9911796707
TMI Blog2025 (4) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance, assessee filed the relevant information as called for through online. 3. Assessee is a company incorporated under the laws of Republic of Korea. It functions in a variety of industrial and technology areas. In India, the assessee is engaged in power business. As per the information available on record, assessee is having Permanent Establishment (PE) in India. During the year under consideration, there is no offshore supply, hence, no profit attribution was made during the year. During assessment proceedings, a notice dated 15.12.2022 was issued to the assessee and asked to explain that assessee had adjusted the losses under the head 'PGBP' with your FTS income of Rs. 60,19,976/- and the FTS income is not attributable to the PE in India, therefore, why the same should not be disallowed and added back to the income of the assessee. In this regard, it was submitted that assessee has set off of losses under the head 'Profit and gains from business or profession' (PGBP) amounting to Rs. 4,81,02,640/- from the head 'income from other sources' amounting to Rs. 1,82,89580/-. The income earned under the head 'income from other sources' pertains to interest earned on income-tax r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2019 and as such the same are illegal, liable to be quashed and deemed to never have been issued. Ground 2: That, the final assessment order dated 24.08.2023 passed under Section 143(3) r.w.s 144(C)(13) of the Act is illegal, bad in law, without jurisdiction and is barred by time limitation. Ground 3: That on the facts and circumstances of the case and in law, the draft assessment order passed by the Learned Assessing Officer ("Ld. AO") [Assistant Commissioner of Income Tax, Circle 2(1 )(1), International tax, New Delhi] under section 143(3) read with section 144C(1) of the Income Tax Act,1961 ("the Act") on issue of disallowing the set off of business loss with the income from FTS is erroneous and bad in law. Ground 4: That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding that Loss under head Profit or Gain from Business or Profession cannot be set off under Income under head Other Source under provisions of Section 71 of the Act. Ground 4.1:That on the facts and circumstances of the case and in law, the Ld. AO erred in holding by relying on DTM that business loss of PE cannot be set off against income of HO is complete disregarding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der wherein it was held that under the domestic law, the PE in India and the GE abroad of which said PE is part, are not independent persons i.e. Indian Income-tax Act and they are not assessed to tax separately in India. The taxable entity is only one i.e. overseas GE which is the assessee bank in the present case who is a non-resident in India and the PE in India is part of that entity which is a taxable entity in India even in respect of income attributable to income of the PE in India. There is thus only one person assessable to tax i.e. GE and PE is not an independent person who is assessed to tax separately in India. Further, he brought to our notice page 18 of the paper book which is the computation made by the Assessing Officer. He himself adjusted the loss of current year and set off against the total income of the assessee and he disallows the set off of FTS income. Further, he brought to our notice page 53 of the case law paper book which is the decision of ITAT, Mumbai in Prudential Assurance Co. Ltd. vs. ADIT (2012) 19 taxmann 292 (Mum) wherein it was allowed the set off of loss from one head against the income from other sources u/s 71 of the Act. Further, he brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,640/- and it has earned income from other sources in the form of FTS and interest from Income Tax refund. It is fact that FTS income is taxable at special rate @ 10% under DTAA. While filing the return of income the assessee has adjusted the current year losses under the head 'business income' against the income under the head 'income from other sources' including FTS income which is chargeable to tax @ 10%. Assessee has made elaborate submissions by relying on certain case laws to make its case that the set off of business loss of PE against the FTS income earned by the HO. 11. After careful consideration, we need to understand the process of determining the total income of the assessee in any assessment year. As per the provisions of section 70 and 71, the total income has to be determined based on the provisions of section 14 of the Act, which deals with the determination of income under six heads of income. Under the Income Tax Act, it is taxed on income, which is determined in the manner specified in section 14 of the Act, as per which it is sum total of six heads of income, it is not chargeable to tax separately for each head of income and then aggregate of the same is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s chargeable to tax under special provisions and also TDS is collected, it does not change the determination of income under the Act. The Provisions of section 44DA and 115A are applicable or not and how it will impact the income declared by the assessee has to be analysed. 14. As per the provisions of section 44DA, the income of Royalty or FTS earned by the assessee through its PE is concerned, the same is chargeable to tax under this provisions and it is chargeable to tax on gross basis. In the given case, the assessee has earned the FTS directly without the assistance of its PE. Therefore, the above section has no application. Coming to the provisions of section 115A, the provisions starts with the words, 'Where the total income of' connotes the meaning that first we have to determine the total income and if the above total income includes the FTS as per the provisions of section 115A(1)(b) then the relevant FTS has to be excluded from the above income and then chargeable to tax at the specified rate (as per section 115A(1)(b)(B) of the Act). We observe that as per the provisions of section 115A(3) of the Act, no deduction in respect of any expenditure or allowance shall be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed nor any such assistance was provided by employees of the assessee. In any case, no services have been provided by the employees of the BO of assessee in India. Letter dated 23rd December 2009 explains the whole issue before Ld AO and DRP. Contents of this letter remain uncontroverted. Therefore, it is incorrect to state that assessee has not provided the details of the persons who provided services in connection with that agreement. Further, it is also not brought on record by revenue that whether during the year any services were in fact provided by the assessee to the licensee or not. Revenue has not made any inquiry with the licensee also about the nature of services provided by the assessee during the year and who are the persons who provided these services. In absence of this inquiry and material on record, and in view of affirmative statement by the assessee at all stages that employees of the BO of the assessee are not at all capable and are engaged in performance of the contract, it is not possible to say that the activities of the contract are effectively connected with the BO of the assessee. The contention of the Ld AO and DRP is that these services to be provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such services irrespective of the other activities PE performs. Revenue could not bring any material on record, which proves above facts in substance. Honourable Delhi high court in CIT V Sumitomo Corporation [382 ITR 75] held as under : "27. Article 12(5) of the Double Taxation Avoidance Agreement is on the lines of the OECD Model Convention. It is noticed that the clause in the OECD Model Convention allows the State, where the permanent establishment is located, to "tax only those profits which are economically attributable to the permanent establishment". The clause makes a distinction between those incomes which are the result of activities of the permanent establishment and the income that arises by reason of direct dealings by the enterprise from the head office without the aid or assistance of the permanent establishment. Thus, article 12(5) adopts the "no force of attraction principle". The rationale behind the said rule was to avoid restricting entrepreneurial freedom of disposition "through fictitiously allocating profits by way of generalising standards". Another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) also directed that the wear and tear in each year of use outside India should be deducted in arriving at the actual state of the rig before its use in India. The Commissioner (Appeals) rejected the claim of the assessee that depreciation was to be allowed as per the provisions of the Act in accordance with section 32(1), read with section 43(6), and it was to be computed at cost as the rig was neither operated in India before, nor was any depreciation claimed on it earlier in India." They held as under :- "10. The following provisions of the Treaty dated March 26, 1969 between the Government of India and the Government of French Republic may be extracted : Sub-article (2) of Article II: In the application of the provisions of the present agreement in either Contracting State, any term not otherwise defined in the present agreement shall, unless the context otherwise requires, have the meaning which it has under the laws in force in that Contracting State relating to the taxes which are the subject of the present Agreement. Sub-article (3) of Article III: In determining the industrial or commercial profits of a permanent establishment, there shall be allowed as deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation is to be computed is to be determined. The learned C1T(A) held that actual "wear and tear of the rig" both in India and outside India should be taken into account for quantification of depreciation. The assessee, on the other hand, contends that depreciation be allowed as per provisions of Income Tax Act. In other words, it is claimed that depreciation be computed with reference to Section 32(1) read with Section 43(6) and allowed as per the rate prescribed in the schedule to the Income Tax Rules. For working out WDV, actual cost of rigs and other machinery be taken into account and not depreciation allowed outside India under any law other than those mentioned in Sub-section (6) of Section 43 of the Indian Income-tax Act. On careful consideration of provision of double taxation treaty and income-tax law, we are inclined to agree with the assessee. 12. The Assessing Officer or CIT(A) in their orders, or learned D.R. during the course of hearing of appeal, could not bring to our notice any provision in the Treaty defining WDV or providing any method for computation of depreciation. On the other hand, Sub-article (2) of article II extracted above, clearly provides that te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance of total taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." [Emphasis supplied] It is clear from the aforesaid sub-section that a foreign national governed by avoidance of double taxation treaty is entitled to ask for application of provision of this Act, "to the extent they are more beneficial to that assessee". The sub-section is applicable only to the cases governed by avoidance of double taxation treaty. There is thus no justification for holding that foreign nationals, having selected to be governed by double taxation treaty cannot ask for application of any provision of the Income-tax Act even when such provision is beneficial to them. The choice of selection is clearly with the foreign nationals and not with revenue authorities. The intention of the Legislature and spirit to grant benefit and choice to the foreign national is manifestly clear. In view of above provision and other reasons recorded earlier, we direct the Assessing Officer to allow depreciation to the assessee as per provisions of the Income-tax Act. As we have accepted the main g ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
