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2022 (11) TMI 1536 - AT - Income TaxIncome deemed to accrue or arise in India - business connection and Permanent Establishment (PE) in India u/Article 5(4) and 5(5) of India Mauritius DTAA - AO attributed 50% of the net profits to the PE - Whether the assessee had any business connection or PE in India under the India-Mauritius Tax Treaty, so as to, attribute a part of the profits earned from the advertisement revenue to the PE? - HELD THAT - Notably, in the latest order passed for the assessment year 2012-13 2021 (10) TMI 1102 - ITAT DELHI held that the assessee has no business connection in India in terms of section 9(1) of the Act and has no PE under Article 5(2), 5(4) and 5(5) of India Mauritius DTAA. Since held that there is no PE, we are of the considered view that there cannot be any attribution of profit as held by this Tribunal in assessee's own case in A.Ys 2009-10 and 2011-12. Thus, following above we hold that since the assessee had no PE, either fixed place or DAPE in India, no part of its profit can be attributed to the PE. Accordingly, the addition made is deleted. Decided in favour of assessee.
Issues Involved:
1. Attribution of Profits to Permanent Establishment (PE) in India. 2. Existence of Business Connection and PE under the India-Mauritius DTAA. 3. Arm's Length Principle and Profit Attribution. Detailed Analysis: 1. Attribution of Profits to Permanent Establishment (PE) in India: The primary issue in this case was whether profits should be attributed to the PE of the assessee in India. The Assessing Officer initially attributed 50% of the net profits to the PE, leading to an addition of Rs. 3,95,55,855/-. However, the Commissioner of Income Tax (Appeals) reduced this attribution to 20% of the net profit. The assessee challenged this attribution, arguing that it was not justified, especially since the transactions were at arm's length. The Tribunal noted that in previous years, similar attributions were made based on the existence of PE, but the Tribunal had ruled that once the arm's length principle is satisfied, no further profit attribution is necessary, as established in the Supreme Court case of Honda Motors Co. Ltd. vs ADIT. 2. Existence of Business Connection and PE under the India-Mauritius DTAA: The assessee, a non-resident partnership firm incorporated in Mauritius, was engaged in selling advertisement airtime and program sponsorship. It was argued that ESPN India, the Indian subsidiary, constituted a PE under Article 5(4) and 5(5) of the India-Mauritius DTAA. The Tribunal examined whether there was a fixed place PE or a dependent agent PE (DAPE) in India. It was noted that ESPN India was remunerated on an arm's length basis, and the Tribunal had previously held that if arm's length remuneration is paid, no further profits should be attributed to the PE. The Tribunal also referenced the Supreme Court's decision in E-funds IT Solutions Inc., which held that a fixed place PE requires the premises to be at the disposal of the assessee, which was not the case here. 3. Arm's Length Principle and Profit Attribution: The Tribunal reiterated the principle that if transactions are conducted at arm's length, no additional profit attribution is warranted, even if a PE exists. This principle was supported by past decisions, including those of the Supreme Court and the Delhi High Court, which established that arm's length remuneration to a dependent agent precludes further profit attribution. The Tribunal emphasized that the Transfer Pricing Officer had accepted the transactions as being at arm's length, and no adjustments were made in the TP assessment order. Conclusion: The Tribunal concluded that the assessee did not have a PE in India, and therefore, no part of its profits could be attributed to a PE. Consequently, the addition made by the Assessing Officer was deleted. The assessee's appeal was allowed, and the Revenue's appeal was dismissed as infructuous. This judgment reinforces the application of the arm's length principle in international taxation and the conditions under which profit attribution to a PE is justified.
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