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2018 (12) TMI 690 - AT - Income TaxNon-constitution of Permanent Establishment ( PE ) of the Appellant in India - invoking provisions of section 115A - No attribution of income deemed to accrue / arise in India possible to the alleged PE of the Appellant in India - Indo-German Treaty - Held that - We find that the issue in the present appeal is squarely covered by different orders of Tribunal and the Tribunal has decided the issue in favour of assessee 2017 (12) TMI 1337 - ITAT PUNE in turn, relying on earlier decisions and have held that there is no merit in invoking provisions of section 115A in respect of interest and 115A r.w.s. 44DA in respect of support / royalty services; the receipts are to be taxed in the hands of assessee under Indo-German Treaty @ 10%. Assessability of royalty income and interest is decided in favour of assessee. Additions made on account of reimbursement of expenses - plea of assessee is that once the expenses were reimbursed by its Indian subsidiary, then the same cannot be added as its income - Held that -We find that the issue raised by assessee is purely legal in nature and the same is admitted for adjudication. The assessee has also pleaded that the evidence in this regard could not be furnished before the Assessing Officer but the same is being filed before the Tribunal by way of additional evidence. Admitting the same, we direct the AO to verify the copies of invoices in this regard and adjudicate the issue in turn, giving reasonable opportunity of hearing to the assessee. The assessee is in any case, is entitled to claim the credit for TDS against the aforesaid receipts and we direct the Assessing Officer to allow the same in accordance with law after verifying the claim of assessee.
Issues Involved:
1. Non-constitution of Permanent Establishment (&39;PE&39;) in India 2. No attribution of income deemed to accrue/arise in India to the alleged PE in India 3. Denial of recourse to Non-discrimination clause - Article 24 of the Tax Treaty 4. Construing reimbursements from Indian subsidiary as income of the alleged PE in India 5. Non-grant of credit of TDS deducted on reimbursement of expenses 6. Lack of adequate opportunity Analysis: Issue 1 - Non-constitution of Permanent Establishment (PE) in India: The appellant contested the existence of a PE in India, arguing that its operations were entirely outside India and did not meet the criteria under the Income-tax Act or the India-Germany Tax Treaty. The appellant sought relief from taxation based on the Return of Income. The Tribunal found in favor of the appellant, citing previous decisions and directing the AO to tax India source income at 10% under specific treaty articles. Issue 2 - No attribution of income deemed to accrue/arise in India to the alleged PE in India: The AO attributed India source income to the alleged PE in India, disregarding the appellant's operations outside India. The Tribunal ruled that no income could be attributed to the alleged PE and directed taxation at 10% under treaty articles, rejecting the higher gross basis taxation proposed by the AO. Issue 3 - Denial of recourse to Non-discrimination clause - Article 24 of the Tax Treaty: The appellant argued for the application of Article 24 of the Tax Treaty to prevent discriminatory taxation. The Tribunal agreed with the appellant, directing the AO to tax income on a net basis as per audited financial statements, rather than the higher gross basis taxation under the Act. Issue 4 - Construing reimbursements from Indian subsidiary as income of the alleged PE in India: The AO considered reimbursements from the Indian subsidiary as income of the appellant, leading to an addition to total income. The Tribunal disagreed, stating that such reimbursements were not taxable income, and directed the AO to delete the addition from total income. Issue 5 - Non-grant of credit of TDS deducted on reimbursement of expenses: The AO failed to grant credit for tax deducted at source by the Indian subsidiary on reimbursement of expenses. The Tribunal directed the AO to provide the corresponding credit for TDS deducted, in line with the appellant's claim. Issue 6 - Lack of adequate opportunity: The appellant raised concerns about the lack of sufficient opportunity granted before passing the order. The Tribunal acknowledged the issue and directed the AO to consider the objections/submissions of the appellant in compliance with natural justice principles. The Tribunal's comprehensive analysis and decisions addressed each issue raised by the appellant, providing clarity on taxation, PE existence, treaty provisions, and procedural fairness. The judgment highlighted the importance of adhering to legal principles and treaty obligations in determining tax liabilities.
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