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TMI Blog2014 (4) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... ome deemed to accrue or arises in India – Taxability @ 20 per cent u/s 44DS r/w s.115A in case PE is found to be in existence - Held that:- The decision in Assistant Commissioner Of Income-Tax. Versus Epcos Ag, Germany [2008 (6) TMI 288 - ITAT PUNE-B] followed - the amounts received by the assessee company meet the definition of 'royalties' and of fees for technical services' u/s 44D which, in turn, refers to Expln.2 to s. 9(l)(vi) respectively - the taxability of amounts received by the assessee company on account of 'royalties' and 'fees for technical services' will be @ 20 per cent on gross basis - Nothing contrary was brought to our knowledge on behalf of revenue - taxation at gross basis at higher rate of 20% under section 115A r.w.s. 44D of Act are unwarranted and taxation has to be at 10% on gross basis under article 12(2) of the Tax Treaty as offered in the return of income – Decided in favour of Assessee. - ITA No.2535/PN/2012 - - - Dated:- 31-1-2014 - SHAILENDRA KUMAR YADAV AND G.S. PANNU, JJ. For the Appellant : Paras S. Savla and Keerthiga Padmanabhan For the Respondent : Smt. M.S. Verma ORDER :- PER : Shailendra Kumar Yadav This appeal has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher rates of 20% on gross basis under Section 115A / 44D of the Act is unwarranted and the taxation ought to be at 10% on gross basis under Articles 11 and 12 of the Tax Treaty as offered in the Return of Income and the AO be directed accordingly. Ground No. 3 - Denial of recourse to Non-discrimination clause - Article 24 of the Tax Treaty denied 3.1. Without prejudice to the above and on the facts and in the circumstances of the case, the AO has erred in proposing and the DRP has further erred in not interfering with the AO's conclusion of not granting benefit of Article 24 of the Tax Treaty relating to Non-Discrimination to the facts of the Appellant's case. 3.2. The AO and the DRP failed to appreciate that under Article 24 - Non-Discrimination of the Tax Treaty, the Appellant and its alleged PE in India cannot be subjected to taxation requirement which is more burdensome then the taxation of Resident in India for its alleged PE and the AO be directed to tax the income on net basis based on audited financial statements filed before him at assessment stage as against 20% on gross basis under Section 115A/44D of the Act. Ground No. 4 - Er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 5 including Articles 5(1), 5(2), 5(5) and 5(6) of the India-Germany Tax Treaty ('Tax Treaty'). 1.2 The AO and the DRP failed to appreciate that the Appellant operates entirely from outside India, has no fixed place of business in India as envisaged under Section 9(1 )(i) of the Act or Article 5(1) or 5(2) of the Tax Treaty directly or in the form its Indian Subsidiary and further Article 5(5) and 5(6) of the Tax Treaty do not apply to its case as they relate only to local Indian agents engaged in buying and selling goods in India on behalf of their Overseas Principal which is not the fact in the case of the Appellant and the Appellant claims relief accordingly. 2.1 First issue is with regard to whether assessee's Indian subsidiary constitute its business connection in India u/s. 9(1)(i) of I.T. Act, 1961 ('the Act') or a Permanent Establishment ('PE') in India under various provisions of Article 5 including Articles 5(1), 5(2), 5(5) and 5(6) of the India-Germany Tax Treaty ('Tax Treaty') At the outset of hearing, the learned Authorized Representative has pointed out that this issue is covered by the assessee's own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us, no part of the work of EPCOS AG was carried out in India. The e-mails and letters were sent from outside India, and at best Indian subsidiaries acted upon the advices so given in the e-mails and letters in India. That action of the subsidiaries cannot alter the situs of the activities of the Epcos AG. Does mere existence of PE leads to taxability of income in source country? 40. It is also important to bear in mind that a non-resident company having a PE in India, by itself, does not lead to taxability in India; there must be some profit attributable to such a PE which alone could be taxed in India because of the existence of the PE. When the PE carries on an activity which does not serve overall purpose of the foreign enterprise, or which does not contribute to profits of the enterprise, the existence of such a PE is wholly academic and does not have any tax implications in the source jurisdiction. To that limited extent, there is an inherent contradiction in the OECD approach inasmuch as on one hand PE provides threshold limits for triggering taxation in the source country, on the other hand, the existence of the PE is decided de hors the activity in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not triggered. 41.1In the light of these discussions, in our considered view, the assessee company did not have any PE in India, much less a PE to which subject 'royalties' and 'fees for technical services' can be attributed. In terms of the India-Germany DTAA, India does not have right to tax these receipts as business profits under art. 7. Of course, in the light of our finding that no revenues earned by the assessee company could be said to be attributable to the PE, even if one was to come to the conclusion that a PE existed, no taxability could arise under art. 7. The assessee has offered the royalties and fees for technical services for taxability in India under art. 12, and, to that extent, admitted tax liability exists. The overzealous approach of the AO has been rightly rejected by the CIT (A). We approve and confirm the stand of the CIT(A), and decline to interfere in the matter. 9. Considering the above, we have also examined the comparability of the facts of the case for this year vis-a-vis the assessment year 2003-04. It is a fact that neither the AO, nor the DRP, nor the present CIT-DR were able to demonstrate as to whether the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution of income), the Tribunal has decided the issue vide para 10 of its order in assessee's own case for A.Y. 2006-07, wherein the issue has been decided in the similar facts and circumstances for A.Y. 2003-04, by observing as under: Conclusion on the second issue i.e. taxability @ 20 per cent in terms s. 44DS r/w s.115A in case PE is found to be in existence: 47. In our considered view, in terms of Indo German tax treaty provisions, it will have to be demonstrated that such royalties and fees for technical services ha e a live economic nexus with the PE and only then exclusion clause under art. 12(5) as also taxability under arts. 7(1) and 7(2), will come into play. It is only after these royalties and fees for technical services are so included in the business profits attributable to the PE that the provisions of sec. 44D and USA can be invoked. Therefore, even if we are to hold that the taxpayer had a PE in India, unless there is a categorical finding that entire receipts were attributable to that PE, entire business receipts of the taxpayer sourced from India would not have been taxable in India under art. 7. The provisions of s. 44D and s.115A do not, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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