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TMI Blog2024 (3) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... erformance 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;DRP') in absence of Document Identification Number ('DIN'), though intimated subsequently, is non-est and invalid and thus liable to be quashed, 3.1 That on the facts and circumstances of the case and in law, the final assessment order passed in conformity with invalid directions of DRP is, therefore, invalid and barred by limitation. 4. That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer is barred by limitation under section 153 of the Act and is liable to be quashed. 4.1 That on the facts and circumstances of the case and in law, since the impugned order is non-est, invalid, the additions made therein are invalid, beyond jurisdiction and bad in law. Re: Constitution of Service PE/Virtual Service PE in India 5. That the assessing officer erred on facts and in law in holding that the appellant constituted a permanent establishment ('PE') in India under Article 5(6) of the India-Singapore Tax Treaty ( Treaty'). 6. That the assessing officer erred on facts and in law disregarding the details of stay furnished by the appellant to hold that the appellant constituted a Service PE based on physical pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessing officer erred on facts and in law by not excluding the amount of expenses reimbursed to the appellant from determining income liable to tax in India. Re: Others 13. That the assessing officer erred on facts and in law in levying interest under section 234A of the Act without appreciating that the income tax return was filed within the extended due date for filing the tax return. 14. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act. 15. That the mechanical endorsement in the impugned order to the effect that penalty under section 270A of the Act is initiated for under reporting of income in consequence of misreporting of income is illegal and bad in law. AY 2021-22 1. That the assessing officer erred on facts and in law in completing assessment under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 7,97,64,414 as against the returned income of Nil under normal provisions of the Act, wherein demand amounting to Rs. 4,35,45,740 has been raised. Re: Validity of assessment proceedings/order 2. That on the facts and circumstances of the case and in law, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services by the non-resident within India and Singapore and duration of physical presence of the employees in India is not material. 8.1 That the assessing officer erred on facts and in law in misconstruing the nexus rule provided in para 6 of Article 5 of the Treaty of furnishing services within a contracting state through employees or other personnel, if activity of that nature continues for more than 90 days, which imply physical presence of such employees in India. RE: Attribution to alleged service PE 9. Without prejudice, the assessing officer erred on facts and in law in arbitrarily computing the profits attributable to the alleged PE of the appellant in India by attributing the entire amount of revenue of Rs. 7,76,53,507 earned from India, without any cogent basis. 10. Without prejudice, the assessing officer erred on facts and in law in not applying the attribution rule provided in section 9 of the Act which mandate the income of the business deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. 11. Without prejudice, the assessing officer erred on facts and in law by attributing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts and in law in levying interest under section 234A of the Act without appreciating that the income tax return was filed within the extended due date for filing the tax return. 17. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act. 18. That the mechanical endorsement in the impugned order to the effect that penalty under section 270A of the Act is initiated for under reporting of income in consequence of misreporting of income is illegal and bad in law. 3. It is a stay granted matter in AY 2020-21. 4. Briefly stated, the assessee is engaged in providing legal advisory services to several international clients including in India. It is a tax resident of Singapore and has opted to be governed by the provisions of India- Singapore Double Taxation Avoidance Agreement ( India-Singapore DTAA ). For the AY 2020-21, the assessee filed its return of income on 29.12.2022 declaring Nil income and claimed credit of taxes deducted at source ( TDS ) of Rs. 3,32,21,770/-. For AY 2021-22 the assessee filed its return of income on 7.03.2022 declaring Nil income and claimed credit of TDS of Rs. 82,80,990/-. The assessee s cases were selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of physical presence of the employees in India is not material. He, therefore attributed 100% of the gross receipts of Rs. 15,55,45,693/- to such service PE. For AY 2021-22, he passed the final assessment order on 30.10.2023 holding that (i) assessee constituted virtual service PE in India and further attributed 100% of the gross receipts amounting to Rs. 7,76,53,507/- to such alleged virtual service PE on the basis of the order passed in the AY 2020-21; (ii) income of Rs. 10,87,258/- is to be added to the total income on the ground that the assessee had allegedly received income from ICICI Bank amounting to Rs. 10,87,258/- which was not offered to tax; and (iii) interest on income tax refund pertaining to AY 2019-20 amounting to Rs. 10,23,649/- was added to the total income of the assessee. 6. Dissatisfied, the assessee is in appeal(s) before the Tribunal and all the grounds relate thereto. 7. In both the AYs under consideration, the main common grievance of the assessee relate to the finding of the Ld. AO that the assessee constituted service PE/ virtual service PE in India and consequent attribution of the entire receipts of Rs. 15,55,45,693/- in AY 2020-21 and Rs. 7,76,53,507/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that employees of the assessee spent 35 days on business development activities in India which is non-revenue generating. The business development activities undertaken by the employees of the assessee were solely to conduct business meetings which consisted of activities like identification of customers, technical presentation/providing information to prospective customers, developing market opportunities, making quotations to customers etc.. There is no element of furnishing of service involved in business development days and hence should be excluded for computation of threshold limit of 90 days. In support the Ld. AR relied on the time sheets of the employees who visited India. 8.3 As regards exclusion of common days, the Ld. AR submitted that the number of days spent by a foreign enterprise in India should be measured on the number of days spent by the foreign enterprise in India through employees or other personnel and not based on the man days by aggregating common days spent by more than one individual. In support he placed reliance on the decision of the Mumbai Tribunal in Clifford Chance vs. DCIT (2002) 82 ITD 106 Mumbai and Linklaters LLP (supra). 8.4 He furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of facts and position in law. During the relevant AYs the assessee did not have any premises at its disposal in India through which it carried on business. In fact in AY 2021-22 no associates/employees had visited India to render services to Indian clients. The condition of rendering services in India for atleast 90 days for the purpose of constituting service PE in India as per Article 5(6)(a) of the India-Singapore DTAA is not met. Furnishing of services within the source state means actual performance of services in the source state. Therefore only when the services are furnished by the employees within India during the financial year, such services shall be taken into consideration for computing service PE threshold. In support thereof the Ld. AR relied on OECD commentary on this subject. He reiterated that as per Article 5(6) of the India Singapore DTAA the assessee should actually furnish services in India by way of physical presence of its employees in India for the purpose of computing the threshold of 90 days. As the services have been furnished remotely outside India the assessee does not constitute a virtual service PE in India. 11.2 He further submitted that the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems of income i.e. FTS) can be taxed in India only if business is carried on through a PE situated in India. It is an undisputed fact that during AY 2020-21 part of the advisory services were rendered remotely outside India and part of services were rendered in India through the employees of the assessee who travelled to India for rendering such services. Whereas in AY 2021-22 none of the employees of the assessee travelled to India and the services were rendered from outside India which was duly evidenced by submission of statement showing details of employees who had visited India during the relevant AYs, copy of passport of employees and copy of statement showing date of arrival and date of departure to / from India before the Ld. AO/DRP. It is also an undisputed fact that the assessee had no office/fixed base in India during the relevant AYs and is governed by the beneficial provisions of India-Singapore DTAA. 12.3 Thus 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 ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the view that the assessee constituted virtual service PE in India. In our view the finding of the Ld. AO is not based on the correct appreciation of facts understanding of law enshrined in Article 5(6)(a) of the India-Singapore DTAA. The Ld. AO while rejecting the assessee s claim of having no virtual service PE in India has strongly relied on the decision of the Bangalore Tribunal in the case of ABB FZ LLC 83 taxmann.com 86 and also placed reliance on the concept of virtual service PE mentioned in OECD Interim report (2018) under the OECD/G20 BEPS Project titled Tax challenging arising from Digitalisation . In our considered view the reliance placed by the Ld. AO in the case of ABB FZ LLC is misplaced as the facts of that case and the context in which this decision was rendered by the Mumbai Tribunal differs from the facts of the assessee s case in hand. In ABB FZ LLC the main issue was whether FTS is chargeable to tax in India when India-UAE DTAA does not contain an Article for taxation of FTS. In ABB FZ LLC case services provided by the assessee to its Associated Enterprise in India was considered as FTS which was not disputed and the Tribunal held that in the absence of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20-21 and ground Nos. 9 to 13 in AY 2021-22 relate to attribution of business profits i.e. impugned receipts of the assessee to the alleged service PE/virtual service PE of the assessee in India which has become academic in view of our decision in favour of the assessee in para 12.8 above. 14. Ground No. 1 in both the AYs are general in nature. 15. In ground Nos. 2 to 4.1 in AY 2020-21 and ground Nos. 2 to 5.1 in AY 2021-22 the assessee has challenged the validity of the impugned assessment order on account of absence of Document Identification Number (DIN) on the directions/order of the Ld. DRP and the assessment order being barred by limitation under section 153 of the Act. These grounds have not been argued and hence not adjudicated upon. 16. The assessee has challenged levy of interest under section 234A of the Act in ground No. 13 and ground No. 16 in AY 2020-21 and 2021-22 respectively on the ground that the income tax return was filed within the extended due date for filing the return. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the appeal filed by the Revenue against the order (supra) of the Tribunal in Amadeus case. Respectfully following the decision(s) (supra) of the Delhi Tribunal which is affirmed by the Hon ble Delhi High Court, we hold that levy of interest under section 234B of the Act is not called for. Accordingly, interest levied under section 234B of the Act is hereby deleted. 18. Ground No.15 in AY 2020-21 and ground No. 18 in AY 2021-22 relating to initiation of penalty proceedings under section 270A of the Act is pre-mature and hence not adjudicated. 19. In AY 2021-22 the assessee has raised two more grounds relating to alleged addition of income received from ICICI Bank by the Ld. AO and addition of interest on income tax refund pertaining to AY 2019-20 which is yet to be received by the assessee. We will now proceed to consider these grounds. 20. The Ld. AO made addition of Rs. 21,10,907/- to the total income of the assessee 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. The break-up of the above amount is tabulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Jabalpur Tribunal in the case of Ravinder Pratap Thareja vs. ITO 60 taxmann.com 304 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 in this regard from the decision of the Surat Bench of the Tribunal in the case of Dr. Swati Mahesh Vinchurkar vs. DCIT 130 taxmann.com 320 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. 24. 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. In this view of the matter and judicial precedents cited above we restore the matter to the file of the Ld. AO to verify the claim of the assessee and if found as a result of his enquiry that the assessee has not receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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