Tribunal: Appellant's Income Taxable as Business Profit, Transit Office Expenses Require Confirmation

The tribunal ruled that the appellant's income was attributable to the Permanent Establishment in India and taxable as business profit, not royalty. It held that all payments received were attributable to the PE in India. The tribunal also confirmed that expenses for the PE had already been allowed under the India-Russia DTAA. However, the appellant was given a chance to provide necessary confirmations for transit office facility expenses. Additionally, the tribunal upheld the decision that interest under Section 234B was not chargeable, following relevant High Court judgments. The appeals of the assessee were partly allowed, while those of the revenue were dismissed.

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Issues Involved:
1. Royalty Vs. Business Income
2. Fees for Technical Services (FTS) or business profits
3. Attribution of Income and allowance of expenses incurred by the Head Office
4. Transit Office Facility Expenses
5. Interest u/s 234B of the Income-tax Act, 1961

Detailed Analysis:

1. Royalty Vs. Business Income:
The appellant company bifurcated its income into Royalty income by the Head Office and fees for technical services by the Branch Office in India. The revenue authorities treated the royalty income as business profit. The appellant argued that the technical bid provided by the Head Office constituted royalty income due to the technical know-how provided. However, the tribunal found that since the appellant was a consortium member in the projects, the income received was business profit, not royalty. The tribunal stated, "being a member of consortium, the appellant company cannot pay royalty to itself," and thus, the income is attributable to the Permanent Establishment (PE) in India and taxable as business profit.

2. Fees for Technical Services (FTS) or Business Profits:
The appellant claimed fees for technical services for its branch office under various projects. The tribunal concluded that the income should not be bifurcated as royalty and fees for technical services. The tribunal emphasized that "the entire payment received during the year has to be attributable to the PE in India," making it taxable as business profit.

3. Attribution of Income and Allowance of Expenses Incurred by the Head Office:
The tribunal confirmed that since the appellant had a PE in India, the whole profit is attributable to the PE. The tribunal upheld the CIT(A)'s findings that expenses incurred for the PE have already been allowed under Article 7(3) of the India-Russia DTAA, thus no further adjustments were necessary.

4. Transit Office Facility Expenses:
The expenses paid by the appellant to the Russian Federation for accommodation of Russian employees were disallowed due to lack of confirmation from the Russian Embassy. The tribunal allowed the appellant another opportunity to furnish the required confirmations, stating, "the least the appellant company could have provided is the confirmation from Russian Embassy itself."

5. Interest u/s 234B of the Income-tax Act, 1961:
The CIT(A) directed that interest u/s 234B is not chargeable, which the Revenue contested. The tribunal upheld the CIT(A)'s decision, citing the Hon'ble Jurisdictional High Court's judgment in GE Packaged Power Inc., which held that the primary liability of deducting tax is on the payer, and no interest is leviable on the assessee under Section 234B. The tribunal also referenced the Delhi High Court's decision in ZTE Corporation, affirming that the issue is resolved in favor of the assessee.

Conclusion:
The appeals of the assessee are partly allowed for statistical purposes, and the appeals of the revenue are dismissed. The tribunal's order was pronounced in the open court on 15.04.2019.

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