2017 (3) TMI 33 - AT - Income Tax

Permanent establishment in India - India-U.K tax treaty - Held that - We find that though interestingly the fact that the assessee had offered its income for tax has been taken cognizance of by the lower authorities for supporting or rather arriving at adverse inferences in the hands of the assesseee, however most conveniently the fact that the assessee had categorically stated that it had no PE in India for the period November, 2008 to March, 2009 as per Article 5(2)(k)(i), read in light of the reasons on the basis of which such a conclusion was arrived at, as well as the categorical averment of the assessee that the provisions of Article 5(2)(k)(ii) were not applicable in its case, all of which facts were clearly discernible from the Statement of total income filed by the assessee alongwith its return of income, had most conveniently been ignored by the lower authorities in order to facilitate drawing of self suiting adverse inferences in the hands of the assessee. Thus in the backdrop of the aforesaid facts we have given a thoughtful consideration to the facts of the case and in light of the very fact that the lower authorities had failed to address the exhaustive submissions raised by the assessee before them and pass a well reasoned and speaking order, thus are unable to persuade ourselves to subscribe to such non-speaking orders of the lower authorities. We therefore in all fairness and in the very interest of justice restore the matter to the file of A.O for fresh adjudication. The A.O shall during the course of the set aside proceedings therein adjudicate upon the issue as regards the existence of a PE in India of the assessee during the period November, 2008 to March, 2009, after taking due cognizance of and dealing with the submissions which were raised by the assessee during the course of the original assessment proceedings, as well as during the course of the appellate proceedings.

Issues Involved:
1. Permanent Establishment (PE)
2. Computation of Income Liable to Tax in India
3. Fixed Base
4. Disbursements
5. Interest under Section 234B
6. India-UK Tax Treaty Benefit
7. Penalty Proceedings under Section 271(1)(c)

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE):
- Grounds of Appeal: The appellant contested the CIT(A)'s decision that it had a PE in India under Article 5(2)(k) of the India-UK Tax Treaty for the entire year. The appellant also argued that the threshold of 90 days was not exceeded during the period from November 2008 to March 2009, and hence, no income should be taxed in India.
- Tribunal's Findings: The Tribunal noted that the appellant had offered its income for tax in India due to the CIT(A)'s observations in earlier years, not as an acceptance of having a PE. The Tribunal found that the lower authorities had not adequately addressed the appellant's claim that it did not exceed the 90 days threshold within any twelve months period between November 2008 and March 2009. The Tribunal directed the AO to re-examine whether the appellant had a PE in India during this period, considering the appellant's detailed submissions.

2. Computation of Income Liable to Tax in India:
- Grounds of Appeal: The appellant argued that the entire receipt of GBP 3,302,927 should not be taxed in India and only the income attributable to services rendered in India should be taxed. The appellant also contested the inclusion of fees related to non-Indian projects and services rendered outside India.
- Tribunal's Findings: The Tribunal restored the matter to the AO for fresh adjudication, directing the AO to determine the taxability of the income after deciding on the existence of a PE. The AO was instructed to consider the appellant's contentions and pass a reasoned order.

3. Fixed Base:
- Grounds of Appeal: The appellant claimed that it did not have a fixed base in India and that hotels or places provided by clients could not be considered as an office or place of work.
- Tribunal's Findings: The Tribunal found that the CIT(A) did not specifically address this issue due to the conclusion that the appellant had a service PE. The Tribunal directed the AO to reconsider this issue during the fresh adjudication.

4. Disbursements:
- Grounds of Appeal: The appellant argued for the deletion of the addition of ?7,492,280 on account of disbursements.
- Tribunal's Findings: The Tribunal restored this issue to the AO for fresh adjudication, instructing the AO to consider the appellant's contentions and pass a reasoned order.

5. Interest under Section 234B:
- Grounds of Appeal: The appellant contested the levy of interest under Section 234B amounting to ?27,921,562.
- Tribunal's Findings: The Tribunal directed the AO to follow the directions given by the Tribunal in the appellant's case for A.Y. 1995-96 and adjudicate the issue accordingly.

6. India-UK Tax Treaty Benefit:
- Grounds of Appeal: The appellant claimed entitlement to the benefits of the India-UK Tax Treaty.
- Tribunal's Findings: The Tribunal restored this issue to the AO for fresh adjudication, instructing the AO to consider the appellant's contentions and pass a reasoned order.

7. Penalty Proceedings under Section 271(1)(c):
- Grounds of Appeal: The appellant argued that the penalty proceedings under Section 271(1)(c) should be quashed.
- Tribunal's Findings: The Tribunal found that this issue was premature and directed the AO to consider it during the fresh adjudication.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, restoring all issues to the AO for fresh adjudication. The AO was directed to pass a well-reasoned and speaking order after considering all the appellant's contentions and providing a reasonable opportunity for the appellant to be heard. The Tribunal emphasized the need for a thorough and fair re-examination of the appellant's claims regarding the existence of a PE and the computation of taxable income.

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