2017 (5) TMI 720 - AT - Income Tax

Existence of PE in India - income accrued in India - Attribution of entire management fee to the alleged PE in India - Held that - As per section 9(1) of the Act all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, shall be deemed to accrue or arise in India, however, Explanation (1) to section 9(1) makes it clear, in case of a business of which all operations are not carried out in India, only such part of the income as is reasonably attributable to the operations carried out in India shall be deemed to accrue or arise in India. Therefore, the income of the assessee has to be determined keeping in view the aforesaid legal principle. In view the aforesaid facts, since the assessee s contention with regard to the exact profit attributable to PE in India has not been properly analysed/examined, therefore, we are inclined to remit the issue to the file of the AO for fresh adjudication. It is open for the assessee to furnish all material/evidences to justify its claim that profit worked out as per the chart submitted before us is the income actually attributable to the PE in India. Due opportunity must be given to the assessee to produce any other evidences and material before the AO on this account. The AO is directed to properly consider and examine the submissions of the assessee in the light of the evidences and material brought on record and decide the issue as per law. It goes without saying, the AO must afford reasonable opportunity of being heard to the assessee before deciding the issue. Ground no.2 and 3 are allowed for statistical purposes. Levy of interest u/s 234B for non-payment of advance tax - Held that - The assessee being a non-resident, the liability is on the payer to deduct tax at source u/s 195 of the Act at the time of payment and there is no liability on the assessee to pay advance tax. This view of ours is supported in the case of Director of Income-tax (International Taxation) v. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT . In view of the above levy of interest u/s 234B of the Act is unsustainable. This ground is allowed.

Issues Involved:
1. Permanent Establishment (PE) in India.
2. Attribution of entire management fee to the alleged PE in India.
3. Allowability of expenses to the alleged PE in India.
4. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE) in India:
The assessee, a tax resident of Singapore, entered into an agreement with Dimension Data India Limited (DDIL) to provide various advisory services. The assessee earned management fees of ?22,56,91,365/- which it did not offer as income in India, contending that in the absence of a PE, the fees were not taxable in India under the India-Singapore DTAA. The AO, however, observed that employees of the assessee company had visited India and stayed for more than 30 days, thereby constituting a PE in India. The DRP upheld this view, and the assessee did not press this ground further during the appeal. Consequently, the Tribunal proceeded on the footing that the assessee has a PE in India.

2. Attribution of Entire Management Fee to the Alleged PE in India:
The AO attributed the entire management fee of ?22,56,91,365/- to the PE in India, estimating allowable expenditures at 10% of the fees received, resulting in a net taxable income of ?20,31,22,230/-. The assessee contended that only the profit attributable to the operations in India of the PE should be taxable and not the entire management fee. The DRP, however, held that in the absence of supporting evidence regarding the activities of its employees in India and expenses incurred, the entire fees received were attributable to the PE. The Tribunal noted that the assessee’s claim regarding the profit element of fees received and income attributable to the India PE had not been properly considered due to the absence of relevant material. Therefore, the Tribunal remitted the issue back to the AO for fresh adjudication, allowing the assessee to furnish all material/evidences to justify its claim.

3. Allowability of Expenses to the Alleged PE in India:
The AO allowed an arbitrary deduction of only 10% as expenses, taxing 90% of the management fee as business income. The assessee contended that it earned only a 10% mark-up on the management fees and provided evidence to support this. The Tribunal acknowledged that the assessee’s claim that the profit attributable to the India PE, as per the working furnished before the Tribunal, required proper examination by the AO. The Tribunal directed the AO to properly consider and examine the submissions of the assessee in light of the evidences and material brought on record, and decide the issue as per law.

4. Levy of Interest under Section 234B:
The assessee challenged the levy of interest under Section 234B for non-payment of advance tax, arguing that being a non-resident, the liability is on the payer to deduct tax at source under Section 195. The Tribunal agreed with the assessee, citing the Hon’ble Jurisdictional High Court’s decision in Director of Income-tax (International Taxation) v. NGC Network Asia LLC, which supports the view that there is no liability on the non-resident assessee to pay advance tax. Consequently, the Tribunal held that the levy of interest under Section 234B was unsustainable and allowed this ground.

Conclusion:
The Tribunal partly allowed the appeal, remitting the issues related to attribution of income and allowability of expenses back to the AO for fresh adjudication, and held that the levy of interest under Section 234B was unsustainable. The order was pronounced in the open court on 5th May, 2017.

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