2023 (9) TMI 1015 - AT - Income Tax

Income deemed to accrue or arise in India - profit attributed to fixed place PE - HELD THAT - As decided in assessee own case 2022 (7) TMI 1365 - ITAT DELHI when the transaction between the assessee and its Indian AE is found to be at arm s length, no further attribution of profit can be made to the dependent agent PE in India . Also see HONDA MOTOR CO. LTD, JAPAN, 2018 (5) TMI 265 - SUPREME COURT - Decided in favour of assessee. -

Summary

Issues Involved:
1. Existence of Dependent Agent Permanent Establishment (DAPE)
2. Attribution of Business Profits to DAPE
3. Tax Rate on Interest from Income Tax Refund
4. Credit of Taxes Deducted at Source (TDS)
5. Computation of Interest u/s 234D
6. Initiation of Proceedings u/s 274 read with 270A

Summary:

1. Existence of Dependent Agent Permanent Establishment (DAPE):
The assessee contested the finding that Adobe India constitutes a DAPE in India u/s 143(3) read with 144C(13) of the Income-tax Act, 1961, and Article 5(6) of the Double Taxation Avoidance Agreement (DTAA) between India and Ireland. The Tribunal noted that the Revenue had consistently held Adobe India as a DAPE in past assessment years, which was challenged by the assessee on grounds of Adobe India being an independent entity. The Tribunal, however, upheld the Revenue's position that Adobe India is a DAPE.

2. Attribution of Business Profits to DAPE:
The assessee argued that no further profit attribution to the DAPE is necessary once the transactions between the assessee and Adobe India are at arm's length. The Tribunal referred to past decisions and the Supreme Court ruling in Honda Motors Co. Ltd. Vs. ADIT, which established that no further profit attribution is required if arm's length principle is satisfied. The Tribunal directed the deletion of additions made by the Assessing Officer on this account.

3. Tax Rate on Interest from Income Tax Refund:
The assessee contended that the tax on interest from income tax refund should be applied at the beneficial rate of 10% under Article 11 of the India-Ireland DTAA, instead of 40% plus surcharge and cess as per the Act. The Tribunal found the order of the Assessing Officer to be in contravention of the DRP's directions and held that the beneficial tax rate should apply.

4. Credit of Taxes Deducted at Source (TDS):
The assessee claimed that the Assessing Officer erred in not allowing credit for TDS amounting to INR 18,73,999/-. The Tribunal directed the Assessing Officer to allow the TDS credit while computing the tax payable by the assessee.

5. Computation of Interest u/s 234D:
The Tribunal observed that the Assessing Officer included interest granted u/s 244A while computing interest u/s 234D on the amount of excess refund. The Tribunal directed the Assessing Officer to recompute the interest correctly.

6. Initiation of Proceedings u/s 274 read with 270A:
The assessee argued that the initiation of penalty proceedings u/s 274 read with 270A was mechanical. The Tribunal did not find merit in this argument and upheld the initiation of proceedings.

Conclusion:
The Tribunal allowed the appeals to the extent indicated, primarily in favor of the assessee on the issues of profit attribution to DAPE and the application of the beneficial tax rate on interest from income tax refund. The Tribunal directed the deletion of additions and correction of interest computation while leaving the issue of the existence of DAPE open.