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2012 (10) TMI 715 - AT - Income TaxIndia - Netherlands DTTA - fees for technical services v/s business income - Permanent Establishment ( PE ) in India - Held that - The issue before the DRP was whether the receipt from sale of software can be treated as fees for technical services or not however the DRP traveled to the issue which was not before it and held SSPL to be dependent agent of LBV. That while doing so the assessee was not allowed any opportunity of being heard as DRP has exceeded its jurisdiction because the jurisdiction of the DRP under Section 144C is limited to confirm reduce or enhance the variation proposed in the draft order. The DRP is not entitled to make out entirely a new case. It would meet the ends of justice if the orders of the lower authorities are set aside and the matter is restored to the file of the Assessing Officer directing the AO to allow adequate opportunity of being heard to the assessee - in favour of assessee for statistical purposes.
Issues:
1. Validity of assessment order passed by the Assistant Director of Income Tax. 2. Determination of Permanent Establishment (PE) in India. 3. Taxation of income earned by a foreign company in India. 4. Jurisdiction of the Dispute Resolution Panel (DRP) under Section 144C. 5. Treatment of income as business income. Issue 1: Validity of assessment order The appellant challenged the assessment order passed by the Assistant Director of Income Tax, International Taxation, Dehradun, for the AY 2008-09. The appellant argued that the order was vitiated as it violated principles of natural justice, was arbitrary, and thus void ab-initio. Issue 2: Determination of Permanent Establishment The appellant contested the holding that Logined BV had a Permanent Establishment (PE) in India and that Schlumberger Solutions Private Limited (SSPL) constituted a dependent agent PE of Logined in India. The appellant argued that SSPL was a separate legal entity conducting its own business under Indian Companies Act, 1956. The appellant further contended that the conditions for a dependent agency PE as per the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands were not met. Issue 3: Taxation of income earned in India The appellant challenged the taxation of the entire income earned by Logined in India at 42.23 percent, arguing that the income attributable to the foreign company's operations in India was not computed. Additionally, the appellant argued that the principles laid down by the Hon'ble Supreme Court in DIT vs. Morgan Stanley and Co. Inc. were not applied, emphasizing the need for a functional, risk, and asset analysis before attributing profits to a PE. Issue 4: Jurisdiction of the Dispute Resolution Panel The appellant contended that the DRP exceeded its jurisdiction by holding SSPL as a dependent agent of Logined, a matter not originally before it. The appellant argued that the DRP's decision was cryptic and beyond the scope of its authority under Section 144C. Issue 5: Treatment of income as business income The appellant sought to quash the DRP's order and have the Assessing Officer determine the income at nil. Alternatively, the appellant requested the matter be sent back to the DRP or the Assessing Officer for a detailed explanation and adequate opportunity for the appellant to present its case. In conclusion, the Appellate Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to reexamine the issue after providing the appellant with a fair opportunity to be heard and considering all relevant submissions and legal precedents. The appeal was deemed allowed for statistical purposes.
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