2018 (2) TMI 298 - AT - Income Tax

Income from service as Fees for technical services - estimated income @ 2.6 % on total Sales for working out the profits attributable to the PE in India - income of the PE should be attributed @ 2.6% of the Sales made by the GE Overseas entities in India - Held that - It goes without saying that if an invoice has been cancelled, then that cannot be considered for the purpose of computing income. Under these circumstances, we direct the Assessing Officer to examine this aspect as well and exclude the amount from cancelled invoices, after proper verification. The exercise as discussed above can be done by the AO only if the assessee extends co-operation and furnishes all the relevant agreements or other documents as be called for by the Assessing Officer for determining the amount of income from rendition of services. The ld. AR has undertaken to supply all the necessary documents and details as may be required by the AO. It is made clear that if the assessee fails to supply the information/documents as required by the Assessing Officer, as happened during the course of original assessment proceedings, then the Officer will be entitled draw an adverse inference against the assessee and proceed to make a fair and reasonable estimate. With the above observations, we remit the matter to the file of the Assessing Officer for deciding the above issues afresh in consonance with our above observations after allowing a reasonable opportunity of being heard to the assessee.

Summary

Issues:
- Installation of Permanent Establishment (PE)
- Ad hoc attribution of income between Sales and Services
- Taxability of income as fees for technical services

Installation of Permanent Establishment (PE):
The Tribunal dismissed the issue of installation of PE as the PE in the form of fixed place and agency was already established. The AR did not press this issue, leading to its dismissal.

Ad hoc attribution of income between Sales and Services:
The Tribunal estimated income at 2.6% of total Sales for determining profits attributable to the PE in India. The AR argued that the assessee provided both equipment and services, necessitating a separate assessment for service income. The Assessing Officer calculated service income based on a percentage of total invoice value, as the assessee did not provide details for other years. The Tribunal directed a fresh investigation by the AO to examine each agreement for deducing service income, excluding canceled invoices and reimbursements without markup.

Taxability of income as fees for technical services:
The AR requested consideration of taxability of income as fees for technical services in line with a Supreme Court judgment. The Tribunal remitted this issue to the AO for reevaluation, emphasizing cooperation from the assessee in providing necessary documents. The AO was directed to consider the dominant purpose of contracts for prospecting mineral oil and examine the taxability of income as fees for technical services if pressed by the assessee.

The Tribunal allowed all eight appeals for statistical purposes and remitted the issues back to the Assessing Officer for fresh adjudication in accordance with the observations provided.