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2024 (3) TMI 769 - AT - Income TaxAccrual of income India - Service PE/ virtual service PE in India - computation of threshold date for constitution of service PE - attribution of the entire receipts to such alleged service PE/ virtual service PE of the assessee in India - AO held that the services were provided by the employees of the assessee to the clients in India for a period of more than 90 days, physical presence of employees is not relevant and accordingly constituted virtual service PE in India on account of the nexus rule provided in Article 5(6) of India-Singapore DTAA. HELD THAT - The term fiscal year means the previous year as defined under section 3 of the Act which is the relevant AYs in the present case and the threshold of 90 days is to be applied since the services are rendered to independent Indian client by the assessee and not to its related enterprise. Applying the provisions of Article 5(6)(a) to the present case, in our considered view to constitute a service PE actual performance of service in India is essential and accordingly only when the services are rendered by the employees within India with their physical presence during the financial year relevant to the AYs under consideration shall be taken into account for computing threshold limit for creation of a service PE of the assessee in India. The Hon ble Supreme Court in the case of E-funds IT Solutions Inc. 2017 (10) TMI 1011 - SUPREME COURT observed that requirement of service PE is that services must be furnished within India . As undisputed fact that the employees of the assessee were present in India for total number of 120 days in AY 2020-21 and none of the employees were present in India in AY 2021-22. Out of the total 120 days the vacation period amounted to 36 days which has been substantiated by the assessee by furnishing the relevant evidence thereof. To arrive at the threshold, the Ld. AO has considered business development days comprising of 35 days as well as common days comprising of 5 days which in our considered view should be excluded while computing the threshold of service PE as no services were provided to customers in India on the days spent on business development activities and the computation of threshold should not be based on man days by aggregating common days spent by more than one individual. In effect, the services have been furnished by the assessee only for 44 days in India after excluding vacation period, Business Development days and common days and accordingly the assessee does not constitute service PE in India as per India-Singapore DTAA during the AY 2020-21. So far as AY 2021-22 is concerned, as discussed above physical rendition of services in India beyond the threshold period is a prerequisite for creation of service PE and as none of the employees of the assessee were physically present in India during the AY 2021-22, in our view, the assessee does not constitute service PE even in AY 2021-22. Thus the arguments put forth by the parties and the judicial precedents relied upon by the Ld. AR, we hold that the assessee does not constitute service PE/virtual service PE in AY 2020-21 and 2021-22. The receipts by the assessee in AY 2020-21 and AY 2021-22 are in the nature of business profits of the assessee not taxable in India in the absence of the PE of the assessee in India in terms of Article 7 r.w. Article 5(6)(a) of the India- Singapore DTAA. Accordingly, ground Nos. 5 to 7.1 in AY 2020-21 and ground No. 6 to 8.1 in AY 2021-22 are allowed. Levy of interest u/s 234A on the ground that the income tax return was filed within the extended due date for filing the return - HELD THAT - Interest under section 234A is levied only in cases where the assessee does not furnish its return of income or furnishes it after the due date prescribed under section 139 of the Act. The Ld. AR submitted that the assessee filed its return of income within the prescribed (extended) due date applicable to the relevant AYs under consideration which is supported by the copies of the ITRs filed before the lower authorities. Hence we deem it fit and proper to restore this issue to the file of the Ld. AO for verification as to the filing of date of return viz-a-viz the due date of filing of return for the AYs 2020-21 and 2021-22 and decide it afresh in accordance with law. Levy of interest u/s 234B - AR submitted that proviso inserted in section 209(1)(d) of the Act by the Finance Act, 2012 w.e.f. 01.04.2012 would apply only in a scenario where person responsible for deducting tax has paid or credited such income without deduction of tax - HELD THAT - As relying on Amadeus IT Group SA levy 2023 (10) TMI 1138 - ITAT DELHI interest under section 234B of the Act is not called for. Accordingly, interest levied under section 234B of the Act is hereby deleted. Addition of income received from ICICI Bank and addition of interest on income tax refund - Addition made on the ground that the same was appearing in Form 26AS for AY 2021-22 and that such amount was received by the assessee during the year under consideration which was not offered to tax while filing the return of income - HELD THAT - Additions of income from ICICI Bank Ltd. and interest income on income tax refund solely on the basis of the fact that such amounts are appearing in Form 26AS is not sustainable in law and hence liable to be deleted. In support reliance is placed on the decision of Ravinder Pratap Thareja 2015 (10) TMI 1487 - ITAT JABALPUR wherein it is held that merely because a payment is reflected in Form 26 and is shown to have been made to the assessee, it cannot be brought to tax in his hands when the said money is not received by the assessee. Support may also be drawn from the case of Dr. Swati Mahesh Vinchurkar 2021 (6) TMI 1123 - ITAT SURAT wherein the Tribunal placing reliance on the decision of Ravinder Pratap Thareja s case (supra) held that once the assessee denied that she has not earned such income as reflected in her Form 26AS, the onus is shifted on the Revenue Authorities to prove that such income belongs to the assessee. The assessee has claimed that it has not received any payment from ICICI Bank and any refund and interest on refund from the Income Tax Department on which TDS has been deducted which is reflected in Form 26AS - thus considering matter and judicial precedents cited above we restore the matter to the file of the Ld. AO to verify the claim of the assessee - Decided in favour of assesse for statistical purposes.
Issues Involved:
1. Validity of assessment proceedings/order. 2. Constitution of Service PE/Virtual Service PE in India. 3. Attribution to alleged service PE. 4. Alleged addition of income received from ICICI Bank. 5. Alleged addition of interest on income tax refund yet to be received. 6. Levy of interest under section 234A and 234B. 7. Initiation of penalty proceedings under section 270A. Summary: Validity of Assessment Proceedings/Order: The assessee challenged the validity of the assessment orders on the grounds of being barred by limitation and the absence of Document Identification Number (DIN) on the directions/order of the DRP. These grounds were not argued and hence not adjudicated upon. Constitution of Service PE/Virtual Service PE in India: The main grievance was the finding that the assessee constituted a Service PE/Virtual Service PE in India. For AY 2020-21, the Tribunal held that the aggregate stay of employees in India was only 44 days, which is less than the 90-day threshold in Article 5(6)(a) of the India-Singapore DTAA. For AY 2021-22, no employees visited India. Therefore, the Tribunal concluded that the assessee did not constitute a Service PE in either AY. The Tribunal also rejected the AO's finding of a Virtual Service PE, stating that physical presence in India is required under the India-Singapore DTAA. Attribution to Alleged Service PE: The Tribunal found that the issue of attribution of business profits to the alleged Service PE/Virtual Service PE became academic due to the decision that no PE existed in India. Alleged Addition of Income Received from ICICI Bank: The AO added Rs. 10,87,258 to the total income based on Form 26AS. The Tribunal directed the AO to verify the claim that no invoice was raised or payment received from ICICI Bank and to grant corresponding TDS credit if the claim is found correct. Alleged Addition of Interest on Income Tax Refund Yet to be Received: The AO added Rs. 10,23,649 as interest on income tax refund. The Tribunal found that neither the refund nor the interest was received by the assessee and directed the AO to verify this claim. If verified, the addition should be deleted, and corresponding TDS credit should be granted. Levy of Interest Under Section 234A and 234B: The Tribunal restored the issue of levy of interest under section 234A to the AO for verification of the filing date of the return. Regarding section 234B, the Tribunal held that interest is not applicable as the income was received after deduction of tax at source. Initiation of Penalty Proceedings Under Section 270A: The Tribunal found the initiation of penalty proceedings under section 270A to be premature and did not adjudicate on this ground. Conclusion: The appeals for both AYs 2020-21 and 2021-22 were allowed for statistical purposes, and the Stay Application for AY 2021-22 was dismissed as infructuous.
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