2019 (12) TMI 380 - HC - Income Tax

PE in India - only supplying aero-engines and spare parts to the Indian customers on principal to principal basis - Whether PE of assessee was in fact liaison office of RRIL in India, which is separately assessed to tax in India and its profit and taxability now has attained finality in the form of agreement under MAP. ? - HELD THAT - As seen that the finding returned by the ITAT-that RRIL constituted the PE of the appellant is primarily a finding of fact based on the appreciation of evidence. No change in the factual matrix is pointed out by the appellant, and the finding returned does not raise a substantial question of law. Submission of Mr. Billimoria is that the amendment incorporated in the second explanation in section 9(1) of the Income Tax Act with effect from 1st April, 2019 would not have retrospective application. This submission has no merit. This is for the reason that while determining the issue whether RRIL constituted the PE of the appellant-assessee, the authorities have not relied upon the said explanation at all, and the determination of the said issue was undertaken dehors the said explanation, upon appreciation of the evidence unearthed during the survey. The explanation may, or may not, be prospective. In any event, the same would certainly not have the effect of nullifying the determination made on the issue of PE on the basis of the evidence collected and the pre existing law as prevalent prior to the amendment of Section 9(1) with effect from 1st April, 2019. That, clearly, is not the purport of the substituted Clause (a) of Explanation-2 to Section 9(1) of the Act, with effect from 1st April, 2019. Another argument advanced by Mr. Billimoria is that the income of the assessee, on the basis that RRIL constituted its PE, has already been subjected to tax in the hands of PE i.e. RRIL, and the revenue is seeking to tax the same again. This submission has no merit. Firstly, this aspect does not raise a substantial question of law, since it is clearly a factual issue. Secondly, the order of the CIT(A) dated 15th February, 2009 was available when this Court rendered its decision on 30th August, 2011 in the case of the assessee, as taken note of hereinabove. No such plea was raised then. It is not open to the appellant to raise it now.

Summary

Issues:
Appeal against common order of Income Tax Tribunal for multiple assessment years; Rejection of appeals based on earlier High Court decision; Applicability of res judicata in taxation matters; Examination of Permanent Establishment (PE) concept; Differentiation of facts for relevant assessment years; Interpretation of Section 9(1) of Income Tax Act; Taxation of income already subjected to tax in PE.

Analysis:
1. The appellant filed an appeal against the common order of the Income Tax Tribunal for various assessment years. The Tribunal rejected the appeals based on a prior High Court decision that held a subsidiary of the appellant constituted a Permanent Establishment (PE) in India. The appellant argued that each assessment year should be treated separately, citing the Supreme Court decision in M.M.Ipoh vs. Commissioner of Income Tax [1968] 67 ITR 106 (SC) to support this stance.

2. The Court acknowledged the legal principle from M.M.Ipoh but emphasized the appellant's failure to demonstrate any significant factual differences for the relevant assessment year compared to the earlier decision. The Tribunal's finding that the subsidiary constituted the PE of the appellant was based on factual evidence and did not raise a substantial question of law.

3. The appellant also contended that an amendment to Section 9(1) of the Income Tax Act should not have retrospective application. However, the Court found this argument lacking merit as the determination of PE was made based on pre-existing law and evidence, independent of the amendment.

4. Another argument raised was that the income already taxed in the hands of the PE should not be taxed again. The Court dismissed this argument, stating it did not raise a substantial legal question and highlighted the Tribunal's consideration of this issue in its order.

5. The Tribunal's decision was upheld, emphasizing that the finding of PE was a factual determination based on evidence. The Court concluded that the questions of law raised by the appellant did not warrant further consideration, leading to the dismissal of the appeals.