2019 (11) TMI 367 - AT - Income Tax

PE in India - Income accrued in India - non-compete fee money received independently by the assessee pursuant to an independent agreement, which was admittedly entered into after the sale of shares in SIPL - Income taxable in India - there is no business connection or PE in India for the assessee - HELD THAT - Claim of the assessee seeking treaty benefit should not be entertained as assessee had not made any claim by way of valid return by placing reliance on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd. 2006 (3) TMI 75 - SUPREME COURT had categorically observed that the said restriction is applicable only to the Assessing Officer and not to the appellate authorities. Moreover, we find that the decision of the Hon ble Jurisdictional High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT had categorically held that any claim eligible to the assessee shall be made at any point in time which had been rightly appreciated by the ld. CIT(A) while entertaining the claim of the assessee in the instant case before us. Moreover, we find that though the claim of exemption from tax pursuant to Article 7 of DTAA was made by the assessee during the course of assessment proceedings, we find that the ld AO had duly adjudicated the same on merits in the assessment order itself and hence there is no question of said claim of assessee getting rejected for not claiming the same by way of a valid return. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we do not find any infirmity in the said action of the ld. CIT(A) and accordingly, the grounds 1 3 raised by the revenue are dismissed.

Issues Involved:
1. Justification of the claim of exemption by way of letter during assessment proceedings.
2. Whether the assessed income can be below the returned income.
3. Taxability of non-competition and non-solicitation fees under Article 7 of India-Qatar DTAA.
4. Business connection and Permanent Establishment (PE) under Section 9(1) of the Income Tax Act.
5. Applicability of judicial precedents and CBDT circulars.

Detailed Analysis:

Issue 1: Justification of the Claim of Exemption by Way of Letter During Assessment Proceedings
The assessee, a non-resident individual, initially offered non-competition and non-solicitation fees as business income in his original and revised returns. However, during assessment proceedings, he claimed exemption by filing a letter, citing that he had no Permanent Establishment (PE) in India and thus, under Article 7 of the India-Qatar DTAA, the income should be taxed only in Qatar. The CIT(A) accepted this claim, referencing several judicial precedents, including the Hon’ble Supreme Court's decision in National Thermal Power Corporation Ltd. vs. CIT and the Hon’ble Bombay High Court's decision in CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd., which allowed new claims to be made before appellate authorities even if not claimed in the original return.

Issue 2: Whether the Assessed Income Can Be Below the Returned Income
The CIT(A) held that the assessed income can be below the returned income, relying on the Hon’ble Gujarat High Court's decision in Gujarat Gas Ltd. v. JCIT and the Hon’ble Bombay High Court's decision in Pruthvi Brokers and Shareholders Pvt. Ltd. These decisions emphasized that appellate authorities have the power to entertain new claims and that legitimate tax claims should not be denied due to procedural lapses.

Issue 3: Taxability of Non-Competition and Non-Solicitation Fees under Article 7 of India-Qatar DTAA
The CIT(A) concluded that the non-competition and non-solicitation fees received by the assessee, a resident of Qatar, were not taxable in India under Article 7 of the India-Qatar DTAA. The CIT(A) noted that the assessee had no business connection or PE in India post the sale of shares in Sievert India Pvt. Ltd. (SIPL). This conclusion was supported by the Co-ordinate Bench decision of the Kolkata Tribunal in the case of Trans Global PLC vs. Director of Income Tax International Taxation, which held that non-compete fees received by a non-resident without a PE in India are not taxable in India.

Issue 4: Business Connection and Permanent Establishment (PE) under Section 9(1) of the Income Tax Act
The Assessing Officer (AO) argued that the assessee had a business connection in India by virtue of holding shares in SIPL, thus deeming the non-compete fees as accruing or arising in India under Section 9(1) of the Income Tax Act. However, the CIT(A) and the Tribunal found no evidence of a business connection or PE in India post the sale of shares. The Tribunal emphasized that merely holding shares in an Indian company does not establish a business connection or PE in India.

Issue 5: Applicability of Judicial Precedents and CBDT Circulars
The Tribunal upheld the CIT(A)'s reliance on judicial precedents, including the Hon’ble Supreme Court's decision in Goetze India Ltd., which restricts new claims to be made only before the AO and not appellate authorities. The Tribunal also referenced the Hon’ble Bombay High Court's decision in Pruthvi Brokers and Shareholders Pvt. Ltd., affirming that appellate authorities can entertain new claims. Furthermore, the Tribunal dismissed the revenue's argument that the assessee's claim should be rejected for not being made in a valid return, noting that the AO had adjudicated the claim on merits during the assessment proceedings.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order that the non-competition and non-solicitation fees received by the assessee were not taxable in India under Article 7 of the India-Qatar DTAA, as the assessee had no PE in India. The Tribunal upheld that new claims can be made before appellate authorities and that assessed income can be below the returned income, provided the claims are legitimate and supported by judicial precedents.

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