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2015 (10) TMI 2830 - AT - Income TaxIncome accrued in India - fixed place Permanent Establishment (PE) in India under article5(1), 5(2)(a) and 5(2)(c), a Service PE under Article 5(2)(l) as well as a Dependent Agent PE under Articles 5(4)(a) and 5(4)(c) of the India - USA DTAA - Whether the CIT(A) was justified in holding that the assessee has a PE in India/ - HELD THAT - Taking a consistent view, we hold that the assessee has a fixed place PE in India, but has no dependent agent PE in India. Accordingly, ground raised by the assessee and the only ground raised by Revenue in their respective appeals are dismissed. Attribution of profits to PE - We hold that since in the A.Y. 2002-03, the margin kept by assessee after payments to CIS is in loss, no profit attribution is available to PE in India. Ground No. 2 of assessee s appeal is accordingly disposed of. Levy of interest under section 234B - The charging of interest is automatic under the Act if the assessee has defaulted in payment of advance tax. The income of the assessee was not liable for withholding tax under section 195 of the Act. In this case we have no option but to hold. that the assessee is liable to interest u/s 234B, as the income being assessed now cannot be held. to be income liable to TDS under Indian provisions. The same is being assessed in the hands of PEs who had not filed their return on the ground that this income was not attributed to Indian Business Connection. Provisions of section 234B are mechanical in nature. In view of the above this ground of appeal of the assessee is dismissed. Taxability on IPLC/link charges - As held payment is not taxable in the hands of the assessee as Royalty - We hold that there is no transfer of the right to use, either to the assessee or to CIS. The assessee has merely procured a service and provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the payment is in the nature of reimbursement of expenses and accordingly not taxable in the hands of the assessee. Therefore, it is held. that the said payments do not constitute Royalty under the provisions of Article 12 of the tax treaty and the ground is allowed in favour of assessee.
Issues Involved:
1. Whether the CIT(A) was justified in holding that the assessee has a PE in India. 2. Whether the procurement of IT enabled services from assessee's Indian Subsidiary for the purpose of export would accrue income in the hands of the assessee in India or whether the profits are attributable to alleged PE in India. 3. Whether levy of Interest u/s. 234B of the Act is justified. 4. Whether the ld. CIT(A) was correct in holding that the assessee is not having dependent agent PE through CIS in India. Detailed Analysis: Issue 1: Permanent Establishment (PE) in India The Tribunal upheld the CIT(A)'s decision that the assessee has a fixed place PE in India. The assessee's employees frequently visited CIS premises to provide supervision, direction, and control over CIS operations, and such employees had a fixed place of business at their disposal. CIS was practically the projection of the assessee's business in India and carried out its business under the control and guidance of the assessee without assuming significant risk. The Tribunal confirmed that the assessee has a fixed place PE in India under Article 5(1) of the DTAA. Issue 2: Attribution of Profits to PE The Tribunal followed the methodology from the previous order for A.Y. 2006-07 to determine the profits attributable to the PE. The Tribunal concluded that the revenue of the assessee company cannot be considered as the revenue of the PE. The correct approach involves computing the global operating income percentage, applying it to the end-customer revenue from Indian operations, reducing it by the profit before tax of CIS, and attributing the remaining profits between the US and India. For A.Y. 2002-03, since the margin kept by the assessee after payments to CIS was a loss, no profit attribution was available to the PE in India. Issue 3: Levy of Interest u/s. 234B The Tribunal held that the assessee is liable to interest under section 234B as the income being assessed now cannot be held to be income liable to TDS under Indian provisions. The charging of interest is automatic if the assessee has defaulted in payment of advance tax. The Tribunal dismissed the ground of appeal regarding the levy of interest u/s. 234B. Issue 4: Dependent Agent PE The Tribunal decided in favor of the assessee, holding that CIS did not constitute a dependent agent PE of the assessee in India as the conditions provided in paragraph 4 of Article 5 of the DTAA were not satisfied. The Tribunal upheld the CIT(A)'s decision that the assessee does not have a dependent agent PE in India. Additional Issues: Taxability of IPLC/Link Charges The Tribunal held that the payment for link charges does not qualify as 'Equipment Royalty' under Article 12 of the DTAA and hence is not taxable in India. The assessee merely procured services and provided the same to CIS, with no part of the equipment being leased out to CIS. The Tribunal followed the decision of the Hon'ble Delhi High Court in Expeditors International India (P) Ltd. and other relevant judgments. Conclusion: All the four cross appeals filed by the assessee and the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions on all counts, confirming that the assessee has a fixed place PE in India but not a dependent agent PE, and that the link charges are not taxable as equipment royalty. The levy of interest u/s. 234B was also upheld. The order was pronounced in the open court on 26.10.2015.
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