2022 (12) TMI 1487 - AT - Income Tax

Accrual 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 -. We have carefully considered the orders of the authorities below. We find force in the contention of the Counsel the coordinate Bench in A.Y. 2014-15 2021 (3) TMI 1440 - ITAT DELHI has followed the findings of the Tribunal given in earlier assessment years while dismissing the ground 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 in 2021 (7) 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 involved:
1. Alleged Permanent Establishment in India under Tax Treaty
2. Attribution of profits to alleged PE in India
3. Taxation of India source income as 'Royalty'

Issue 1: Alleged Permanent Establishment in India under Tax Treaty

The appellant contested the conclusion of the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) that the appellant has a Permanent Establishment (PE) in India under Article 5(1) and 5(2)(i) 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, and they were in India for less than 9 months as per the Tax Treaty. The appellant also highlighted that its employees did not work on Sundays or holidays in India, the hotel premises were not at its disposal, and it did not provide Central Reservation Services. The Tribunal dismissed this ground based on findings from earlier assessment years and upheld the conclusion that the appellant had a PE in India.

Issue 2: Attribution of profits to alleged PE in India

The appellant challenged the arbitrary adoption of 25 percent of gross receipts as taxable income attributable to its alleged PE in India under Article 7 of the Tax Treaty. The appellant argued that its activities were primarily conducted outside India, and if profits were attributable, they should be restricted to activities carried out in India. The Tribunal noted that this issue had been considered in earlier assessment years and directed the AO to decide the matter afresh in line with previous directions, providing the appellant with a reasonable opportunity to be heard.

Issue 3: Taxation of India source income as 'Royalty'

The appellant disputed the taxation of its consultancy services as 'Royalty' under section 9(1)(vi) of the Income Tax Act and Article 12 of the Tax Treaty. The appellant argued that the essence of the agreement was for strategic oversight and consultancy services, not for providing know-how or intangibles. The Tribunal directed the AO to reexamine this issue in line with previous directions given in earlier assessment years, ensuring the appellant is provided with a fair opportunity to present its case.

The Tribunal dismissed the appellant's appeal against the finding of a Permanent Establishment in India but directed the AO to reconsider the attribution of profits and taxation of consultancy services in line with previous directions. The appellant's additional ground regarding the dismissal of a rectification application was deemed otios as the underlying issues had been remanded to the AO for fresh adjudication. Ultimately, both appeals of the assessee were allowed.