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2023 (1) TMI 1234 - AT - Income TaxIncome deemed to accrue or arise in India - Permanent Establishment (PE) in India under Article 5 of India USA DTAA - attribution of profit to the PE whether the receipts from IPLC/link charges are taxable as royalty in India or not? - HELD THAT - As all the issues relating to existence of PE and attribution of profit have been decided/resolved in assessee s own case in earlier assessment years. Therefore, the decision of the Tribunal, as referred will squarely apply to the present appeals as well. Though, learned counsel for the assessee attempted to make out a case that there was no fixed place PE in the year under consideration, however, we are not convinced as the arrangement between the assessee and PE remains identical with earlier years. As regards attribution of profit to PE, we direct the Assessing Officer to follow the directions of the Tribunal in assessment years 2006-07 to 2013-14. Taxability of link charges - As this issue has also been decided by the Tribunal in assessee s own case in assessment years 2013-14 2020 (11) TMI 1101 - ITAT DELHI relying on New Skies Satellite BV 2016 (2) TMI 415 - DELHI HIGH COURT held that the amendment in section 9 will not affect the DTAA, thus find that the payment of link charges received by the Appellant from Conuergys India Services Rut. Ltd. would not qualify as process royalty in terms of Article 12 of lndia-US 39 DTAA. Hence, the ground of appeal allowed.
Issues Involved:
1. Existence of Permanent Establishment (PE) in India under Article 5 of India-USA Double Taxation Avoidance Agreement (DTAA). 2. Attribution of profit to the PE. 3. Taxability of receipts from IPLC/link charges as royalty in India. Detailed Analysis: 1. Existence of Permanent Establishment (PE) in India: The primary issue was whether the assessee, a non-resident corporate entity from the USA, had any form of PE in India under Article 5 of the India-USA DTAA. The Assessing Officer (AO) concluded that the assessee had a fixed place PE, service PE, and dependent agent PE in India. However, the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the AO and held that the assessee did not have a dependent agent PE or service PE but had a fixed place PE in India. This conclusion was based on the fact that the assessee's employees frequently visited the premises of its Indian subsidiary, Convergys India Service Pvt. Ltd. (CIS), to provide supervision, direction, and control over operations, thus constituting a fixed place PE. 2. Attribution of Profit to the PE: The methodology for attributing profit to the PE was a significant point of contention. The AO had attributed a substantial profit to the PE in India, but the CIT(A) followed a different approach, referencing the Tribunal's decision for assessment year 2006-07. The Tribunal had previously established a detailed methodology for profit attribution, emphasizing the use of transfer pricing principles and rejecting the methodologies adopted by the AO and CIT(A) for being unrealistic and not considering expenditures incurred outside India. The Tribunal directed that the attribution of profits should be based on the global operating income percentage applied to the end-customer revenue from Indian operations, reduced by the profit before tax of CIS, with the residual profit attributable between the US and India. This approach was upheld for the assessment year 2013-14 and directed to be followed for the current assessment year as well. 3. Taxability of Receipts from IPLC/Link Charges as Royalty: The AO had held that the receipts from IPLC/link charges were taxable as equipment royalty and process royalty under the relevant provisions of the Income Tax Act and the India-USA DTAA. However, the CIT(A) disagreed, following the Tribunal's previous decisions which held that such payments do not constitute royalty under the DTAA. The Tribunal reiterated that there was no transfer of the right to use any equipment or process, and the payments were merely reimbursements for services procured, thus not taxable as royalty. Conclusion: The Tribunal upheld the CIT(A)'s decision that the assessee had a fixed place PE in India but did not have a dependent agent PE or service PE. The Tribunal directed the AO to follow the established methodology for profit attribution, as laid out in previous years' decisions. Additionally, the Tribunal confirmed that the receipts from IPLC/link charges were not taxable as royalty under the DTAA. Consequently, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.
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