2018 (9) TMI 961 - AT - Income Tax

Service PE in India - Held that - All the requisite conditions for attracting the mandate of Art. 5(2)(k)(i) stand satisfied inasmuch as I, there is furnishing of services including managerial services; ii. Such services are other than those taxable under Article 13 (Royalties and fees for technical services); iii. Such services are rendered within India; iv. Such services are rendered by the assessee through its employees; and v. such activities continued for a period of more than ninety days within twelve months period. We hold that JCB India constituted a service P.E of the assessee in India. The impugned order on this score is set aside and the view taken by the AO is restored. Rectification application u/s 154 - AO for granting complete credit of Tax Deducted at Source (TDS) and to rectify the interest inadvertently levied under Section 234A - Held that - Assessing Officer passed the rectification order wherein complete credit of TDS was granted to the assessee and consequential interest u/s 234B was accordingly rectified. Also, the Assessing Officer rectified the interest inadvertently levied under Section 234A and the same was reduced to Nil. Further, interest under Section 234B, 234C, 234D & 244A are consequential in nature. Hence, Ground allowed for statistical purpose.

Summary

Issues Involved:

1. Consideration of submissions by the Appellant.
2. Existence of a service Permanent Establishment (PE) in India.
3. Classification of Technology Transfer Agreement (TTA) and International Personnel Assignment Agreement (IPAA).
4. Connection of royalty earned to the alleged service PE.
5. Computation mechanism for chargeability of royalty income.
6. Attribution of income to the Indian company.
7. Consistency with previous tribunal orders.
8. Levying of interest under various sections of the Income Tax Act.
9. Initiation of penalty proceedings under section 271(i)(c).

Issue-wise Detailed Analysis:

1. Consideration of Submissions by the Appellant:
The appellant argued that the assessment order was passed without due consideration of their submissions. However, the tribunal dismissed this ground as general in nature.

2. Existence of a Service Permanent Establishment (PE) in India:
The appellant contested that they did not have a service PE in India under Article 5 of the India-UK DTAA. The tribunal referred to its previous decisions for the assessment years 2006-07 and 2012-13, where it was held that the conditions for a service PE were satisfied. The tribunal reiterated that JCB India constituted a service PE of the appellant in India, thus dismissing this ground.

3. Classification of Technology Transfer Agreement (TTA) and International Personnel Assignment Agreement (IPAA):
The appellant argued that TTA and IPAA were independent contracts for different purposes, and the seconded employees were employees of JCB India. The tribunal, following its earlier decisions, dismissed this ground, holding that the secondment of employees resulted in the establishment of a service PE.

4. Connection of Royalty Earned to the Alleged Service PE:
The appellant contended that the royalty earned was not effectively connected to the alleged service PE. The tribunal, referencing its previous orders, agreed with the appellant, stating that the service PE had no role in the creation or availability of IP rights to JCB India. Thus, this ground was allowed in favor of the appellant.

5. Computation Mechanism for Chargeability of Royalty Income:
The appellant argued that the entire royalty received could not be subjected to tax in India as no functions, assets, or risks were associated with the alleged PE in India. The tribunal, following its previous decisions, allowed this ground, stating that the royalty income could be taxed only to the extent of profits attributable to Indian operations.

6. Attribution of Income to the Indian Company:
The appellant claimed that no further attribution was possible as JCB India was earning profit at arm’s length. The tribunal set aside this issue to the file of the Assessing Officer for fresh determination, following the principles of natural justice.

7. Consistency with Previous Tribunal Orders:
The appellant argued that the tribunal's previous order for AY 2006-07 should be followed, where it was held that the royalty earned was not effectively connected to the alleged service PE. The tribunal agreed and allowed this ground in favor of the appellant.

8. Levying of Interest under Various Sections of the Income Tax Act:
The appellant contended that the Assessing Officer erred in levying interest under sections 234A, 234B, 234C, and 234D. The tribunal noted that the Assessing Officer had passed a rectification order granting complete credit of TDS and rectifying the interest levied under section 234A. Consequently, the interest under sections 234B, 234C, 234D, and 244A were consequential in nature. Hence, this ground was allowed for statistical purposes.

9. Initiation of Penalty Proceedings under Section 271(i)(c):
The appellant argued that the initiation of penalty proceedings for furnishing inaccurate particulars of income was premature. The tribunal dismissed this ground, considering it premature in nature.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific grounds being decided in favor of the appellant and others dismissed or set aside for fresh determination.