Non-resident taxability under presumptive rules failed where no permanent establishment existed and treaty relief applied.

A non-resident Canadian assessee with no permanent establishment in India was not taxable under the presumptive regime of section 44BB because the India-Canada DTAA, being more beneficial, prevailed and section 44BB was treated as a computation provision rather than an overriding charging provision. Once the receipts were outside Indian taxability as business income, alternative characterisation as royalty or fees for technical services did not survive. Interest under section 234B was also not leviable because the relevant income was subject to tax deduction at source in the payer's hands, so no advance-tax default arose for the non-resident.

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Issues: (i) Whether receipts of a non-resident Canadian assessee having no permanent establishment in India could be brought to tax under section 44BB of the Income-tax Act, 1961 despite the India-Canada DTAA; (ii) whether interest under section 234B of the Income-tax Act, 1961 was leviable on such assessee.

Issue (i): Whether receipts of a non-resident Canadian assessee having no permanent establishment in India could be brought to tax under section 44BB of the Income-tax Act, 1961 despite the India-Canada DTAA.

Analysis: Section 44BB was treated as a presumptive computation provision and not as an overriding charging provision. The assessee's non-resident status, Canadian residence, and absence of any permanent establishment in India were accepted on the record. In the absence of a permanent establishment, the business receipts could not be subjected to tax under section 44BB, and the more beneficial treaty position under the India-Canada DTAA prevailed. Once the receipts were held not taxable as business income in India, the alternative characterization as royalty or fees for technical services became academic.

Conclusion: The receipts were held not taxable under section 44BB, and the assessee succeeded on this issue.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on such assessee.

Analysis: For the relevant years, the income was subject to tax deduction at source in the hands of the payer, and the proviso relied upon by the Revenue did not shift the advance-tax burden to the non-resident assessee in the manner suggested. The later position affirmed by the Supreme Court in Mitsubishi Corporation and followed by the Delhi High Court supported the view that no advance-tax default arose for these years in respect of income fully liable to deduction at source.

Conclusion: Interest under section 234B was held not leviable.

Final Conclusion: The assessee's taxability under the presumptive regime was rejected for lack of a permanent establishment, consequential levy of interest under section 234B failed, and ancillary reliefs relating to tax credit and refund interest were directed in accordance with law.

Ratio Decidendi: A non-resident assessee with no permanent establishment in India cannot be taxed under section 44BB where the applicable treaty is more beneficial, and interest under section 234B is not leviable for years in which tax was deductible at source on the payer-side income.

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