2019 (3) TMI 221 - AT - Income Tax

Income accrued in India - consideration received from M/s.ABB India by the assessee as per the service agreement - assessee-company is a non-resident company incorporated in UAE - FTS - PE in India - Taxability of business income as per DTAA between India and UAE - HELD THAT - As per DTAA and Tax Treaty, there is no specific clause in respect of FTS and same has to be considered as business profit in the absence of such clause and permanent establishment in India, whereas the learned AR supported his arguments on non-taxability of amount but could not establish that there is no existence of Permanent Establishment in India. Therefore, as prayed by the learned AR, the disputed matter is restored to the file of the AO for the limited purpose to examine and inquiry whether there is any permanent establishment in India. In case if it is found with supporting evidence and documentation and also the assessee proves that there is no permanent establishment in India, then the assessee be granted the benefit of non-taxability - Assessee s appeal is allowed for statistical purposes.

Summary

Issues:
1. Taxability of fees for technical services under the Double Taxation Avoidance Agreement (DTAA) and Income Tax Act, 1961.
2. Initiation of penalty proceedings under section 271.
3. Determination of relief arising from the grounds of appeal.

Analysis:
1. The appeal was filed against the order of the Deputy Commissioner of Income-tax regarding taxability of fees for technical services under the DTAA and Income Tax Act, 1961. The assessee argued that in the absence of a specific article for taxability of such payments in the DTAA, the provisions of the Act should not be applicable. The Assessing Officer (AO) considered the services as managerial and technical, applying section 9(1)(vii) of the Act. The Dispute Resolution Panel (DRP) confirmed the AO's decision. However, the Tribunal found that in the absence of a provision in the DTAA for Fees for Technical Services, such payments should be taxed as per Article 7 of the DTAA applicable for business profit, provided there is no Permanent Establishment in India.

2. The issue of penalty proceedings under section 271 was raised. The AO had initiated penalty proceedings, which the assessee objected to. The Tribunal did not address this issue specifically in the judgment.

3. The relief sought by the appellant included directions to grant all relief arising from the grounds of appeal, permission to modify the grounds, and deletion of adjustments made by the AO and upheld by the DRP. The Tribunal allowed the appeal for statistical purposes, setting aside the order of the Commissioner of Income Tax (Appeals) and restoring the disputed issue to the file of the AO for further examination regarding the existence of Permanent Establishment in India. If the assessee proves no Permanent Establishment exists, the income shall be considered non-taxable.

In conclusion, the Tribunal's judgment focused on the taxability of fees for technical services under the DTAA and Income Tax Act, emphasizing the importance of Permanent Establishment in India for determining tax liability. The issue of penalty proceedings was not directly addressed, and the relief sought by the appellant was partially granted for further examination by the AO.