2024 (10) TMI 646 - AT - Income Tax

Classification of receipt - receipt of the assessee as business income instead of fee for technical services (FTS) - HELD THAT - CIT(A) had observed that the assessee does not have permanent establishment in India in assessment year 2020-21 also. The assessee continues to be a tax resident of Singapore and had filed its income tax return in Singapore. As observed that the facts prevailing in assessment year 2020-21 are similar to assessment year 2019-20, except that during the year, the assessee had entrusted the part of the work to the employees hired/ employed or subcontracted from the above company based out in Russia. Assessee clarified that the Russian shareholder is a full-time employee with Singapore. CIT(A) had granted relief to the assessee for AY 2020-21 on the same footings in assessment year 2019-20 that receipts could be FTS, but the same does not satisfy the make available clause provided in Article 12(4)(b) of India-Singapore Treaty and hence, the receipts could be considered as only business income and since it is proved beyond reasonable doubt that the assessee does not have any permanent establishment in India during the year under consideration, the same cannot be taxed in India. None of these factual findings could be controverted by the revenue before us. Hence, we do not find any infirmity in the order of the CIT(A) in granting relief to the assessee. Appeals of the revenue are dismissed.

Summary

Issues:
1. Determination of whether the receipt of the assessee should be classified as business income or fee for technical services (FTS).

Comprehensive Analysis:
The appeal before the Appellate Tribunal ITAT Delhi involved the assessment year 2020-21 and arose from the order of the Commissioner of Income Tax (Appeals)-43, New Delhi. The primary issue was whether the receipt of the assessee should be treated as business income or FTS. The assessee, a Singapore-based company providing technical inspection services for pipelines, argued that the receipts from Indian entities were taxable only in Singapore, not in India. The company claimed the benefit of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. The Assessing Officer had treated the receipts as taxable "other income" in India, disregarding the DTAA provisions. The assessee had also obtained a Nil Withholding tax certificate from the Indian tax authorities.

The Appellate Tribunal considered the submissions of both parties. The assessee had provided evidence of being a tax resident of Singapore and not having a permanent establishment in India. The Tribunal noted that the services provided by the assessee were technical in nature but did not satisfy the "make available clause" in the India-Singapore Treaty regarding FTS. Therefore, the Tribunal held that the receipts should be considered as business income under Article 7 of the DTAA and were not taxable in India due to the lack of a permanent establishment in the country.

The Appellate Tribunal dismissed the revenue's appeal for the assessment year 2019-20, as the revenue's arguments did not align with the facts presented and the applicable legal provisions. In the assessment year 2020-21, a similar decision was reached, with the Tribunal granting relief to the assessee based on the same grounds as the previous year. The revenue's contentions were found to be unsubstantiated, and the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in favor of the assessee.

Ultimately, the appeals of the revenue were dismissed, affirming the lower authorities' decisions in both assessment years. The Tribunal emphasized that the revenue's arguments did not hold merit in light of the facts and legal provisions presented in the case.