2022 (12) TMI 700 - HC - Income Tax

PE in India - activities of Research and development activities do not constitute a PE of the assessee in India - HELD THAT - The question of law set out is covered by the decision Adobe Systems Incorporated 2016 (5) TMI 728 - DELHI HIGH COURT Revenue from software supplies - taxable as Royalty under Article 12 of the India-Finland Double Taxation Avoidance Agreement - HELD THAT - As it is admittedly covered by the decision of the Supreme Court rendered in Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT Permanent Establishment PE in India - profits attribution - HELD THAT - The Tribunal has returned a finding of fact, that the respondent/assessee recorded a global net loss in the relevant assessment year, and therefore no profit could have possibly been attributed to it. Having regard to the following finding of fact returned by the Tribunal, we are of the view that the proposed questions of law i.e., A and B would not arise for consideration. A plain reading of the Article 7 of the Double Taxation Avoidance Agreement entered into between India and Finland also persuades us to take the same view as that which is taken by the Tribunal. A plain reading of the Article 7(1) would show, that the issue of taxability would arise qua the respondent/assessee only if profits accrue to the respondent/assessee, and that too only to the extent they can be attributed to its PE in India. Given this position, we are not inclined to entertain the appeal.

Summary

Issues:
Condonation of delay in re-filing appeal, Interpretation of Double Taxation Avoidance Agreement, Taxability of profits attributed to Permanent Establishment, Legal questions proposed by appellant/revenue, Application of Special Bench Judgment, Relevance of Article 7 of DTAA.

Analysis:
The judgment involves the appellant seeking condonation of delay in re-filing the appeal, challenging an order by the Income Tax Appellate Tribunal. The appellant raises questions regarding the existence of a Permanent Establishment (PE) and attribution of profits to it under the India-Finland Double Taxation Avoidance Agreement. The Tribunal found that the respondent recorded a global net loss, leading to no profits attributable to the PE. The judgment extensively discusses the Special Bench ruling's application, emphasizing that no profit can be attributed to the assessee in India due to global net losses. The Tribunal's factual findings lead to the conclusion that the proposed legal questions by the appellant are not relevant. The judgment highlights the importance of Article 7(1) of the DTAA in determining taxability based on profits accruing to the assessee and their attribution to the PE. Consequently, the appeal is dismissed based on the Tribunal's findings and the provisions of the DTAA.

This detailed analysis covers the issues of delay condonation, interpretation of the DTAA, taxability of PE profits, legal questions raised, application of the Special Bench ruling, and the relevance of Article 7 of the DTAA in the judgment.