2022 (1) TMI 1465 - AT - Income Tax

Existence of Permanent Establishment (PE) in India - Income deemed to accrue or arise in India - Attribution of receipts to the alleged PE Estimation of gross profit attributable to the alleged PE - HELD THAT - The entire grounds raised by the assessee are covered by the Co-ordinate Bench decision of this Tribunal in assessee s own case 2021 (5) TMI 1085 - ITAT MUMBAI as relying on Gemmological Institute of America Inc. 2019 (7) TMI 859 - ITAT MUMBAI after threadbare examining business model of the assessee and the provision of Article 5 of India-US DTAA held that GIA India Lab.Pvt. Ltd. is not PE of GIA-US in India. We find that Article -5 of India-US DTAA and Article - 5 of India - Thailand DTAA have almost similar clause. Both sides are unanimous in stating that the nature of transactions and terms and conditions of transactions between assessee and Indian AE in both the cases are similar. Revenue has not brought on record any distinguishing factor in the present set of appeals before us. Therefore the findings given by the Coordinate Bench of Tribunal while adjudicating the appeal in the case of assessee s group concern GIA-US would mutatis mutandis apply to present appeal. Thus we hold that GIA India Laboratories Pvt. Ltd. is not agency PE/PE of the assessee. Consequently ground No.2 of the appeal is decided in favour of the assessee. Assessee has assailed attribution to the alleged PE in India. Since the assessee has succeeded on the primary issue the alternate ground has become academic therefore not deliberated upon. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Existence of Permanent Establishment (PE) in India
2. Attribution of receipts to the alleged PE
3. Estimation of gross profit attributable to the alleged PE
4. General assessment of total income

Issue-Wise Detailed Analysis:

1. Existence of Permanent Establishment (PE) in India:
The central issue revolves around whether the appellant has a Permanent Establishment (PE) in India. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) concluded that the appellant has a PE in India, which the appellant contested. The appellant argued that the facts and circumstances do not support the existence of a PE in India, and the AO/DRP's conclusions were erroneous and unsupported by relevant material. The Tribunal referenced a previous decision in the appellant's own case, where it was determined that the appellant did not have a PE in India. The Tribunal reiterated that the AO and DRP had relied heavily on the assessment order of GIA-US for AY 2011-12, without providing independent findings. The Tribunal concluded that GIA India Laboratories Pvt. Ltd. is not an agency PE or PE of the appellant, thus deciding in favor of the appellant on this primary issue.

2. Attribution of Receipts to the Alleged PE:
The appellant contested the AO/DRP's decision to attribute 50% of the receipts to the alleged PE in India. The appellant argued that no part of its receipts should be attributable to the alleged PE, given the facts and prevailing law. Since the Tribunal concluded that the appellant does not have a PE in India, this issue became academic and was not deliberated upon further.

3. Estimation of Gross Profit Attributable to the Alleged PE:
The appellant challenged the AO/DRP's estimation that 20.31% of the receipts attributable to the alleged Indian operations should be considered as profits of the PE taxable in India. The appellant argued that even if a PE existed, no further income could be taxed in India as the alleged PE had been remunerated at arm's length. Given the Tribunal's decision that the appellant does not have a PE in India, this issue also became academic and was not further deliberated upon.

4. General Assessment of Total Income:
The appellant contended that the AO/DRP erred in assessing the total income at Rs. 2,01,75,060 against the returned income of Rs. Nil, resulting in a demand of Rs. 1,20,24,330. Since the primary issue was resolved in favor of the appellant, this general ground did not require specific adjudication.

Conclusion:
The Tribunal allowed the appeal of the appellant, concluding that the appellant does not have a PE in India. Consequently, the issues regarding attribution of receipts and estimation of gross profit became academic and were not deliberated upon. The general ground regarding the assessment of total income did not require specific adjudication. The order was pronounced on 17/01/2022.