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2021 (3) TMI 1440 - AT - Income TaxAccrual of income in India - Alleged Permanent Establishment ('PE ) in India of the Appellant under the Article 5(1) and 5(2)(i) of the India - UAE Tax Treaty ( Tax Treaty ) - HELD THAT - As decided in 2019 (12) TMI 1667 - ITAT DELHI concurrent reading of the Strategic Oversight Agreements (SOA), the assessee has been technically operating the hotel belonging to the owners namely, Asian Hotels Ltd. (AHL) through the employees who are recruited by them. The hotel premises have been at the disposal of the assessee during their period of stay. The employees has stayed for a period of 158 days as per the assessee in India while rendering the services. In terms of OECD commentary on Article 5(1) the assessee can be said to be having a permanent establishment owing to existence of a place of business i.e. a facility such as premises, and that place was fixed and established as a distinct place with certain degree of permanence and the foreign enterprise (the assessee) is carrying the business through this fixed place i.e. the premises of the hotel. The assessee can be said to be dependent on the personnel to conduct the business of the foreign enterprise in the State in which the fixed place situated. The assessee is found to be meeting all these requirements stipulated in the OECD. The place of business may also be situated in the business facilities of any other enterprise too. Thus, it can be said that the assessee who is running the business operations at the premises available for constant disposal in the hotel can be said to be a place of business. The availability of an office premises to a foreign company in the premises of the contracting party in order to ensure that both the parties comply with their obligations to the contract for a long period of time will constitute a permanent establishment. As long as, the premises is at the disposal of the assessee and having the right to use the premises for the purpose of the assessee s business on behalf of the party to the agreement can constitute a fixed place PE. We also find that the physical criteria (existence of a geographical location), subject to criteria (right to use the place) and the functional criteria (carrying on the business through that place) as mentioned in the OECD principles with relation to the existence and determination of PE as held by the Mumbai Tribunal in the case of Air Lines Rotables Vs JDIT 2010 (5) TMI 683 - ITAT MUMBAI have been found to be met by the assessee before us, so as to treat them as having a PE in India. Attribution of profits to alleged PE of the Appellant in India inspite of entity level operating losses - alternative taxation of India source income as Royalty under Section 9(1)(vi) of the Income Tax Act, 1961 ( the Act ) and Article 12 of the Tax Treaty - For the sake of ready reference and convenience, operative part of the order 2019 (12) TMI 1667 - ITAT DELHI as based on the clauses of the Strategic Service Agreement and Strategic Oversight Agreements, we hold that the revenue s earned by the assessee are taxable under Article 12 of the DTAA. Regarding the determination of the profit, taken up at ground no. 4 by the assessee, we hereby hold that the taxable profits may be computed in accordance with the provisions of Section 44DA of Indian Income Tax Act and Article 12 of Indo-UAE, DTAA. During the arguments, it was also submitted that the assessee has incurred losses in the assessment year 2008-09. The assessed be given an opportunity of submitting the working of apportionment of revenue, losses etc. on financial year basis with respect to the work done in entirety by furnishing the global profits earned by the assesse, so that the profits attributable to the work done by the PE can be determined judiciously. The same may be considered while determining the taxable profits in India in accordance with the provisions of Section 90(2). Appeal of the assessee is partly allowed.
Issues:
1. Alleged Permanent Establishment (&39;PE’) in India under Tax Treaty 2. Erroneously attribution of profits to alleged PE in India despite operating losses 3. Erroneous alternative taxation of India source income as ‘Royalty’ Issue 1 - Alleged Permanent Establishment (&39;PE’) in India under Tax Treaty: The appeal was filed against the order passed by the AO under the Income Tax Act. The issue raised was regarding the alleged Permanent Establishment (PE) in India of the Appellant under the India-UAE Tax Treaty. The Tribunal referred to a previous order by the Co-ordinate Bench of the ITAT for the assessment years 2009-10 to 2012-13. The Tribunal found that the assessee was technically operating a hotel in India through employees recruited by the owners, and the hotel premises were at the disposal of the assessee during their stay. The Tribunal analyzed the OECD commentary on Article 5(1) and concluded that the assessee could be said to have a PE in India. The Tribunal also considered the criteria for the existence of a PE as per OECD principles and found that the assessee met the requirements. The Tribunal dismissed the argument that the assessee had no right to use the premises, stating that the premises were indeed at the disposal of the assessee for conducting business operations. The Tribunal held that the assessee had a fixed place of business and was carrying out business from that place, meeting the criteria for a PE as per legal precedents. Issue 2 - Erroneously attribution of profits to alleged PE in India despite operating losses: The second ground of appeal raised the issue of attributing profits to the alleged PE in India despite the assessee incurring operating losses. The Tribunal referred to the Strategic Service Agreement and Strategic Oversight Agreements to determine that the revenues earned by the assessee were taxable under Article 12 of the DTAA. The Tribunal held that taxable profits could be computed in accordance with the provisions of the Indian Income Tax Act and the DTAA. It was noted that the assessee had incurred losses in a previous assessment year, and the Tribunal directed the assessee to submit the working of apportionment of revenue and losses to determine the profits attributable to the work done by the PE. The Tribunal emphasized the need for a judicious determination of taxable profits in India based on the global profits earned by the assessee. Issue 3 - Erroneous alternative taxation of India source income as ‘Royalty’: The third ground of appeal raised the issue of the erroneous alternative taxation of India source income as 'Royalty' under the Income Tax Act and the Tax Treaty. The Tribunal reiterated that the revenues earned by the assessee were taxable under Article 12 of the DTAA. It was further directed that the taxable profits should be computed in accordance with the relevant provisions of the Indian Income Tax Act and the DTAA. The Tribunal emphasized the need for a comprehensive assessment of profits based on the working of apportionment of revenue and losses submitted by the assessee. The Tribunal's decision aimed at ensuring a fair and accurate determination of taxable profits in India. In conclusion, the Tribunal partially allowed the appeal of the assessee, addressing the issues related to the alleged Permanent Establishment in India, attribution of profits despite operating losses, and the taxation of India source income as 'Royalty'. The Tribunal's detailed analysis and directions aimed at ensuring a fair and legally sound resolution of the tax matters raised in the appeal.
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