2021 (10) TMI 27 - AT - Income Tax

Income accrued in India - Fix place PE/service PE/ installation PE in India - HELD THAT - Revenue has not rebutted the observations made in the impugned direction and reaching to the conclusion that the assessee had no PE in India. We, therefore, do not see any reason to interfere in the finding of DRP, the same is hereby affirmed. - Decided against revenue.

Summary

Issues involved:
1. Determination of Permanent Establishment (PE) in India for tax purposes.
2. Taxability of business profits from supply of equipments and chemicals in India.
3. Consideration of Project Office as a PE in India.
4. Attribution of income from supply of equipments and chemicals to India.
5. Impact of contract terms on determining place of income accrual.
6. Existence of technical discussions and activities in India prior to formal establishment of Project Office.
7. Continuation of activities post-establishment of Project Office.
8. Compliance with Indo-Japan Double Taxation Avoidance Agreement (DTAA).
9. Threshold period for establishment of a permanent project office.

Analysis:
1. The appeal filed by the Revenue contested the finding of the Dispute Resolution Panel-2 (DRP) that the assessee did not have a fixed place PE, service PE, or installation PE in India during the relevant period. The Revenue argued that profits from supply of equipments and chemicals were attributable to a PE in India.
2. The Assessing Officer contended that a portion of revenue from offshore supply to Tata Steel Ltd. was taxable in India under Section 9(1) of the Income Tax Act, considering the creation of projects in India using equipment manufactured by the assessee in Japan. The DRP ruled in favor of the assessee, holding that no PE existed in India.
3. The DRP's decision was based on the fact that the assessee established a Project Office in India in 2011, after which certain activities took place in India, but these did not constitute a fixed place PE. The Indo-Japan DTAA did not include a service PE clause, and the threshold period for establishing an installation PE was not met.
4. The Tribunal upheld the DRP's findings, noting that the Revenue failed to rebut the evidence presented by the assessee. As a result, the appeal of the Revenue was dismissed, affirming the conclusion that the assessee did not have a PE in India.
5. The judgment emphasized the importance of factual findings, documentary evidence, and compliance with international tax agreements in determining the taxability of business profits and the existence of a PE. The decision highlighted the significance of meeting specific criteria, such as the threshold period for establishing a permanent project office, in tax assessments involving cross-border transactions.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues, arguments presented, and the final decision rendered by the Tribunal in the case.