2022 (2) TMI 697 - AT - Income Tax

Income accrued in India - income of the assessee from contracts entered into on or after 1st April, 2003 - whether effectively connected to PE of the assessee and 'not FTS' and liable to tax on net basis as per provisions of section 44DA? - HELD THAT - As decided in own case 2018 (6) TMI 401 - ITAT DELHI assessee's receipts from the contracts in India are not effectively connected with PE in India. Accordingly,as directed the Assessing Officer to tax such receipts on net basis as per section 44DA of the Act. - Decided against Revenue.

Summary

Issues:
1. Whether the income of the assessee from contracts entered into on or after 1st April, 2003 are effectively connected to the Permanent Establishment (PE) of the assessee and 'not FTS' and liable to tax on a net basis as per provisions of section 44DA of the Act.

Analysis:
The case involved an appeal by the Revenue against an order of the Income Tax Commissioner (Appeals) for the assessment year 2012-13. The assessee, a non-resident company incorporated in Netherlands, provided consultancy services related to civil and structural engineering projects in India through a branch office. The Assessing Officer taxed all receipts of the assessee on a gross basis, considering them effectively connected to the PE in India. However, the Commissioner (Appeals) held that the receipts were not connected to the PE and directed the Assessing Officer to tax them on a net basis under section 44DA of the Act.

Upon review, the Tribunal found that the issue was previously decided in favor of the assessee in earlier assessment years. Referring to a previous decision, the Tribunal upheld that contracts entered into after 1st April, 2003 were effectively connected with the PE in India, and thus, taxable on a net basis. The Tribunal noted that the Assessing Officer had overlooked relevant documents submitted by the assessee and incorrectly concluded that the contracts were not connected to the PE. The Tribunal emphasized that the activities under the contracts were carried out in India for a substantial period, indicating a PE existence in India.

Given the identical facts and previous decisions, the Tribunal upheld the decision of the Commissioner (Appeals) and dismissed the appeal by the Revenue. The Tribunal concluded that the income earned by the assessee from contracts in India was effectively connected to the PE and should be taxed on a net basis as per section 44DA of the Act. The appeal was ultimately dismissed, affirming the decision of the Commissioner (Appeals).

In conclusion, the Tribunal's decision reaffirmed that income from contracts entered into after 1st April, 2003, by the assessee in India, was effectively connected to the PE and should be taxed on a net basis under section 44DA of the Income Tax Act. The judgment emphasized the importance of considering all relevant documents and activities to determine the tax liability accurately.