2018 (5) TMI 265 - SC - Income Tax

Reopening of assessment - appellant(s) has permanent establishment in India - Held that - In the judgment of this Court in Assistant Director of Income Tax-I, New Delhi v. M/s. E-Funds IT Soluction Inc. 2017 (10) TMI 1011 - SUPREME COURT OF INDIA and connected matters, it has been held that once arm's length principle has been satisfied, there can be no further profit attributable to a person even if it has a permanent establishment in India. Since the impugned notice for the reassessment is based only on the allegation that the appellant(s) has permanent establishment in India, the notice cannot be sustained once arm's length price procedure has been followed. Appeals are allowed.

Summary

Issues:
1. Interpretation of the arm's length principle in tax assessments involving permanent establishments in India.

Analysis:

The Supreme Court, comprising Mr. Adarsh Kumar Goel, Mr. Rohinton Fali Nariman, and Mr. Navin Sinha, granted leave in the case after hearing arguments from both parties and examining the record. The judgment referred to a previous ruling in Assistant Director of Income Tax-I, New Delhi v. M/s. E-Funds IT Solutions Inc., where it was established that once the arm's length principle is satisfied, no further profit can be attributed to a person with a permanent establishment in India. The Court emphasized that if the arm's length price procedure has been followed, any reassessment notice solely based on the existence of a permanent establishment in India cannot be upheld.

The impugned order(s) were set aside, and the appeals were allowed in favor of the appellant(s) due to the above reasoning. The Court highlighted that the notice for reassessment lacked merit as it relied solely on the presence of a permanent establishment without considering the arm's length principle. Additionally, the judgment indicated that if the Revenue contests the factual position, they have the option to approach the Court with complete instructions to present their case. This judgment clarifies the application of the arm's length principle in cases involving permanent establishments in India and emphasizes the importance of following this principle in determining profit attribution.