2014 (2) TMI 35 - AT - Income Tax

Permanent establishment AO held that the assessee had PE in India in the form of Usha Sales and hence, he attributed certain percentage of revenue from sale of tractors as taxable in India, besides holding that certain percentage of sale of trailers was also taxable. - Held that - There is a consistent non-appearance on the part of the assessee - On the last date, the DR was asked to effect the service of notice of hearing - At the time of present hearing, the AR placed before the Bench proof of service on S.R. Batliboi & Co. (CA), as the address given on all the communications is that of S.R. Batliboi & Co. C.A. firm - the assessee till date has not been able to convince the fact that Usha Sales is not a PE of the assessee and is an independent branch by itself - it is the duty of the assessee to convince, with material and evidence, to the satisfaction of the AO, this exercise, the assessee has failed to commit - Since, in the two rounds, the assessee has not been able to convince the AO, the order of the CIT(A) upheld Decided in favour of Revenue.

Issues Involved:
1. Deletion of 1% deemed profit on income from work done outside India.
2. Taxation of income from supply of tractors and trailers under India-Finland DTAA.
3. Determination of Permanent Establishment (PE) status in India.
4. Attribution of income to PE in India.
5. Re-computation of income from supply of trailers.

Detailed Analysis:

1. Deletion of 1% Deemed Profit on Income from Work Done Outside India:
The appellant, a Finnish company, executed a contract with NSPT for the supply of tractors and trailers. The tractors were manufactured in Finland and transported to India. The CIT(A) directed the AO to delete the 1% deemed profit on Rs. 4,59,70,598/- for work done outside India. The ITAT upheld the AO's decision to tax the profit at 1% on the revenue from the supply of tractors, amounting to Rs. 4,59,70,706/-. The CIT(A) held that Usha Sales, the agent in India, was of independent status, and activities not attributable to the PE cannot be taxed in India.

2. Taxation of Income from Supply of Tractors and Trailers Under India-Finland DTAA:
The appellant argued that it did not have a PE in India, and hence the provisions under the India-Finland DTAA would not apply. The AO, however, held that the appellant had a PE in India through Usha Sales and attributed a percentage of revenue from the sale of tractors and trailers as taxable in India. The ITAT observed that the services provided by Usha Sales fell within the ambit of Article II(1)(g)(aa) of the DTAA, thus upholding the AO's decision to tax the profit.

3. Determination of Permanent Establishment (PE) Status in India:
The CIT(A) held that Usha Sales was an independent agent and not a PE of the appellant in India for the supply of tractors. However, for the supply of trailers, the CIT(A) agreed with the AO that the appellant had an installation PE in India under Article 5(3)(a) and 5(3)(b) of the DTAA. The CIT(A) noted that the appellant's activities through Braith Waite constituted assembly work in India, thus establishing a PE.

4. Attribution of Income to PE in India:
The CIT(A) directed the AO to recompute the income attributable to the PE in India for the work done in India, specifically for the supply of trailers. The AO was instructed to consider the provisions of the India-Finland Treaty in this recomputation. The CIT(A) computed the profit from the supply of trailers, taking into account the revenues and costs associated with the supply and transportation of trailers and spares.

5. Re-computation of Income from Supply of Trailers:
The CIT(A) recomputed the profit from the supply of trailers, considering the revenues from the main contract and the costs incurred, including payments made to Braith Waite and transportation expenses. The profit was computed as Rs. 79,500/-. The ITAT, however, noted the consistent non-appearance of the assessee and upheld the AO's order, setting aside the CIT(A)'s order.

Conclusion:
The ITAT concluded that the appellant failed to provide sufficient evidence to prove that Usha Sales was not a PE and was an independent agent. Consequently, the ITAT sustained the AO's order, allowing the appeal and setting aside the CIT(A)'s order. The appeal was decided ex parte due to the non-appearance of the assessee, and the order was pronounced in the open Court on 14th August 2013.

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