2023 (8) TMI 1537 - AT - Income Tax

Accrual of income in India - assessee has Permanent Establishment in India or not? - HELD THAT - We observe from the record that identical issue is decided in favour of the assessee in the A.Y.2010-11 2019 (7) TMI 859 - ITAT MUMBAI and held that assessee did not have a Permanent Establishment in India. Thus we allow the grounds raised by the assessee. Alternative plea of attribution of profits and estimation of gross profit - Since, we have already allowed of the appeal holding that assessee does not have a PE in India and thus income of the assessee is not allowable to be taxed in India, the aforesaid grounds of appeal are rendered academic and infructuous. Levy of interest u/s.234A - We are inclined to remit this issue back to the file of AO with a direction to verify the records submitted by the assessee on merit and as per law. It is needless to say that assessee may be given a proper opportunity of being heard. Accordingly, Ground No. 8 is remitted back to the file of AO for statistical purpose. Taxation of royalty income u/s. 44DA - We are inclined to remit this issue back to the file of AO with a direction to verify the records submitted by the assessee on merit and as per law. Assessing Officer is further directed to determine the royalty as per the direction of APA. Appeal filed by the assessee is partly allowed for statistical purpose.

Issues Involved:
1. Validity of the Order passed u/s. 143(3) r.w.s. 144C(1) of the Income-tax Act, 1961.
2. Existence of a Permanent Establishment (PE) in India.
3. Existence of a business connection in India.
4. Attribution of receipts to the alleged PE in India.
5. Estimation of gross profit.
6. Taxation of royalty income u/s. 44DA of the Income-tax Act, 1961.
7. Levy of interest u/s. 234A of the Income-tax Act, 1961.
8. Restriction of royalty income taxation as per the Advanced Pricing Agreement (APA).

Detailed Analysis:

1. Validity of the Order passed u/s. 143(3) r.w.s. 144C(1) of the Income-tax Act, 1961:
The appellant contended that the Notice u/s. 143(2) issued by the National Faceless Assessment Centre (NaFAC) was invalid, without jurisdiction, and bad in law. However, this ground was not pressed at the time of hearing and thus, was not adjudicated.

2. Existence of a Permanent Establishment (PE) in India:
The appellant argued that the Assessing Officer and the Dispute Resolution Panel (DRP) erred in holding that it had a PE in India. The Tribunal noted that this issue had been previously adjudicated in favor of the appellant in its own case for A.Y. 2010-11 and 2017-18, where it was held that the appellant did not have a PE in India. The Tribunal observed that the facts and circumstances remained unchanged and thus, followed the earlier decisions, allowing the grounds raised by the appellant.

3. Existence of a business connection in India:
Similar to the PE issue, the appellant contended that it had no business connection in India. The Tribunal, following the same rationale as for the PE issue, allowed the grounds raised by the appellant, noting that the facts and circumstances were identical to the earlier adjudicated years.

4. Attribution of receipts to the alleged PE in India:
Given that the Tribunal allowed the grounds related to the existence of a PE, the grounds concerning the attribution of receipts to the alleged PE were rendered academic and infructuous.

5. Estimation of gross profit:
As the Tribunal held that the appellant did not have a PE in India, the grounds related to the estimation of gross profit were also rendered academic and infructuous.

6. Taxation of royalty income u/s. 44DA of the Income-tax Act, 1961:
The appellant argued that the royalty income was not effectively connected with any PE in India and thus should not be taxable u/s. 44DA. The Tribunal, having already held that there was no PE in India, rendered this ground academic and infructuous.

7. Levy of interest u/s. 234A of the Income-tax Act, 1961:
The Tribunal remitted this issue back to the Assessing Officer for verification of the records submitted by the appellant on merit and as per law, ensuring that the appellant is given a proper opportunity of being heard.

8. Restriction of royalty income taxation as per the Advanced Pricing Agreement (APA):
The appellant raised additional grounds concerning the restriction of royalty income taxation in accordance with the APA. The Tribunal, following its earlier decision for A.Y. 2011-12 to 2016-17, remitted the issue back to the Assessing Officer for verification of the factual elements embedded in the claim and to determine the royalty as per the direction of the APA, ensuring a proper opportunity of being heard for the appellant.

Conclusion:
The appeal filed by the appellant was partly allowed for statistical purposes, with specific directions for verification and re-computation by the Assessing Officer as per the Tribunal's observations and previous adjudications.

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