2014 (1) TMI 1356 - AT - Income Tax

Permanent establishment Levy of tax DTAA between India and Malaysia - Whether the Malaysian Branch of the assessee-company is a permanent establishment in Malaysia Held that - The decision in Union of India & another Vs. Azadi Bachao Andolan & another reported as 2003 (10) TMI 5 - SUPREME Court followed - the Malaysian branch of the assessee has the status of permanent establishment in Malaysia - the income of Malaysian branch of the assessee is income earned in Malaysia and by virtue of DTAA that income is liable for taxation only in Malaysia. There is nothing on record to deny the Malaysian branch of the assessee company the status of a permanent establishment operating in Malaysia - the taxability of the income of the assessee and its Malaysian branch is governed by the DTAA entered into between India and Malaysia - The income generated in the hands of the Malaysian branch of the assessee company is rent and interest income - They are all generated from assets situated outside India thus, as per the terms of the DTAA the income of Malaysian branch of the assessee company is liable for taxation in Malaysia - Once it is liable for taxation in Malaysia, DTAA makes it clear that the said income is not subjected to the jurisdiction of Indian taxation Decided against Revenue.

Summary

Issues:
- Appeal against orders of Commissioner of Income Tax (Appeals)
- Assessment of income from branch in Malaysia
- Permanent establishment status of Malaysian branch
- Application of Double Taxation Avoidance Agreement (DTAA) between India and Malaysia
- Cross-objections against re-opening of assessment proceedings

Analysis:
- The Revenue filed three appeals against the orders of the Commissioner of Income Tax (Appeals) regarding the assessment years 2006-07, 2008-09, and 2009-10, challenging the treatment of income from the assessee's branch in Malaysia.
- The Assessing Officer determined that the income from the Malaysian branch is assessable in India but did not consider it a permanent establishment. However, the CIT(Appeals) ruled in favor of the assessee, citing a previous Tribunal decision that the Malaysian branch qualifies as a permanent establishment under the Indo-Malaysian DTAA.
- The Tribunal considered various legal precedents, including the Supreme Court judgment in Union of India v. Azadi Bachao Andolan, to conclude that the Malaysian branch is indeed a permanent establishment in Malaysia. Consequently, the income earned by the Malaysian branch is taxable only in Malaysia under the DTAA.
- The Tribunal noted that the Revenue's appeal to the High Court did not alter the Tribunal's decision, as no stay or reversal order was presented. Therefore, the Tribunal upheld the earlier ruling that the Malaysian branch's income is not taxable in India.
- The assessee also filed cross-objections regarding the re-opening of assessment proceedings, which were dismissed as the CIT(Appeals)'s decision was deemed justified and detailed, warranting no interference.
- Ultimately, all three appeals by the Revenue and the cross-objections by the assessee were dismissed by the Tribunal, affirming the non-taxability of income from the Malaysian branch under the DTAA between India and Malaysia.