2013 (1) TMI 870 - AT - Income Tax

Tax Tribunal: Jurisdiction upheld, PE ruling overturned, interest deleted, relief granted, penalty issue premature, TDS credit in favor.

The Lubrizol Corporation USA, Versus Asst. Director of Income-tax (International Taxation)

The Tribunal partially allowed the assessee's appeals by upholding jurisdiction under Section 147, overturning the finding of a Permanent Establishment in ... Whether assessee is having Permanent Establishment in India or not - Held that:- assessee has no operation in respect of manufacture or sale of product carried out in India - Sales are made by the assessee to LIPL on principal to principal basis - The assessee a1so does not have a right to use LIPL premises - there should be some definite activity of the PE to which profits can be attributed and merely acting for a non-resident principal would not by itself render an agent to be considered as PE for the purpose of allocating profits - addition of ₹ 2,29,26,152/- made by the AO being a profit margin of 5% on the sales made by the assessee, is not sustainable - Decided in favor of assessee Chargebility of interest u/s 234B - Held that:- Assessee is a foreign company not liable to tax in India - when a duty was cast on the payer to deduct the tax at source, on failure of the payer to do so, no interest could be imposed on the assessee - Decided in favor of assessee Initiation of penalty u/s 271(1)(c) - Held that:- penalty proceeding are independent proceeding - the ground raised by the assessee is not pressed and accordingly we reject the ground taken by the assessee being pre-matured/not pressed is rejected Issues Involved:1. Assumption of jurisdiction under Section 147 of the Income-tax Act.2. Confirmation of the finding that the assessee has a Permanent Establishment (PE) in India.3. Levy of interest under Section 234B and 234C of the Income-tax Act.4. Initiation of penalty under Section 271(1)(c) of the Income-tax Act.5. Credit of Tax Deducted at Source (TDS).Detailed Analysis:1. Assumption of Jurisdiction under Section 147 of the Income-tax Act:The assessee contested the reopening of the assessment under Section 147. The Tribunal upheld the Assessing Officer's (A.O.) jurisdiction to issue notice under Section 148, referencing the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. The Tribunal noted that the original assessment was completed under Section 143(1) and no regular assessment had been completed. Therefore, the A.O. had jurisdiction to bring to tax income escaping assessment.2. Confirmation of the Finding that the Assessee has a Permanent Establishment (PE) in India:The A.O. determined that the assessee had a PE in India through its relationship with Lubrizol India Pvt. Ltd. (LIL), invoking Articles 5(1), 5(2), and 5(4) of the India-USA DTAA. The Tribunal, however, found that the facts of the case were similar to the assessee's own case for A.Y. 2006-07, where it was held that the assessee did not have a PE in India. The Tribunal noted that LIL operated independently and did not have the authority to conclude contracts on behalf of the assessee. Consequently, the addition made by the A.O. was deleted, and the grounds were allowed.3. Levy of Interest under Section 234B and 234C of the Income-tax Act:The Tribunal addressed the levy of interest under Section 234B, citing the Bombay High Court decision in Director of Income-tax (International Taxation) v. NGC Network Asia LLC, which held that no interest could be imposed on the assessee when the duty to deduct tax at source was on the payer. Consequently, the interest charged under Section 234B was deleted. For Section 234C, the Tribunal directed the A.O. to allow consequential relief based on the findings.4. Initiation of Penalty under Section 271(1)(c) of the Income-tax Act:The Tribunal noted that penalty proceedings are independent and therefore did not address the merits of the penalty under Section 271(1)(c), treating the ground as premature and not pressed by the assessee.5. Credit of Tax Deducted at Source (TDS):The Tribunal acknowledged that the A.O. had allowed the credit of TDS as claimed by the assessee, and thus, this ground was not pressed and subsequently rejected.Conclusion:The Tribunal's decision resulted in the partial allowance of the assessee's appeals. The jurisdiction under Section 147 was upheld, the finding of a PE in India was overturned based on precedent, and the interest under Section 234B was deleted while directing relief for Section 234C. The penalty issue was deemed premature, and the TDS credit issue was resolved in favor of the assessee.