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2017 (12) TMI 1337 - AT - Income TaxNon-constitution of Permanent Establishment ( PE ) of the Appellant in India - receipts taxable u/s 115A or under Indo-German Treaty - Held that - We hold that there is no merit in invoking provisions of section 115A of the Act in respect of interest and 115A r.w.s. 44DA of the Act in respect of support / royalty services, the receipts are to be taxed in the hands of assessee under Indo-German Treaty @ 10%. The Revenue except for stressing that appeal is pending before the Hon ble Bombay High Court, has not brought on record any change in facts. The grounds of appeal raised by the Revenue are thus, dismissed and the grounds of appeal raised by the assessee in both the appeals are allowed. Stay of recovery of outstanding demand - Held that - As pointed out that the assessee had filed Bank Guarantee of ₹ 25 lakhs against outstanding demand before the Assessing Officer on 08.12.2017. In view of our deciding the appeals in favour of assessee and allowing the grounds of appeal raised in assessment years 2012-13 and 2013-14, the Assessing Officer is directed to release the Bank Guarantee of ₹ 25 lakhs with immediate effect.
Issues Involved:
1. Constitution of Permanent Establishment (PE) in India. 2. Attribution of income to the alleged PE in India. 3. Application of non-discrimination clause under the India-Germany Tax Treaty. 4. Charging of interest under Section 234B of the Income Tax Act. 5. Adequate opportunity for the assessee before passing the order. Issue-wise Detailed Analysis: 1. Constitution of Permanent Establishment (PE) in India: The primary issue was whether the assessee's Indian subsidiary constituted a PE in India under Article 5 of the India-Germany Tax Treaty. The Deputy Commissioner of Income Tax (International Taxation) and the Dispute Resolution Panel (DRP) concluded that the Indian subsidiary constituted a 'Business Connection' or a PE. However, the Tribunal found that the assessee operated entirely from outside India and had no fixed place of business in India. The Tribunal followed its earlier decisions in assessee’s own case for assessment years 2000-01 to 2010-11, where it was consistently held that the assessee did not have a PE in India. Therefore, the income was to be taxed under the Indo-German Treaty at 10%. 2. Attribution of Income to the Alleged PE in India: The Tribunal addressed the issue of whether the income deemed to accrue in India could be attributed to the alleged PE. The Tribunal observed that even if a PE existed, no income could be attributed to it since the assessee operated entirely from Germany and carried out no operations in India. The Tribunal emphasized that the taxation should be at 10% on a gross basis under Articles 11 and 12 of the Tax Treaty, as offered in the Return of Income, and not at 20% under Section 115A/44D of the Act. 3. Application of Non-discrimination Clause: The assessee argued that under Article 24 of the Tax Treaty, it should not be subjected to more burdensome taxation requirements than a resident in India. The Tribunal upheld this view, stating that the income should be taxed on a net basis based on audited financial statements rather than at 20% on a gross basis. The Tribunal directed the Assessing Officer to tax the income accordingly. 4. Charging of Interest under Section 234B: The Tribunal found that the Assessing Officer erred in charging interest under Section 234B of the Act. The Tribunal noted that the assessee was not liable to pay any advance tax under Section 209 of the Act, as the entire income-tax was deductible or collectible at source. Therefore, the Tribunal directed the deletion of interest charged under Section 234B. 5. Adequate Opportunity for the Assessee: The assessee contended that the Assessing Officer did not grant sufficient opportunity before passing the order, violating the principles of natural justice. The Tribunal noted this lack of adequate opportunity and emphasized the importance of considering the objections/submissions of the assessee. Consolidated Order: The Tribunal dismissed the Revenue's appeal for assessment year 2011-12 and allowed the assessee's appeals for assessment years 2012-13 and 2013-14. The Tribunal's decision was based on its consistent findings in earlier years that the assessee did not have a PE in India, and the income was to be taxed under the Indo-German Treaty at 10%. The Tribunal also directed the release of the Bank Guarantee of ?25 lakhs provided by the assessee. Conclusion: The Tribunal's judgment reaffirmed the non-existence of a PE in India for the assessee, the appropriate tax rate under the Indo-German Treaty, and the importance of adhering to principles of natural justice. The Tribunal's decision was consistent with its previous rulings in the assessee's own case, providing clarity on the application of international tax treaties and the treatment of income for non-resident entities.
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