2023 (7) TMI 1152 - AT - Income Tax

Taxability of income in India - receipts of the assessee from the Customer to make the services of Maroon 5 available to the Customer for a live musical performance in India - Characterisation of income - fees for technical services or business income or Other Income - non satisfy the basic attributes of business i.e. regularity continuity frequency and volume - assessee has no PE in India and is a tax resident of USA - assessee is engaged in the business of brand and talent booking agency services and inter alia acts as a mediator to and in connection with several worldwide event management companies for arranging live performance by renowned artistes from around the world - HELD THAT - AO arrived at an erroneous conclusion that the impugned receipts from the services rendered by the assessee to the Customer is not business income but Other Income which is taxable in India under Article 23 of the India- USA DTAA. Considering the factual matrix of the present case in our humble opinion the reliance placed by the Ld. AO in the case of CIT vs. R.D. Aggarwala Co. 1964 (10) TMI 9 - SUPREME COURT and GVK Industries Ltd. 1997 (5) TMI 43 - ANDHRA PRADESH HIGH COURT is misplaced. Article 7(7) of the India-USA DTAA clearly defines business profit to mean income derived from any trade or business including income from furnishing of services which are other than specified services (Royalties and FIS). It is not the case of the Ld. AO that the services rendered by the assessee are in the nature of FIS/royalty etc. It cannot be said that the assessee was not engaged in business while rendering talent booking agency services to the Customer and hence the classification of the impugned receipts as Other Income which is a residuary head is erroneous. In our considered view the impugned receipts of the assessee from the Customer constitutes business profits and hence are not chargeable to tax in India in the absence of the PE of the assessee in India. Accordingly ground decided in favour of the assessee.

Issues Involved:
1. Completion of assessment at INR 4,15,02,000 against Nil returned income.
2. Violation of principles of natural justice by not providing an opportunity to show cause.
3. Mischaracterization of 'business income' as 'other income'.
4. Taxability of service revenues in the absence of a Permanent Establishment (PE) in India.
5. Classification of receipts as income arising in India under Article 23 of the India-US tax treaty.
6. Charging of surcharge and education cess on the applicable tax rate.
7. Charging of interest under sections 234A, 234B, and 234D.
8. Initiation of penalty proceedings under section 270A without adequate satisfaction.

Summary of Judgment:

1. Completion of Assessment at INR 4,15,02,000 Against Nil Returned Income:
The assessee, a non-resident company, filed its return declaring NIL income and claimed a refund of tax withheld by the Customer. The Assessing Officer (AO) completed the assessment at an income of INR 4,15,02,000, which was contested by the assessee.

2. Violation of Principles of Natural Justice:
The assessee argued that the AO erred in not providing an opportunity to show cause regarding the addition made to the returned income, violating the principles of natural justice.

3. Mischaracterization of 'Business Income' as 'Other Income':
The AO characterized the assessee's receipts as 'other income' under Article 23 of the India-USA Double Taxation Avoidance Agreement (DTAA), rather than 'business income'. The Tribunal found that the AO's conclusion was erroneous, as the assessee was engaged in the business of talent booking services, which should be classified as 'business income'.

4. Taxability of Service Revenues in the Absence of a Permanent Establishment (PE) in India:
The Tribunal held that the assessee had no PE in India and thus, the service revenues could not be taxed in India under Article 7 of the India-USA DTAA. The AO's interpretation that the assessee was doing business with India and not in India was misplaced.

5. Classification of Receipts as Income Arising in India Under Article 23:
The AO taxed the consideration received by the assessee under the residual category of 'income from other sources'. The Tribunal ruled that the receipts should be classified as 'business profits' and not 'other income', as the services rendered did not fall under the categories specified in Article 23.

6. Charging of Surcharge and Education Cess:
Ground No. 6 was not pressed by the assessee.

7. Charging of Interest Under Sections 234A, 234B, and 234D:
Ground No. 7 was deemed consequential in nature.

8. Initiation of Penalty Proceedings Under Section 270A:
Ground No. 8 was also deemed consequential in nature.

Conclusion:
The Tribunal allowed the appeal of the assessee, ruling in favor of the assessee on grounds 1, 3, 4, and 5. Grounds 2 and 6 were not pressed, and grounds 7 and 8 were consequential. The order was pronounced in the open court on 25th July 2023.

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