2020 (7) TMI 63 - AT - Income Tax

Rectification u/s 254 - PE in India or not? - tribunal directing the Assessing Officer to verify assessee's claim regarding stay of employees/ personnel in India for rendering service during the previous year - contention of the assessee that during the relevant previous year, assessee's employees/personnel were in India for rendering services for a period of less than 90 days, to be precise, 42 days - HELD THAT - Neither the AO nor learned DRP have given any factual finding on the assessee's claim that during the previous year relevant to the assessment year under dispute, employees/personnel of the assessee were in India for only 42 days and not more than 90 days. While deciding assessee's ground raised on the issue of existence of PE, the Tribunal following its decision in assessee's own case for the assessment year 2012-13 has accepted in principle that the expression any 12 month period as mentioned in Article-5(2)(k)(i) of the India-U.K. Tax Treaty would mean the previous year or financial year as per section 3. Finding that assessee's claim regarding stay of its employees/personnel in India for rendering services for an aggregate period of 42 days has not been factually verified either by the AO or by DRP, the Tribunal while allowing the ground raised by the assessee has issued a direction to the AO to factually verify assessee's claim regarding stay of its employees/personnel in India for an aggregate period of 42 days during the previous year relevant to the assessment year under dispute. There cannot be any mistake in the aforesaid direction of the Tribunal as assessee's claim, though, was made before the Revenue authorities, however, neither the AO nor DRP has recorded any factual finding regarding the aforesaid claim of the assessee. In the aforesaid factual position, it becomes imperative to factually verify assessee's claim regarding the stay of its employees/personnel in India. In case, assessee's claim regarding stay of its employees/personnel in India is found to be correct, then it has to be held that during the year under consideration, the assessee did not have any PE in India. No mistake, much less, a mistake apparent on the face of record as envisaged under section 254(2) of the Act. What the assessee wants by filing this application is a decision from the Tribunal in a particular manner and to its own liking. This cannot be the intent and purpose of section 254(2) of the Act which is only for rectifying mistake apparent on the face of record. Tribunal after considering all relevant facts has taken a conscious decision of directing the Assessing Officer to verify assessee's claim regarding stay of employees/ personnel in India for rendering service during the previous year relevant to the assessment year under dispute. That being the case, there is no mistake in the decision of the Tribunal. No merit in the present application filed by the assessee.

Summary

Issues:
1. Existence of Permanent Establishment (PE) in India.

Analysis:
The primary issue before the Appellate Tribunal was to determine whether the assessee had a Permanent Establishment (PE) in India during the relevant assessment year. The assessee contended that its employees were in India for a period of 42 days, which is less than the 90-day threshold as per Article-5(2)(k)(i) of the India-U.K. Tax Treaty, thus asserting that no PE existed in India. However, the Assessing Officer did not accept this claim, leading to the Tribunal directing a verification of this claim. The Tribunal emphasized the need for factual verification since neither the Assessing Officer nor the Dispute Resolution Panel (DRP) had given any factual finding on the duration of the employees' stay in India. The Tribunal interpreted the term "any 12 month period" in the tax treaty to mean the previous year or financial year. Consequently, the Tribunal directed the Assessing Officer to verify the stay of the employees in India to determine the existence of a PE. The Tribunal concluded that there was no mistake in its decision, as the application was seeking a review rather than rectification, and the factual verification was crucial for a final determination.

In the detailed analysis, the Tribunal highlighted that the Assessing Officer's acceptance of the claim regarding the duration of stay in India was pivotal in determining the existence of a PE. The Tribunal noted that the previous decisions in the assessee's own case were not sufficient to establish the factual basis for the claim. The Tribunal rejected the application, emphasizing that the intent of rectification under section 254(2) of the Act was to correct apparent mistakes on the face of the record, which was not the case here. The Tribunal differentiated the present case from the cited precedent, emphasizing the lack of a factual finding by the Assessing Officer on the specific claim of the employees' stay in India for 42 days. Therefore, the Tribunal dismissed the application, underscoring the necessity for factual verification to conclusively determine the presence or absence of a PE in India.

Overall, the judgment focused on the crucial aspect of factual verification regarding the duration of the employees' stay in India to ascertain the existence of a Permanent Establishment. The Tribunal underscored the significance of factual findings by the revenue authorities and rejected the application seeking a review rather than rectification. The decision highlighted the need for a meticulous examination of the employees' stay in India to determine the tax implications related to Permanent Establishment as per the India-U.K. Tax Treaty.