2012 (5) TMI 681 - AT - Income Tax

Tax Court: No Permanent Establishment in India for 2003-04 Assessment

The court held that the assessee had no permanent establishment in India for the assessment year 2003-04. The applicability of sec. 40(a)(ia) was ... Permanent establishment - tax deduction at source under section 195 - disallowance under section 40(a)(i) of the Income tax Act - applicability of section 40(a)(ia)Permanent establishment - Assessee has no permanent establishment in India for AY 2003-04. - HELD THAT: - The Tribunal, applying the same reasoning as in its decisions for AYs 2001-02 and 2002-03, examined the facts and held that the assessee did not constitute a permanent establishment in India. The finding for earlier years was treated as determinative and followed for AY 2003-04.Assessee has no permanent establishment in India; ground allowed.Applicability of section 40(a)(ia) - Contention on applicability of section 40(a)(ia) not pressed by assessee. - HELD THAT: - The ground raised by the assessee regarding section 40(a)(ia) was advanced without prejudice and the assessee's counsel did not press it before the Tribunal. Consequently the Tribunal did not adjudicate the matter on merits and dismissed the ground as not pressed.Ground dismissed as not pressed.Disallowance under section 40(a)(i) of the Income tax Act - tax deduction at source under section 195 - Disallowance under section 40(a)(i) in respect of payment to Advanced Satellite (UK) is not sustainable for AY 2003-04. - HELD THAT: - The Tribunal treated the issue as identical to that decided for AY 2002-03 and, following that view, concluded that the disallowance made under section 40(a)(i) in respect of the payment to Advanced Satellite, a UK resident, could not be sustained. The earlier reasoning was applied consistently to allow the assessee's ground.Assessee's ground allowed; disallowance bad in law.Disallowance under section 40(a)(i) of the Income tax Act - Disallowance under section 40(a)(i) in respect of payment to LMB Holdings (Mauritius) Ltd. for purchase of programmes is not sustainable. - HELD THAT: - Following the Tribunal's earlier decision for AY 2002-03 on the same issue, the disallowance made against the assessee for payments to LMB Holdings (Mauritius) Ltd. was held to be bad in law. The Tribunal applied the same legal reasoning and allowed the assessee's challenge to the disallowance.Assessee's ground allowed; disallowance bad in law.Tax deduction at source under section 195 - disallowance under section 40(a)(i) of the Income tax Act - No liability to deduct tax at source under section 195 in respect of payments to LMB Holdings Ltd. (Isle of Man); consequently no disallowance under section 40(a)(i). - HELD THAT: - The Tribunal, following its reasoning in the corresponding issue for AY 2002-03, held that the assessee was not liable to deduct tax at source under section 195 on payments to LMB Holdings Ltd. (Isle of Man). Since the threshold for a withholding obligation was absent, the consequential disallowance under section 40(a)(i) could not be sustained.Assessee not liable to deduct tax; disallowance cannot be made; ground allowed.Disallowance under section 40(a)(i) of the Income tax Act - Disallowance under section 40(a)(i) on payment to PanAmSat Ltd. (Revenue's ground) not sustained; CIT(A)'s order upheld. - HELD THAT: - The departmental appeal challenged the CIT(A)'s order disallowing the assessee's contention with respect to payments to PanAmSat Ltd. The Tribunal, referring to the view taken in the corresponding issue for AY 2002-03, found no reason to disturb the CIT(A)'s conclusion and therefore dismissed the Revenue's ground.Revenue's appeal dismissed; CIT(A)'s order upheld.Final Conclusion: For AY 2003-04 the Tribunal allowed the assessee's appeal in part by holding there was no permanent establishment in India and by setting aside disallowances under section 40(a)(i) in respect of payments to specified foreign entities (Advanced Satellite (UK), LMB Holdings (Mauritius), LMB Holdings (Isle of Man)) on the reasons applied from earlier years; the assessee's standalone ground under section 40(a)(ia) was dismissed as not pressed; the Revenue's appeal regarding PanAmSat Ltd. was dismissed and the CIT(A)'s order upheld. Issues Involved: Cross appeals for the assessment year 2003-04 regarding permanent establishment in India, applicability of sec. 40(a)(ia), disallowance u/s.40(a)(i) for payments made to various entities.Assessee's Appeal (ITA No.3866/Mum/2008):- Ground nos.1 & 2: Whether the assessee has a permanent establishment in India. - Held that the assessee has no permanent establishment in India, consistent with previous assessment years.- Ground no.3: Applicability of sec. 40(a)(ia). - Not pressed by the counsel and hence dismissed.- Ground no. 4: Disallowance u/s.40(a)(i) for payment to Advanced Satellite (UK). - Allowed in favor of the assessee based on previous decision.- Ground no.5: Disallowance u/s.40(a)(i) for payment to LMB Holdings (Mauritius) Ltd. - Disallowance deemed bad in law, consistent with previous decision. Assessee's ground allowed.- Ground no. 6: Disallowance u/s. 40(a)(i) for payment to LMB Holdings Ltd. (Isle of Man) for films. - No liability to deduct tax at source u/s.195, hence no disallowance u/s. 40(a)(i). Assessee's ground partially allowed.Departmental Appeal (ITA No.4098/Mum/208):- Issue: Disallowance u/s. 40(a)(i) for payment to PanAmSat Ltd. - Upheld the order of CIT(A) based on previous decision. Revenue's ground dismissed.Conclusion:- Assessee's appeal allowed in part, while the Revenue's appeal is dismissed. Order pronounced on May 28, 2012.