2022 (3) TMI 1292 - HC - Income Tax

Application u/s 197 - profits to the Permanent Establishment (PE) of the petitioner therein in India, at the rate of 26% - HELD THAT - In case the petitioners were to move an application u/s 197 of the Act for FY 2022-2023, and if the contentions raised in the writ petitions form part of the said application, including what is noted hereinabove by us with regard to the attribution of profits to the PE, the same will be dealt with by the AO, as per law. At this stage, Mr Jolly says that the petitioners will move an application for the F.Y.2022-2023, within four weeks of receipt of a copy of this order. In case, such an application is moved, the AO will dispose of the same within four weeks of the receipt of the application.

Summary

Issues:
Challenging order(s) dated 23.09.2021 by Assessing Officer under Section 197 of the Income Tax Act, 1961 for FY 2021-2022.

Analysis:
The writ petitions challenged the order(s) dated 23.09.2021 by the Assessing Officer (AO) regarding the application(s) filed under Section 197 of the Income Tax Act, 1961 for the Financial Year (FY) 2021-2022. The petitioners sought a "Nil" withholding tax rate, but the AO determined it at 4%. Mr. Jolly, representing the petitioners, argued that the AO's decision was erroneous, citing a Tribunal judgment attributing profits to the Permanent Establishment (PE) in India at 26%. Despite the petitioners' claim of no PE in India, Mr. Jolly contended that a 26% attribution rate would result in a tax withholding rate not exceeding 1.04%. He criticized the AO's failure to address this crucial aspect in the impugned order, and dismissed the AO's claim of contract splitting by the petitioners.

Regarding the respondents' defense, Mr. Rai supported the AO's decision as legally valid. He acknowledged the 26% profitability attributed to the PE in India in previous proceedings, which would limit the tax withholding rate to 1.04%. However, Mr. Jolly expressed intent not to pursue the current writ petitions due to the FY ending soon, opting to file a fresh application for FY 2022-2023. He requested the AO to consider the contentions raised in the writ petitions in the new application. The Court directed that if the petitioners file an application for FY 2022-2023 under Section 197, the AO must address the contentions raised, particularly regarding profit attribution to the PE, in accordance with the law.

Consequently, the Court observed that if the petitioners submit an application for FY 2022-2023 within four weeks, the AO must decide on it within the same timeframe, ensuring a fair hearing for the petitioners. The Court emphasized that its observations would not influence the AO's decision on the fresh application. The writ petitions were disposed of under these terms, and any pending applications were closed. Parties were instructed to act based on the digitally signed copy of the order.