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2024 (12) TMI 696 - AT - Income TaxIncome deemed to accrue or arise in India - receipts from HCLT by the assessee, one of the foreign AEs, on account of software, Engineering and Infrastructure service provided by the assessee - AO s contention is that the actual conduct of the assessee and its AEs and not the legal contract between them, determine the nature of transactions and its taxability - as per AO nature of receipts is considered to be fees for technical services (FTS) as per the meaning of Explanation-2 to section 9(1)(vii) of the Act and is taxable under the provisions of Income-tax act as well as under the provisions of relevant DTAA (in this case India-Singapore DTAA). HELD THAT - We agree with the contention of the assessee that HCLT has a computational requirement of the deeming fiction under Explanation 2 to section 10AA to treat the entire amount of sale proceeds received from the foreign clients as export turnover as it raises a single consolidated invoice. The contention that HCLT treats the payments made to its AEs as expense and claims deduction u/s 10AA on net profit basis, has not been controverted by DR. DR has also not controverted the key assertion of the assessee that no deduction under section 10AA of the Act has been effectively claimed by HCLT in respect of payment received from end customers on behalf of the Appellants notwithstanding that such receipts were considered as part of 'export turnover of HCLT. DR could not controvert the fact that the TPO in the case of HCLT has not invoked sub-section (9) of section 10AA read with sub section (10) of section 80IA of the Act, while computing the deduction. The assessee, therefore, in our considered opinion succeed in rebutting the ld DR objections on this count. We again agree with the submission of the assessee that the facts in the case of Hariharan Subramaniam 2020 (11) TMI 520 - ITAT DELHI and Subhatosh Majumdar 2020 (2) TMI 1368 - ITAT KOLKATA which the Revenue claims has not been considered, is clearly distinguishable from the facts of the assessee. Whereas in the case of Hariharan Subramaniam and Subhatosh Majumdar 2020 (2) TMI 1368 - ITAT KOLKATA , the assessee solely was privity of contract with the Indian client. It was the assessee who engaged the foreign attorneys and paid them in discharge of his professional obligations in India. On that ground alone, it was held that source of income for the assessee was the assessee itself and thus was taxable in India. In the instant case, the ITAT has held that the assessee has rendered the services to the foreign customers who are entirely outside India and the services were also utilized by the foreign customers in their businesses located outside India, and hence not taxable in India. With the rendering of the decision of the jurisdictional High Court in the case of International Management Group 2024 (7) TMI 287 - DELHI HIGH COURT the issue of the ITAT decision in the assessee case, being per-incuriam and sub-silentio, no longer remains valid. In similar facts as that of the assessee, the hon ble High Court in the case of International Management Group, held that the assessee rendered services to BCCI for IPL event held outside India. The services were utilized by BCCI for a business carried out outside India and payment made by BCCI was for the purpose of earning income from a source outside India. In such facts, the High Court held the same to be not taxable as FTS under section 9(1)(vii)(b) of the Act. The assessee, therefore, in our considered opinion succeeds in rebutting the ld DR s objections on this count also. Since receipts of the foreign AEs from HCLT are held to be not taxable in India under the provisions of the Act, the grounds raised qua taxability of the impugned receipts under DTAAs, was considered as academic in nature and no findings were returned and same were left open for determination. We hold so similarly for this appeal also. Decided in favour of assessee.
Issues Involved:
1. Jurisdiction and validity of reassessment proceedings under sections 147 and 144C(13) of the Income Tax Act, 1961. 2. Taxability of receipts from HCL Technologies Ltd (HCLT) by the assessee under section 9(1)(vii) of the Income Tax Act. 3. Applicability of Double Taxation Avoidance Agreement (DTAA) provisions. 4. Interpretation of statements and evidence used by the Assessing Officer. 5. Levy of surcharge and education cess, and interest under sections 234A and 234B. Issue-wise Analysis: 1. Jurisdiction and Validity of Reassessment Proceedings: The appeals questioned the jurisdiction and validity of reassessment proceedings initiated under sections 147 and 144C(13) of the Income Tax Act, 1961. The assessee argued that the reassessment proceedings were initiated in the name of a non-existing entity, rendering them illegal and void ab initio. Additionally, the proceedings were claimed to be time-barred under section 153(2) and not based on valid "information" as per Explanation 1 to section 148. The tribunal did not express an opinion on these grounds as they were not argued by the assessee. 2. Taxability of Receipts from HCL Technologies Ltd (HCLT): The principal issue was whether the receipts from HCLT by the assessee, a foreign associated enterprise, were taxable in India. The assessee contended that these receipts were not chargeable to tax in India based on three premises: - The payments were part of a revenue-sharing arrangement among HCL group entities operating as a consortium, not for services rendered by the assessee to HCLT. - The services were performed outside India and delivered directly to overseas customers, thus not accruing or arising in India under section 9(1)(vii) of the Act. - Under the applicable DTAA, the services did not "make available" any technical knowledge, skill, or experience to HCLT. The tribunal found in favor of the assessee, relying on the Master Service Agreement (MSA) and the operational model of HCL group entities. It concluded that the receipts were not taxable in India as they were part of a revenue-sharing arrangement and not fees for technical services. 3. Applicability of Double Taxation Avoidance Agreement (DTAA): The tribunal also considered the applicability of the DTAA between India and Singapore. It was argued that the payments did not involve the transfer of technical knowledge or skills, thus not falling under the purview of technical services taxable in India. The tribunal upheld the assessee's position, emphasizing that the services were rendered directly to foreign clients and not to HCLT. 4. Interpretation of Statements and Evidence: The Assessing Officer's reliance on statements from HCLT employees and other evidence was challenged. The tribunal noted that the Assessing Officer had cherry-picked statements to support his conclusions, whereas a holistic view of the evidence supported the assessee's claims. The tribunal agreed with the assessee that the statements corroborated their position that services were rendered directly to foreign clients. 5. Levy of Surcharge and Education Cess, and Interest: The tribunal noted that the grounds concerning the levy of surcharge and education cess, and interest under sections 234A and 234B were consequential. Since the primary issues were decided in favor of the assessee, these grounds were also resolved in their favor. Conclusion: The tribunal ruled in favor of the assessee, determining that the receipts from HCLT were not taxable in India under the provisions of the Income Tax Act or the DTAA. The objections raised by the Revenue were rebutted effectively, and the tribunal found that the issues were covered by precedent decisions in similar cases. Consequently, the appeals were allowed, and the grounds raised by the assessee were upheld.
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