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2009 (1) TMI 311 - AT - Income TaxIndo-USSR DTAA - Taxability in India - Income earned outside India - PE in USSR - resident in India - deletion of addition made by the AO to the total income of the assessee on account of income earned by it in the form of profits of business earned in USSR which were entirely attributable to the PE in that country - HELD THAT - The decision of Special Bench of Tribunal in the case of P.V.A.L. Kulandagan Chettiar 1982 (12) TMI 88 - ITAT MADRAS-A , which has been subsequently affirmed by the Hon'ble Supreme Court 2004 (5) TMI 8 - SUPREME COURT . Tribunal held that no portion of the said income of the assessee could be taxed in India. thus still holds the field and the same being squarely on the point in issue involved in the present case and is binding on us. We respectfully follow the same and uphold the order of CIT(A) deleting the addition made by the AO to the total income of the assessee on account of income earned by it in the form of profits of business earned in USSR which were entirely attributable to the PE in that country. The appeal of the Revenue is dismissed.
Issues Involved:
1. Deletion of addition of Rs. 20,14,06,921 made by the Assessing Officer (AO) on account of income earned by the assessee company outside India, specifically in the USSR. Issue-wise Detailed Analysis: 1. Deletion of Addition of Income Earned Outside India: Background: The assessee, an Indian resident company, filed its return declaring a loss. The AO noticed a profit from foreign operations in the USSR amounting to Rs. 20,14,06,921 and added this to the income, relying on a previous assessment where similar income was taxed in India. Assessee's Appeal: The assessee appealed to the CIT(A), who noted that similar additions for previous years (1991-92, 1992-93, and 1993-94) were deleted by the Tribunal. The Tribunal had ruled that the income from the foreign branches, which operated independently, was not attributable to any business connection in India. The CIT(A) followed this precedent and deleted the addition. Revenue's Appeal: The Revenue contended that the Tribunal's decision for the earlier years was based on a treaty with the Russian Federation applicable only from 2000-01. They argued that the applicable treaty for the year under consideration was the Indo-USSR treaty, which provided for credit for tax paid in the USSR but did not exclude the income from global taxation. Tribunal's Analysis: - Treaty Interpretation: The Tribunal compared the provisions of the Indo-USSR treaty and the Indo-Russian treaty, finding no material difference in the relevant articles. Both treaties provided that profits attributable to a Permanent Establishment (PE) in the other contracting state are taxable only in that state. - Article 7 Application: The Tribunal held that since the income was earned through a PE in the USSR, it was taxable only in the USSR as per Article 7 of the treaty. The Tribunal rejected the Revenue's reliance on Article 22, which deals with elimination of double taxation, stating it was inapplicable as there was no double taxation due to the specific provisions of Article 7. - Precedent and Binding Nature: The Tribunal upheld the decision of the Special Bench in the case of P.V.A.L. Kulandagan Chettiar, which was affirmed by the Supreme Court. The Tribunal noted that the Supreme Court's affirmation, even if for different reasons, did not disapprove the Tribunal's reasoning. Hence, the decision remained a binding precedent. Conclusion: The Tribunal concluded that the income earned by the assessee in the USSR through its PE was not taxable in India. The CIT(A)'s order deleting the addition made by the AO was upheld, and the Revenue's appeal was dismissed.
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