2024 (1) TMI 1408 - AT - Income Tax

Taxpayer gets fresh hearing on offshore revenue taxability and permanent establishment claims after inadequate examination

Alstom Transport SA Versus The ACIT, Circle International Taxation-1 (1) (1), Delhi

Alstom Transport SA Versus The ACIT, Circle International Taxation-1 (1) (1), Delhi - TMI Issues:1. Taxability of revenue earned by the assessee from offshore supplies in India2. Existence of Permanent Establishment (PE) in India3. Attribution of business profit to the PE4. Levy of interest under section 234 A, 234 B, and 234 C of the Act5. Initiation of penalty proceedings under section 270 A of the ActTaxability of revenue earned by the assessee from offshore supplies in India:The assessee contested the addition made by the Assessing Officer to the returned income, arguing that the revenue from offshore supplies to customers in India should not be taxed as it is not attributable to any business activity carried out in India. The Assessing Officer attributed 3.75% of the revenue to the alleged PE in India. The Tribunal noted that the revenue from providing design and other offshore services from outside India could not be taxed in India as it did not satisfy the restrictive conditions under the Double Taxation Avoidance Agreement (DTAA) between India and France. The Tribunal allowed the appeal on this ground.Existence of Permanent Establishment (PE) in India:The Assessing Officer held that the assessee had a PE in India based on past assessment orders and departmental proceedings. The Tribunal observed that the decision from past assessment years could not automatically apply to the current assessment year, especially considering that most contracts were fresh. The Tribunal emphasized the need to thoroughly examine the contracts and work allocation among consortium members to determine the existence of a PE. As a result, the matter was restored to the Assessing Officer for fresh adjudication, allowing the assessee to furnish complete contracts for examination.Attribution of business profit to the PE:The Assessing Officer attributed a percentage of the revenue earned from offshore supplies to the PE in India. The Tribunal, however, emphasized the importance of examining the terms of contracts and scope of work to determine the attribution of business profit accurately. The Tribunal directed the Assessing Officer to conduct a fresh adjudication after examining the relevant contracts and materials, ensuring the assessee is given a fair opportunity to present its case.Levy of interest and initiation of penalty proceedings:The Assessing Officer levied interest under sections 234 A, 234 B, and 234 C of the Act, as well as initiated penalty proceedings under section 270 A. The Tribunal did not delve into the merits of these issues but allowed the appeals of the assessee for statistical purposes. The matters were restored to the Assessing Officer for further adjudication, advising against mechanical adherence to past assessment orders and emphasizing a denovo examination of the issues.In conclusion, the Tribunal allowed the appeals of the assessee on the grounds of taxability of revenue from offshore supplies and directed a fresh adjudication by the Assessing Officer regarding the existence of a PE in India and the attribution of business profit. The Tribunal emphasized the importance of thoroughly examining contracts and work allocation for a fair determination. The issues of interest levy and penalty proceedings were left for further adjudication by the Assessing Authorities.