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2020 (2) TMI 1677 - AT - Income TaxIncome deemed to accrue or arise in India - Business connection /permanent establishment in India - Whether the appellant had a business connection in India in terms of the Act and a permanent establishment PE in India in terms of the India-Singapore Double Taxation Avoidance Agreement DTAA - HELD THAT - The Tribunal in the aforementioned appeals for A.Y 1999-2000 to A.Y 2004-05 had upheld the orders of the lower authorities and had concluded that the assessee was having business connection and PE in India. We find that though the assessee had raised a ground of appeal assailing the observations of the DRP that the assessee had a PE in India in terms of Article 5(1) and 5(8) of the India-Singapore DTAA but during the course of the hearing of the appeal no contention was advanced by the ld. A.R to support his aforesaid claim. We thus following the orders passed by the coordinate benches of the Tribunal in the assesses own case uphold the order of the DRP that the assessee had a business connection/PE in India. The Ground of appeal No. 2 raised by the assessee before us is dismissed. Amount of income that was attributable to the PE of the assessee in India - We herein conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. Also, we follow the view taken by the Tribunal in the aforesaid preceding years viz. A.Y 1999-2000 to A.Y 2004-05 2009 (7) TMI 1341 - ITAT DELHI and A.Y 2005-06 to A.Y 2011-12 2018 (2) TMI 1767 - ITAT MUMBAI that as the commission paid by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than its income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. As such, in terms of our aforesaid observations we allow the Ground of appeal No. 3 raised by the assessee. 10% of the expenses reimbursed by ADSIL were to be held as the business income of the assessee - HELD THAT - As relying on assessee own case A.Y 2005-06 to A.Y 2011-12 2018 (2) TMI 1767 - ITAT MUMBAI we herein direct that 10% of the aforesaid amoun be brought to tax as the business income of the assessee. At the same time, the assessee would be entitled for claiming set off of the aforesaid amount against the commission payment made by it to its NMC viz. ADSIL. The Ground of appeal No. 4 raised by the assessee is partly allowed in terms of our aforesaid observations. TP adjustment in respect of USD denominated interest free ECB loan that was advanced by the assessee to its wholly owned subsidiary company in India, viz. ADSIL - HELD THAT - As following the view taken by the Tribunal in the aforesaid preceding years viz. A.Y 2005-06 to A.Y 2011-12 2018 (2) TMI 1767 - ITAT MUMBAI in the assesse s own case, we herein conclude that the notional interest income on the loan (interest free) that was advanced by the assessee to its AE viz. ADSIL would be assessable as the income of the assessee which has a business connection/PE in India. At the same time, we are in agreement with the claim of the ld. A.R that the said notional interest income on the loans advanced by the assessee to its AE would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing service fees paid to its National Marketing Agency in India, i.e its NMC viz. ADSIL. Ground of appeal No. 5 raised by the assessee is disposed off in terms of our aforesaid observations. Levy of interest u/s 234B and interest u/s 234C - HELD THAT - As in N.G.C Network Asia CCC 2009 (1) TMI 174 - BOMBAY HIGH COURT had concluded that the Tribunal had rightly deleted the interest levied on the assessee under Sec. 234B of the Act. We thus in terms of the aforesaid observations of the Hon ble High Court direct the A.O to delete the interest levied on the assessee under Sec. 234B and Sec. 234C.
Issues Involved:
1. Business connection/Permanent Establishment (PE) in India. 2. Income attributable to the PE. 3. Reimbursement of expenses. 4. Transfer pricing adjustment. 5. Initiation of penalty proceedings. 6. Levy of interest under Section 234B. 7. Levy of interest under Section 234C. Detailed Analysis: 1. Business Connection/Permanent Establishment (PE) in India: The appellant contested the DCIT’s determination that it had a business connection and a PE in India under the India-Singapore DTAA. The DCIT’s assessment was based on the appellant’s activities through its subsidiary, which were considered habitual and exclusive, thus constituting an agency PE. The Tribunal upheld the DCIT’s decision, referencing past rulings in the appellant’s own case, affirming that the appellant had a business connection and PE in India. 2. Income Attributable to the PE: The DCIT attributed 10% of the gross receipts from Indian operations as the income of the PE. The appellant argued that the commission paid to its NMC in India should be deducted from this income. The Tribunal cited its previous rulings, concluding that 15% of the gross receipts should be attributed to the PE, and since the commission paid was higher than this amount, no income remained taxable in India. 3. Reimbursement of Expenses: The DCIT treated 10% of the reimbursement of expenses from the subsidiary as business income. The appellant argued that these were pure reimbursements with no income element. The Tribunal, following its earlier decisions, directed that 10% of the reimbursed amount be treated as business income but allowed for this to be set off against the commission paid to the NMC. 4. Transfer Pricing Adjustment: The DCIT made a transfer pricing adjustment for an interest-free loan provided to the subsidiary, using the Indian PLR to determine the arm’s length price (ALP). The Tribunal, referencing past rulings, directed that the ALP should be determined using the LIBOR rate plus 2% instead of the Indian PLR. The Tribunal also allowed the notional interest income to be adjusted against the marketing service fees paid to the NMC. 5. Initiation of Penalty Proceedings: The appellant contested the initiation of penalty proceedings under Sections 271(1)(c) and 271A. The Tribunal found these objections premature and dismissed them. 6. Levy of Interest under Section 234B: The appellant objected to the levy of interest under Section 234B, citing a Bombay High Court ruling in its favor. The Tribunal directed the AO to delete the interest levied under Section 234B, following the High Court’s decision. 7. Levy of Interest under Section 234C: Similarly, the appellant contested the levy of interest under Section 234C. The Tribunal, in line with its decision on Section 234B, directed the deletion of interest levied under Section 234C. Conclusion: The Tribunal’s decision was consistent with its past rulings in the appellant’s case. The appeals for both assessment years were partly allowed, with specific directions on the treatment of income attributable to the PE, reimbursement of expenses, and transfer pricing adjustments, while dismissing premature objections on penalty proceedings and directing the deletion of interest levied under Sections 234B and 234C.
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