2020 (2) TMI 791 - AT - Income Tax

Income accrued in India - permanent establishment in India - India-UK DTAA - FTS income - income of non-resident - HELD THAT - There was no PE of the Assessee in India during the relevant previous year, the question that would now require consideration is with regard to taxability of the FTS. Considering the fats of the case, as per Article 13(2) of the India-UK DTAA, FTS income of non-resident is taxable @ 15% on gross receipts. Whereas as per section 115A of the Act, FTS is taxable @ 20% on gross receipts. Since, the provisions of the India-UK DTAA is more beneficial, the Assessee is entitled to the benefit of the provisions of section 90(2) of the Act. Accordingly, FTS in the given case would be taxed at the beneficial rate of 15% on gross receipts as provided in Article 13(2) of the India-UK DTAA. We also hold that the tax liability borne by GRSE will also need to be grossed up for arriving at gross receipts of the Assessee and after such grossing up such receipts have to be taxed @ 15%. Whether the assessee ought to be subjected to sec. 234B and 234C interest or not? - Suffice to say, learned co-ordinate bench s order in assessment year 2009-10 holds that the above interest provisions do not apply in case of the assessee being a non-resident company. We therefore adopt the very reasoning mutatis mutandis to decline the Revenue s instant substantive grievance as well. TDS u/s 195 - payments made to M/s Appledore International Ltd. in lieu of rendering technical services in UK forming subject-matter of 40(a)(ia) - HELD THAT - Any disallowance stood rendered infructuous in view of the fact that it did not have any permanent establishment in India. We notice herein as well the tribunal s earlier order has already concluded that this sec. 40(a)(ia) disallowance issue stood rendered infructuous in view of the fact the sum in question has already been assessed as fee for technical services. The Revenue fails in its identical additional substantive grievance as well. All of the three identical substantive grounds raised at Revenue s behest fail therefore.

Issues Involved:
1. Existence of Permanent Establishment (PE) in India.
2. Attribution of profits to PE in India.
3. Applicability of interest under sections 234B and 234C of the Income Tax Act.
4. Disallowance under section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Existence of Permanent Establishment (PE) in India:
The primary issue was whether the assessee had a Permanent Establishment (PE) in India. The Revenue argued that the assessee had a PE in India based on its contract with Garden Reach Shipbuilding Engineers (GRSE) for rendering engineering and supervisory services. The Assessing Officer (AO) held that the assessee had a PE in India within the meaning of Article 5(1) and 5(2) of the India-UK Double Taxation Avoidance Agreement (DTAA) as the assessee had attributed 10% of the total profit from the project to its PE in India. The CIT(A) had reversed this finding, relying on earlier ITAT orders which stated that the presence of the assessee in India was only in connection with the agreement for modernization of the shipyard and did not constitute a fixed place of business through which the business of the enterprise was carried on. The ITAT upheld the CIT(A)'s decision, emphasizing judicial consistency and noting that mere admission of appeal in the high court does not warrant a different approach.

2. Attribution of Profits to PE in India:
The AO found that the assessee had attributed 10% of total profits to its PE in India based on man-hour calculations. However, the AO noted that the assessee did not maintain separate accounts for operations in India and the UK and failed to provide detailed documents supporting its claims. The CIT(A) held that the attribution of profits to the PE in India was not justified as the assessee did not have a PE in India. The ITAT upheld this view, referencing earlier tribunal decisions which concluded that the assessee's services were not attributable to a PE in India.

3. Applicability of Interest under Sections 234B and 234C:
The Revenue argued that the assessee should be subjected to interest under sections 234B and 234C of the Income Tax Act. However, the ITAT referred to its earlier order for the assessment year 2009-10, which held that these interest provisions do not apply to a non-resident company. Therefore, the ITAT declined the Revenue's grievance on this matter.

4. Disallowance under Section 40(a)(ia):
The Revenue raised an additional ground that the CIT(A) erred in holding that the payments made by the assessee to M/s Appledore International Ltd. for technical services in the UK did not attract disallowance under section 40(a)(ia) as the assessee did not have a PE in India. The ITAT noted that this issue had already been concluded in earlier tribunal orders, which stated that the disallowance under section 40(a)(ia) was rendered infructuous since the sum in question was assessed as fees for technical services. Therefore, the ITAT dismissed the Revenue's additional ground.

Conclusion:
The ITAT dismissed all three of the Revenue's appeals, upholding the CIT(A)'s decisions on all issues. The ITAT emphasized judicial consistency and referenced earlier tribunal decisions that supported the assessee's position on the existence of PE, attribution of profits, applicability of interest under sections 234B and 234C, and disallowance under section 40(a)(ia).

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