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2024 (9) TMI 1122 - AT - Income TaxAccrual of income in India - assessee has PE and business connection in India - HELD THAT - This issue is covered by the order of the coordinate bench in immediately preceding year i.e. AY 2020-21 2023 (8) TMI 1537 - ITAT MUMBAI we allow these grounds in favour of the assessee and hold that the assessee did not have a PE in India. Royalties received during the year u/s 44DA - AR submitted that he has offered royalty income to tax at 10% plus applicable surcharge and cess on gross basis. If it is held that the assessee does not have a PE in India, there can be no question of the royalty being attributable to the PE in India and it would be taxable at 10% plus applicable surcharge and cess on gross basis on terms of section 9(1)(vi) - HELD THAT - During the course of hearing the assessee was directed to place on record the current status of APA proposed to be entered by the GIA India Lab. It has been submitted by the Ld. AR that the negotiations are currently in progress and the agreement is yet to be signed finally. We, accordingly, restore this matter to the file of the AO with the directions to adopt the royalty ultimately quantified in the APA which is pending to be executed between GIA India lab and the CBDT. Accordingly, these grounds are allowed for statistical purposes. Levy interest u/s 234A - AR has submitted that the return filed on 10.03.2022 was within the due date as due date had been extended till 15.03.2022 vide circular No. 01/2022 dated 11.01.2022 issued by the CBDT. The AO is directed to verify this fact and allow relief admissible in this regard.
Issues Involved:
1. Assessing total income and tax liability. 2. Determination of Permanent Establishment (PE) in India. 3. Determination of business connection in India. 4. Attribution of receipts to PE. 5. Attribution of profits to PE. 6. Taxation of royalty income under section 44DA. 7. Taxation of royalty income under section 115A and India-USA DTAA. 8. Restricting taxation of royalty income effectively connected to PE. 9. Levy of interest under section 234A. Issue-wise Detailed Analysis: 1. Assessing Total Income and Tax Liability: The appellant contested the assessment of total income at Rs. 3,88,18,14,395/- against the returned income of Rs. 3,32,62,29,830/-, resulting in a tax liability of Rs. 1,76,27,56,590/- against a refund claim of Rs. 2,58,55,080/-. The tribunal did not provide a specific ruling on this issue as it was general in nature. 2. Determination of Permanent Establishment (PE) in India: The tribunal addressed whether the appellant had a PE in India. The appellant argued that it had no PE in India, citing previous rulings in its favor. The tribunal referred to earlier decisions, including AY 2010-11 and AY 2020-21, where it was held that the appellant did not have a PE in India. The tribunal reaffirmed these decisions, stating that the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) erred in holding that the appellant had a PE in India. Thus, the tribunal allowed the appellant's grounds, concluding that the appellant did not have a PE in India. 3. Determination of Business Connection in India: The tribunal also addressed whether the appellant had a business connection in India. The appellant contended that it had no business connection in India, and the AO/DRP's conclusions were erroneous. The tribunal, following its earlier decisions, held that the appellant did not have a business connection in India. Consequently, the tribunal allowed the appellant's grounds on this issue. 4. Attribution of Receipts to PE: The tribunal examined the issue of attributing 50% of the appellant's receipts to the alleged PE in India. Since the tribunal had already concluded that the appellant did not have a PE in India, this issue was rendered academic and infructuous. The tribunal did not provide a specific ruling on this issue. 5. Attribution of Profits to PE: The tribunal addressed the attribution of 20.31% of the receipts to the alleged Indian operations as profits of the PE taxable in India. Since the tribunal had already determined that the appellant did not have a PE in India, this issue was also rendered academic and infructuous. 6. Taxation of Royalty Income under Section 44DA: The tribunal considered whether the royalty income was "effectively connected" with the alleged PE in India and taxable under section 44DA. The appellant argued that the royalty income should not be taxed under section 44DA as it had no PE in India. The tribunal referred to earlier decisions and remitted the issue back to the AO for verification of factual elements. The tribunal directed the AO to adopt the royalty ultimately quantified in the Advanced Pricing Agreement (APA) pending execution between GIA India Lab and the CBDT. 7. Taxation of Royalty Income under Section 115A and India-USA DTAA: The appellant argued that the amount taxable under section 115A and Article 12(2) of the India-USA DTAA should be restricted to the amount determined in accordance with the APA. The tribunal remitted this issue back to the AO for verification and directed the AO to determine the royalty as per the APA. 8. Restricting Taxation of Royalty Income Effectively Connected to PE: The appellant contended that if any part of the royalty income was effectively connected to the alleged PE, it should be restricted to the amount determined in accordance with the APA. The tribunal remitted this issue back to the AO for verification and directed the AO to consider the royalty income in accordance with the APA. 9. Levy of Interest under Section 234A: The appellant argued that the interest levied under section 234A was erroneous as the return was filed within the due date extended by the CBDT. The tribunal directed the AO to verify this fact and allow the admissible relief. Conclusion: The tribunal allowed the appellant's grounds regarding the determination of PE and business connection in India, holding that the appellant did not have a PE or business connection in India. Consequently, issues related to the attribution of receipts and profits to the PE were rendered academic. The tribunal remitted issues related to the taxation of royalty income under section 44DA and section 115A to the AO for verification and determination in accordance with the APA. The tribunal also directed the AO to verify the levy of interest under section 234A. The appeal was partly allowed.
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