2017 (10) TMI 534 - AT - Income Tax

Non declare income from operations carried out outside India - reasoning for non deceleration that the income arising from operations carried outside India is not attributable to the Permanent Establishment (PE) in India in terms of India-Australian treaty and hence the same is not taxable in India - gross receipts relating to inside India operations - rejection of books of accounts and also in upholding the decision of the AO in assessing income relating to Indian operations u/s 44BB(1) - Held that - The receipts relating to operations carried outside India is not required to be considered. Now we have held that the receipts relating to operations carried outside India is required to be considered. Accordingly the foreign exchange gain relating thereto is also required to be taken into account for determining the income of the assessee. Accordingly we confirm the view taken by the AO on this issue. The revenue has also taken a ground in not considering the foreign exchange gain as part of gross receipts. We notice that the Ld CIT(A) did not adjudicate the same, since he had held that the receipts relating to operations carried outside India is not required to be considered. Now we have held that the receipts relating to operations carried outside India is required to be considered. Accordingly the foreign exchange gain relating thereto is also required to be taken into account for determining the income of the assessee. Accordingly we confirm the view taken by the AO on this issue.

Issues Involved:
1. Determination of Permanent Establishment (PE) in India.
2. Taxability of receipts for operations carried out outside India.
3. Rejection of books of accounts and income estimation.
4. Inclusion of foreign exchange gain as part of gross receipts.
5. Charging of interest under section 234B.

Detailed Analysis:

1. Determination of Permanent Establishment (PE) in India:
The primary issue was whether the assessee had a Permanent Establishment (PE) in India under the India-Australia DTAA. The Assessing Officer (AO) concluded that the assessee had a PE in India based on Articles 5(2)(f) and 5(2)(j) of the treaty, which include "a mine, an oil or gas well, a quarry or any other place of extraction of natural resources" and "an installation or structure or plant or equipment used for the exploration or exploitation of natural resources." The AO determined that the assessee's activities in connection with the oil and gas platforms in Indian waters constituted a PE.

2. Taxability of Receipts for Operations Carried Out Outside India:
The AO held that the entire payments received by the assessee for works carried out both inside and outside India were taxable in India. The CIT(A) disagreed, holding that only profits attributable to the Indian PE should be taxed in India. However, the Tribunal, based on the assessee's agreement with the AO's view, concluded that receipts for operations carried out outside India are also taxable in India, thus setting aside the CIT(A)'s decision on this matter.

3. Rejection of Books of Accounts and Income Estimation:
The AO rejected the assessee's books of accounts under section 145(3) of the Act, citing various defects and computed the income under section 44BB(1) at 10% of aggregate receipts. The CIT(A) upheld the AO's rejection of books of accounts but limited the taxability to receipts from inside India. The Tribunal restored the matter to the AO for fresh examination, allowing the assessee to present its case and furnish necessary documents.

4. Inclusion of Foreign Exchange Gain as Part of Gross Receipts:
The AO included foreign exchange gains as part of gross receipts for determining income. The CIT(A) did not adjudicate this issue as it held that receipts from outside India were not taxable. The Tribunal, aligning with its decision on the taxability of receipts from outside India, confirmed that foreign exchange gains related to these receipts should also be considered for income determination.

5. Charging of Interest Under Section 234B:
The CIT(A) ruled that interest under section 234B could not be charged since the entire payment was subject to TDS, relying on the Bombay High Court's decision in NGC Network Asia LLC. The Tribunal found no infirmity in this decision and upheld the CIT(A)'s ruling on this issue.

Conclusion:
The Tribunal allowed the revenue's appeals for AY 2007-08 and 2008-09, and partly allowed for AY 2006-07, confirming the AO's view that receipts from operations carried outside India are taxable in India. The cross objections filed by the assessee were treated as allowed, with directions for fresh examination of books of accounts and income determination by the AO. The decision on charging interest under section 234B was upheld in favor of the assessee.

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