2022 (11) TMI 1534 - AT - Income Tax

Income deemed to accrue or arise in India - Permanent Establishment (PE) in India in terms with Article 5(2) of India France Double Taxation Avoidance Act (DTAA) or not? - whether any part of the business profit can be attributed to the PE? - HELD THAT - Though, before the departmental authorities, the assessee had furnished relevant extracts of the contract, however, complete set of contracts were not furnished. Since, existence or otherwise of PE is dependent upon the terms of the contract and the allocation of work under the contract between various consortium members in different assessment years under consideration, it is necessary to examine the contracts thoroughly. Considering the fact that while deciding the issue relating to existence of PE, the departmental authorities have simply relied upon decision taken in earlier assessment years without verifying the factual position qua contracts executed in these assessment years, in our view, the assessee must be given an opportunity to furnish the relevant contracts before the departmental authorities to establish its case that in the assessment years under consideration the assessee did not have any PE in India so as to bring to tax the income from off-shore supplies. We are inclined to restore the matters back to the AO for fresh adjudication after thoroughly examining the relevant contracts and other materials brought on record. Assessee appeals are allowed for statistical purposes.

Summary

Issues:
Identification of Permanent Establishment (PE) in India under India-France Double Taxation Avoidance Act (DTAA) and attribution of business profit to PE.

Analysis:
The appeals pertain to the same assessee concerning assessment years 2011-12, 2013-14, 2014-15, and 2015-16, arising from orders of the Commissioner of Income Tax (Appeals)-42. The main issue is whether the assessee had a PE in India as per Article 5(2) of the India-France DTAA and if any part of the business profit can be linked to the PE.

The assessee, a non-resident corporate entity from France, was involved in contracts with Delhi Metro Rail Corporation (DMRC), Banglore Metro Rail Corporation, and Chennai Metro Rail Ltd for Train Control and Signaling Systems. The Assessing Officer attributed 1% of revenue from offshore supply of equipment to the PE in India based on past assessments, despite the assessee's contention that the contracts were fresh and needed proper examination. The Assessing Officer's decision was upheld by the Commissioner (Appeals).

During the appeal, the assessee argued that the past assessments' conclusions should not apply to the current year, as most contracts were new. The assessee requested to submit complete contracts for a fair assessment. The Departmental Representative opposed submitting additional evidence but suggested a fresh adjudication by the Assessing Officer.

The Tribunal observed that past decisions were based on previous years' assessments without considering the specific terms of the new contracts. It emphasized the need to examine the contracts thoroughly to determine the existence of a PE. Consequently, the matters were remanded to the Assessing Officer for a fresh evaluation based on the complete contracts and relevant materials, ensuring the assessee's right to be heard.

The Tribunal clarified that no opinion was given on the merits of the issues, allowing the appeals for statistical purposes. The decision to remand the matters back to the Assessing Officer was made to ensure a fair assessment based on the specific terms of the contracts for the relevant assessment years.

In conclusion, the Tribunal allowed the appeals for statistical purposes, emphasizing the importance of a detailed examination of the contracts to determine the existence of a PE in India and the attribution of income from offshore supplies. The assessee was granted the opportunity to present complete contracts for a fresh evaluation by the Assessing Officer.