2023 (10) TMI 1482 - AT - Income Tax

Income deemed to accrue or arise in India - Appellant has a business connection or a Permanent Establishment (PE) in India u/s 9(1) - denying treaty benefit to the assessee alleging that the assessee is a conduit entity under the stepping stone of conduit frame work - AO held that the assessee had a Permanent Establishment ( PE ) in India and accordingly attributed 25% of the total turnover of the assessee as profit to the PE HELD THAT - DRP directed the AO to verify, whether the department is in appeal against the order of the Tribunal and Hon ble Delhi High Court and if it is found to be so, sustain the addition, thus, DRP, have impliedly not accepted the allegations of the Assessing Officer regarding assessee, being a stepping stone conduit entity. This may be because it was never an issue in the past assessment years. Assessment of income at the hands of the assessee was only because of existence of PE in India. Considering the decisions of the Tribunal and Hon ble Jurisdictional High Court in past assessment years, it cannot be said that the status of the assessee as a conduit entity was ever an issue. Therefore, in our considered opinion, the observations of the AO regarding the status of the assessee as a conduit company are not based on any cogent material brought on record, and rather unnecessary and irrelevant for deciding the issue, as to whether, assessee s income is taxable in India or not. We decide ground decided in favour of the assessee.

Summary

The Appellate Tribunal ITAT Delhi, consisting of President Shri G. S. Pannu and Vice President Shri Saktijit Dey, addressed applications filed by the assessee for rectification of an order dated January 10, 2023, in ITA Nos. 1566 & 1567/Del/2022. The assessee's Authorized Representative, Sh. S.K. Aggarwal, argued that ground no. 5 was left undecided in the original order and a typographical error in paragraph 13 misidentified 'ground no. 7' as 'ground no. 6'. The Departmental Representative, Sh. Sanjay Kumar, did not contest these claims.

The Tribunal acknowledged the oversight regarding ground no. 5, which involved the Assessing Officer's denial of treaty benefits to the assessee, alleging it as a conduit entity and attributing 25% of the turnover as profit to a Permanent Establishment (PE) in India. Historical decisions by both the Tribunal and the Hon'ble Jurisdictional High Court had recognized the existence of a PE but reduced the profit attribution to 15% of gross revenue less expenses.

The Dispute Resolution Panel (DRP) had directed verification of whether the department appealed against previous Tribunal and High Court decisions. The Tribunal noted that the conduit entity allegation lacked substantial evidence and was irrelevant to determining the taxability of the assessee's income in India. Consequently, ground no. 5 was decided in favor of the assessee.

The Tribunal also corrected the typographical error in paragraph 13, modifying 'ground no. 6' to 'ground no. 7'. The miscellaneous applications were allowed, and the order was pronounced in open court on October 6, 2023.