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2021 (5) TMI 477 - AT - Income TaxTaxation of royalty income - consider the royalty income worked out in terms or the APA - seeking modification in quantum of royalty, received from the Indian AE, being taxed in the hands of the assessee - quantum of actual refunds of royalties - HELD THAT - The practical connotations of the second proviso to Section 92CE(1) was that relief granted by insertion of words on or after the 1st day of April 2017 in Section 92CE(1)(iii) was with prospective effect. Learned CIT(DR) has been a bit too na ve in ignoring the import of words if any, by virtue of provisions of this sub-section as they stood immediately before their amendment by the Finance (No. 2) Act, 2019 shall be claimed and allowed in the proviso, and, therefore, ended up reading a bit too much into this rather innocuous and unidimensional provision. It is thus not correct to say that, in principle, in terms of the provisions of section 92CE, no refund of taxes could be claimed or allowed on account of secondary adjustments- even if, for example, as in this case, such secondary adjustments end up reducing the income of the foreign AE assesses as a result of partial repatriation of income. A lot of emphasis is then placed by the learned CIT(DR) on the claim that the action of the assessee, in partially refunding the royalty amount to the GIA India, i.e., Indian AE, was voluntary inasmuch as the assessee was not a party to the APA. Nothing, however, turns on this plea. Whether the refund was voluntary or under a legal obligation, it does not really make any difference as long as the refund is bonafide and particularly when its commercial expediency is not, and rightly so, even called into question. None of the objections taken by the DRP or raised by the learned CIT(DR), for the detailed reasons, set out above, really impresses us. Thus we are of the considered view that, in principle, the claim of the assessee deserves to be accepted. However, as learned CIT(DR) rightly points out, factual aspects with respect of these claims, i.e., with respect to verifications and quantum of actual refunds of royalties by the assessee, have not been examined at any stage. We, therefore, deem it fit and proper to accept the claim of the assessee, in principle, but remit it back to the Assessing Officer for verification of factual elements embedded in the claim of the assessee. Ordered, accordingly. Appellant has a Permanent Establishment ( PE ) in India or not? - HELD THAT - Issues in appeal are squarely covered by a decision of the coordinate bench, in assessee s own case for the immediately preceding assessment year i.e. 2010-11 2019 (7) TMI 859 - ITAT MUMBAI wherein held Assessing Officer has erred in invoking section 9 of the Act and/or Article 5 of the India-USA DTAA in order to say that the assessee company has a PE in India. Thus, assessee succeeds on this issue Taxing the royalty received during the year u/s. 44DA of the Income Act - whether DRP has erred in holding that the royalty income is effectively connected with the alleged PE of the Appellant in India and is therefore taxable u/s. 44DA of the Income Tax Act, 1961 @40% - HELD THAT - As LR agree that once we come to the conclusion that there is no PE on the facts of this case, there will be no occasion of royalty being effectively connected with the PE or taxability of royalty under section 44DA. This issue is also, therefore, academic and infructuous in the present context. Levy of interest under section 234B - HELD THAT - AR fairly agree that since the assessment year before us pertains to the period prior to insertion of Explanation to Section 209(1), with effect from 1st April 2012, the law stood at that point of time, irrespective of the actual deduction of tax at source, as long as the tax is deductible at source, the tax deductible will be reduced from the advance tax liability. That is what Hon ble jurisdictional High Court has held in the case of DIT Vs NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT The levy of interest under section 234B, on the facts of this case when tax withholding obligations under section 195 were clearly applicable in respect of any payment, having an element of income taxable in India, to the assessee, is wholly unsustainable in law. We, therefore, uphold the plea of the assessee on this point.
Issues Involved:
1. Taxation of Royalty Income 2. Permanent Establishment (PE) in India 3. Business Connection in India 4. Attribution of Profits 5. Levy of Interest under Section 234B 6. Credit for Tax Deducted at Source (TDS) Detailed Analysis: 1. Taxation of Royalty Income: The core issue was whether the royalty income, refunded by the assessee to its Indian AE under the terms of an Advance Pricing Agreement (APA), could still be taxed in the hands of the assessee. The Tribunal held that the refunded amount should not be taxed as income since it did not eventually belong to the assessee. The Tribunal emphasized that only the net amount, after the refund, should be considered as taxable income. The Tribunal remanded the matter to the Assessing Officer for verification of the actual refunds made. 2. Permanent Establishment (PE) in India: The Tribunal followed the decision of a coordinate bench in the assessee's own case for the assessment year 2010-11, concluding that the assessee did not have a PE in India under Article 5 of the Indo-US tax treaty. The Tribunal noted that the Indian subsidiary operated independently and bore all economic risks, and thus could not be considered a fixed place PE, service PE, or agency PE of the assessee. 3. Business Connection in India: The Tribunal also held that the assessee did not have a business connection in India under Section 9 of the Income Tax Act, 1961. The Tribunal reiterated that the Indian subsidiary operated independently and bore all economic risks, thus negating the existence of a business connection. 4. Attribution of Profits: Given the conclusion that the assessee did not have a PE or business connection in India, the issues regarding the attribution of profits were rendered infructuous and did not require adjudication. 5. Levy of Interest under Section 234B: The Tribunal held that the levy of interest under Section 234B was unsustainable because the tax withholding obligations under Section 195 were applicable. The Tribunal followed the jurisdictional High Court’s decision in DIT Vs NGC Network Asia LLC, which stated that as long as tax is deductible at source, it will reduce the advance tax liability. 6. Credit for Tax Deducted at Source (TDS): The Tribunal remanded the issue of credit for TDS to the Assessing Officer for fresh adjudication, directing that the assessee be given an opportunity of hearing and the matter be decided by a speaking order. Conclusion: The Tribunal provided a comprehensive analysis of each issue, ensuring that the legal principles and factual circumstances were duly considered. The Tribunal's decisions were consistent with established legal precedents and the specific facts of the case. The remanding of certain issues for verification reflects the Tribunal's commitment to ensuring accurate and fair tax assessments.
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