2023 (3) TMI 782 - AT - Income Tax

Tax Appeals Upheld, Revenue Additions Rejected, Stay Petitions Dismissed

The Tribunal allowed the appeals filed by the assessee, holding that the additions made by the Revenue could not be sustained. Consequently, the stay ... Income deemed to accrue or arise in India - existence of Agency PE/ Fixed Place PE - HELD THAT:- Issue decided in favour of assessee in the case of the assessee for the AY 2017-18 [2022 (5) TMI 674 - ITAT DELHI] wherein held no material has been brought by the departmental authorities to demonstrate that the Indian entity habitually exercises its authority to conclude contract etc. in terms of Article 5(8) or its activities are wholly devoted on behalf of the assessee. Thus, there cannot be any PE under Article 5(8) and 5(9) of the Indian – Singapore Tax Treaty. Thus, applying the legal principle to the facts emerging on record, we hold that the assessee does not have any PE in India. Therefore, in absence of PE, the business profits of the assessee cannot be taxed in India. Accordingly, the additions made by way of attribution of profit to the PE in India deserve to be deleted. Decided in favour of assessee. Issues Involved:1. Reopening of assessment under Section 147.2. Non-consideration of directions by the Hon'ble DRP as mandated by Section 144C(13).3. Constitution of Permanent Establishment (PE) in India.4. Attribution of profits to the alleged PE.5. Levying of interest under Section 234A & 234B.6. Initiation of penalty under Section 271(1)(c).Summary:1. Reopening of Assessment under Section 147:The assessee contended that the reopening of the assessment under Section 147 was illegal, unjustified, and arbitrary. The Tribunal noted that this issue had already been adjudicated in the assessee's favor for previous assessment years.2. Non-Consideration of Directions by DRP:The assessee argued that the final assessment order dated 27 January 2023 was passed without considering the directions of the Hon'ble DRP dated 2 December 2022, as mandated by Section 144C(13). The Tribunal acknowledged this procedural lapse.3. Constitution of Permanent Establishment (PE) in India:The Tribunal reviewed the core issue of whether the assessee had a PE in India. The Tribunal referred to its previous decisions for AY 2017-18, 2018-19, 2019-20, and 2020-21, where it was concluded that no fixed place PE or Agency PE of the assessee was constituted in India. The Tribunal reiterated that the agreements between the assessee and DHR Holding India Pvt. Ltd. did not establish a fixed place PE or dependent agent PE, as DHR India did not have the authority to conclude contracts on behalf of the assessee and operated on a principal-to-principal basis.4. Attribution of Profits to the Alleged PE:The Tribunal observed that the attribution of profits to the alleged PE was done on an unrealistic and ad-hoc basis, violating applicable legal principles and the DTAA. The Tribunal noted that the Revenue failed to provide evidence that DHR India habitually concluded contracts on behalf of the assessee or that the activities of DHR India were wholly devoted to the assessee. The Tribunal also referenced the Supreme Court's decision in DIT vs. Morgan Stanley, which held that no further attribution is required if the AE is remunerated on an arm's length basis.5. Levying of Interest under Section 234A & 234B:The assessee challenged the levy of interest under Section 234A & 234B. Given the Tribunal's decision to allow the appeals, the issue of interest became moot.6. Initiation of Penalty under Section 271(1)(c):The assessee also contested the initiation of penalty under Section 271(1)(c). With the Tribunal's decision in favor of the assessee on the quantum proceedings, the initiation of penalty was also rendered moot.Conclusion:The Tribunal allowed the appeals filed by the assessee, holding that the additions made by the Revenue could not be sustained. Consequently, the stay petitions were dismissed as infructuous. The order was pronounced in the Open Court on 17/03/2023.