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2013 (6) TMI 185 - AT - Income TaxIndia-Japan DTAA - taxability of a sum received from onshore activities to tax in India - assessee did not offer to tax income from offshore supply and offshore services by claiming that it did not accrue or arise in India - Held that - As decided in assessee s own case 2007 (1) TMI 91 - SUPREME COURT & 2013 (1) TMI 214 - BOMBAY HIGH COURT that apart from non-applicability of section 9(1) in the present case, Article 7 of the DTAA is also applicable and hence the income arising on account of offshore services would not be taxable. Section 90(2) provides that where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, under sub-section (1) for granting relief of tax avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. As decided in CIT v. P.V.A.L. Kulandagan Chettiar 2004 (5) TMI 8 - SUPREME Court the provisions of sections 4 and 5 are subject to the contrary provision, if any, in DTA. The crux of the matter is that the provision of the Act or of the DTA, whichever is more beneficial to the assessee, shall apply. Thus overturning the impugned order on this issue by holding that the income from offshore services, albeit chargeable u/s 9(1)(vii) but exempt under the DTAA, cannot be charged to tax in the light of section 90(2) as discussed above. The impugned order is, therefore, set aside to this extent. Short granting of tax deducted at source - Held that - AO is directed to examine this aspect of the matter and thereafter, decide it as per law after allowing a reasonable opportunity of being heard to the assessee. Interest u/s 234B and 234C - Held that - The issue of charging of interest u/s 234B in the present case is no more res integra in view of the judgment of Director of Income-tax (International Taxation) v. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT wherein held that when the duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be charged from the payee assessee u/s 234B. Also see DIT (IT) v. Krupp UDHE GmbH 2010 (3) TMI 287 - BOMBAY HIGH COURT . As the assessee in this case is a non-resident, naturally any amount payable to it which is chargeable to tax under the Act, is otherwise liable for deduction of tax at source, thus no interest can be charged u/s 234B and 234C. In favour of assessee.
Issues Involved:
1. Taxability of income from offshore services under the Income-tax Act, 1961 and the India-Japan DTAA. 2. Short granting of tax deducted at source. 3. Levy of interest under sections 234B and 234C of the Income-tax Act. 4. Initiation of penalty proceedings under section 271(1)(c). Detailed Analysis: 1. Taxability of Income from Offshore Services: Position under the Act: The assessee, a non-resident company incorporated in Japan, claimed that income from offshore services was not taxable in India. The assessee relied on the Supreme Court's judgment in its own case, which held that offshore services rendered outside India were not taxable under section 9(1)(vii) of the Income-tax Act, 1961. However, the Finance Act, 2010, retrospectively amended section 9(2) to clarify that income from fees for technical services would be deemed to accrue or arise in India, irrespective of whether the services were rendered in India. Given this amendment, the Tribunal concluded that the income from offshore services fell within the ambit of section 9(1)(vii) and was taxable in India. Position under the DTAA: The DTAA between India and Japan was also considered. Article 12 of the DTAA deals with "fees for technical services" and Article 7 deals with "business profits." The Tribunal noted that the Supreme Court had previously ruled that the income from offshore services fell under Article 7 and was not taxable in India, as the services were rendered outside India and had no connection with the permanent establishment in India. The Tribunal upheld this view, stating that the income from offshore services, although chargeable under section 9(1)(vii), was exempt under the DTAA. Thus, the provisions of the DTAA, being more beneficial to the assessee, were applicable. 2. Short Granting of Tax Deducted at Source: The assessee raised an issue regarding the short granting of tax deducted at source amounting to Rs. 68,74,511. The Tribunal directed the Assessing Officer to examine this matter and decide it in accordance with the law after providing a reasonable opportunity of being heard to the assessee. 3. Levy of Interest under Sections 234B and 234C: The Tribunal referred to the jurisdictional High Court's judgment in the case of Director of Income-tax (International Taxation) v. NGC Network Asia LLC, which held that when the duty to deduct tax at source is on the payer, and the payer fails to do so, no interest can be charged from the payee under section 234B. Since the assessee was a non-resident and any amount payable to it was liable for deduction of tax at source, the Tribunal held that no interest could be charged under sections 234B and 234C. This ground was allowed. 4. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal found that the ground regarding the initiation of penalty proceedings under section 271(1)(c) was premature and accordingly dismissed it. Conclusion: The appeal was partly allowed. The Tribunal held that the income from offshore services was exempt under the DTAA and could not be taxed in India. The issue of short granting of tax deducted at source was remanded to the Assessing Officer for re-examination. The levy of interest under sections 234B and 234C was disallowed, and the ground regarding the initiation of penalty proceedings was dismissed as premature.
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