2008 (4) TMI 353 - AT - Income Tax

Summary

Issues:
Stay of recovery of demand outstanding for assessment years 1999-2000 to 2004-05 totaling Rs. 72.74 crores.

Detailed Analysis:

1. Business Connection in India:
The case involved a non-resident company incorporated in Hong Kong engaged in providing telecommunication services. The Assessing Officer contended that the company had a business connection in India due to its ownership of shares in submarine cable systems in Indian waters. The Assessing Officer estimated the income chargeable to tax in India at Rs. 564 crores for each year, leading to a demand of Rs. 1,535.19 crores. The CIT(A) upheld the assessments, but after considering audited accounts, assessed the income chargeable to tax in India at significantly lower amounts for each year.

2. Assessee's Arguments on Merits:
The assessee contended that it lacked a license to operate in India, thus negating the business connection. Additionally, even if a connection existed, the income attributable to Indian operations should be limited. The assessee argued that the CIT(A) wrongly attributed gross revenue from Indian telecommunication services as wholly taxable in India, leading to a significant reduction in the disputed demand if corrected.

3. Tax Relief Arguments:
The assessee challenged the attribution of income from international telecommunication carriers and the calculation of net profit rates by the CIT(A). The assessee also argued against the levy of interest under section 234B, citing that income would have been subject to tax deduction at source under section 195, thus not liable for interest.

4. Tribunal Decision:
The Tribunal found that the assessee had a prima facie arguable case on merits and that the outstanding demand could substantially decrease if the contentions were accepted. Considering the lack of authorities on the main issue, the Tribunal granted a stay of the outstanding demand subject to specific conditions, highlighting the balance of convenience in favor of the assessee due to accumulated losses in the group's consolidated accounts.

5. Conclusion:
The Tribunal allowed the stay applications of the assessee, subject to payment and guarantee conditions, staying the outstanding demand for a specified period or until the disposal of the appeals by the Tribunal. The hearing of the appeals was expedited, emphasizing the need for timely completion of formalities by both parties.

This detailed analysis outlines the key issues, arguments presented, and the Tribunal's decision regarding the stay of recovery of the outstanding demand for the mentioned assessment years.