2024 (1) TMI 788 - AT - Income Tax

PE in India - accrual of income in India - offshore supply of sub-assemblies - HELD THAT - in the assessee s own case in 2023 (8) TMI 957 - ITAT DELHI AY 2010-11 wherein ITAT had held that Bombardier Transportation India Pvt. Ltd. (BTIL) is not PE of the assessee in India and accordingly, since there is no PE of the assessee in India, the offshore supply of sub-assemblies to BTIL/income from intermediary services cannot be taxed in India. Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of Permanent Establishment (PE) in India.
2. Taxability of offshore supply of sub-assemblies.

Summary:

Issue 1: Determination of Permanent Establishment (PE) in India

The Revenue contended that the assessee company had a Permanent Establishment (PE) in India in the form of Bombardier Transportation India Pvt. Ltd. (BTIL) concerning offshore supply of sub-assemblies. The Assessing Officer (AO) held that the assessee had two fixed base PEs in India: BTIL and a project office (PO). The AO attributed 35% of gross profits to the Indian PE at BTIL. However, the CIT (A) concluded that the AO's action of considering BTIL as a fixed place PE was incorrect. The CIT (A) stated, "I find that the AO has not assigned any specific functions to the project office in India. Therefore, the project office gets covered under paragraph 4 of Article 5 of DTAA." It was further noted that the offshore sale of sub-assemblies could not be taxed in India as the title passed outside India.

Issue 2: Taxability of Offshore Supply of Sub-Assemblies

The assessee argued that the offshore supply of sub-assemblies to BTIL and income from intermediary services could not be taxed in India as there was no PE in India. The ITAT, in the assessee's own case for AY 2010-11, had previously held that BTIL is not a PE of the assessee in India. The tribunal reiterated that "none of the conditions of fixed place PE as enshrined under Article 5(1) of India - Germany tax treaty stand satisfied to construe BTIL as the PE of the assessee in India." The tribunal concluded that the attribution of profit from offshore supplies to the alleged PE in the form of BTIL is unsustainable.

Conclusion:

The appeal by the Revenue was dismissed. The tribunal upheld the CIT (A)'s order, affirming that BTIL does not constitute a PE of the assessee in India, and therefore, the offshore supply of sub-assemblies and related income cannot be taxed in India. The order was pronounced in the open court on November 15, 2023.