2017 (3) TMI 33 - AT - Income Tax

Tribunal directs re-examination on Permanent Establishment issue for fair adjudication

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine whether the appellant had a Permanent Establishment (PE) in India ... Permanent establishment - service permanent establishment - Article 5(2)(k)(i) - Article 5(2)(k)(ii) - attribution of income to service PE - reading of return and accompanying notes - offer to tax in return not conclusive admission - non-speaking order - remand for fresh adjudicationPermanent establishment - service permanent establishment - Article 5(2)(k)(i) - Article 5(2)(k)(ii) - reading of return and accompanying notes - offer to tax in return not conclusive admission - Existence of a service permanent establishment in India of the assessee for the period November, 2008 to March, 2009 remitted to the Assessing Officer for fresh adjudication. - HELD THAT: - The Tribunal found that the assessee's return of income contained specific notes stating that the 90 day threshold in Article 5(2)(k)(i) was not exceeded in any twelve month period between November 2008 and March 2009 and that Article 5(2)(k)(ii) was not applicable. The lower authorities rejected these contentions by relying largely on the fact that the assessee had offered certain fees to tax, but did not furnish a reasoned, speaking order addressing the assessees' submissions and documentary material. Because the question whether a service PE existed for the November 2008-March 2009 period requires factual verification and reasoned adjudication, and in view of the inadequacy of the AO's and CIT(A)'s reasoning, the Tribunal set aside the issue and restored it to the AO for fresh consideration, directing the AO to address all contentions, afford the assessee opportunity to be heard and pass a speaking order.Matter restored to the file of the Assessing Officer for fresh adjudication on whether the assessee had a service PE in India during November 2008 to March 2009; Grounds 1-3 allowed for statistical purposes.Attribution of income to service PE - Article 7(3) - reading of return and accompanying notes - remand for fresh adjudication - All remaining substantive grounds (including computation/attribution of income, fixed base, disbursements, interest, treaty benefits and penalty) restored to the Assessing Officer for fresh adjudication consequential upon the decision on PE. - HELD THAT: - The Tribunal observed that the outcome of the primary question of existence of a service PE would substantially affect the other grounds relating to attribution of receipts to India, application of Article 7(3), fixed base, disbursements, interest under section 234B, entitlement to treaty benefits and penalty proceedings. Given the restoration of the PE issue to the AO and the interdependence of these matters on the factual and legal conclusions to be reached on PE, the Tribunal declined to decide these grounds and directed the AO to adjudicate them after determining the PE question, affording the assessee a fair opportunity and passing speaking orders.Grounds 4-19 restored to the file of the Assessing Officer for fresh adjudication after the PE issue is decided; these grounds are allowed for statistical purposes.Final Conclusion: The appeal is allowed for statistical purposes; the question whether the assessee had a service permanent establishment in India during November 2008-March 2009 is set aside to the Assessing Officer for fresh, reasoned adjudication with opportunity to the assessee, and all other grounds are remanded for fresh decision by the AO consequential on the PE determination. Issues Involved:1. Permanent Establishment (PE)2. Computation of Income Liable to Tax in India3. Fixed Base4. Disbursements5. Interest under Section 234B6. India-UK Tax Treaty Benefit7. Penalty Proceedings under Section 271(1)(c)Issue-wise Detailed Analysis:1. Permanent Establishment (PE):- Grounds of Appeal: The appellant contested the CIT(A)'s decision that it had a PE in India under Article 5(2)(k) of the India-UK Tax Treaty for the entire year. The appellant also argued that the threshold of 90 days was not exceeded during the period from November 2008 to March 2009, and hence, no income should be taxed in India.- Tribunal's Findings: The Tribunal noted that the appellant had offered its income for tax in India due to the CIT(A)'s observations in earlier years, not as an acceptance of having a PE. The Tribunal found that the lower authorities had not adequately addressed the appellant's claim that it did not exceed the 90 days threshold within any twelve months period between November 2008 and March 2009. The Tribunal directed the AO to re-examine whether the appellant had a PE in India during this period, considering the appellant's detailed submissions.2. Computation of Income Liable to Tax in India:- Grounds of Appeal: The appellant argued that the entire receipt of GBP 3,302,927 should not be taxed in India and only the income attributable to services rendered in India should be taxed. The appellant also contested the inclusion of fees related to non-Indian projects and services rendered outside India.- Tribunal's Findings: The Tribunal restored the matter to the AO for fresh adjudication, directing the AO to determine the taxability of the income after deciding on the existence of a PE. The AO was instructed to consider the appellant's contentions and pass a reasoned order.3. Fixed Base:- Grounds of Appeal: The appellant claimed that it did not have a fixed base in India and that hotels or places provided by clients could not be considered as an office or place of work.- Tribunal's Findings: The Tribunal found that the CIT(A) did not specifically address this issue due to the conclusion that the appellant had a service PE. The Tribunal directed the AO to reconsider this issue during the fresh adjudication.4. Disbursements:- Grounds of Appeal: The appellant argued for the deletion of the addition of Rs. 7,492,280 on account of disbursements.- Tribunal's Findings: The Tribunal restored this issue to the AO for fresh adjudication, instructing the AO to consider the appellant's contentions and pass a reasoned order.5. Interest under Section 234B:- Grounds of Appeal: The appellant contested the levy of interest under Section 234B amounting to Rs. 27,921,562.- Tribunal's Findings: The Tribunal directed the AO to follow the directions given by the Tribunal in the appellant's case for A.Y. 1995-96 and adjudicate the issue accordingly.6. India-UK Tax Treaty Benefit:- Grounds of Appeal: The appellant claimed entitlement to the benefits of the India-UK Tax Treaty.- Tribunal's Findings: The Tribunal restored this issue to the AO for fresh adjudication, instructing the AO to consider the appellant's contentions and pass a reasoned order.7. Penalty Proceedings under Section 271(1)(c):- Grounds of Appeal: The appellant argued that the penalty proceedings under Section 271(1)(c) should be quashed.- Tribunal's Findings: The Tribunal found that this issue was premature and directed the AO to consider it during the fresh adjudication.Conclusion:The Tribunal allowed the appeal for statistical purposes, restoring all issues to the AO for fresh adjudication. The AO was directed to pass a well-reasoned and speaking order after considering all the appellant's contentions and providing a reasonable opportunity for the appellant to be heard. The Tribunal emphasized the need for a thorough and fair re-examination of the appellant's claims regarding the existence of a PE and the computation of taxable income.