Tribunal Quashes Assessment Order, Recognizes PE, Upholds Taxability

The Tribunal quashed the final assessment order, ruling it as bad in law due to non-compliance with the directions of the Dispute Resolution Panel (DRP) and citing the decision in Olympus Medical Systems (P) Ltd vs ACIT. It held that there was no fixed place Permanent Establishment (PE) in India and recognized a Dependent Agent PE through Mr. Rupam Saikia. The Tribunal upheld the taxability of offshore supply of goods, directed the attribution of profits, and found errors in the denial of interest under Section 244A and the issuance of a penalty notice under Section 271(1)(c). The appeal of the assessee was allowed, with the final assessment order being quashed.

---

---

Issues Involved:
1. Validity of the final assessment order.
2. Determination of Permanent Establishment (PE) - Fixed place PE and Dependent agent PE.
3. Taxability of offshore supply of goods.
4. Attribution of profits.
5. Miscellaneous issues including interest under section 244A and penalty notice under section 271(1)(c).

Summary:

1. Validity of the Final Assessment Order:
The assessee contended that the final assessment order dated 23 October 2019 was bad in law as the Deputy Commissioner of Income-tax (DCIT) did not follow the directions of the Dispute Resolution Panel (DRP). The Tribunal observed that the DCIT's final assessment order contradicted the DRP's directions, particularly regarding the existence of a fixed place PE in India. The Tribunal quashed the final assessment order, holding it as bad in law due to non-conformity with the DRP's binding directions, citing the decision in Olympus Medical Systems (P) Ltd vs ACIT.

2. Determination of Permanent Establishment (PE):
- Fixed Place PE: The DRP agreed with the assessee that the tests of place of business, permanence, and disposal did not lead to the inference of a fixed place PE in India. The Tribunal noted that the DCIT erroneously held the existence of a fixed place PE despite the DRP's contrary directions.
- Dependent Agent PE: The DRP held that a dependent agent PE was established through Mr. Rupam Saikia, who acted on behalf of the assessee in India. The DRP noted that Mr. Saikia had sufficient authority to bind the assessee in contractual negotiations with Reliance Industries Limited (RIL), thus constituting a dependent agent PE.

3. Taxability of Offshore Supply of Goods:
The DRP upheld the DCIT's view that the contract with RIL was a single composite contract, and the income from offshore supply of weld wires was taxable in India. The DRP rejected the assessee's claim of offshore transactions, holding that the bifurcation of the contract was not genuine but done at RIL's insistence.

4. Attribution of Profits:
The DRP directed that 7.13% of the total receipts from India be considered as taxable income, with 75% of this income attributed to the PE in India and 25% allocated to the Head Office in the Netherlands. The DRP instructed the DCIT to verify the correct figure of total contract revenue while computing profit margins.

5. Miscellaneous Issues:
- Interest under Section 244A: The DCIT erred in not granting interest under section 244A to the appellant.
- Penalty Notice under Section 271(1)(c): The DCIT issued a penalty notice without appreciating that the income of the appellant was not taxable in India as per a certificate issued under section 197.

The Tribunal allowed the appeal of the assessee, quashing the final assessment order and leaving other grounds raised by the assessee on merits open.

---