2021 (4) TMI 213 - AT - Income Tax

Income deemed to accrue or arse in India - treating the receipts from TCL as royalty and taxed under India-UK Tax Treaty - whether Liaison Office (LO) constitutes a permanent establishment in India?- Whether Land Earth Station ('LES') constitutes a permanent establishment of the Appellant in India? - AR submitted that the lower forums and the DRP has treated the receipts from TCL as royalty and made taxable at 10% under India-UK Tax Treaty. Therefore the action of the A.O and lower forums are not in accordance with law and the Hon'ble Tribunal in assessee's own case in earlier years has granted relief to the assessee - HELD THAT - We find the submissions of the Ld. AR are realistic and the Ld. AR also referred to the DTTA between India-UK Tax Treaty and decision of the Hon'ble Tribunal for the A.Y 2015-16, wherein this disputed issues have been dealt. The Hon'ble Tribunal in assessee's own case 2020 (10) TMI 1188 - ITAT MUMBAI conclude, that the amounts received by the assessee from TCL for providing Satellite Telecommunication Services is not to be held as royalty in its hands. PE in India - whether Liaison Office (LO) of the assessee constituted its PE in India and that the Land Earth Stations (LES) constituted a PE of the assessee in India - HELD THAT - As decided in own case 2020 (10) TMI 1188 - ITAT MUMBAI A.O/DRP had in the aforesaid preceding years concluded that the LO and LES were to be treated as the PE on the assessee in India, remains the same, as are involved in the appeal of the assessee for the year under consideration, we therefore respectfully follow the aforesaid order of the Tribunal. Accordingly, in the backdrop of our aforesaid observations, we herein conclude that the assessee did not have any PE in India during the year under consideration. Considering the profitability on ad hoc basis of 30% on gross receipts from TCL by applying the Rule 10 of Income Tax Rules, 1962 - HELD THAT - Theaforesaid issue pertains to the computing the income of the assessee attributable to its PE in India. Since we have upheld the primary stand of the assessee that there does not exist any PE of the assessee in India, thus, the dispute in ground of appeal No. 8 having been rendered as merely academic as dismissed as infructuous. Levying surcharge, secondary education cess and higher secondary education cess over and above the tax computed - HELD TAT - Tax computed at the rate prescribed under the India-U.K. tax treaty is not be subjected to any additional taxes in the form of surcharge or education cess. We thus set aside the view taken by the lower authorities and direct the A.O to recompute the tax liability of the assessee in terms of our aforesaid observations. Denial of TDS credit - HELD THAT - Since the matter requires examination and verification of the facts in respect of Tax credits. We restore this disputed issue to the file of A.O to grant credit after verification and allow the ground of appeal for the statistical purposes.

Issues Involved:

1. Determination of total income.
2. Classification of amounts received from Tata Communications Limited (TCL) as 'Royalty'.
3. Non-adherence to previous Tribunal decisions.
4. Ignoring advance ruling by ISRO.
5. Unilateral amendment's impact on India-UK Treaty.
6. Existence of Permanent Establishment (PE) through Liaison Office (LO).
7. Existence of PE through Land Earth Station (LES).
8. Ad-hoc profitability assessment.
9. Tax computation rate.
10. Levying of surcharge and education cess.
11. Granting TDS credit.
12. Levying interest under Section 234B.
13. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Determination of Total Income:
The Tribunal addressed the assessee's appeal against the assessment order that determined the total income at ?6,18,98,220 instead of 'Nil' as declared by the appellant.

2. Classification of Amounts Received from TCL as 'Royalty':
The Tribunal examined whether the amounts received from TCL should be classified as 'Royalty' under Section 9(1)(vi) of the Act and Article 13(3)(a) of the India-UK Tax Treaty. The Tribunal referred to its previous decisions, concluding that the amounts received for providing Satellite Telecommunication Services to TCL were not to be treated as royalty, following its earlier judgments for the years 2000-01 to 2012-13.

3. Non-Adherence to Previous Tribunal Decisions:
The Tribunal noted that the lower authorities failed to follow the jurisdictional Mumbai Tribunal's decisions in the appellant's own case for previous assessment years, where it was held that receipts from TCL were not in the nature of royalty.

4. Ignoring Advance Ruling by ISRO:
The Tribunal observed that the lower authorities did not follow the advance ruling obtained by ISRO, which was affirmed by the Supreme Court, regarding the non-taxability of receipts as 'Royalty'.

5. Unilateral Amendment's Impact on India-UK Treaty:
The Tribunal held that a unilateral amendment of the term 'process' under the Act could not be imported into the definition of 'royalty' under Article 12 of the India-UK Treaty, referencing the Delhi High Court's decision in New Skies Satellite BV.

6. Existence of Permanent Establishment (PE) through Liaison Office (LO):
The Tribunal found that the lower authorities erred in concluding that the LO constituted a PE in India. It was noted that the LO was approved by the RBI for liaison activities and did not engage in any business or trading activities.

7. Existence of PE through Land Earth Station (LES):
The Tribunal concluded that the LES did not constitute a PE of the appellant in India, as it was owned and operated by TCL, not the appellant.

8. Ad-Hoc Profitability Assessment:
The Tribunal dismissed the ground related to ad-hoc profitability assessment at 30% of gross receipts from TCL as infructuous, given there was no PE in India.

9. Tax Computation Rate:
The Tribunal directed the AO to recompute the tax liability at the rate prescribed under the India-UK Tax Treaty without any additional taxes in the form of surcharge or education cess, following the precedent set by the ITAT, Kolkata.

10. Levying of Surcharge and Education Cess:
The Tribunal held that the tax computed at the rate prescribed under the India-UK Tax Treaty should not be subjected to surcharge or education cess, aligning with the Tribunal's previous decisions.

11. Granting TDS Credit:
The Tribunal restored the issue of granting TDS credit of ?61,89,852 to the AO for verification and appropriate action.

12. Levying Interest under Section 234B:
The Tribunal did not specifically address this ground, implying it was not pressed by the appellant.

13. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal did not specifically address this ground, implying it was not pressed by the appellant.

Conclusion:
The appeal was partly allowed for statistical purposes, with directives for the AO to recompute the tax liability and verify the TDS credit. The Tribunal's decision was pronounced in the open court on 24.03.2021.

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