appeal filed by the appellant, holding that the appellant did not have a PE in India and that the income from the contract with ONGC was not taxable in India. The tribunal also directed the AO to grant credit for TDS and found the adjustments made by the DDIT to be arbitrary and unjustified.

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