TaxTMI 
TaxTMI 
2015 (3) TMI 968
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....in USA. It is a leading supplier of hardware and software products for GSM Cellular Radio Telephone System. The assessee supplied telecommunication hardware and software to customers in India. No return of income was furnished by the assessee for the year in question. On perusal of contract signed between the assessee and various customers, the AO opined that the assessee was chargeable to tax in India. Notice was issued to the assessee to file return but without success. The AO issued and served notice on its Indian subsidiary in view of the fact that as per the terms of contract between the assessee and Escotel Mobile Communication Ltd., the notice was to be sent to AT & T India Private Ltd., subsequently renamed as Lucent Technologies India Ltd. (LTIL). Once again notice was sent to the assessee. In the absence of any co-operation coming from the side of the assessee, the AO finalized assessment u/s 144 of the Income-tax Act, 1961 (hereinafter also called 'the Act') on the basis of material on record. In this assessment order, the AO observed that the assessee entered into contract with Escotel Mobile Communication Ltd. for GSM Cellular and Tata Bell Canada Ltd. for basi....
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....of hardware. While giving effect to the Tribunal order, the AO, vide his order dated 9.10.2009, came to hold that total value of hardware and software supplies amounting to Rs. 230.66 crore was attributable to the service PE of the assessee in India. After allowing deduction for expenses @ 60%, as done originally, he computed total business income at Rs. 92.26 crore on which tax rate of 55% was applied. The assessee objected to the said order passed by the AO by contending before the Hon'ble Delhi High Court that the AO did not give any opportunity of hearing before passing this order. The Hon'ble High Court set aside this order passed by the AO and remitted the matter to him for passing a fresh order after granting an opportunity of hearing. A fresh order was passed by the AO on 29.3.10, a copy of which is available on page 127 of the paper book, repeating the view taken by him in his earlier order and computing the same income. The assessee appealed before the ld. CIT(A) against this order. Vide the impugned order, the ld. CIT(A) held that the assessee has a service PE in India as was directed by the Tribunal. On the question of attribution of income, the ld. CIT(A) held ....
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....were individually and severally responsible for completion of jobs under the contracts and assessee, inter alia, supplied expatriates who were employees of its affiliates for helping LTIL in completing its job, which employees remained in India for more than 90 days in the relevant financial year, LTIL constituted service PE of the assessee in India as per Art. 5(2)(l)(i) of the DTAA. It was finally held that : "Consequently, it would have to be held that LTIL in fact was a service PE of the assessee." 8. Here, it is imperative to mention that the assessee filed miscellaneous application against this order passed by the Tribunal urging that there was no service PE at all in India. This misc. application came to be dismissed by the Tribunal vide its order dated 21.08.2009. It shows that the Tribunal held in its order u/s 254(1) that LTIL was a service PE of the assessee in India and the dismissal of the assessee's miscellaneous application gave finality to its view that LTIL constituted service PE of the assessee in India. No miscellaneous application was filed by the Revenue advocating that LTIL be considered not only as a service PE but also fixed place, dependent agent and....
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....tributable to the business carried on by it in India through its permanent establishment. If there are certain activities of the enterprise in India in which the PE has no direct or indirect role to play, obviously, the income resulting from such activities cannot be included in the 'Business profits' of the foreign enterprise. It is only in relation to the activities that are carried on by the foreign enterprise in India directly or indirectly through its PE, that the 'Business profits' become chargeable to tax in India. 10. It can be noticed from the facts recorded above that the AO attributed 100% of the transactions carried out in India to the permanent establishment. The activities of the assessee in India can be broadly classified into supply of hardware and software embedded in the hardware; and commissioning, installation and operation of said turnkey project. In so far as the supply of hardware is concerned, the same was admittedly carried out by the assessee without the involvement of any service PE in India. It is but natural that service PE would come into play only when the equipment itself is supplied. In that view of the matter, it is totally illog....