Non-resident company exempt from TDS under section 195 without permanent establishment in India

The ITAT Delhi ruled in favor of the assessee, holding that without a PE in India, the non-resident company was not liable for TDS under section 195 on offshore supplies. The Tribunal determined that FTS receipts were not taxable in the absence of an FTS article in the India-Thailand DTAA, and without PE establishment, business income attribution was not applicable. Consequently, interest charges under sections 234A, 234B, and 234C were also ruled in favor of the assessee.

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Issues Involved:
1. General nature of the orders passed by AO/TPO/DRP.
2. Allegation of Permanent Establishment (PE) in India.
3. Erroneous taxation of offshore supplies.
4. Taxation of Fee for Technical Services (FTS) in absence of FTS article under India-Thailand DTAA.
5. Transfer pricing adjustments.
6. Double taxation of FTS receipts.
7. Attribution of income to activities in India.
8. Application of incorrect profit ratio.
9. Erroneous levy of interest under sections 234A, 234B, and 234C.
10. Penalty under sections 271BA, 271AA, and 271G.
11. Penalty under section 271(1)(c).

Detailed Analysis:

1. General Nature of Orders (Grounds 1 & 1.1):
The grounds are general in nature and do not require specific adjudication.

2. Allegation of Permanent Establishment (PE) in India (Grounds 2 & 2.1):
The Tribunal referenced its order for AY 2009-10 in the case of Honda Cars India Limited (HCIL), where it was determined that the appellant did not have a PE in India. The Tribunal noted that the Revenue did not appeal against this finding, making it conclusive. The Tribunal found that the AO/DRP's reliance on survey statements was erroneous and unsupported by corroborative evidence. The Tribunal upheld that the appellant did not have a fixed place of business in India as per the India-Thailand DTAA. Consequently, the Tribunal allowed this ground in favor of the assessee.

3. Erroneous Taxation of Offshore Supplies (Ground 3):
The Tribunal agreed with the appellant that offshore supplies were not taxable in India since the title and risk were transferred outside India. Citing the Supreme Court judgment in Ishikawajma Harima Heavy Industries Ltd., the Tribunal held that income arising from offshore supplies, where all parts of the transaction occur outside India, cannot be taxed in India. Therefore, this ground was allowed in favor of the assessee.

4. Taxation of Fee for Technical Services (FTS) (Ground 4):
The Tribunal found that in the absence of an FTS clause in the India-Thailand DTAA, FTS receipts should be taxed only as business profits. Since the appellant did not have a PE in India, the FTS receipts were not taxable in India. The Tribunal cited various judgments to support this view and decided this ground against the Revenue.

5. Transfer Pricing Adjustments (Grounds 5, 5.1, 5.2, 5.3, 6, 6.1, 6.2, 7, 8, 9, 10):
The Tribunal noted that the TPO had already benchmarked the international transactions, including the FTS receipts, in the case of Honda Cars India Ltd., and the Transfer Pricing Study was accepted. Consequently, the Tribunal allowed these grounds in favor of the assessee.

6. Double Taxation of FTS Receipts (Ground 9):
The Tribunal found that the double taxation of FTS receipts was unwarranted since the appellant did not have a PE in India and the FTS receipts were not taxable under the India-Thailand DTAA. This ground was allowed in favor of the assessee.

7. Attribution of Income to Activities in India (Grounds 10, 11):
The Tribunal concluded that since the appellant did not have a PE in India, there was no basis for attributing income to activities in India. Therefore, these grounds were allowed in favor of the assessee.

8. Application of Incorrect Profit Ratio (Grounds 5.3, 6.2):
The Tribunal found that the DRP's direction to apply the global profit rate instead of an ad-hoc profit rate was correct. However, since the appellant did not have a PE in India, the issue of attributing profits did not arise. These grounds were allowed in favor of the assessee.

9. Erroneous Levy of Interest (Ground 11):
The Tribunal noted that the return of income was filed within the due date, making interest under section 234A inapplicable. For interest under section 234B, the Tribunal relied on the Supreme Court decision in Mitsubishi Corporation, holding that it was not leviable. Interest under section 234C was also found to be incorrectly levied. This ground was adjudicated in favor of the assessee.

10. Penalty under Sections 271BA, 271AA, and 271G (Ground 12):
The Tribunal found that the appellant had complied with the provisions of the respective sections and had made full and complete disclosures in the return of income. Therefore, the initiation of penalties was unwarranted. This ground was allowed in favor of the assessee.

11. Penalty under Section 271(1)(c) (Ground 13):
The Tribunal found that since the primary grounds were decided in favor of the assessee, the initiation of penalties under section 271(1)(c) was also unwarranted. This ground was allowed in favor of the assessee.

Conclusion:
The appeals were allowed in favor of the assessee, and the order was pronounced in the open court on 23.07.2024.

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