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2022 (3) TMI 836 - AT - Income TaxIncome deemed to accrue or arise in India - PE in India - whether or not the assessee has a Business Connection u/s 9(1)(i) and a Permanent Establishment (P.E.) under Article 5 of the India Singapore Double Taxation Avoidance Agreement - if the assessee is said to have Business Connection / P.E., then how much of the profit can be attributed to the said Business Connection / P.E. particularly when the transaction is at arm's length price - HELD THAT - Transfer Pricing Officer accepted the value of international transactions as reported by the Indian A.E. in Form no.3CEB filed along with its return of income and made no adjustment to same. Thus, it is not disputed that the transaction between the assessee and its Indian A.E. was conducted at arm's length and the transfer pricing analysis of the same was also accepted by the Transfer Pricing Officer As facts and circumstances of the present case are similar to the assessment year 2015 16, which have also not been denied by the Revenue. Thus, respectfully following the decision of the Co ordinate Bench rendered in assessee s own case cited supra, we hold that when the Indian A.E. is remunerated at arm's length price no further profit attribution is required and the issue of existence of P.E. becomes wholly tax neutral. Accordingly, the addition made by the Assessing Officer is directed to be deleted. Assessee appeal allowed.
Issues Involved:
1. Business Connection under section 9(1)(i) of the Income Tax Act, 1961. 2. Permanent Establishment (P.E.) under Article 5 of the India-Singapore DTAA. 3. Profit Attribution to the Business Connection / P.E. when transactions are at arm's length price. Detailed Analysis: 1. Business Connection under Section 9(1)(i) of the Income Tax Act, 1961: The assessee, a Singapore-incorporated company, filed its return for the assessment year 2017-18. The Assessing Officer (AO) held that the Indian Associated Enterprise (Indian A.E.) of the assessee constitutes a Business Connection in India under section 9(1)(i) of the Act. Consequently, the business income attributable to operations in India was deemed taxable in India. 2. Permanent Establishment (P.E.) under Article 5 of the India-Singapore DTAA: The AO determined that the Indian A.E. also constitutes a Permanent Establishment (P.E.) of the assessee in India under Article 5(1), 5(2), and 5(8) of the India-Singapore DTAA. This finding was based on the precedent set in the assessment year 2015-16, where a similar conclusion was reached. 3. Profit Attribution to the Business Connection / P.E.: The AO attributed a profit of ?2,09,53,496 to the P.E. in India. The assessee contended that since the Indian A.E. was remunerated at arm's length price, no further profit attribution was necessary. The Dispute Resolution Panel (DRP) upheld the AO’s decision, leading the assessee to appeal. Tribunal's Findings: Arm's Length Price and Profit Attribution: The Transfer Pricing Officer had accepted the arm's length price of the international transactions between the assessee and the Indian A.E. The Tribunal noted that in previous assessment years (2013-14, 2014-15, 2015-16), it was held that when an Indian A.E. is remunerated at arm's length price, no further profit attribution is required. This position was supported by the decision in the case of ADIT Vs Asia Today Limited. Permanent Establishment and Tax Neutrality: The Tribunal emphasized that if the Indian A.E. is remunerated at arm's length price, the existence of a P.E. becomes tax-neutral. The Tribunal referenced the decision in the case of Set Satellite Pte Ltd Vs CIT, where it was held that if an agent is paid an arm's length remuneration, no further profits are attributable to the P.E. Revenue's Argument: The Revenue argued that the decision in the assessee's case for preceding years pertained to the India-Mauritius DTAA, which was not applicable to the present case under the India-Singapore DTAA. However, the Tribunal found no merit in this argument as the principles of arm's length remuneration and profit attribution were consistent across treaties. Conclusion: The Tribunal concluded that since the Indian A.E. was remunerated at arm's length price, no additional profit attribution was necessary, making the issue of P.E. existence tax-neutral. Consequently, the addition made by the AO was directed to be deleted, and the appeal by the assessee was allowed. Order: The appeal by the assessee was allowed, and the order was pronounced in the open court on 08/03/2022.
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