2023 (8) TMI 1273 - AT - Income Tax

Income deemed to accrue or arise in India - existence or otherwise of Permanent Establishment (PE) in India -profit attributable to the PE - assessee is a non-resident corporate entity incorporated under the laws of United States of America (USA) and is a tax resident of USA assessee is a Developer, Marketer, seller of Robotic Process Automation (RPA) and related products and services - whether the assessee in the relevant assessment years had any fixed place PE in India in terms with Article 5(1) read with Article 5(2) of the India USA DTAA? - HELD THAT - Facts on record reveal that, though, many of the employees visited India, but there is no evidence to suggest that all of them used the premises of AASPL. Even assuming that all those employees used the premises of AASPL but there is no evidence to suggest that they used the premises for the activity relating to the sale of software. Undisputedly, the receipts, which are sought to be attributed to the PE are from sale of software licence, however, as could be seen from the facts on record, the transfer of licence takes place, once, the licence key is generated and made available to the licencee after execution of the contract. Insofar as the receipts from provision of services, undisputedly, the assessee has offered them to tax. Though,DR has alleged before us that the licence agreement was executed in India contrary to the claim of the assessee, however, no documentary evidences has been brought to establish such facts. Thus, we are of the view that the Revenue has failed to establish on record through credible evidence that the assessee has a fixed placed PE in India through which it has earned the income relating to sale of software licence. Therefore, in our considered opinion, no part of such income can be attributed to the PE. Grounds are disposed of accordingly. Taxability of amount offered towards FTS/FIS - Undisputedly, in the returns of income filed for the impugned assessment years, the assessee has suo motu offered the income received from the services rendered as FTS/FIS under Article 12(4) of India USA DTAA. It is the claim of the assessee that the receipts cannot fall within the ambit of FIS in view of Article 12(5)(a) of the tax treaty. Admittedly, the aforesaid claim was not made by the assessee either before the Assessing Officer or even before learned DRP. Neither of the authorities have factually examined the nature and character of such receipts by investigating into the relevant facts. Therefore, entertaining assessee s claim at this stage, would require fresh investigation into the facts, which in our view, is not permissible.

Summary

Issues Involved:
1. Existence of Permanent Establishment (PE) in India.
2. Profit attributable to the PE.
3. Additional grounds related to the taxability of receipts for professional services.

Summary:

Existence of Permanent Establishment (PE) in India:
The primary issue in the appeals was whether the assessee, a non-resident corporate entity from the USA, had a Permanent Establishment (PE) in India under Article 5(1) of the India-USA Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) concluded that the assessee had a fixed place PE in India based on the presence and activities of its employees in the premises of its Indian Associated Enterprise (AE), Automation Anywhere India Pvt. Ltd. The AO observed that the employees were involved in business activities, thus satisfying the tests of permanency, disposal, duration, and functionality. However, the Tribunal found that the AO's conclusion was not supported by evidence. The Tribunal noted that the employees' visits were for activities such as training, marketing, and shareholder interests, which did not constitute core business activities. The Tribunal ruled that the Revenue failed to establish the existence of a fixed place PE in India.

Profit Attributable to the PE:
The AO attributed 25% of the revenue earned from the sale of software licenses to the PE. The assessee argued that the attribution was without basis and purely conjectural. The Tribunal agreed with the assessee, noting that the AO did not provide substantive evidence to prove that the sale of software licenses was concluded in India through the PE. The Tribunal emphasized that the burden of proving the existence of a PE and the attribution of profits lies with the Revenue, which was not fulfilled in this case.

Additional Grounds Related to the Taxability of Receipts for Professional Services:
The assessee raised additional grounds challenging the taxability of receipts for professional services offered as Fee for Technical Services (FTS)/Fee for Included Services (FIS) under Article 12(4)(a) of the DTAA. The assessee argued that such receipts should be excluded under Article 12(5)(a) of the DTAA. The Tribunal declined to entertain these additional grounds, stating that they required fresh investigation into facts, which was not permissible at this stage.

Conclusion:
The Tribunal concluded that the Revenue failed to establish the existence of a fixed place PE in India and that no part of the income from the sale of software licenses could be attributed to the PE. The appeals were partly allowed, and the additional grounds raised by the assessee were not entertained.