2023 (2) TMI 1396 - AT - Income Tax

Revision u/s 263 - Taxability in India of amount received towards repairs and maintenance support services - as argued services were rendered outside India without any of the personnel of the assessee visiting India hence cannot be treated as FTS under section 9(1)(vii) of the Act or under Article 12 of the DTAA - HELD THAT - The nature of receipts both from rendition of repair and support services as well as off-shore sale of Zebra products was examined by the Assessing Officer in assessment year 2016-17 and after thorough inquiry assessee s claim was accepted. In the impugned assessment year as facts on record would reveal the AO has conducted necessary inquiry with regard to the activities carried out by the assessee and receipts earned there from. He has called for and examined the agreements with the Indian customers. Thus it cannot be said that the AO has not made the requisite inquiry. Additionally when the AO was in session of the assessment proceeding for the impugned assessment year the assessment proceeding for assessment year 2016-17 got concluded and the final assessment order accepting assessee s claim was available before the AO. Thus the view taken by the AO in the impugned assessment year in not bringing to tax the receipts from repair and support services as well as off-shore sales were consistent with the view taken by the Assessing Officer in the final assessment order passed for assessment year 2016-17 in pursuance to the directions of learned DRP. Thus in these circumstances it can very well be held that the view taken by the Assessing Officer though may not be the only view on the issue but is a possible view. That being the case the issue is highly debatable. Therefore the only because the view taken by the Assessing Officer is not acceptable to the Revisionary Authority or does not matched with the view of the Revisionary Authority it cannot be said that it is not a possible view. As regards the observations of the Revisionary Authority regarding treaty shopping and non-availability of the treaty benefit to the assessee we must observe learned Revisionary Authority has ventured into uncharted territory without disclosing his mind to the assessee and providing an opportunity to the assessee to rebut the charges. Thus in our view the observations of learned CIT with regard to the assessee being an entity transposed to avail treaty benefit cannot be accepted as the assessee never got an opportunity to meet the allegations of the Revisionary Authority. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

1. Whether the receipts from repair and support services provided by the assessee are taxable in India as Fee for Technical Services (FTS) under section 9(1)(vii) of the Income-tax Act, 1961, or under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA).

2. Whether the receipts from off-shore sales of products to Indian customers are taxable in India under section 5(2)(iii) read with section 9(1)(i) of the Income-tax Act.

3. Whether the assessee is entitled to the benefits of the India-Singapore DTAA, or if the arrangement constitutes treaty shopping, thereby disqualifying the assessee from such benefits.

ISSUE-WISE DETAILED ANALYSIS

1. Taxability of Receipts from Repair and Support Services:

Relevant Legal Framework and Precedents: The legal framework involved the interpretation of section 9(1)(vii) of the Income-tax Act regarding FTS and Article 12 of the DTAA. The precedents included prior assessments and decisions by the Dispute Resolution Panel (DRP).

Court's Interpretation and Reasoning: The Tribunal examined the nature of the services provided by the assessee and concluded that the services were rendered outside India without any personnel visiting India. Thus, they did not qualify as FTS under the Act or the DTAA.

Key Evidence and Findings: The Tribunal noted that the Assessing Officer had conducted a thorough inquiry in the previous assessment year (2016-17) and accepted that the services were not taxable as FTS. The same reasoning applied to the current assessment year.

Application of Law to Facts: The Tribunal applied the law by considering the nature of the services, the location of service provision, and the lack of personnel in India. The services did not make available technical knowledge or skill to Indian customers, thus not qualifying as FTS.

Treatment of Competing Arguments: The Tribunal rejected the CIT's view that the services were taxable as FTS, emphasizing the detailed inquiry conducted by the Assessing Officer and the DRP's previous directions.

Conclusions: The Tribunal concluded that the receipts from repair and support services were not taxable in India as FTS.

2. Taxability of Receipts from Off-shore Sales:

Relevant Legal Framework and Precedents: The legal framework involved section 5(2)(iii) and section 9(1)(i) of the Income-tax Act, concerning the source rule for cross-border business income.

Court's Interpretation and Reasoning: The Tribunal found that the sales transactions were completed outside India, with the title of goods passing overseas, and payments received abroad. Thus, the sales were not taxable in India.

Key Evidence and Findings: The Tribunal highlighted the previous assessment year where the Assessing Officer accepted that the sales were not taxable in India.

Application of Law to Facts: The Tribunal applied the law by considering the location of the sales transaction completion and the receipt of payments, concluding that the sales were not taxable in India.

Treatment of Competing Arguments: The Tribunal dismissed the CIT's argument of a business connection in India, emphasizing the consistent view taken in previous assessments.

Conclusions: The Tribunal concluded that the receipts from off-shore sales were not taxable in India.

3. Entitlement to DTAA Benefits and Allegations of Treaty Shopping:

Relevant Legal Framework and Precedents: The Tribunal considered the provisions of the India-Singapore DTAA and the concept of treaty shopping.

Court's Interpretation and Reasoning: The Tribunal criticized the CIT for not providing the assessee an opportunity to address the treaty shopping allegations and concluded that the CIT ventured into uncharted territory without proper disclosure.

Key Evidence and Findings: The Tribunal noted that the assessee had a valid Tax Residency Certificate (TRC) from Singapore, entitling it to DTAA benefits.

Application of Law to Facts: The Tribunal applied the law by emphasizing the procedural fairness required in addressing treaty shopping allegations.

Treatment of Competing Arguments: The Tribunal rejected the CIT's conclusions on treaty shopping due to lack of opportunity for the assessee to respond.

Conclusions: The Tribunal held that the assessee was entitled to the benefits of the India-Singapore DTAA.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Tribunal concluded that the exercise of jurisdiction under section 263 of the Act in the present case is invalid, as, under the given facts and circumstances of the case, the conditions of section 263 (1) are not fulfilled."

Core Principles Established: The Tribunal established that detailed inquiries conducted in previous assessments should be respected, and procedural fairness must be maintained in addressing treaty shopping allegations.

Final Determinations on Each Issue: The Tribunal quashed the CIT's order under section 263, restoring the original assessment order, and allowed the appeal in favor of the assessee.