2018 (3) TMI 477 - HC - Income Tax

Existence of Permanent establishment (PE) so as to attract the provisions of Section 9 - Income accrued in India - income directly or indirectly attributable to the branches/offices is not taxable in India - DTAA between India and Japan - Held that - Tribunal has followed its previous decisions of other year 2018 (3) TMI 434 - DELHI HIGH COURT wherein held Court is unable to be persuaded that the ITAT erred in its conclusion that the evidence produced by the AO does not show that the LOs of the Assessee carried on any activity which was not incidental and auxiliary in nature. ITAT has examined in detail all the materials referred to by the AO in its remand report as well as the order of the CIT (A) and has given detailed reasons why none of these materials establish that the LOs were used by the Assessee to carry on any business or trading activity in India. The said factual finding by the ITAT has not been shown to be perverse. There was no basis for the AO to conclude that the Special Bench of the ITAT had erred in its conclusion in favour of the Assessee that the LOs were not carrying on any activity which was either incidental and auxiliary in nature. With the consistent position in this regard continuing since 1977-78, in the absence of any evidence to suggest a change in the circumstances, there was no warrant for the AO and the CIT (A) to take a different view of the matter. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee has constituted a permanent establishment (PE) to attract Section 9 of the Income Tax Act, 1961?

Analysis:

Issue 1: Whether the assessee has constituted a permanent establishment (PE) to attract Section 9 of the Income Tax Act, 1961?

The High Court considered the question of whether the assessee had formed a permanent establishment (PE) to trigger the provisions of Section 9 of the Income Tax Act, 1961. The Court noted that the Income Tax Appellate Tribunal (ITAT) had relied on its previous decisions from other years, including a case involving the Revenue and Mitsui & Co. Ltd. The Court referenced a judgment from a previous case dated 12.10.2017, where it upheld the ITAT's decision based on a Special Bench's judgment applicable for specific assessment years. In that judgment, the Court highlighted that the evidence presented did not demonstrate that the assessee's Liaison Offices (LOs) in India were engaged in any business or trading activities beyond incidental and auxiliary functions. The Court emphasized that the ITAT had thoroughly examined the materials and provided detailed reasons for its findings, which were not considered to be unreasonable. Furthermore, the Court pointed out the consistent position held since 1977-78 regarding the nature of activities conducted by the LOs, indicating no change in circumstances to warrant a different view by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT (A)]. Consequently, the Court concluded that no question of law arose as the ITAT had consistently followed its previous decisions, which were upheld by the Special Bench and other Benches. As a result, the appeal was dismissed based on the above reasoning.

This comprehensive analysis of the judgment provides a detailed overview of the Court's considerations and findings regarding the issue of whether the assessee had established a permanent establishment to invoke the provisions of Section 9 of the Income Tax Act, 1961.