2021 (9) TMI 1169 - AT - Income Tax

Income accrued or deemed received in India - PE in India in terms of Article 5 of India US-DTAA - Proof of business connection in India - agency PE - whether the agents have the authority to conclude contracts (on behalf of the assessee)? - HELD THAT - As decided in own case 2012 (3) TMI 27 - ITAT DELHI though the assessee had a business connection in India, it had neither fixed placed PE nor agency PE in India and in absence of any PE in India the profits, if any, attributable to India operations could not be assessed as business profits under Article 7 of the India-US DTAA - the agents engaged by the assessee were independent agents under Article-5(4) of the India US-DTAA and they did not have the necessary authority to conclude the contracts of the assessee and, on that premise, it was held that there is no agency PE of the assessee in India. Under similar circumstances, the Co-ordinate Bench of the Tribunal held that though the assessee had business connection, it did not have any fixed placed PE nor agency placed PE in India, and, in the absence of any such PE in India, the profits, if any, attributable to India operations could not be assessed as business profits under Article-7 of the India US DTAA. - Decided against revenue.

Summary

Issues Involved:
1. Taxability of income earned by the assessee from money transfer services in India.
2. Existence of a Permanent Establishment (PE) in India.
3. Attribution of profits to the Indian operations.
4. Liability to pay interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Taxability of Income Earned by the Assessee from Money Transfer Services in India:
The primary issue revolves around whether the income earned by the non-resident assessee from its money transfer services to individuals in India is taxable in India. The Assessing Officer (AO) concluded that the assessee had a Permanent Establishment (PE) in India, making the commission income taxable in India. The CIT(A) disagreed, referencing previous Tribunal orders which held that the assessee did not have a PE in India under Article 5 of the India-US DTAA, thus the income was not taxable in India.

2. Existence of a Permanent Establishment (PE) in India:
The AO identified two forms of PE: fixed place PE due to software usage and agency PE due to agents in India. However, the CIT(A) and the Tribunal consistently found no fixed place PE or agency PE. The Tribunal noted that the software used by agents did not constitute a PE, as the premises were not controlled by the assessee and the software was merely a tool to access the mainframe in the USA. The agents were deemed independent under Article 5(4) of the DTAA, as their activities were not devoted wholly to the assessee and transactions were at arm's length.

3. Attribution of Profits to the Indian Operations:
The AO attributed 50% of the profits from Indian operations to the Indian PE. However, since the Tribunal concluded there was no PE, it followed that no business profits could be attributed to Indian operations under Article 7 of the DTAA. This was consistent with previous rulings for assessment years from 2001-02 to 2010-11.

4. Liability to Pay Interest Under Section 234B:
The AO imposed interest under Section 234B for short deduction or non-deduction of tax. However, since the Tribunal found no taxable income in India due to the absence of a PE, the issue of interest under Section 234B became infructuous.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Department's appeal. The consistent view across various assessment years was that the assessee did not have a PE in India, and thus, the income from money transfer services was not taxable in India. Consequently, no profits were attributable to Indian operations, and the liability for interest under Section 234B did not arise. The appeal of the Department was dismissed, reaffirming the non-taxability of the assessee's income in India due to the absence of a PE.