2023 (11) TMI 1322 - AT - Income Tax

Permanent Establishment (PE) in India in terms of Article 5 of India-Switzerland DTAA - attribution of profit to the said PE - assessee is a non-resident corporate entity and a tax resident of Switzerland HELD THAT - As the assessee had no PE in India in the year under consideration. Hence, no profit can be attributed to such nonexistent PE. AO is directed to delete the addition. Assessee appeal is allowed.

Summary

Issues:
1. Whether the assessee had a Permanent Establishment (PE) in India under the India-Switzerland Double Taxation Avoidance Agreement (DTAA) for the assessment year 2020-21.

Detailed Analysis:
The appeal was filed by the assessee challenging the final assessment order under sections 143(3) and 144C(13) of the Income-tax Act, 1961, for the assessment year 2020-21, based on the directions of the Dispute Resolution Panel (DRP). The core issue was whether the assessee had a PE in India as per Article 5 of the India-Switzerland DTAA and the attribution of profit to such PE. The assessee, a non-resident corporate entity tax resident in Switzerland, had contracts with Indian Government undertakings for offshore supply. The Assessing Officer attributed the entire receipts to the PE in India and taxed it at 40%, based on past assessment history. The assessee contended that based on previous tribunal decisions, there was no PE in India, thus the receipts were not taxable in India under the DTAA.

The Tribunal noted that the factual position regarding the existence of PE in India for the impugned assessment year was identical to previous years where the authorities had held that the assessee had a PE in India. However, the Tribunal emphasized that the existence of PE must be determined annually based on the relevant tax treaty. The Tribunal cited previous decisions where it was established that the reasons for determining the existence of PE in earlier years no longer applied in the impugned assessment year due to changes in facts. The Tribunal highlighted that the departmental authorities did not address the specific facts brought forward by the assessee regarding the absence of a PE in the impugned assessment year. The Tribunal concluded that the department had not provided any contrary evidence to rebut the claim that no PE existed in the assessment years in question.

Based on the above analysis and the precedent set by previous decisions, the Tribunal held that the assessee did not have a PE in India for the assessment year in question. Consequently, no profit could be attributed to a non-existent PE, and the addition made by the Assessing Officer was directed to be deleted. The appeal was allowed, and the order was pronounced on 29th November 2023.