Tribunal Upholds Reassessment Against GE Group Company for Income Escapement

The Tribunal upheld the initiation of reassessment proceedings against a company in the GE Group due to prima facie grounds of income escapement in India. It determined that the company had a fixed place Permanent Establishment (PE) at the AIFACS premises and a dependent agent PE through GE India. The Tribunal attributed 26% of the total profit in India to the PE's operations, differing from the AO's initial estimation. Additionally, the Tribunal cancelled the interest charged under Section 234B for the assessment years 2007-08 and 2008-09, following a precedent set in a similar case.

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Issues Involved:
1. Challenge to Reassessment
2. Permanent Establishment (PE)
3. Attribution of Income
4. Interest under Section 234B

Detailed Analysis:

1. Challenge to Reassessment:
The first issue pertains to the initiation of reassessment proceedings. The assessee, a company incorporated in the USA and part of the GE Group, did not file a return of income prior to the proceedings. A survey under Section 133A was conducted at the Delhi address of the Liaison Office (LO) of General Electric International Operations Company Inc. (GEIOC) on 2.3.2007, revealing incriminating material. Notices under Section 148 were issued to 24 entities of the GE Group. The main thrust of the AO’s opinion was that the assessee was making sales in India with the involvement of its Permanent Establishment (PE) in India, attributing 3.5% of the total value of supplies made by the assessee to the customers in India as taxable business income. The AO’s reasons for initiating reassessment included the presence of a fixed place PE and a dependent agent PE in India. The Tribunal upheld the initiation of reassessment, noting that the AO had prima facie grounds for forming a belief that there was some escapement of income, which is a condition precedent for initiating reassessment.

2. Permanent Establishment (PE):
The AO held that the GE Overseas entities had PE in India in two forms: a fixed place PE at the AIFACS premises of GEIOC and a dependent agent PE through GE India. The Tribunal found that the expatriates from GEII and employees of GEIIPL were permanently using the LO premises of GEIOC at AIFACS building, conducting core activities related to sales and marketing, which were not of a preparatory or auxiliary character. The Tribunal concluded that the AIFACS building constituted a fixed place PE of the assessee and all the GE Overseas entities. Additionally, GE India, consisting of expatriates and employees of GEIIPL, acted as agents of dependent status for multiple GE overseas enterprises, thereby constituting an agency PE under Article 5(4) of the DTAA.

3. Attribution of Income:
The AO estimated the profit attributable to the PE in India at 10% of sales made in India, inspired by sections 44BB and 44BBB, and attributed 35% of such profit to marketing activities based on the decision in Rolls Royce PLC vs. DDIT. The Tribunal, however, held that the activities carried out by Rolls Royce and ZTE Corporation in India were not similar to those done by the PEs of GE overseas entities. Considering the lead role played by GE India and the supporting role of GE Overseas, the Tribunal estimated 26% of the total profit in India as attributable to the operations carried out by the PE in India.

4. Interest under Section 234B:
The Tribunal noted that the AO levied interest under Section 234B for all the assessment years from 2001-02 to 2008-09. The CIT(A) deleted the levy of interest, and the Tribunal confirmed the deletion. The Hon’ble Delhi High Court in DIT (IT) vs. GE Packaged Power Inc. upheld the deletion of interest under Section 234B for the assessment years 2001-02 to 2006-07. Following this precedent, the Tribunal cancelled the interest charged under Section 234B for the assessment years 2007-08 and 2008-09.

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