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2021 (11) TMI 996 - AT - Income TaxIncome tax liability of employees - Remission of income tax liability borne on behalf of the employees is to be added to the income under the head Income from business or profession u/s 41(1)(a) - assessee had computed its income in terms of Section 44BB - HELD THAT -As established by the assessee that this liability of income tax born by the assessee on behalf of its employees was pertaining to which year and Whether the assessee has offered its income for that year applying the provisions of Section 44 BB of the act or not. If the liability pertains to the year for which the assessee has offered its income by applying the provisions of Section 44 BB of the act than once again this remission of liability cannot be taxed u/s 41 (1) of the act for the impugned assessment year i.e. assessment year 2011 12. It is also to be seen that assessee is setting of losses for previous year as evident from the assessment orders. Therefore, it is also possible that earlier years the assessee has not opted for presumptive income scheme u/s 44 BB of the act but has offered income based on its accounts. In such circumstances, remission of income tax liability if it pertains to those year for which the assessee is claiming set-off of losses by offering its income based on its regular income and expenditure accounts, would definitely be chargeable to tax in this year u/s 41 (1) of the act. These facts are not available on record; it is also not available with the assessee readily at the time of hearing. As it is not available before hand that for which assessment year, this remission of income tax liability pertains to and whether in that year how the income of the assessee has been offered i.e. whether u/s 44 BB of the act or at the actual income - we set aside this ground of appeal back to the file of the learned assessing officer with a direction to the assessee to show with evidence for which assessment year the income tax liability of employees was considered as an expenditure and how the income of the assessee was offered for that year. Chargeability of interest on income tax refund as business income and taxable at maximum marginal rate of tax by the AO and upheld by the learned CIT A - HELD THAT - No reason to deviate from the orders of the lower authorities wherein the decision of BJ Services Company Middle East limited 2007 (3) TMI 311 - ITAT DELHI-H is followed and the assessee has a permanent establishment in India is not denied. In the result ground number 2 of the appeal of the assessee is dismissed. Income accrued in India - interest u/s 244A received and computed the tax thereon at the rate of 40% as applicable to foreign companies as business income - whether assessee has a permanent establishment in India or not? - HELD THAT - Merely having a project office in India cannot result into a permanent establishment of the assessee in India. Therefore, it is now apparent that assessee does not have a permanent establishment in India. The honourable High Court in Director Of Income Tax versus Pride Foramer 2013 (12) TMI 606 - UTTARAKHAND HIGH COURT after reading article 12 in case of India France Double Taxation Avoidance Agreement held that plain reading of the provisions of the Double Taxation Avoidance Agreement makes it absolutely clear that some articles (1) and (2) will apply interalia when the recipient of interest does not have a permanent establishment in the country where he has received the interest. Therefore, in the present case the assessee is entitled to take the benefit of article 12 of the Double Taxation Avoidance Agreement, as there is no permanent establishment in India. Therefore the interest received on income tax refund of the assessee is subject to taxation as per article 12 (2) of the Double Taxation Avoidance Agreement at the rate of 15% of the gross amount of interest as income. Accordingly reversing the orders of the lower authorities, we allow ground number 1 and 2 of the appeal of the assessee.
Issues Involved:
1. Remission of income tax liability borne on behalf of employees. 2. Taxability of interest on income tax refund. 3. Existence of a Permanent Establishment (PE) in India under the Indo-UK DTAA. Issue-wise Detailed Analysis: 1. Remission of Income Tax Liability Borne on Behalf of Employees: The primary issue in the appeal for Assessment Year 2011-12 was whether the remission of income tax liability borne on behalf of employees should be added to the income under the head "Income from business or profession" u/s 41(1)(a) despite the assessee computing its income under Section 44BB of the Income Tax Act, 1961. The assessee contended that Section 44BB, which starts with a non-obstante clause, excludes the applicability of Sections 28 to 41 of the Act. The learned AO, however, added the remission of income tax liability to the taxable income, which was upheld by the learned CIT(A). The Tribunal held that the remission of income tax liability should be examined concerning the assessment year it pertains to and whether the income for that year was offered under Section 44BB. If the liability pertains to a year where income was offered under Section 44BB, it cannot be taxed again u/s 41(1) for the current year. The Tribunal remanded the matter back to the AO for verification of these facts. 2. Taxability of Interest on Income Tax Refund: For both Assessment Years 2011-12 and 2013-14, the issue was whether the interest on income tax refund should be taxed at the Maximum Marginal Rate of 40% or at 15% under Article 12(2) of the Indo-UK DTAA. The AO and CIT(A) held that since the assessee had a PE in India, the interest income was taxable at 40%. The Tribunal upheld this decision for AY 2011-12, citing the jurisdictional High Court's decision in BJ Services Company Middle East Limited. However, for AY 2013-14, the Tribunal found that the assessee did not have a PE in India during the relevant year, as the project office did not constitute a PE. Consequently, the Tribunal held that the interest on the income tax refund should be taxed at 15% under Article 12(2) of the Indo-UK DTAA, reversing the lower authorities' orders. 3. Existence of a Permanent Establishment (PE) in India under the Indo-UK DTAA: For AY 2013-14, the assessee contested the existence of a PE in India under Article 5 of the Indo-UK DTAA. The AO and CIT(A) held that the assessee had a PE in the form of a project office in India, and therefore, the interest on the income tax refund was taxable at the Maximum Marginal Rate. The Tribunal examined the facts and concluded that the project office did not constitute a PE as no business activities were carried out through it during the relevant year. The Tribunal relied on the Supreme Court's decision in DIT vs. Samsung Heavy Industries Ltd. and held that the mere existence of a project office does not result in a PE. Consequently, the interest on the income tax refund was taxable at 15% under Article 12(2) of the Indo-UK DTAA. Conclusion: The Tribunal partly allowed the appeal for AY 2011-12, remanding the issue of remission of income tax liability back to the AO for verification and upheld the taxability of interest on income tax refund at 40%. For AY 2013-14, the Tribunal allowed the appeal, holding that the assessee did not have a PE in India and the interest on the income tax refund was taxable at 15% under the Indo-UK DTAA.
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