2024 (2) TMI 833 - AT - Income Tax

Accrual of income in India - existence or otherwise of PE of the assessee in India - HELD THAT - As we hold that the assessee has no PE in India in the year under consideration; hence, no profit can be attributed to such non-existent PE. Accordingly, the AO is directed to delete the addition. Decided in favour of assessee.

Summary

Issues Involved:
1. Tenability of the impugned final assessment order.
2. Taxability of the appellant in India under the Act and the Tax Treaty.
3. Attribution of income.
4. Other grounds including determination of tax payable, interest levied, and initiation of penalty.

Summary of Judgment:

1. Tenability of the Impugned Final Assessment Order:
The appellant challenged the Final Assessment Order dated September 11, 2023, passed by the Assessing Officer (AO) u/s 143(3) read with section 144C of the Income Tax Act, 1961, pursuant to the directions issued by the Dispute Resolution Panel (DRP). The appellant contended that the order is bad in law and barred by limitation under Section 153 of the Act.

2. Taxability of the Appellant in India under the Act and the Tax Treaty:
The AO and DRP held that receipts from offshore supply of parts are taxable in India under section 9(1)(i) of the Act and Article 5 read with Article 7 of the India-USA Double Taxation Avoidance Agreement (Tax Treaty). The appellant argued that they do not have a business connection in India and are governed by the beneficial provisions of the DTAA u/s 90 of the Act. The contracts with Indian customers were considered composite contracts by the AO/DRP, who concluded that the appellant has a Permanent Establishment (PE) in India, thus attributing offshore supply of spare parts to the PE.

3. Attribution of Income:
The AO/DRP taxed 10% of the receipts from offshore supply of spare parts to India, relying on the order passed for AY 2020-21. The appellant contended that the receipts are not taxable under the Act or the Tax Treaty and no functions are performed in India towards the offshore supply of goods. The AO/DRP also erred in applying section 44BBB of the Act, which is applicable to revenue from civil construction, erection, testing, or commissioning activities. Additionally, the AO incorrectly computed the total receipts and changed the attribution rate compared to previous years.

4. Other Grounds:
The appellant argued that the AO erred in determining the tax payable as INR 6,79,49,370 without providing any computation. They also contested the levy of interest u/s 234A and 244B of the Act and the initiation of penalty u/s 270A of the Act.

Tribunal's Decision:
The Tribunal found that the facts of the present case are identical to AY 2020-21, where it was decided in favor of the assessee. The Tribunal concluded that the assessee has no PE in India for the year under consideration, and hence, no profit can be attributed to a non-existent PE. The AO was directed to delete the addition. The appeal of the assessee was allowed.

Order Pronounced:
The order was pronounced in the open court on 15th February, 2024.