2023 (4) TMI 986 - AT - Income Tax

Income deemed to accrue or arise in - PE in India - Taxing the receipts from the contract u/s 44DA - HELD THAT - Assessing Officer has not even alleged the existence of PE. Merely applying Force of Attraction Rule he has brought to tax the receipts under section 44D/44DA of the Act. We are inclined to delete the additions made by the Assessing Officer under Section 44D/44DA of the Act and direct the Assessing Officer to compute assessee's income under Article 12 of India - Germany DTAA. These grounds are allowed. Applicability of Force of Attraction Rule - While deciding ground above we have held that the PE in relation to JKSPDC -Baglihar Project cannot be construed to be the PE in respect of JKHCL and JVL Projects. Insofar as, the applicability of Force of Attraction Rules, while deciding identical issue in assessee's own case in assessment years 2006-07 and 2007-08, the Tribunal has held that such rule will not apply, unless, even a remote link between the activities of other projects is established with the PE in relation to PKSPDC-Baglihar Project. That being the case, we hold that Force of Attraction Rule does not apply. This ground is allowed. Interest u/s 234B and 234C is not chargeable where tax is deductible at source. The reliance placed on GE Packages Power Inc 2015 (1) TMI 1168 - DELHI HIGH COURT is apt.

Issues Involved:
1. Allegation of 'Fixed Place' Permanent Establishment (PE) in India.
2. Invocation of Section 44DA for taxing revenues without specific PE allegation.
3. Attribution of revenues to PE under 'Force of Attraction' rule.
4. Levying of interest under Section 234B and 234C.
5. Initiation of penalty proceedings under Section 271(1)(c).
6. Non-granting of credit for withholding taxes.

Summary:

Issue 1 & 2: Allegation of 'Fixed Place' PE and Invocation of Section 44DA
The assessee, a non-resident corporate entity from Germany, contested the decision of the departmental authorities in taxing receipts from contracts with Jaypee Karcham Hydro Corporation Limited (JKHCL) and Jaypee Ventures Limited (JVL) under Section 44DA of the Act. The Assessing Officer (AO) argued that the provision of office space by JKHCL constituted a PE under Article 5 of the India-Germany DTAA. However, the Tribunal found that the services provided were of a purely technical/consultancy nature and did not constitute a PE. The AO's reliance on the 'Force of Attraction' rule was also dismissed as there was no evidence to establish that the PE related to the JKSPDC-Baglihar Project was involved in the JKHCL and JVL projects. The Tribunal directed the AO to compute the assessee's income under Article 12 of the India-Germany DTAA.

Issue 3: Attribution of Revenues to PE under 'Force of Attraction' Rule
The Tribunal held that the 'Force of Attraction' rule does not apply unless there is a remote link between the activities of other projects and the PE related to the JKSPDC-Baglihar Project. The AO's application of this rule was found to be without merit, and the Tribunal allowed the ground in favor of the assessee.

Issue 4: Levying of Interest under Section 234B and 234C
The Tribunal, following its earlier decisions, held that interest under Sections 234B and 234C is not chargeable where tax is deductible at source. This ground was decided in favor of the assessee.

Issue 5: Initiation of Penalty Proceedings under Section 271(1)(c)
The Tribunal dismissed this ground as premature at this stage.

Issue 6: Non-granting of Credit for Withholding Taxes
The Tribunal directed the AO to verify the assessee's claim and grant credit for TDS in accordance with the law.

Conclusion:
The appeals were partly allowed, with the Tribunal directing the AO to compute the assessee's income under Article 12 of the India-Germany DTAA and to verify and grant credit for TDS. The Tribunal dismissed the application of the 'Force of Attraction' rule and the levy of interest under Sections 234B and 234C. The initiation of penalty proceedings was deemed premature.

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