2020 (8) TMI 476 - HC - Income Tax

Double Taxation - Payment of Normal Tax (advance Tax / TDS) considering the assessee has Multiple permanent establishments in India - Seeking stay of payment of equalization levy /s 165A read with Section 166A of the Finance Act, 2016 as amended by Finance Act, 2020 during the pendency of the present writ petition - applicant s case before this Court is that it is not liable to tax in India as its core business is carried outside India and none of the activities which are carried out in India result in the existence of either a permanent establishment ( PE ) or the payment received by it can be characterized as Royalty. HELD THAT - Levy has been introduced w.e.f. 01st April, 2020 by amendment of the Finance Act, 2016 vide the Finance Act, 2020 and is being levied on the entities that do not have a PE in India. Since it is the applicant s case that it does not have a PE in India, it would be liable to pay tax under the new levy. However, according to the applicant, any further payment would result in double taxation. Revenue submitted that, it has no desire or authority of collecting the EL from the Applicant in respect of the income on which income tax has been paid by the Applicant either as advance tax or as TDS made by its customer banks in India during the pendency of this writ petition. - This Court is of the view that the respondent no.3 can have no objection to being held bound by its own averments in the reply/counter affidavit.

Issues:
1. Stay of payment of equalization levy under Section 165 A read with Section 166 A of the Finance Act, 2016 as amended by Finance Act, 2020.
2. Liability to pay tax in India due to multiple permanent establishments.
3. Applicability of Equalisation Levy on entities without a permanent establishment in India.
4. Fear of penalty for non-payment of Equalization Levy during the pendency of the writ petition.
5. Concerns regarding refund of income tax and payment of Equalization Levy if successful in the writ petition.
6. Respondent's objection to the petitioner's application and the binding effect of the Authority for Advance Rulings (AAR) order.
7. Consequential actions under the Income-tax Act, 1961 and Equalization Levy provisions.

Analysis:
1. The petitioner sought a stay on the payment of equalization levy under the Finance Act, 2016 as amended in 2020. The Authority of Advance Ruling had previously held that the petitioner, with multiple permanent establishments in India, was liable to tax in India. However, the petitioner contended that its core business conducted outside India did not create a permanent establishment or qualify as royalty income in India. The introduction of the Equalisation Levy, applicable to entities without a permanent establishment in India, raised concerns about potential double taxation.

2. Respondent no.3 argued that the petitioner was not liable to pay Equalization Levy as it had a permanent establishment in India, and the income in question was effectively connected to this establishment, subject to income tax under the IT Act. The respondent stated that entities with a permanent establishment in India were exempt from the Equalization Levy. The respondent also highlighted the binding effect of the AAR's order under the IT Act, emphasizing that the petitioner had not admitted any income in its tax return.

3. The petitioner expressed fear of future penalties for non-payment of Equalization Levy during the petition's pendency. They raised concerns about potential penalties if successful in proving the absence of a permanent establishment in India, as well as the implications for refunding income tax and paying the Equalization Levy with statutory interest. Respondent no.3 objected to the petitioner's application, stating that no cause of action existed at the current stage for grievances related to tax obligations.

4. The Court acknowledged respondent no.3's position and held them bound by their own averments in the reply affidavit. Consequently, the Court accepted the respondent's contentions and disposed of the petitioner's application. The Court emphasized that the respondent should be held accountable for their statements and directed the order to be uploaded on the website and sent to the counsel via email for reference.

← Previous Next →