9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (7) TMI 2304 - AT - Income TaxService PE in India - Article 5 of the India UK Double Taxation Avoidance Agreement DTAA - receipts on account of central costs recharges and structural tests - bilateral agreement in force between the assessee and JCB India - HELD THAT - As mentioned elsewhere except for routing the royalty payment through JCB Investments the assessee has received everything as per bilateral agreement existing in earlier years minus 0.05%. Therefore we do not find any distinguishing fact as contended by the ld. AR. Respectfully following the findings of the coordinate bench 2015 (5) TMI 607 - ITAT DELHI we hold that JCB India a Service PE of the assessee. Ground No. 1 with its sub-grounds is dismissed. Whether royalty is not effectively connected to the alleged Service PE of the assessee? - As mentioned elsewhere in the earlier years this issue arose when JCB India Service PE used to make payment directly to assessee and the Tribunal vide its order 2014 (4) TMI 887 - ITAT DELHI has held that amount of royalty received by the assessee arises out of IP Rights which are in the nature of right or property but the same cannot be considered under para 6 of Article 13 because it is not effectively connected with the service PE of the assessee in India. Since there is no difference in the facts and circumstances of the royalty payment we do not find any reason to differ from what has been held by the Coordinate Bench supra . Respectfully following the same we hold that royalty received by the assessee cannot be considered under Para 6 of Article 13 because it is not effectively connected with Service PE of the assessee in India. Receipts on account of central costs recharges and structural tests - A perusal of the bilateral agreement and tripartite agreement shows that royalty shall be equal to the royalty received by JCB Investments from JCB India under the licence and from any other permitted sub-licencee of JCB Investments less 0.5%. It can be seen that the entire royalty amount is passed on to JCBE through JCB Investments less 0.5%. We have no hesitation to hold that JCB Investments is nothing but a pass through entity. A perusal of the agreements clearly and explicitly lead out that the delivery of technical documentation and making available of technical personnel as set out in clause (iii) and (iv) of the TTA shall remain unaffected by this agreement and shall continue as rights and obligations between JCBE and JCB India. Since the impugned receipts are ancillary and subsidiary to the application or enjoyment of the right property or information for which the royalty payments were received by the assessee in our considered opinion such receipts would fall under sub-clause (a) and Article 13(4) and would be taxable as FTS - we further find that sub-clause (c) of Article 13(4) which entails make available clause would therefore not be applicable. The disputed receipts are in relation to the payment received by the assessee as royalty from JCB Investments which has received it from JCB India - substance shall get precedence over the form. In our considered view the impugned receipts are ancillary and subsidiary to the application or enjoyment of the right property or information for which the royalty payment were received by the assessee through such receipts would fall under clause (a) of Article 13(4) and would be taxable as FTS and the services provided by the assessee are to be considered as having been made available to the recipient of the services. Substance will rule over form. The common meaning of the word make available is merely offering or made accessible to the other party and it never meant that the other party should be trained or made expert in such technical knowledge. If such is the case it would be absurd for a person to make other person expert of its core competency and a situation will arise that the recipient of services would not look again to the service provider when these services are needed in future. In the context of bilateral vis a vis tripartite agreement the service provider by the assessee have to be considered as having been made available to the recipient of service and we hold accordingly. Ground No. 3 is dismissed. Reimbursement towards salary costs and other expenses of seconded employees - As we find that in the case of JCB Investments also JCB India has been treated as service PE on account of employees seconded by the assessee to JCB India. In order to determine the income of service PE on account of employees seconded by the assessee to JCB India the Tribunal has restored back the matter to the file of the Assessing Officer for correct assessment of the profits to be attributed to the Service PE and the AO while giving effect to the directions of the Tribunal has framed the order u/s 254/143(3) of the Act. AO is directed to decide this issue in accordance with the directions given by the co-ordinate bench in the case of JCB Investments 2015 (5) TMI 607 - ITAT DELHI . The AO is further directed to see that the same income is not doubly taxed in the hands of the appellant. This issue is accordingly treated as allowed for statistical purposes. Attribution of income in India - Assessee contended that in the hands of JCB Investments the Assessing Officer has already made necessary attribution on account of alleged Service PE in India therefore question of attribution will not survive in the hands of the assessee - HELD THAT - We have already mentioned elsewhere that during the year under consideration the assessee has received everything from JCB India minus 0.05% which was retained by JCB Investments through which entire payments have been received. We have already held that substance will prevail over form. In our understanding of the facts of the case in hand we are of the considered opinion that the amount received by the assessee after deduction of 0.05% has to be considered separately for the purposes of attribution of income in India - direct the AO to do the attribution as done in the case of JCB Investments after giving opportunity of being heard to the assessee. The AO is further directed to reduce the income already taxed in the hands of JCB Investments to avoid double taxation of the same income. This issue is also allowed for statistical purposes. Charging of interest u/s 234B - We find that an identical issue was considered by the Tribunal in assessee s own case 2014 (4) TMI 887 - ITAT DELHI - We direct the Assessing Officer to relieve the assessee from any interest liability u/s 234B of the Act.
Issues Involved:
1. Service Permanent Establishment (PE) in India under Article 5 of the India-UK Double Taxation Avoidance Agreement (DTAA). 2. Connection of royalty to the alleged Service PE. 3. Classification of receipts on account of central costs recharges and structural tests as Fees for Technical Services (FTS) under Article 13 of India-UK DTAA. 4. Taxability of reimbursement towards salary cost and expenses for seconded employees as FTS. 5. Application of computation mechanism under Rule 10 of the Income Tax Rules, 1962, for determining chargeability of income under Article 7 of the DTAA. 6. Levy of interest under Section 234B of the Income-tax Act, 1961. Detailed Analysis: 1. Service Permanent Establishment (PE) in India: The assessee contested the establishment of a Service PE in India under Article 5 of the India-UK DTAA. The Tribunal upheld the earlier decision that JCB India constituted a Service PE of the assessee in India. The Tribunal noted that the royalty payment structure changed to route payments through JCB Investments, but the nature of services and the relationship between JCBE and JCB India remained unchanged. Consequently, the Tribunal dismissed the assessee's contention, holding that JCB India constituted a Service PE. 2. Connection of Royalty to the Alleged Service PE: The Tribunal addressed whether the royalty payments were effectively connected to the Service PE. Referring to earlier decisions, the Tribunal concluded that the royalty payments were not effectively connected to the Service PE. The Tribunal cited that the Service PE, represented by deputed employees, had no role in creating or making available IP rights to JCB India. Thus, the royalty received by the assessee could not be considered under Para 6 of Article 13 of the DTAA. 3. Classification of Receipts as Fees for Technical Services (FTS): The Tribunal examined the receipts on account of central costs recharges and structural tests, which the assessee claimed were not taxable as FTS under the DTAA. The Tribunal found that these receipts were ancillary and subsidiary to the application or enjoyment of the right, property, or information for which royalty payments were received. Therefore, these receipts fell under sub-clause (a) of Article 13(4) and were taxable as FTS. The Tribunal dismissed the assessee's contention that the 'make available' clause was not satisfied. 4. Taxability of Reimbursement for Seconded Employees: The Tribunal noted that the assessee failed to provide adequate documentation to support the claim that reimbursements for salary costs and expenses of seconded employees were merely reimbursements. The Tribunal restored this issue to the file of the Assessing Officer (AO) for verification. The AO was directed to ensure that the same income was not doubly taxed in the hands of the appellant and JCB Investments. 5. Application of Computation Mechanism under Rule 10: The Tribunal addressed the issue of attribution of income in India. It was noted that the AO had already made necessary attributions in the hands of JCB Investments. However, the Tribunal directed the AO to attribute income separately for the assessee after reducing the income already taxed in the hands of JCB Investments to avoid double taxation. The issue was allowed for statistical purposes. 6. Levy of Interest under Section 234B: The Tribunal considered the levy of interest under Section 234B of the Act. Referring to its earlier decision, the Tribunal held that the assessee was not liable for interest under Section 234B as the entire amount of royalty and fees for technical services was included in the total income by the assessee. The Tribunal directed the AO to relieve the assessee from any interest liability under Section 234B. Conclusion: The appeal by the assessee was partly allowed. The Tribunal upheld the establishment of a Service PE, confirmed the non-connection of royalty to the Service PE, classified certain receipts as FTS, and restored the issue of reimbursements to the AO for verification. The Tribunal also directed the AO to attribute income separately for the assessee and relieved the assessee from interest liability under Section 234B.
|
