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2022 (3) TMI 1209 - AT - Income TaxIncome accrued in India - payment received by the appellant from supply of equipment on an offshore basis were taxable in India u/s. 9(1)(i) of the Act r.w. Article 7 of the India - USA DTAA - presence of expat employees - business connection and PE in India - HELD THAT - There is no dispute that the Revenue has taken a particular stand in Assessment Years 2002-03 to 2006-07 which was upheld in the subsequent appellate proceedings. It is also not in dispute that for the year under consideration, there is no specific finding given neither by the Assessing Officer nor by the DRP in respect of the presence of the expat employees. In our considered opinion, whether an assessee has PE in a particular Assessment Year has to be decided on facts of that Assessment Year and not by the facts of earlier Assessment Years. When the assessee has raised specific objections before the DRP, the DRP ought to have given findings on the objections raised by the assessee. We find that the order of the DRP is silent in this respect. Moreover, the premises which were considered to be at the disposal of the employees of the assessee were not in use any more in Assessment Years 2014-15 and 2015-16. This fact is also not dealt with by the revenue authorities. Since the entire assessment order/DRP orders are based on the findings given in Assessment Years 2002-03 to 2006-07, cannot be basis for framing assessment under consideration. Therefore, in the interest of justice and fair play, we deem it proper to restore the appeals to the file of the Assessing Officer/DRP. AO is directed to examine the presence of expat employees for each Assessment Year under consideration and decide the issue afresh after giving reasonable and sufficient opportunity of hearing to the assessee. AO is further directed to examine the transactions claimed to be at arm's length and if found correct, decide the issue as per provisions of law and settled propositions of the Hon'ble High Courts/Supreme Court. Assessee is directed to furnish all necessary details in support of its claim that no expat employees were present during the Assessment Year under consideration. Income from supply of software in India treating the same as royalty in terms of provisions of section 9(1)(vi) of the Act and Article 12 of the DTAA - AO was of the opinion that the words use of or right to use denote that both specific use and use of copy right result in earning of royalty income, even if it is called as 'sale' can be treated as royalty under the provisions of the Act - HELD THAT - This quarrel is now well settled by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Center of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT - we direct the Assessing Officer to delete the impugned addition in the captioned Assessment Years.
Issues involved:
1. Business connection and Permanent Establishment (PE) in India. 2. Taxability of income from supply of software as royalty. Analysis: Issue 1: Business connection and Permanent Establishment (PE) in India - The appeals were against orders framed under section 144C(13) r.w.s. 143(3) of the Income-tax Act, 1961 for Assessment Years 2012-13, 2014-15, and 2015-16. - The challenge was regarding the Assessing Officer's decision that the appellant had a business connection and PE in India, leading to taxable income under section 9(1)(i) and section 9(1)(vi) of the Act. - The appellant, a foreign company supplying goods and software in India, argued against the tax implications based on earlier years' assessments. - The Assessing Officer relied on the appellant's use of marketing support services in India to establish a business connection and PE. - The dispute included the presence of expat employees and the use of office space in India. - The Tribunal found that the Assessing Officer and DRP's reliance on earlier years' findings was not sufficient for the current assessment. - The Tribunal directed a fresh examination by the Assessing Officer on the presence of expat employees and arm's length transactions for each assessment year. Issue 2: Taxability of income from supply of software as royalty - The Assessing Officer treated income from the supply of software in India as royalty under section 9(1)(vi) of the Act and Article 12 of the DTAA. - Referring to the definition of royalty in the India-USA DTAA, the Assessing Officer concluded that specific use or right to use constituted royalty income. - The Tribunal cited a Supreme Court decision stating that payments for software use did not amount to royalty income taxable in India. - Following the Supreme Court decision, the Tribunal directed the Assessing Officer to delete the addition of income from software supply as royalty in the assessed years. In conclusion, the Tribunal allowed the appeals in part for statistical purposes, directing a fresh examination of the issues by the Assessing Officer and deleting the addition of income from software supply as royalty based on the Supreme Court's decision.
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