2020 (6) TMI 99 - AT - Income Tax

PE in India - India-Spain DTAA - business profit carried out through PE - Services rendered from outside India - HELD THAT - There is no such material or finding in the impugned order that any such kind of project or supervisory activity was carried out for more than six months in India. There has to be some kind of onsite planning and supervision activity which is completely absent here in this case, firstly, for the reason that the services have been rendered from outside India and secondly, there is no finding that any personnel of assessee have been performing any kind of such activity in India for a period of more than six months. Activity duration can be seen once any kind of such activities has been carried out on any site or any project in India, which finding is absent completely in the impugned orders, except for hypothesis and presumption without looking the real activity and the income earned. It has to come on record that there was some kind of actual activity which was carried out especially prior to 01.09.2006 through any fixed placed of business or through any personnel in India having crossed the threshold period of six months. We hold that there is no Permanent Establishments during the relevant assessment year 2007-08 for the activities relating to DPIR and engineering services from which the assessee has earned the revenue and same cannot be taxed as business profit carried out through PE in India. It is in the nature of FTS which is to be taxed in accordance with Article 13(4) of India-Spain DTAA. - Decided in favour of the assessee.

Issues Involved:

1. Taxability of receipts under the contract with NATRIP as business income in India.
2. Attribution of income to the alleged Permanent Establishment (PE) in India.
3. Disallowance of aggregate expenditure paid to various entities.
4. Disallowance of expenses paid to M/s IMaCs for non-deduction of tax at source.
5. Disallowance of specific expenses including legal fees, charges for occupying premises, and bank charges.
6. Non-allowance of deduction for personnel and travel expenses related to visits made by personnel in India.
7. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis:

1. Taxability of Receipts as Business Income in India:

The assessee argued that the services rendered under the contract with NATRIP were in the nature of 'fees for technical services' (FTS) and should be taxed under section 115A of the Act, as per Article 13(4) of the India-Spain DTAA, at a rate of 10%. The Assessing Officer (AO) contended that the entire receipts were taxable as business income in India due to the existence of a Permanent Establishment (PE) in India. The Tribunal found that the services related to DPIR and engineering services were provided from Spain and not through any PE in India. Therefore, these services were taxable as FTS and not as business income.

2. Attribution of Income to the Alleged PE:

The AO attributed 75% of the total receipts to the alleged PE in India. The Tribunal noted that the project office was established on 01.09.2006 for construction supervision, which was later removed from the scope of work. The receipts for DPIR and engineering services were received before the establishment of the project office. The Tribunal concluded that no PE existed in India for the relevant assessment year, and thus, the income could not be attributed to a PE.

3. Disallowance of Aggregate Expenditure:

The AO disallowed expenses paid to M/s GPO Ingeneria S.A., M/s AVL Iberica S.A., and Mr. Alex Punset, arguing that these expenses were not incurred for earning income in connection with the NATRIP project. The Tribunal, however, did not find specific details or evidence in the AO's order to support this disallowance and held that these expenses should be allowed.

4. Disallowance of Expenses Paid to M/s IMaCs:

The AO disallowed ?70,00,000/- paid to M/s IMaCs for non-deduction of tax at source under section 40(a)(ia). The Tribunal did not specifically address this issue, likely because it was covered under the broader conclusion that the income was not attributable to a PE in India.

5. Disallowance of Specific Expenses:

The AO disallowed legal fees, charges for occupying premises, and bank charges. The Tribunal did not specifically address these disallowances, but the overall conclusion implied that expenses related to services rendered from Spain should be allowed.

6. Non-Allowance of Deduction for Personnel and Travel Expenses:

The AO did not allow deductions for personnel and travel expenses related to visits made by the assessee's personnel in India. The Tribunal found that the services were rendered from Spain and not through any PE in India, implying that such expenses should be considered as incurred for earning income and thus allowable.

7. Initiation of Penalty Proceedings:

The AO initiated penalty proceedings under section 271(1)(c) of the Act. The Tribunal's decision to allow the appeal in favor of the assessee implies that the basis for penalty was not upheld.

Conclusion:

The Tribunal allowed the appeal in favor of the assessee, concluding that the services rendered under the contract with NATRIP were taxable as 'fees for technical services' and not as business income, as there was no Permanent Establishment in India for the relevant assessment year. The Tribunal directed that the income should be taxed in accordance with Article 13(4) of the India-Spain DTAA.

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