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2018 (10) TMI 489 - AT - Income TaxIncome accrued in India - business connection in India u/s 9 - Permanent Establishment (PE) in India under Article 5 of the Indo-US Taxation Avoidance Agreement - assessment of business profits - Held that - As decided in assessee s own case the Tribunal considered the issues at length and reached the conclusions that though the assessee has a business connection in India, it had neither fixed nor the agencies PE in India, as such in the absence of any PE in India, the profits, if any, attributable to Indian operations could not be assessed as business profits under Article 7 of the Treaty. It was also held that the agents engaged by the assessee in this matter are independent agents under Article 5(5) of the Treaty and they do not habitually exercise the authority to conclude the contracts on behalf of the assessee, and, on that premise it was held that there is no agency PE of the assessee in India. The sum and substance of the order of the Co-ordinate Bench of the Tribunal is that though the assessee had business connection, it did not have any fixed place PE or agency place PE in India, and, in the absence of any PE in India, the profits, if any, attributable to India s operation could not be assessed as business profits under Article 7 of the Treaty. - decided in favour of assessee.
Issues Involved:
1. Taxability of income from money transfer services in India. 2. Existence of Permanent Establishment (PE) in India. 3. Attribution of profits to operations in India. 4. Liability to pay interest under section 234B of the Income Tax Act. Detailed Analysis: 1. Taxability of Income from Money Transfer Services in India: The primary issue was whether the income earned by the assessee, a non-resident company, from money transfer services in respect of remittances made to individuals in India is liable to tax in India. The Assessing Officer (AO) argued that the income should be taxed in India due to the business connection and the existence of a Permanent Establishment (PE) in India. However, the CIT(A) and the Tribunal held that in the absence of a PE, the profits attributable to Indian operations could not be assessed as business profits under Article 7 of the Indo-US DTAA. 2. Existence of Permanent Establishment (PE) in India: The AO contended that the assessee had a PE in India through its agents and the software installed on the agents' premises. The AO's arguments included: - The agents were provided with software to access the assessee's international host server. - The agents' premises displayed the Western Union logo, indicating the presence of the assessee's business. - The agents were economically dependent on the assessee, lacked requisite resources, and required the assessee's support. The Tribunal, however, concluded that the agents were independent agents under Article 5(5) of the DTAA and did not habitually exercise authority to conclude contracts on behalf of the assessee. The Tribunal emphasized that the agents' activities were in the ordinary course of their business and not devoted wholly or almost wholly to the assessee. Furthermore, the software provided did not constitute a PE as it was used merely to access the mainframe computers in the USA and did not grant the assessee control over the agents' premises. 3. Attribution of Profits to Operations in India: Given the Tribunal's finding that there was no PE in India, the issue of attributing profits to the assessee's Indian operations became moot. The Tribunal dismissed this ground as infructuous. 4. Liability to Pay Interest under Section 234B: The AO argued that the assessee was liable to pay interest under section 234B for short deduction or non-deduction of tax. However, since the Tribunal held that there was no PE in India, this ground was also dismissed as having become infructuous. Conclusion: The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. It concluded that the assessee did not have a PE in India, and therefore, the income from money transfer services was not liable to tax in India. Additionally, the issues of profit attribution and interest under section 234B were rendered moot. The appeal filed by the Revenue was dismissed.
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