2021 (7) TMI 1440 - AT - Income Tax

Income taxable in India - PE in India - Royalty receipts - Alleged Permanent Establishment ( PE ) in India of the Appellant under Article 5(1) and 5(2)(T) of the India - UAE Tax Treaty ( Tax Treaty ) - HELD THAT - We find that identical issue raised in the present appeal has been adjudicated for Assessment Year 2013-14 2021 (3) TMI 1440 - ITAT DELHI we find that the assessee has met the twin criterion of existence of a fixed place of business and carrying out of business from such fixed place of business as enunciated of the judgment of Hon'ble Supreme Court in the case of Morgan Stanley Co. 2007 (7) TMI 201 - SUPREME COURT The claim of the assessee that they did not have a place at their disposal cannot be accepted in view of the judgment of Hon'ble Supreme Court in the case of Formula One World Championships Ltd. 2017 (4) TMI 1109 - SUPREME COURT in the case of Azadi Bachao Andolan 2003 (10) TMI 5 - SUPREME COURT and also E-funds IT Solutions 2017 (10) TMI 1011 - SUPREME COURT The facts on record undisputedly prove that the premises AHL are at the disposal of the assessee for conduct of their business. While coming to the issue of at the disposal in the premises is available for the assessee for running of their business even for a limited time it constitutes a PE - Decided against the assessee. 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(l)(vi) of the Income Tax Act, 1961 ( the Act ) and Article 12 of the Tax Treaty - We find that the identical issue raised in the present appeal, has already been adjudicated for Assessment Year 2013-14. 2021 (3) TMI 1440 - ITAT DELHI to 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 assessee 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). Thus the issue of attribution of profit to the Permanent Established (PE) is accordingly restored to the file of Assessing officer for deciding in the light of the direction of the Tribunal in AY 2013-14, as reproduced above. Appeal of the assessee is allowed partly for statistical purposes.

Summary

Issues:
1. Alleged Permanent Establishment in India under Tax Treaty
2. Attribution of profits to alleged PE in India despite operating losses
3. Alternative taxation of India source income as 'Royalty' under the Income Tax Act and Tax Treaty

Issue 1: Alleged Permanent Establishment in India under Tax Treaty
The appeal challenged the conclusion that the Appellant had a Permanent Establishment (PE) in India under Article 5 of the India-UAE Tax Treaty. The Appellant argued that it had no fixed place of business in India, its personnel were not on secondment but for services to third-party customers, their presence in India was short, they did not work on Sundays or holidays, and they were not provided with central reservation services. The Appellant contended that it only provided strategic oversight services and was not involved in day-to-day hotel operations. The Tribunal referred to a previous decision where it was held that the Appellant had a PE in India due to its fixed place of business and conducting business operations from the hotel premises. Consequently, the Tribunal dismissed Ground No. 1 of the appeal against the Appellant.

Issue 2: Attribution of profits to alleged PE in India despite operating losses
The appeal contested the attribution of profits to the alleged PE in India under Article 7 of the Tax Treaty, despite the Appellant incurring overall losses. The Appellant argued that not all activities were carried out in India, there were no profits attributable to the alleged PE, and any profits should be restricted to activities in India. The Tribunal referred to a previous decision where it was held that the revenue earned by the Appellant was taxable under Article 12 of the DTAA, and the taxable profits should be computed in accordance with the relevant provisions. The Tribunal allowed the appeal on this issue and restored it to the Assessing Officer for further determination based on the directions provided.

Issue 3: Alternative taxation of India source income as 'Royalty' under the Income Tax Act and Tax Treaty
The appeal challenged the alternative taxation of India source income as 'Royalty' under Section 9(1)(vi) of the Income Tax Act and Article 12 of the Tax Treaty. The Appellant argued that the consultancy services provided were not in the nature of 'Royalty' but were for strategic oversight and consultancy services. The Tribunal allowed this appeal on the grounds that the provision of know-how, etc., was incidental to the main consultancy services and did not qualify as 'Royalty' for taxation. The Tribunal directed that the alternative taxation on a gross basis as Royalty was unwarranted and should be quashed.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, dismissing the challenge against the existence of a PE in India but allowing the challenges related to the attribution of profits and alternative taxation of income as 'Royalty.' The issues were decided based on previous decisions and the specific provisions of the Tax Treaty and the Income Tax Act.