2018 (1) TMI 1043 - AT - Income Tax

Tribunal rules fees from Indian enterprise not taxable under DTAA

Booz & Company (ME) FZ-LLC Through the official liquidator Businessi Middle East C/o. Booz & Company (India) Private Limited (now known as PWC Strategy India P. Ltd.) Versus DDIT (International Taxation) -3 (2), Mumbai

The Tribunal ruled in favor of the assessee, finding that the fees received from its Indian associated enterprise were not taxable as business income ... Assessment of fees received by the assessee from its Indian AE as business income - existence of PE in India - Held that:- The assessee has given working of mandays of employees provided by the assessee to M/z Booz India at page 53 of the paper book. As per the said working the employees have worked for an aggregate period of 156 solar days (on all projects taken together), meaning thereby, the period of working is less than 9 months. There is merit in the contentions of the assessee that there is no PE for it in India, in which case, the impugned receipt is not taxable in India. Accordingly, we set aside the orders passed by the tax authorities and direct the AO to delete the addition made by him. - Decided in favour of assessee Issues:Taxability of fees received by the assessee as business income from its Indian AE.Analysis:1. The appeal pertains to the assessment year 2011-12 where the assessee, an UAE-based company providing management and technical consultancy services, received fees from its Indian associated enterprise. The assessee contended that the fee is taxable as business income under the Double Taxation Avoidance Agreement (DTAA) between India and UAE, as it did not have a Permanent Establishment (PE) in India.2. The Assessing Officer relied on a ruling by the Authority for Advance Ruling (AAR) which held that certain group companies, including one related to the assessee, had a PE in India, making their income taxable. Consequently, the AO treated the Indian AE as the PE of the assessee, taxing the received fee as business income. The assessee's expenses were also restricted due to lack of supporting documents.3. The assessee challenged this decision, arguing that the AAR ruling should not have been the sole basis for determining its PE. The assessee emphasized that the AAR's ruling lacked consideration of crucial aspects like the form of PE and specific DTAA provisions. The Tribunal agreed, holding that the AAR ruling should not have been blindly followed.4. The assessee further demonstrated that it did not have a fixed place of business in India and that the personnel provided to the Indian AE operated on a 'Principal to Principal' basis without exclusive office space. The assessee also refuted the existence of a Service PE or Dependent Agent PE, as the Indian company received services without providing any to the assessee.5. The Tribunal analyzed the DTAA provisions on PE and concluded that the assessee did not have a PE in India, rendering the received fee non-taxable. As the assessee did not meet the PE criteria under the treaty, the Tribunal directed the AO to delete the additional tax assessment, allowing the assessee's appeal.In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that the reliance on the AAR ruling was unjustified, and the absence of a PE in India exempted the received fee from taxation.