9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (7) TMI 220 - AT - Income TaxIncome accrued in India - taxability of receipts from services rendered by head office in Germany - receipts attributable to the PE - benefit of treaty - HELD THAT - Income derived by a resident of a Contracting State from certain specified activities including technical services provided in the other Contracting State through a PE situated in that State shall not be attributable to that PE. The receipts are not taxable as FTS under Article 12 and have to be treated, either as business profit under Article 7 or independent personal services under Article 14. Once the receipts fall under Article 7 of the treaty, the protocol comes into play. That being the case in terms of protocol 1(b) of the tax treaty, the receipts even though connected to the PE cannot be made taxable in India. However, protocol 1(b) of the tax treaty specifically refers to income from planning, project, construction or research activities and technical services. Income derived from aforesaid activities will be protected under protocol 1(b) of the treaty, hence, not taxable in India. Whereas, the rest of the income will be taxable under Article 7 of the tax treaty. Accordingly, the Assessing Officer is directed to examine the nature of income and not to tax the income of the nature specified in protocol 1(b) of the tax treaty. Disallowance of office and administrative cost - assessee has not furnished any evidence to establish that the expenses were incurred by the head office exclusively for the PE - HELD THAT - Though, in principle, we agree that the expenditure incurred by the head office directly connected to the PE has to be allowed without imposing the restrictions of section 44C of the Act, however, burden is entirely on the assessee to establish on record through authentic evidence that such expenditure was actually incurred by head office for the PE. In the present case, the assessee has failed to do so. Article 7(3) of the tax treaty speaks of allowance of expenditure subject to the limitation prescribed in domestic law. No reason to interfere with the decision of learned DRP on the issue. Ground raised is dismissed. Taxation of interest on income tax refund - applying the rate of 40% by treating it at par with profits of business, as against the assessee s claim of tax rates of 10% under Article 11(2) of India Germany DTAA - On going through the Article 11(5) of the treaty, we agree with the decision of Commissioner (Appeals) as the said Article specifically carves out an exception by providing that in case the debt claim in respect of which interest is paid is effectively connected with the Permanent Establishment, the provisions of Article 7 or Article 14 would apply. As in case of ACIT Vs. Clough Engineering Ltd. 2011 (5) TMI 562 - ITAT, DELHI a view favourable to the assessee has been taken. However, in case of B.J. Services Co. Middle East Ltd. 2015 (5) TMI 1036 - UTTARAKHAND HIGH COURT the Hon ble Uttarakhand High Court, while examining pari materia provision contained in Article 12(6) of India-UK Treaty has held that interest on income tax refund is taxable as business profits under Article 7 of the treaty. In our humble opinion, the decision of the Hon ble Uttarakhand High Court will carry greater precedentiary value. This ground is dismissed.
Issues Involved:
1. Taxability of receipts from services rendered by head office in Germany. 2. Disallowance of office and administrative cost. 3. Levy of interest under sections 234A, 234B, and 234D of the Act. 4. Taxation of interest on income tax refund. Summary: 1. Taxability of Receipts from Services Rendered by Head Office in Germany: The assessee, a non-resident corporate entity and tax resident of Germany, provided airport management services to DIAL through a project office in India, considered as a Permanent Establishment (PE). The assessee received Rs. 1,46,52,283/- for consultancy services from its head office in Germany, which was not offered for tax in India. The Assessing Officer treated the receipt as Fee for Technical Services (FTS) under Article 12 of the India-Germany DTAA and section 9(1)(vii) of the Act, asserting it was not effectively connected to the PE. The Tribunal, however, found that the services could not be rendered without the active involvement of the PE and thus fell under Article 7 of the tax treaty. The Tribunal directed the Assessing Officer to examine the nature of income and not tax the income specified in protocol 1(b) of the tax treaty, which includes planning, project, construction, or research activities and technical services. 2. Disallowance of Office and Administrative Cost: The assessee claimed Rs. 1,92,91,585/- as office and administrative expenses incurred by the head office for the PE in India. The Assessing Officer disallowed the amount due to lack of evidence. The DRP found that the expenses included a 19% markup and restricted the disallowance to Rs. 1,46,94,562/-. The Tribunal upheld the disallowance, noting the assessee failed to provide evidence that the expenses were incurred exclusively for the PE. The Tribunal agreed that while expenses directly related to the PE should be allowed without the restrictions of section 44C of the Act, the burden of proof lies on the assessee. 3. Levy of Interest under Sections 234A, 234B, and 234D: The Tribunal noted that the levy of interest under sections 234A and 234B is consequential and does not require adjudication. Similarly, the levy of interest under section 234D is also consequential and does not require separate adjudication. 4. Taxation of Interest on Income Tax Refund: For the assessment year 2011-12, the assessee challenged the taxation of interest on income tax refund at a rate of 40%, arguing it should be taxed at 10% under Article 11(2) of the India-Germany DTAA. The Tribunal upheld the decision of the Commissioner (Appeals), agreeing that the interest on income tax refund is effectively connected with the PE and thus taxable under Article 7 of the treaty. The Tribunal found the decision of the Uttarakhand High Court in a similar case to carry greater precedentiary value. Conclusion: The appeals for assessment years 2007-08, 2008-09, 2009-10, 2010-11, and 2011-12 are partly allowed, whereas the appeal for the assessment year 2012-13 is dismissed.
|
