2022 (8) TMI 1284 - AT - Income Tax

Tribunal rules in favor of taxpayer in transfer pricing dispute under Income Tax Act

Hempel Singpore Pte. Ltd. Versus Dy. Commissioner of Income Tax International Taxation Circle–2 (2) (2), Mumbai

The Tribunal allowed the appeal challenging the final assessment order under the Income Tax Act for the assessment year 2017-18. It held that no ... Income accrued in India - additional profits on an ad hoc basis to the permanent establishment (‘PE’) of the assessee in India - as submitted assessee had paid an arm’s length commission to the said PE - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee’s own case in Hempel Singapore Pvt Ltd [2019 (2) TMI 2044 - ITAT MUMBAI] for the assessment year 2014–15, while holding that when the commission has been found to be at arm’s length price in the hands of the recipient Indian subsidiary i.e. Hempel India, nothing more would be left to be taxable in India by attributing further income to the PE of the foreign enterprise. We further find that similar findings were also rendered by coordinate bench of the Tribunal in assessee’s own case in Hempel Singapore Pte. Ltd. [2019 (4) TMI 2073 - ITAT MUMBAI] for the assessment year 2015–16. DR could not show us any reason to deviate from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present case is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal for preceding assessment years. Thus, we uphold the plea of the assessee and delete the impugned addition. - Decided in favour of assessee. Issues:1. Challenge to final assessment order under Income Tax Act for assessment year 2017-18.2. Attribution of additional profits to Permanent Establishment in India.3. Dispute Resolution Panel and Assessing Officer's errors in profit attribution.4. Application of Double Taxation Avoidance Agreement between India and Singapore.5. Transfer pricing study report and arm's length compensation.6. Rejection of objections by Dispute Resolution Panel.7. Levying of consequential interest and penalty proceedings.Analysis:1. The appeal challenges the final assessment order for the assessment year 2017-18 under the Income Tax Act. The appellant disputes the attribution of additional profits to the Permanent Establishment (PE) in India without considering the arm's length commission paid by the appellant.2. The appellant, a non-resident company from Singapore, e-filed its return declaring total income at Rs. Nil. It engages in selling protective coatings and paints in India through a local subsidiary, charging a commission for services rendered. The Assessing Officer attributed additional profit at 25% of sales value to the PE, despite the arm's length nature of the commission paid.3. The Dispute Resolution Panel rejected the appellant's objections to keep the issue alive, leading to the final assessment order attributing additional profit to the PE. The appellant argued that similar issues had been decided in its favor by a coordinate bench of the Tribunal in previous assessment years.4. The Tribunal considered past judgments in the appellant's favor, emphasizing that when the commission is at an arm's length price, no further income should be attributed to the PE. Citing relevant case law, the Tribunal upheld the appellant's plea and deleted the impugned addition of profits to the PE.5. The Tribunal found no reason to deviate from previous decisions and upheld the appellant's argument based on the arm's length nature of the commission paid to the local subsidiary. The issue was deemed recurring and decided in favor of the appellant, leading to the allowance of the appeal.6. The judgment highlights the importance of transfer pricing analysis and arm's length compensation in determining taxable profits attributed to a PE. The Tribunal's decision provides clarity on the application of tax laws and international agreements in such cases, ensuring fair treatment for non-resident entities operating in India.7. The Tribunal's ruling serves as a precedent for future cases involving profit attribution to PEs, emphasizing the need for consistency and adherence to arm's length pricing principles to avoid double taxation and ensure a fair tax regime for multinational enterprises.