2022 (6) TMI 959 - HC - Income Tax

Income accrued in India - PE in India - as per revenue as detected at the time of survey u/s. 133A wherein the Assessee has carried out all the business activities from the Liaison office - Whether ITAT is correct in holding that the Assessee's case does not constitute the PE as per Article 5(2)(c) of Indo-Mauritius DTAA? - HELD THAT - The argument advanced by Appellant based on Article 5(2)(c) of the Treaty overlooks Clause (3) of Article 5, wherein it is stated that notwithstanding Clause (2), the term permanent establishment will not include certain categories. Article 5(3)(e) excludes certain categories. We have gone through the order of the Tribunal. Tribunal has elaborately discussed the evidence produced through documents impounded during the survey. The Tribunal noted the documents exchanged by the persons co-ordinating in the activities carried out at the site and the list of messages, including fax and radio messages. Tribunal referred to the employees at this office and examined the roles performed by each of the employees. The Tribunal found that the role of employee Mr.Tarkar was only logistic and coordination, whereas Mr.Rodrigues looked after arranging meetings. Two other employees were only looking after communications. Tribunal, having considered this material, recorded a finding that none of the documents showed any business done from the office. The documents such as the departmental paper-book and daily progress report, which were examined, showed that the work provided backend operations. It was not established by the Appellant- Revenue that any substantial business has been done from the office. After considering these documents, Tribunal found that the concerned place of business was only for the supply of information having preparatory or auxiliary character. Accordingly, the Tribunal concluded that the same would fall under Article (5)(3)(e)(ii). This finding of fact, recorded by the Tribunal after due consideration of the material on record, cannot be considered as perverse. The view taken by the Tribunal is a possible view, and that being the position, the question of law (a) sought to be presented as a substantial question of law is a factual question, and the Commissioner (Appeals) and the Tribunal having recorded concurrent findings on the factual issue, we hold that it does not arise for consideration.

Summary

Issues involved:
Appeal by Revenue against ITAT order for assessment year 1998-99 challenging Commissioner of Tax (Appeals) order - Whether Assessee's case constitutes "PE" as per Article 5(2)(c) of Indo-Mauritius DTAA - Whether Assessee's case can be covered by Articles 5(2)(i) and 5(2)(c) simultaneously - Whether activities at Liaison Office constitute preparatory or auxiliary services - Whether Assessee has a permanent establishment as per Indo-Mauritius Tax Treaty.

Analysis:
1. The appeal was filed by the Revenue against the common order passed by the Income Tax Appellate Tribunal for two appeals, one by Revenue and the other by the Assessee, for the assessment year 1998-99. The Tribunal dismissed Revenue's appeal while allowing the Assessee's appeal. The issue raised was whether the Assessee's case constituted a Permanent Establishment (PE) as per Article 5(2)(c) of the Indo-Mauritius DTAA. The Assessee contended that its office in India was only a liaison office and not a PE. The Tribunal upheld the Assessee's contention, leading to the dismissal of Revenue's appeal.

2. The Revenue pressed questions of law challenging the Tribunal's decision. The arguments revolved around the interpretation of Article 5 of the Treaty, defining a PE. The Revenue argued that based on a survey conducted under section 133A of the Income Tax Act, it was found that the Assessee operated its business from the office in Dubai, not Mauritius. However, the Tribunal, after examining the evidence, found that the activities at the office in India were preparatory or auxiliary in nature and did not constitute substantial business operations. Therefore, the Tribunal concluded that the office did not qualify as a PE under Article 5(2)(c) of the Treaty.

3. The Tribunal extensively analyzed the evidence, including documents impounded during the survey, employee roles, and the nature of activities conducted at the office. It was observed that the office primarily handled logistical and coordination tasks, with no substantial business operations being conducted. The Tribunal's findings were based on a thorough review of the material on record, leading to the conclusion that the office fell under the exclusion provided in Article 5(3)(e)(ii) of the Treaty. The Tribunal's decision was considered reasonable and not perverse, as it was supported by the evidence presented.

4. The Tribunal's findings on the questions of law raised by the Revenue were upheld, leading to the dismissal of the appeal. The Court emphasized that the Tribunal's decision was based on factual considerations and did not warrant interference. The arguments presented by the Revenue were deemed insufficient to challenge the Tribunal's well-founded conclusions. Therefore, the questions of law raised by the Revenue were not considered substantial, and the appeal was ultimately dismissed.

In conclusion, the judgment delves into the interpretation of the Indo-Mauritius DTAA regarding the establishment of a PE and highlights the importance of factual evidence in determining the nature of business operations conducted at a specific office location. The Tribunal's thorough analysis and reasoned decision-making process were pivotal in resolving the dispute between the Revenue and the Assessee, ultimately leading to the dismissal of the appeal.