2024 (3) TMI 308 - AT - Income Tax

Accrual of income in India - PE in India or not? - UK DTAA - project office situated in India treated as fixed place PE in terms of Article of DTAA - receipts from offshore supply on presumptive basis u/s 44BB - AO observed that the contract with ONGC is a integrated contract for offshore supply as well as onshore activities and the consortium member is working on behalf of the assessee hence, forms the PE of the assessee in India - whether assessee s income is to be computed u/s 44BB? - HELD THAT - The information given by ONGC in pursuance to notice u/s 133(6) of the Act makes it very clear that the assessee was only engaged in manufacturing and supply and support of components including manufacture and supply of subsea and top side control system. Thus the material on record clearly indicate that the assessee was not in any way involved in onshore activities including installation at the site of ONGC. It appears, just to show that facts in the impugned assessment year are different from A.Y. 2020-21, the Assessing Officer has attempted to project the facts in a different manner. In the process, has completely misconceived the facts. Not a single piece of evidence has been brought on record by the Assessing Officer to establish that the assessee had any kind of PE in India in the year under consideration. As in assessee s case in A.Y. 2020-21 2023 (6) TMI 351 - ITAT DELHI held that the AO has failed to specify how the PE came into existence and made the offshore supply of components attributable to PE. Assessing Officer has failed to establish how the consortium member constitutes PE in India. Referring to the decision of E-Funds 2017 (10) TMI 1011 - SUPREME COURT Coordinate Bench has further held that burden of establishing existence of PE is on the Revenue, which has not been discharged. Thus ultimately, Coordinate Bench has held that since there is no PE of the assessee in India, section 44BB of the Act would not apply. Thus section 44BB of the Act cannot be invoked to tax the receipts from offshore supply on presumptive basis as the Revenue has failed to establish existence of PE in India. Assessing Officer is directed to delete the addition. - Assessee appeal allowed.

Summary

Issues involved:
- Whether the assessee has a Permanent Establishment (‘PE’) in India as per India-United Kingdom Double Taxation Avoidance Agreement.
- Whether the assessee's income is to be computed under section 44BB of the Income-tax Act, 1961.

Issue 1: Permanent Establishment in India:
- The assessee, a non-resident corporate entity incorporated in the UK, was involved in supplying equipment to Oil and Natural Gas Corporation (ONGC) in India.
- The Assessing Officer contended that the consortium member working on behalf of the assessee constituted a PE in India.
- The assessee argued that it had no fixed place PE or installation PE in India, as it was only engaged in the supply of equipment from outside India.
- The Tribunal found that the facts in the current assessment year were not different from the previous year and held that the Revenue failed to establish the existence of a PE in India.
- Citing previous decisions and the burden of proof on the Revenue, the Tribunal concluded that section 44BB of the Act could not be invoked without proof of a PE, directing the deletion of the addition to the assessee's income.

Issue 2: Computation of Income under section 44BB:
- The Assessing Officer applied section 44BB of the Income-tax Act, 1961, to compute the assessee's income based on presumptive profit.
- The Dispute Resolution Panel held that the receipts from offshore supply of equipment to ONGC were taxable under section 44BB, irrespective of the existence of a PE.
- The Tribunal, however, ruled in favor of the assessee, stating that section 44BB could not be applied without establishing the presence of a PE in India.
- Given the absence of evidence supporting the existence of a PE, the Tribunal directed the deletion of the addition made by the Assessing Officer under section 44BB.

Conclusion:
- The Tribunal allowed the appeal, emphasizing that the Revenue had failed to prove the existence of a Permanent Establishment in India, thereby rejecting the application of section 44BB for computing the assessee's income.
- The decision was based on the lack of factual differences from the previous year's assessment and the Tribunal's previous ruling in the assessee's case, leading to the deletion of the additional income.