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TMI Blog2017 (12) TMI 1337X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 2013-14, the Assessing Officer is directed to release the Bank Guarantee of ₹ 25 lakhs with immediate effect. - ITA No.496/PUN/2016, ITA Nos.222 And 223/PUN/2017, SA Nos.123 & 124/PUN/2017 And ITA Nos.222 And 223/PUN/2017 - - - Dated:- 15-12-2017 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Assessee : Shri Arijit Chakravarty and Ms. Shraddha Swarup For The Revenue : Ms. Nirupama Kotru, CIT ORDER PER SUSHMA CHOWLA, JM: Out of this bunch of appeals, appeal filed by the Revenue is against the order of DCIT (International Taxation), Circle 1, Pune dated 25.01.2016 relating to assessment year 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act 1961 (in short the Act ). The other two appeals filed by the assessee are against separate orders of DCIT (IT)-1, Pune both dated 26.12.2016 relating to assessment years 2012-13 2013-14 passed under section 143(3) r.w.s. 144C(13) of the Act. The Stay Applications moved by the assessee for assessment years 2012-13 and 2013-14 were also placed for hearing along with quantum appeals. 2. In this bunch of appeals, the Revenue is in appeal against the order of Disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) - I, Pune, ('AO') erred in proposing and the Dispute Resolution Panel ('DRP') further erred in not interfering with the conclusion of the AO that the Appellant Indian subsidiary constitutes its 'Business Connection' in India under Section 9(1)(i) of the Income-tax Act, 1961 ('the Act') or a 'Permanent Establishment' ('PE') in India under Article 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. 1.3 It is prayed that the AO be directed to tax its India source income from its Indian Subsidiary in the form of Fees for Technical S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act while computing the demand payable pursuant to the impugned assessment order. 4.2 The AO failed to appreciate that the Appellant is not liable to pay any advance tax under Section 209 of the Act which is payable on income post reduction of entire income-tax deductible or collectible at source as is the case of the Appellant and not the actual tax deducted or collected at source and the AO be directed to delete the interest charged under Section 234B of the Act. Ground No. 5 - Lack of adequate opportunit y 5.1 Without prejudice to the above and on the facts and in the circumstances of the case and in law, the AO erred in not granting sufficient opportunity to the Appellant before passing the order under Section 144C(1) of the Act and the DRP further erred in not considering the objections / submissions of the appellant while giving directions under Section 144C(5) of the Act and the said orders / directions being passed in violation of the principles of natural justice be kindly quashed or set aside. 5. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present bunch of appeals is squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 14 December, 2016 2010-11 6. The learned Departmental Representative for the Revenue pointed out that the appeal is pending against the order of Tribunal before the Hon ble Bombay High Court and hence the addition. 7. We have heard the rival contentions and perused the record. The assessee is a foreign company having its head office at Munich, Germany. The assessee was providing services to its subsidiaries in India. The assessee had received charges on account of royalty / information technology services and also interest on ECB loans which were offered to tax by the assessee on the basis of Indo-German Treaty @ 10%. The Assessing Officer however, concluded that the assessee s subsidiary is its PE and is acting as dependent agent of assessee, hence the receipts were taxable under section 115A of the Act (in case of interest) and under section 115A r.w.s. 44DA of the Act in the case of royalty / service charges @ 20%, without allowing any deduction under any of the provisions under sections 28 to 44C of the Act. In the year relating to assessment year 2011-12, the DRP following the order of Tribunal in earlier years allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Observations on the second issue i.e. on taxability @ 20 per cent in terms of s. 44D r/w s. 115A in case PE is found to be in existence: 42. While dealing with the interplay between existence of a PE and taxability as 'royalties and fees for technical services', we had taken note of the proposition advanced by the Revenue authorities that once art. 12(5) is invoked, all the receipts as 'royalties and fees for technical services' are taxable in India on gross basis under s. 44D, though, as per the provisions of s. 115A, at a lower rate of 20 per cent. 43. This proposition proceeds on the fallacy that once the first conditions under art. 12(5) are satisfied, i.e. once th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try is attributable to the PE and liable to be taxed in the source country for that reason. There is no justification for the Revenue authorities to come to the concision that entire receipts of the assessee company are attributable to 'PE' and are, therefore, taxable under art. 7 for that reason. Unless the conditions of art. 7(1) are not satisfied, there is no occasion to invoke taxability as profits attributable to PE. It would perhaps need a force of attraction rule of widest amplitude to do so. As to how should this profit attribution exercise done, the guidance is available from art. 7(2). 45. Under art. 7(2), these profits are to be so attributed as PE might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE . The PE is to be considered as hypothetical independent but let us not forget that the services are rendered by the PE, i.e. Indian subsidiaries, and the services are also availed by same Indian subsidiaries. The fundamental question that would arise in such a case s whether someone can make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a PE in India. 6. Since, there has been no change in the facts and circumstances of the case in the impugned assessment year, we, therefore, respectfully follow the order of Co-ordinate Bench and dismiss the appeal of the Revenue. 10. Since the facts of the present case are identical to the facts of the case in the preceding assessment years, therefore, in absence of any contrary material brought to our notice, we do not find any infirmity in the order of the DRP in holding that the assessee company has no PE in India and therefore invoking of section 115A r.w.s. 44DA was not necessary. We accordingly uphold the order of the DRP and the grounds raised by the revenue are dismissed. 9. The facts in the present case are identical to the facts in preceding assessment years and following the same parity of reasoning, we hold that there is no merit in invoking provisions of section 115A of the Act in respect of interest and 115A r.w.s. 44DA of the Act in respect of support / royalty services, the receipts are to be taxed in the hands of assessee under Indo-German Treaty @ 10%. The Revenue except for stressing that appeal is pending before the Hon ble Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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