2015 (12) TMI 904 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on PE, tax liability under DTAA with USA. Assessment reopening quashed.

The Tribunal dismissed both appeals, upholding the CIT(A)'s decisions and consistent ITAT precedents. It found no Permanent Establishment (PE) in India, ... Income earned from customers outside India - whether is liable to tax in India under DTAA with USA? - assessee’s claim that the software provided to the representatives did not constitute PE - Held that:- There is no agency PE of the assessee in India. As in the absence of any PE in India the profits if any attributable to the Indian operations cannot be assessed as business profits under Article 7 of the Treaty. - Decided in favour of assessee. Issues Involved:1. Taxability of income earned from customers outside India under DTAA with the USA.2. Legality of reopening the assessment.3. Determination of whether standalone machines with software applications constitute a fixed place PE.4. Examination of whether the liaison office in India constitutes a PE.5. Evaluation of whether representatives in India constitute a Dependent Agent PE under the Indo-US treaty.6. Attribution of profits to the activities carried out by the assessee through its PE in India.Detailed Analysis:1. Taxability of Income Under DTAA:The Revenue questioned whether income earned from customers outside India is liable to tax in India under the DTAA with the USA. The Tribunal upheld the CIT(A)'s decision that the income is not taxable in India, referencing consistent ITAT decisions from previous years (2001-02; 2002-03; 2003-04; 2005-06) which found no Permanent Establishment (PE) in India, thus no tax liability under the DTAA.2. Legality of Reopening the Assessment:The Tribunal examined the reopening of the 2004-05 assessment, which was quashed by the CIT(A). The Tribunal upheld the CIT(A)'s decision, noting that the reopening was based on the same material considered during the original assessment, which had already been quashed for being time-barred. The Tribunal cited the case of Smt. Anchi Devi vs. CIT and emphasized that there was no new material justifying the reopening, thus dismissing the Revenue's ground.3. Fixed Place PE:The Tribunal addressed whether standalone machines with the assessee's software applications constitute a fixed place PE. The Tribunal found that the agents' premises, where the software was used, did not constitute a fixed place PE for the assessee. The Tribunal referenced its earlier decision, which concluded that the agents operated independently and the software's limited use did not establish a PE.4. Liaison Office as PE:The Tribunal considered whether the liaison office (LO) in India constituted a PE. It upheld the CIT(A)'s finding that the LO's activities were preparatory or auxiliary in nature, thus not creating a PE under Article 5.3(e) of the DTAA. The LO's functions, such as training agents and facilitating communications, did not amount to business operations.5. Dependent Agent PE:The Tribunal evaluated whether the representatives in India constituted a Dependent Agent PE under Article 5(4)/5(5) of the Indo-US treaty. It concluded that the agents were independent, acting in the ordinary course of their business, and not economically dependent on the assessee. The Tribunal noted that the agents did not have the authority to conclude contracts on behalf of the assessee, distinguishing the case from Amadeus Global Travel Distribution SA, where agents had such authority.6. Attribution of Profits:The Tribunal addressed the attribution of profits to the activities carried out by the assessee through its PE in India. Since it was determined that there was no PE in India, the Tribunal held that no profits could be attributed to the Indian operations under Article 7 of the DTAA. Consequently, the Tribunal dismissed the Revenue's ground on this issue.Conclusion:The Tribunal dismissed both appeals (ITA Nos. 5551/Del/2012 and 5552/Del/2012), upholding the CIT(A)'s decisions and consistent ITAT precedents. The Tribunal found no PE in India, thus no tax liability under the DTAA, and quashed the reopening of the assessment for lack of new material. The order was pronounced on 10th December 2015.