2016 (5) TMI 849 - AT - Income Tax

Existence of PE in India - Held that - Respectfully following the order in assessee s own case for the assessment year 2008-09 the issue agitated is decided against the assessee by holding that the services PE of the assessee is established in India. Charging of interest u/s 234B is decided in favour of the assessee and for the remaining issue relating to charging of interest u/s 234A 234C and 234D of the Act we hold that it is consequential in nature.

Issues Involved:
1. Whether the assessee has a Permanent Establishment (PE) in India.
2. Royalty earned by the assessee and its connection to the service PE.
3. Computation mechanism for chargeability of Royalty income.
4. Attribution of profits to the alleged PE.
5. Following the ITAT order for AY 2008-09.
6. Allowance of expenses as directed by the DRP.
7. Levying of interest under Sections 234A, 234B, 234C, and 234D.
8. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Permanent Establishment (PE) in India:
The assessee contended that it did not have a service PE in India under Article 5 of the India-UK DTAA. However, the Tribunal noted that this issue had already been decided against the assessee in earlier orders for AY 2008-09 and AY 2010-11. The Tribunal reiterated that the service PE of the assessee is established in India as per Article 5(2)(k) of the DTAA, following the precedent set in previous years.

2. Royalty Earned by the Assessee:
The Tribunal addressed the issue of whether the royalty earned by the assessee was effectively connected to the service PE in India. It was observed that similar issues had been adjudicated in earlier years, where it was determined that the royalty related to the transfer of intellectual property rights and the services rendered by seconded employees. The Tribunal held that the royalty was not effectively connected to the service PE, following the precedent set in previous years.

3. Computation Mechanism for Chargeability of Royalty Income:
The assessee argued that the entire royalty received from India could not be subjected to tax in India and should be taxed only to the extent of profits attributable to Indian operations. The Tribunal followed the precedent from earlier years and directed the AO to determine the income in consonance with the directions given in the previous orders.

4. Attribution of Profits to the Alleged PE:
The assessee contended that no further attribution of profits was possible as the Indian company was earning profit at arm's length. The Tribunal did not provide a separate adjudication for this ground as it was correlated with the issues already decided in the earlier part of the order.

5. Following the ITAT Order for AY 2008-09:
The assessee argued that the AO erred in not following the ITAT order for AY 2008-09. The Tribunal reiterated that the issues had been adjudicated in the earlier part of the order and followed the precedent set in previous years.

6. Allowance of Expenses as Directed by the DRP:
The assessee contended that the AO erred in allowing expenses at a lower amount than directed by the DRP. This ground was not pressed by the assessee and was dismissed as not pressed.

7. Levying of Interest under Sections 234A, 234B, 234C, and 234D:
The Tribunal noted that the issue of charging interest under Section 234B had been decided in favor of the assessee in earlier years. For the remaining sections, the Tribunal held that the charging of interest is consequential in nature.

8. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal found this ground to be pre-mature and did not require any adjudication.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, and the stay application was dismissed as infructuous. The Tribunal followed the precedents set in earlier years for most of the issues involved.

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