2023 (6) TMI 1321 - AT - Income Tax

Tax Tribunal Rules No PE for Non-Resident Entity; Offshore Supplies & Onshore Services Not Taxable in India for 2018-19.

Nuovo Pignone International Versus DCIT, Circle 2 (2) (2), International Taxation, New Delhi

The ITAT ruled in favor of the non-resident corporate entity, determining that no Permanent Establishment (PE) existed in India for the assessment year ... Permanent Establishment (PE) in India - Income deemed to accrue or arise in India - assessee is a non-resident corporate entity and a tax resident of Italy - HELD THAT:- Undisputedly, the assessee brought on record all material and evidences to establish that it does not have any PE in India. As it appears from the respective orders of the departmental authorities, without dealing with the submissions of the assessee and evidences brought on record through proper reasoning or by bringing any contrary material to controvert them, the departmental authorities have merely followed their earlier decision without making any effort to look into the specific facts of the impugned assessment year. The specific averment of the assessee regarding vacation of office premises at AIFACS building and no visit by expatriates in India during the year, have not been controverted by the departmental authorities by any specific factual finding. As decided in BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. LTD. [2023 (2) TMI 35 - DELHI HIGH COURT] Assessing Officer cannot merely do a cut and paste job for reopening the assessment without independent application of mind or verification or investigation. This decided squarely applies to the facts of the present appeal, as the departmental authorities have merely followed the decision taken by them and higher appellate authorities in assessee’s cases in past assessment years without independent application of mind to the facts brought on record by the assessee or making proper verification/investigation of the evidences. The evidences brought on record by the assessee remain uncontroverted. When the evidences brought on record by the assessee are before the departmental authorities, it is the duty of the departmental authorities to examine them on merits and thereafter, either to accept them or to reject them with proper reasoning by bringing on record contrary material/evidence. In the facts of the present appeal, the departmental authorities have failed to undertake such exercise. Therefore, in our view, it has to be concluded that the departmental authorities have not found anything amiss or adverse in the facts and material brought on record by the assessee. Thus as concluded that the assessee did not have any PE, either fixed place PE or dependent agent PE, in India in the year under consideration. Decided in favour of assessee. Issues Involved:1. Existence of Permanent Establishment (PE) in India.2. Attribution of income to the PE.3. Taxability of offshore supplies connected to PE.4. Onshore services connected to PE and their taxability under section 44DA.Summary:Existence of Permanent Establishment (PE) in India:The primary issue was whether the assessee, a non-resident corporate entity and tax resident of Italy, had a PE in India during the assessment year 2018-19. The Assessing Officer (AO) had previously determined that the assessee had a fixed place PE in India based on past assessments and materials found during a survey operation. However, the assessee argued that the office premises at AIFACS, New Delhi, which was previously considered a fixed place PE, had been vacated on 01.05.2012, and no expatriate employees visited India during the year. The Tribunal concluded that the existence of PE must be determined on a year-to-year basis, and the assessee successfully demonstrated that no PE existed in the impugned assessment year.Attribution of Income to the PE:The AO attributed 2.6% of the total value of offshore supplies as the income of the PE in India, adding Rs.6,10,96,315/- to the assessee's income. The Tribunal found that the AO and the Dispute Resolution Panel (DRP) did not adequately consider the evidence provided by the assessee that the fixed place PE had been vacated and no expatriates visited India during the year. The Tribunal held that the departmental authorities failed to independently verify the facts for the impugned assessment year and merely relied on past assessments.Taxability of Offshore Supplies Connected to PE:The AO held that amounts received from offshore supplies connected to the PE should be taxed in India. The Tribunal, however, noted that the assessee had provided sufficient evidence to show that the fixed place PE had been vacated and no business activities were conducted from the liaison office during the year. Therefore, the Tribunal concluded that the offshore supplies were not taxable in India for the impugned assessment year.Onshore Services Connected to PE and Their Taxability under Section 44DA:The AO also taxed the amount received towards onshore services under section 44DA of the Income-tax Act as business profit connected to the PE in India. The Tribunal found that since the assessee did not have a PE in India during the impugned assessment year, the onshore services could not be taxed under section 44DA.Conclusion:The Tribunal allowed the appeal, holding that the assessee did not have any PE, either fixed place PE or dependent agent PE, in India during the assessment year 2018-19, based on the specific facts and evidence presented for that year. The decision emphasized the importance of determining the existence of PE on a year-to-year basis and the necessity for the Revenue to independently verify facts for each assessment year.