2006 (12) TMI 177 - AT - Income Tax

Powers Of Tribunal - application seeking admission of additional evidence under Rule 29 - documents found during the course of survey - Permanent Establishment (PE) in India - attribution of profits to the PE in India - ascertained the liability for tax payable in India - DTAA between India and USA - Profit from sale of equipment - quantum of turnover of supply of equipment - HELD THAT - In our opinion, the first limb of condition stipulated in rule 29 clearly permits both the parties to the appeal to produce additional, evidence and seek the leave of the Tribunal for admission thereof making out a case that the same shall enable it to pass orders or for any substantial cause and if the Tribunal is satisfied that the additional evidence so produced is required to enable it to pass orders or for any other substantial cause, it can allow the parties including the revenue to produce such additional evidence exercising its discretion in terms of the said Rule. It is a settled position that production of additional evidence at the appellate stage is not a matter of right to litigating public and allowing of production of additional evidence is in the discretion of the Tribunal. The said discretion however, is to be exercised judicially and not arbitarily. As held in the case of CIT v. Kum Satya Setia 1982 (4) TMI 22 - MADHYA PRADESH HIGH COURT , it is within the discretion of the appellate authority to allow production of additional evidence if the said authority requires any document to enable it to pass orders or for any other substantial cause. The case of the revenue is that the common office of UOPIPL and UOP Asia Limited (LO) in Delhi was virtually the projection of the assessee-company in India and the additional evidence sought to be filed by the revenue in the form of relevant pages of assessee's official website as well as press release issued by the assessee-company itself, in our opinion, are apparently relevant to consider and decide the case being made out by the revenue. It was also a case of the revenue that the employees of UOPIPL and UOP Asia Limited (LO) were working for the assessee-company in India and the nature of services rendered by them on behalf of the assessee-company to the Indian customers including negotiation and finalisation of contracts could not be classified as merely preparatory or auxiliary. This case of the revenue was based on a statement of Mr. K. J. Aspray, Managing Director of UOPIPL recorded on oath. The additional evidence comprising of various documents forming part of Annexures-B and C, as discussed, is relevant in this context inasmuch as it apparently supports the case of the revenue on this aspect and the same, therefore, in our opinion, takes a shape of requirement to decide the issue relating to PE involved in the present appeal more satisfactorily. It is pertinent to note here that even as per Rule 27 of Order 41 of CPC which is admittedly pari materia to Rule 29 of Appellate Tribunal Rules, 1963, the production of additional evidence is permitted where the said evidence was not available to the party earlier despite exercise of due diligence. The said Rule thus envisages certain circumstances when additional evidence can be adduced and one of such circumstances is where the additional evidence was not available to the party at the relevant time. In the present case, the additional evidence sought to be produced by the revenue was collected during the course of survey carried out in the premises of UOPIPL/UOP Asia Limited (LO) only after the filing of this appeal by the revenue before the Tribunal and the same being not available to it when the case of the assessee came to be decided by the authorities below, we find that the situation envisaged in Order 41, Rule 27 of CPC for allowing the production of additional evidence was very much obtained in the present case. The documents being sought to be produced by the Department as additional evidence were not in its possession or power at the relevant time when the matter came to be decided by the authorities below and the same having come to their possession as a result of survey carried out in March 2006, it cannot be disputed that they came to the knowledge of the Department subsequently. Moreover, neither the ownership of the said documents in the hands of the concerned persons from whose possession the same have been found and seized nor the contents thereof have been denied before us. We are, therefore, of the view that if the peculiar facts of the present case as discussed are considered in the light of legal position emanating from the various judicial pronouncements on the issue of admission of additional evidence, it is a fit case wherein the additional evidence sought to be produced by the revenue be allowed to be admitted having regard to its relevancy and requirement for the purpose of deciding the point in issue raised in the present appeal before us as well as for the substantial cause of justice. In that view of the matter, we allow the application filed by the revenue seeking admission of additional evidence and admit the said evidence on record. Keeping in view the fact that the additional evidence so produced by the revenue as well as elaborate explanation offered by the assessee to rebut the same is voluminous running into several pages which requires indepth examination, we find that it would be fair and proper and in the interest of justice to restore the issue relating to PE to the file of the Assessing Officer for deciding the same afresh after examining the additional evidence as well as explanation offered by the assessee while rebutting the same. The assessee shall also be at liberty to adduce further evidence to support its case before the Assessing Officer who shall take into consideration the same in accordance with law. Since the other issues raised in this appeal related to the main issue of PE, we deem it appropriate to restore these issues also to the file of the Assessing Officer for fresh decision along with the main issue. In the result, the appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:

1. Whether the assessee-company had a Permanent Establishment (PE) in India during the year under consideration.
2. Attribution of profits to the PE.
3. Tax liability of the assessee-company on account of tax payable in India.
4. Interest payable under section 234B.
5. Admission of additional evidence by the Department under Rule 29 of the Income-tax Appellate Tribunal Rules, 1963.

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE) in India:

The main issue was whether the assessee-company, a US-based entity, had a PE in India. The Assessing Officer (AO) held that UOP India Pvt. Ltd. (UOPIPL) and UOP Asia Limited (LO) acted as dependent agent PEs of the assessee in India. This conclusion was based on the statement of Mr. Keith J. Aspray, Managing Director of UOPIPL, who indicated that these entities were involved in negotiating and finalizing contracts on behalf of the assessee. The AO also noted that the agreements were signed by the assessee outside India but were negotiated and finalized by UOPIPL and UOP Asia Limited in India. The CIT(A) upheld this view, noting that UOPIPL was a wholly-owned subsidiary of the assessee and acted exclusively for it. The CIT(A) also found that the assessee had an installation PE in India due to the continuous presence of its employees and substantial involvement in project design and commissioning.

2. Attribution of Profits to the PE:

The AO attributed profits to the PE based on the activities carried out by UOPIPL and UOP Asia Limited. The AO applied a net profit rate of 15% on the supply of equipment and taxed the royalty and fees for included services at 20% under section 44D read with section 115A. The CIT(A) confirmed this attribution and tax computation.

3. Tax Liability of the Assessee-Company:

The AO computed the total tax payable by the assessee at Rs. 21,17,56,377/- against Rs. 1,57,47,076/- shown by the assessee in its return of income. This was based on the finding that the assessee had a PE in India and the income from royalties, fees for included services, and supply of equipment was taxable in India.

4. Interest Payable under Section 234B:

The CIT(A) upheld the levy of interest under section 234B. The assessee contended that this issue was covered in its favor by the decision of the Delhi Special Bench of ITAT in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 269.

5. Admission of Additional Evidence:

The Department sought to file additional evidence under Rule 29 of the Appellate Tribunal Rules, 1963. The Tribunal admitted the additional evidence, noting its relevance to the issue of PE. The additional evidence included emails, draft agreements, and guidelines indicating that UOPIPL and UOP Asia Limited were involved in negotiating and finalizing contracts on behalf of the assessee. The Tribunal found that this evidence was necessary to decide the issue satisfactorily and restored the matter to the AO for fresh examination.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, restoring the matter to the AO to decide afresh after considering the additional evidence and explanations provided by the assessee. The AO was directed to decide the issue of interest under section 234B in light of the decision in Motorola Inc. The Tribunal emphasized the need for a thorough examination of the additional evidence to determine the presence and activities of the PE in India.