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2023 (7) TMI 1089 - AT - Income TaxRevision u/s 263 - Receipt taxable in the hands of the assessee as Fee for Technical Services ( FTS )/Fee for Included Services ( FIS ) u/s 9(1)(vii) of the Act and Article 12 of India-USA DTAA - As per CIT assessee had received a sum from customers in India on which though tax was deducted @ 10% at the time of remittances but the same was not offered to tax in India - HELD THAT - Keeping in view the fact that the Tribunal in in assessee s own case 2023 (4) TMI 239 - ITAT DELHI decided this issue on merits in favour of the assessee, in our humble opinion, the very basis of assumption of jurisdiction by the Ld. CIT under section 263 of the Act in AY 2017-18 presently under consideration does not survive. As in the absence of any material available on record to prove that the assessee is providing full fledged service and solutions for legal professions, we are of the opinion that the A.O. has committed an error in making the addition. In view of the same, the payment received by the assessee is in the nature of Business Profit which cannot be brought to tax in India in the absence of PE. Accordingly, the grounds of both the appeals of the assessee are allowed.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Taxability of subscription receipts as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act and Article 12 of India-USA DTAA. 3. Nature of subscription fees as business income or FTS/FIS. Summary: Jurisdiction under Section 263: The appeal by the assessee challenges the order dated 23.03.2022 by the CIT under Section 263 of the Income Tax Act, 1961, for AY 2017-18. The CIT revised the assessment order passed by the AO, deeming it erroneous and prejudicial to the interest of the revenue. The CIT observed that the AO failed to make necessary inquiries regarding the taxability of subscription receipts amounting to INR 5,56,79,800 received from Indian customers. Taxability of Subscription Receipts: The CIT initiated proceedings under Section 263, asserting that the receipts should be treated as FTS/FIS under Section 9(1)(vii) of the Act and Article 12 of the India-USA DTAA. The assessee contended that these receipts do not qualify as FTS/FIS as they do not "make available" technical knowledge to the recipient, a criterion under Article 12(4) of the India-USA DTAA. The CIT, however, rejected these contentions, stating that the AO did not conduct adequate inquiries to ascertain the taxability of the income, thereby making the assessment order erroneous and prejudicial to the revenue. Nature of Subscription Fees: The assessee, a non-resident company and tax resident of the USA, argued that the subscription fees for providing access to its online database (Lexis Nexis) should be classified as business income, not taxable in India due to the absence of a Permanent Establishment (PE) in India. The assessee relied on similar cases where subscription fees were deemed business income, not FTS. The Tribunal, in its decision for subsequent AYs 2018-19 and 2019-20, held that such subscription fees are business income and not taxable in India in the absence of a PE. Tribunal's Decision: The Tribunal noted that the CIT invoked Explanation (2) clause (a) and (b) of Section 263, deeming the assessment order erroneous for lack of necessary inquiries. However, the Tribunal observed that in subsequent AYs, the issue was decided in favor of the assessee, classifying the subscription fees as business income. Therefore, the basis for the CIT's assumption of jurisdiction under Section 263 for AY 2017-18 does not survive. The Tribunal followed its earlier decisions, concluding that the subscription fees are business income and not taxable in India due to the absence of a PE. Conclusion: The Tribunal vacated the impugned order of the CIT, allowing the appeal of the assessee. The subscription fees received by the assessee were deemed business income, not taxable in India in the absence of a PE, and the order under Section 263 was set aside. The appeal was allowed, and the order was pronounced on 24th July 2023.
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