2021 (10) TMI 1023 - AT - Income Tax

Assessment errors corrected, no taxable income in India, deductions allowed, interest charge deemed erroneous

The Tribunal partly allowed the assessee's appeal, finding errors in the assessment of income at a high amount and the attribution of income to a ... Income accrued in India - Business Connection and Permanent Establishment - AO in conclusion held that the assessee has PE in India has a BC and PE in India - HELD THAT:- The issue of Appellant's PE/BC in India is covered against it by the above decisions of Hon'ble Delhi High Court [2014 (8) TMI 902 - DELHI HIGH COURT] and Hon'ble Delhi ITAT. [2011 (3) TMI 1819 - ITAT DELHI]in Appellant's predecessor's case. Excessive attribution to alleged PE of the Appellant in India - manner of attribution i.e. whether attribution is on sales or the net profits- HELD THAT:- PE attribution at 15% of gross revenue less the expenses (as already allowed by the Ld. AO and Ld. DRP), as per the decision of Galileo International Inc (GII) [2011 (3) TMI 1819 - ITAT DELHI] reduces the taxable income to Nil and thus, no income is taxable in India. Issues Involved:1. Completion of assessment at a higher total income.2. Determination of income chargeable to tax in India under the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom.3. Accrual or receipt of income in India.4. Existence of business connection and Permanent Establishment (PE) in India.5. Attribution of income to the alleged PE in India.6. Allowance of deductions for India-related expenses.7. Charging of interest under section 234B of the Act.Detailed Analysis:Issue 1: Completion of Assessment at Higher Total IncomeThe assessee contested the assessment completed by the AO at a total income of INR 213,13,12,965 against 'NIL' income declared. The Tribunal noted that the AO had erred in completing the assessment at such a high amount without proper justification.Issue 2: Determination of Income Chargeable to Tax in IndiaThe Tribunal examined whether the appellant had any income chargeable to tax in India under the Income Tax Act or the India-UK DTAA. The appellant argued that no income had accrued or was deemed to accrue or be received in India. The Tribunal found that the AO and DRP had erred in their determination, as the appellant's operations and activities were conducted outside India.Issue 3: Accrual or Receipt of Income in IndiaThe appellant contended that no income had accrued or was deemed to accrue or be received in India. The Tribunal found that the AO and DRP had incorrectly held that the appellant had business connection in India and was liable to tax under the provisions of the Act.Issue 4: Existence of Business Connection and Permanent Establishment (PE)The Tribunal analyzed the appellant's business connection and PE in India. It was held that the appellant had a fixed place PE and a dependent agent PE in India under Articles 5(1) and 5(5) of the DTAA. The Tribunal referred to previous judgments, including those involving the appellant's predecessor entities, which had established the existence of a PE in India.Issue 5: Attribution of Income to the Alleged PE in IndiaThe Tribunal found that the AO had erred in attributing 75% of the net profit to the alleged PE in India. The correct attribution rate, as established by previous judgments, was 15% of the gross booking fees. The Tribunal noted that the attributed revenue to the PE in India was extinguished by the expenses incurred, resulting in no taxable income in India.Issue 6: Allowance of Deductions for India-Related ExpensesThe Tribunal examined the deductions for India-related expenses, including distribution fees, technology service fees, vendor costs, amortization of intangible assets, and finance costs. The AO had disallowed these expenses, but the Tribunal found that such deductions should be allowed, as they were necessary for the appellant's operations.Issue 7: Charging of Interest under Section 234BThe Tribunal found that the authorities below had erred in charging interest under section 234B of the Act, as the appellant had no taxable income in India.Conclusion:The Tribunal concluded that the appeal of the assessee was partly allowed. The assessment of income at INR 213,13,12,965 was found to be incorrect, and the correct attribution rate of 15% of gross booking fees, after allowing for expenses, resulted in no taxable income in India. The deductions for India-related expenses were also allowed, and the charging of interest under section 234B was found to be erroneous. The Tribunal's order was pronounced in the open court on 27/09/2021.