2024 (11) TMI 250 - HC - Income Tax

Fees paid as sales is in nature of fee for included services - as per AO there was make available of technical inputs by the assessee and so, the amounts received as sales commission is in nature of Fee for included services - incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessee s or not? - HELD THAT - The issue is covered by a decision of Toshoku Ltd. 1980 (8) TMI 2 - SUPREME COURT as well as Evolv Clothing Co.(P). Ltd 2018 (6) TMI 1324 - MADRAS HIGH COURT as held as Cl. (a) of the Explanation to Cl. (i) of sub-s. (1) of S. 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. Decided in favour of assessee.

Summary

Issues:
Interpretation of fees paid as sales, make available of technical inputs, consideration of provisions of India-US DTAA.

Analysis:
The tax case appeal was filed against the order passed by the Income Tax Appellate Tribunal for the assessment year 2017-18. The substantial questions of law raised by the appellant included whether the fees paid as sales were in the nature of fee for included services, whether there was make available of technical inputs by the assessee, and whether the provisions of Clause 8 of Article 12 of India-US DTAA were applicable. It was noted that previous decisions by the Hon'ble Supreme Court of India and the Division Bench of the High Court had been rendered on the same issue.

The learned Senior Standing Counsel for the appellant argued that the issue was covered by a decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Toshoku Ltd. and by the Division Bench of the High Court in the case of Evolv Clothing Co.(P) Ltd. The Supreme Court decision highlighted the importance of operations carried out in India in determining income deemed to have accrued or arisen in India for non-resident assessees. The judgment emphasized that if all operations are not carried out in India, only the income reasonably attributable to operations in India should be deemed to have accrued in India.

Based on the settled law, the High Court concluded that the substantial questions of law raised by the appellant were to be answered in favor of the assessee and against the Revenue. Therefore, the tax case appeal was decided in favor of the assessee, and against the Revenue. The appeal was dismissed with no order as to costs.