2021 (6) TMI 331 - AT - Income Tax

Appeal Partially Allowed: Reevaluation of Income, DTAA, PE, Capital Gains; TDS Credit, Interest

The Tribunal partially allowed the appeal, directing the Assessing Officer to reevaluate the computation of total income, confirming non-taxability under ... Income taxable in India - Offshore/foreign supplies - disallowing setting off of business loss against such income - HELD THAT:- It is undisputed fact that the assessee, a foreign company has been making supplies from outside India and as such, since no income has accrued to it in India, said income could not be brought to tax. The findings of the DRP that the assessee is also engaged in installation and supervision, is wholly misplaced - As undisputed fact that the assessee is not engaged in any installation and the assessee at no point denied that the assessee was making supervision of installation and had received supervision fee separately which is offered to tax in return of income. Further the finding of the DRP that the transactions of offshore supply and installation and supervision by it, were closely interlinked and continuous are also based on the wrong footing by the Ld. DR as the same are totally separate from each other and there was no interlink or continuation between the offshore supply, installation and suprevision. The transactions of supplies made are independent and separate with the supervisory fee for MSIL. The consideration for supplier and supervision is also separate. In fact, the Assessing Officer himself has not brought to tax any such amount from supplies made to MSIL from A.Y. 2014-15 onwards. This is evident from assessment order for A.Y. 2016-17. The Assessing Officer had framed an assessment on 24.12.2018, even before the Tribunal has pronounced its judgment on 01.07.2019, for the aforesaid assessment year, where he did not himself bring to tax any such sum. Therefore, the Assessing Officer as well as the DRP was not correct in making addition in respect of income from offshore/foreign supplies and thereby no allowing setting off of business loss against such income. Computation of long-term capital gain on transfer of shares to a non-resident - sale was made in Yen in Japan - conversion rate of currecny - HELD THAT:- Assessee computed capital gain on the transfer of shares held and owned by it of M/s SML Isuzu Ltd. (Indian company) to Isuzu Motors Ltd., Japan (non-resident) based upon the terms of the Share Purchase Agreement (SPA) under which the transfer of the shares was made. Assessing Officer adopted an aggregate sale consideration of ₹ 62,56,09,233/- as against the sale consideration accruing to assessee at ₹ 61,03,74,932/-. Apart from this the Assessing Officer further adopted conversion rate of yen at ₹ 1.62 per Yen, whereas, the conversion rate on the date of agreement to sell i.e. 25.11.2011 was ₹ 1.49 per Yen as agreed in Share Purchase Agreement as the consideration was payable in Yen by nonresident buyer to non-resident seller, both resident of Japan. The sale was made in Yen in Japan and the amount had been paid in Japan. These facts are not at all disputed by the Revenue authorities. While computing the capital gain, the Assessing Officer had adopted conversion rate (for converting capital gain in Yen to capital gain in Rs) i.e. telegraphic transfer buying rate at 0.62 instead of 0.6252. But under which method the same is adopted was not demonstrated by the Assessing Officer in the Assessment Order. It is not known as to what is the basis of the Assessing Officer to have adopted 0.62 instead of 0.6252 on the date of transfer of the shares in April 2012. Thus, the contentions of the Ld. AR that conversion rate for the purpose of computation of capital gain as per Rule 11UA of Income Tax Rules, 1962 is required to be adopted, the said rate was 0.6252 and as such the computation made by the assessee had been correctly adopted by it, appears to be just and proper. Thus, we direct the Assessing Officer to adopt the actual rate of conversion i.e. 0.6252 after verifying the same. Thus, we remand back this issue to the file of the Assessing Officer for proper adjudication after verifying the actual rate of conversion and adopt the same as per the observations made by us hereinabove. Ground Nos. 3, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 4 are partly allowed for statistical purpose. Grant full credit of TDS along with interest under section 244A - HELD THAT:- It is pertinent to note that from perusal of the documents produced before us by the Ld. AR, it can be seen that the amounts reflected towards TDS in Form No. 26AS and the calculation of the Assessing Officer while giving the credit to lesser amount is not proper. Hence, we direct the Assessing Officer to adjudicate this issue properly and grant the claim of the credit of TDS after verifying the Form No. 26AS along with interest u/s 244A of the Act. The issue is remanded back to the file of the Assessing Officer for this specific purpose. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 6 is partly allowed for statistical purpose. Interest under Section 234C - HELD THAT:- It is pertinent to note that the interest under Section 234C is leviable on default in payment of advance tax installment on returned income, but in the present case it is done on assessed income. Thus, when there is no default on the part of the assessee in payment of advance tax as per returned income, such interest levied is not justified by the Assessing Officer. The interest u/s 234C of the Act is levied only when the assessee fails to deposit the tax based upon its return of income. But in the present case, as per the return of income tax payable aggregated which was duly discharged by TDS. These facts were not disputed by the Ld. DR at the time of hearing. Issues Involved:1. Computation of total income.2. Taxability under Double Tax Avoidance Agreement (DTAA) between India and Japan.3. Attribution of income to Permanent Establishment (PE) in India.4. Computation of capital gains on sale of shares.5. Initiation of penalty proceedings under section 271(1)(c).6. Credit of Tax Deducted at Source (TDS).7. Levy of interest under section 234B.8. Levy of interest under section 234C.Detailed Analysis:1. Computation of Total Income:The assessee contested the computation of total income at Rs. 73,14,22,028 against the declared income of Rs. 69,26,60,776, arguing that the addition of Rs. 3,81,61,252 was unjustified. The Tribunal noted discrepancies in the Assessing Officer's calculations, particularly regarding the inclusion of income from foreign supplies and capital gains.2. Taxability under DTAA:The assessee, a tax resident of Japan, argued that it should be assessed according to the DTAA between India and Japan and that no income from supplies to Maruti Suzuki India Limited (MSIL) should be taxable in India due to the absence of a PE in India. The Tribunal found that the supplies were made from Japan and the title passed outside India, thus not taxable in India.3. Attribution of Income to PE:The Assessing Officer attributed 35% of the alleged profit from offshore supplies to the PE in India. The Tribunal held that the assessee had no PE in India under Article 5 of the DTAA, and thus no income from offshore supplies should be attributed to India. The Tribunal referenced earlier decisions and noted that the facts were consistent with previous years where no such income was taxed.4. Computation of Capital Gains:The Tribunal addressed the issue of computing capital gains on the sale of shares of SML Isuzu Ltd. The Assessing Officer used a fair market value of Rs. 393 per share instead of the agreed sale price of Rs. 383.43 per share, leading to an inflated capital gain calculation. The Tribunal directed the Assessing Officer to adopt the actual conversion rate and sale price as per the agreement, remanding the issue for proper adjudication.5. Initiation of Penalty Proceedings:The Tribunal noted that the initiation of penalty proceedings under section 271(1)(c) was consequential and did not adjudicate on it at this stage.6. Credit of TDS:The assessee claimed full credit of TDS amounting to Rs. 7,11,65,180, but the Assessing Officer allowed only Rs. 4,58,48,500. The Tribunal directed the Assessing Officer to verify the Form 26AS and grant the full credit of TDS along with interest under section 244A.7. Levy of Interest under Section 234B:The Tribunal directed the Assessing Officer to verify the facts and compute the interest payable under section 234B, considering the relief granted on the merits of the case and the set-off of brought forward losses and TDS credit.8. Levy of Interest under Section 234C:The Tribunal observed that interest under section 234C is leviable on default in payment of advance tax on returned income, not on assessed income. Since there was no default in the payment of advance tax as per the returned income, the Tribunal directed the deletion of interest levied under section 234C.Conclusion:The Tribunal allowed the appeal partly for statistical purposes, remanding certain issues back to the Assessing Officer for proper adjudication and verification, and provided relief on several grounds raised by the assessee.