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2024 (8) TMI 356 - AT - Income TaxAccrual of income - benefit of India USA DTAA - taxability of tax transparent entities such as single member LLCs being eligible to avail treaty benefits - assessee is a foreign company incorporated in USA engaged in the business of providing facilitation of domain name registration, web hosting, web designing, SSL certification services and other services to resellers across the world - Whether assessee does not qualify as a tax resident under Article 4 of India USA DTAA? - HELD THAT - As observed from the TRCs issued by the Department of Treasury Internal Revenue Service, Philadelphia it was certified that the assessee Limited Liability Company (LLC) is a branch, division or business unit of US partnership. As also certified that the partnership has filed an information return in Form 1065, US partnership return of income and each of the partners listed in the TRC i.e. GD Subsidiary Inc. and GoDaddy Inc. are residents of the United States of America for purposes of US taxation. Therefore, in our view these TRCs issued by Department of Treasury Internal Revenue Service, Philadelphia USA clearly recognizes the assessee Limited Liability Company having two partners are residents of United States of America filing US partnership return of income. Therefore, the observation of the AO that the assessee has furnished a copy of TRC for only part of the year for which it was not an LLC appears to be not correct. In the case of Sarva Capital LLC 2023 (11) TMI 692 - ITAT DELHI the coordinate bench as following the decision of Azadi Bachao Andalon 2003 (10) TMI 5 - SUPREME COURT held that the tax exemption granted under the domestic tax laws does not lead to the conclusion that the entities availing such exemption are not liable to taxation. The term liable to taxation must be distinguished actual payment of taxation and thus, the contention of the revenue that the LLC in the present case is not liable to taxation was rejected. Taxability of tax transparent entities such as single member LLCs being eligible to avail treaty benefits - Mumbai Bench of the Tribunal in the case of Linklaters LLP 2010 (7) TMI 535 - ITAT, MUMBAI in the context of eligibility of LLP to avail the benefit of India UK Tax Treaty, the Tribunal has held that the India UK Tax Treaty would apply to a UK Limited Liability Partnership even though it was a pass through entity for UK tax purposes. We hold that the assessee is a tax resident of USA and is entitled for the benefit of DTAA between India-USA. Ground no.2 of grounds of appeal of the assessee is allowed. Taxability of income from domain name registration, web hosting, web designing, SSL certification services, etc - As in the final assessment order the AO held that income is in the nature of technical services and is taxable in the hands of the assessee company as fees for included services under India-USA DTAA - HELD THAT - AO very cryptically and without examining the nature of services and how make available clause in Article 12 of India-USA DTAA is applicable to the assessee with respect to the nature of various services rendered by the assessee held that income of the assessee is in the nature of technical services and is taxable in the hands of the assessee company as Fees for Included Services (FIS) under India-US DTAA. AO held that the treaty benefits are not available to the assessee and in coming to such conclusion the AO has not gone in detail in respect of the nature of services rendered by the assessee and the applicability of clause 4 of Article 12 of India- USA DTAA. Order of DRP that this issue was not gone into in detail by DRP on the submissions made by the assessee on the nature of services rendered by it. Therefore, having held by us that the assessee is entitled for the treaty benefits under India-USA DTAA, we restore this issue to the file of the AO to examine the applicability of the provisions of DTAA viz-a-viz various services rendered by the assessee and the income received thereon under the provisions of India-USA DTAA and pass a speaking order after providing adequate opportunity of being heard to the assessee. Ground no. 3 of grounds of appeal of the assessee is partly allowed.
Issues Involved:
1. Validity of the final assessment order. 2. Eligibility to avail benefits under the India-USA Double Taxation Avoidance Agreement (DTAA). 3. Taxability of income from domain name registration, web hosting, web designing, SSL certification services, etc. 4. Levy of interest under sections 234A, 234B, and 234D of the Income Tax Act. 5. Inclusion of interest granted under section 244A while computing interest under section 234D. 6. Initiation of penalty under section 274 read with section 270A of the Act. Detailed Analysis: 1. Validity of the Final Assessment Order: The first ground of appeal is general in nature and does not require adjudication. 2. Eligibility to Avail Benefits under the India-USA DTAA: The assessee, a foreign company incorporated in the USA, contested the denial of DTAA benefits by the AO and DRP, who held that the assessee did not qualify as a tax resident under Article 4 of the India-USA DTAA. The AO's argument was based on the fact that the assessee was a Limited Liability Company (LLC) and thus a fiscally transparent entity, meaning the income was taxed in the hands of the shareholders, not the entity itself. Therefore, the AO concluded that the assessee lacked beneficial ownership of the income and was not eligible for DTAA benefits. The DRP upheld this view. The Tribunal, however, noted that the assessee provided Tax Residency Certificates (TRCs) for the relevant period, demonstrating recognition as a taxpayer in the USA. The Tribunal referenced the Supreme Court's decision in the Azadi Bachao Andolan case, which clarified that "liable to tax" does not require actual payment of tax but rather the legal situation of being subject to tax. The Tribunal also cited decisions from other cases, such as Sarva Capital LLC and Linklaters LLP, which supported the view that fiscally transparent entities could still claim treaty benefits if the income was taxed in the hands of the partners. Consequently, the Tribunal held that the assessee was entitled to the benefits of the India-USA DTAA. 3. Taxability of Income from Domain Name Registration, Web Hosting, Web Designing, SSL Certification Services, etc.: The AO classified the income from these services as fees for included services (FIS) under Article 12 of the India-USA DTAA, asserting that the services made available technical knowledge to the users. The assessee argued that these services did not "make available" any technical knowledge, experience, skill, or know-how to the users, as required by the DTAA. The Tribunal found that the AO's assessment was not detailed and lacked a thorough examination of the nature of the services and the applicability of the "make available" clause. The Tribunal restored this issue to the AO for a detailed examination, instructing the AO to pass a speaking order after providing the assessee with an adequate opportunity to be heard. 4. Levy of Interest under Sections 234A, 234B, and 234D of the Act: The Tribunal restored the issue of the levy of interest under sections 234A, 234B, and 234D to the files of the AO for reconsideration. 5. Inclusion of Interest Granted under Section 244A while Computing Interest under Section 234D: This issue was also restored to the AO for reconsideration. 6. Initiation of Penalty under Section 274 Read with Section 270A of the Act: The Tribunal deemed this ground premature at this stage and restored it to the file of the AO. Conclusion: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the eligibility for DTAA benefits and restoring other issues to the AO for further examination.
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