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2022 (5) TMI 1057 - AT - Income TaxPE in India - Fees for Technical Services - HELD THAT - It is seen that the Tribunal, right from the A.Y. 2003-04 up to the A.Y. 2014-15, has decided the issue in favour of the assessee by holding EIPL does not constitute PE of the assessee in India. The ld. DR candidly admitted that there is no change in the facts and circumstances of the instant year vis- -vis the earlier years. Respectfully following the precedent, we hold that the EIPL does not constitute the assessee s PE in India. This issue is therefore, decided in favour of assessee. Reimbursement from the Indian subsidiary as income - mark-up of 1% was added to the cost of services - as per AO assessee short reflected income - HELD THAT - It is found as an admitted position that the sum of Rs.29.50 lakh charged by the assessee is inclusive of 1% mark-up to the actual costs incurred by the assessee. The ld. AR however, contended that only mark-up of 1% should be brought to tax and not the full amount. We are unable to countenance the proposition propounded by the ld. AR for the obvious reason that the sum of Rs.29.50 lakh is admittedly not reimbursement as it has a mark-up added to it. Once a particular receipt is not reimbursement and also includes mark-up, it becomes chargeable to tax in the gross taxation regime. On a specific query, the ld. AR submitted that the sum of Rs.29.50 lakh is otherwise in the nature of Fees for Technical Services considered by the assessee as first item in its computation of income. We, therefore, uphold the view point of the AO on this score.
Issues:
1. Assessment of Permanent Establishment (PE) in India. 2. Taxability of income from Support services, Royalty, and Interest on ECB loans. 3. Treatment of Reimbursement from the Indian subsidiary as income. 4. Condonation of delay in presenting the appeal before the Tribunal for A.Y. 2017-18. Assessment of Permanent Establishment (PE) in India: The case involved the assessment of whether the Indian subsidiary of the assessee constituted a Permanent Establishment (PE) in India. The Assessing Officer (AO) held that the Indian subsidiary was a PE, leading to tax liability on certain income items. However, the Dispute Resolution Panel (DRP) approved this decision. The Tribunal, considering past precedents, ruled in favor of the assessee, stating that the Indian subsidiary did not constitute a PE. The issue was decided in favor of the assessee based on consistent rulings from previous assessment years. Taxability of income from Support services, Royalty, and Interest on ECB loans: The AO taxed the income from Support services and Royalty at 10% on a gross basis due to the alleged PE in India. However, the Tribunal ruled that since the Indian subsidiary did not constitute a PE, the income was not taxable in India. The Interest on ECB loans was not disputed and was granted relief by the DRP. The Tribunal upheld the relief on Interest but ruled in favor of the assessee regarding the taxability of Support services and Royalty income. Treatment of Reimbursement from the Indian subsidiary as income: The AO added a certain amount received as reimbursement from the Indian subsidiary to the assessee's taxable income, citing a mark-up added to the cost of services. The DRP supported this decision, leading to the addition in the final assessment order. The Tribunal upheld the AO's decision, stating that the amount, inclusive of mark-up, was not reimbursement and was chargeable to tax under the gross taxation regime. The Tribunal rejected the contention that only the mark-up should be taxed, as the total amount was not solely reimbursement. Condonation of delay in presenting the appeal: For the assessment year 2017-18, there was a delay of 30 days in presenting the appeal before the Tribunal. The assessee requested condonation, which was not objected to by the Revenue. The Tribunal condoned the delay and admitted the appeal for hearing. Both parties agreed that the facts and circumstances for this year were similar to the preceding year, and the Tribunal made decisions consistent with the earlier assessment year. In conclusion, the Appellate Tribunal ITAT Pune ruled in favor of the assessee on the issue of Permanent Establishment (PE) in India, taxability of certain income items, and treatment of reimbursement from the Indian subsidiary as income. The Tribunal also condoned the delay in presenting the appeal for the assessment year 2017-18. The appeals were partly allowed, and the orders were pronounced on 28th April 2022.
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