2019 (2) TMI 2044 - AT - Income Tax

Tribunal rules in favor of appellant, rejects Rs. 5,15,05,000 addition to income.

The Tribunal ruled in favor of the appellant, finding the addition of Rs. 5,15,05,000 to the returned income by the Assessing Officer untenable. It held ... Income of the Permanent Establishment (PE) - Income attributable to its agency PE again - appellant before us is a resident of Singapore and has business activities in India - Admittedly, it has appointed its 100% owned subsidiary, Hempel India as a sales agent, who is rendering sales support services - HELD THAT:- As per the assessee, once transfer pricing analysis of the transaction between assessee and its agent in India has been undertaken, there is no further need to attribute profits to the agency PE so long as the remuneration to the Indian agent has been held to be at an arm's length price. Undoubtedly, the proposition sought to be canvassed by the assessee has the approval of Hon'ble Supreme Court in the case of M/s. Morgan Stanley & Co. Inc [2007 (7) TMI 201 - SUPREME COURT]. The judgment of the Hon'ble Bombay High Court in the case of SET Satellite Singapore Pte Ltd. [2008 (8) TMI 96 - BOMBAY HIGH COURT] is also on the same lines in terms of which it is safe to draw the premise that if appropriate arm's length price has been found to have been applied and paid, nothing more would be left to be taxable in India by attributing further income to the PE of the foreign enterprise. The aforesaid proposition, in our view, is fully attracted in the present case having regard to the fact that for the instant assessment year, the commission has been found to be at arm's length price in the hands of the recipient Indian subsidiary, i.e. Hempel India. The ratio of the judgment of the Hon'ble Delhi High Court in the case of BBC Worldwise Ltd. [2011 (9) TMI 548 - DELHI HIGH COURT] is fully attracted in the present case and, therefore, the addition to the returned income is clearly untenable in the facts of the instant case. We hold so. - Decided in favour of assessee. Issues Involved:- Dispute regarding the attribution of income to Permanent Establishment (PE) in India- Application of transfer pricing provisions under Chapter X of the Income Tax Act, 1961- Arm's length price principle for commission payments- Validity of addition to returned income by Assessing Officer- Interpretation of relevant legal precedentsDetailed Analysis:1. Dispute Regarding Income Attribution to PE in India:The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute over the Assessing Officer's decision to attribute additional income of Rs. 5,15,05,000 to the Permanent Establishment (PE) of the appellant in India. The appellant argued that it had appropriately attributed profits based on operations in India and in compliance with the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.2. Application of Transfer Pricing Provisions:The appellant contended that it had followed transfer pricing provisions of Chapter X of the Income Tax Act to determine the income attributable to its agency PE in India. The Assessing Officer, however, estimated profits at an ad-hoc rate, leading to the disputed addition to the income.3. Arm's Length Price Principle for Commission Payments:The appellant maintained that the commission paid to its Indian subsidiary was at an arm's length price, as affirmed by the transfer pricing analysis and reports. The appellant argued that no further income should be attributed to its agency PE in India beyond the arm's length commission payments.4. Validity of Addition to Returned Income:The Tribunal considered legal precedents, including judgments by the Supreme Court and High Courts, supporting the appellant's position. The Tribunal concluded that if the arm's length price had been applied and paid, no further income should be attributable to the PE of the foreign enterprise. As a result, the addition of Rs. 5,15,05,000 to the returned income was deemed untenable and was deleted.5. Interpretation of Legal Precedents:The Tribunal referenced judgments such as M/s. Morgan Stanley & Co. Inc and SET Satellite Singapore Pte Ltd. to support its decision. It also cited the judgment of the Delhi High Court in the case of DIT vs BBC Worldwise Ltd., emphasizing that once a transaction is treated as arm's length in the hands of the recipient, no additional income should be attributed to the non-resident entity.In conclusion, the Tribunal allowed the appeal of the assessee, ruling in favor of the appellant based on the application of transfer pricing principles and the arm's length price principle for commission payments, as supported by relevant legal precedents.