TaxTMI 
TaxTMI 
2025 (4) TMI 1472
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....with questionnaire through ITBA portal. In compliance, assessee filed the relevant information as called for through online. 3. Assessee is a company incorporated under the laws of Republic of Korea. It functions in a variety of industrial and technology areas. In India, the assessee is engaged in power business. As per the information available on record, assessee is having Permanent Establishment (PE) in India. During the year under consideration, there is no offshore supply, hence, no profit attribution was made during the year. During assessment proceedings, a notice dated 15.12.2022 was issued to the assessee and asked to explain that assessee had adjusted the losses under the head 'PGBP' with your FTS income of Rs. 60,19,976/- and the FTS income is not attributable to the PE in India, therefore, why the same should not be disallowed and added back to the income of the assessee. In this regard, it was submitted that assessee has set off of losses under the head 'Profit and gains from business or profession' (PGBP) amounting to Rs. 4,81,02,640/- from the head 'income from other sources' amounting to Rs. 1,82,89580/-. The income earned under the head 'income from other source....
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.... violation to the CBDT Circular No. 19/2019 dated 14.08.2019 and as such the same are illegal, liable to be quashed and deemed to never have been issued. Ground 2: That, the final assessment order dated 24.08.2023 passed under Section 143(3) r.w.s 144(C)(13) of the Act is illegal, bad in law, without jurisdiction and is barred by time limitation. Ground 3: That on the facts and circumstances of the case and in law, the draft assessment order passed by the Learned Assessing Officer ("Ld. AO") [Assistant Commissioner of Income Tax, Circle 2(1 )(1), International tax, New Delhi] under section 143(3) read with section 144C(1) of the Income Tax Act,1961 ("the Act") on issue of disallowing the set off of business loss with the income from FTS is erroneous and bad in law. Ground 4: That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding that Loss under head Profit or Gain from Business or Profession cannot be set off under Income under head Other Source under provisions of Section 71 of the Act. Ground 4.1:That on the facts and circumstances of the case and in law, the Ld. AO erred in holding by relying on DTM that bu....
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.... Bench in Sumitomo Mitsui Banking Corporation vs. DDIT (2012) 19 taxmann 364 (Mumbai)(SB) and he brought to our notice para 56 of the order wherein it was held that under the domestic law, the PE in India and the GE abroad of which said PE is part, are not independent persons i.e. Indian Income-tax Act and they are not assessed to tax separately in India. The taxable entity is only one i.e. overseas GE which is the assessee bank in the present case who is a non-resident in India and the PE in India is part of that entity which is a taxable entity in India even in respect of income attributable to income of the PE in India. There is thus only one person assessable to tax i.e. GE and PE is not an independent person who is assessed to tax separately in India. Further, he brought to our notice page 18 of the paper book which is the computation made by the Assessing Officer. He himself adjusted the loss of current year and set off against the total income of the assessee and he disallows the set off of FTS income. Further, he brought to our notice page 53 of the case law paper book which is the decision of ITAT, Mumbai in Prudential Assurance Co. Ltd. vs. ADIT (2012) 19 taxmann 292 (Mum....
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....ing the same in India, therefore, it has declared loss attributing to its PE in India. Therefore, it has incurred a business loss of Rs. 4,81,02,640/- and it has earned income from other sources in the form of FTS and interest from Income Tax refund. It is fact that FTS income is taxable at special rate @ 10% under DTAA. While filing the return of income the assessee has adjusted the current year losses under the head 'business income' against the income under the head 'income from other sources' including FTS income which is chargeable to tax @ 10%. Assessee has made elaborate submissions by relying on certain case laws to make its case that the set off of business loss of PE against the FTS income earned by the HO. 11. After careful consideration, we need to understand the process of determining the total income of the assessee in any assessment year. As per the provisions of section 70 and 71, the total income has to be determined based on the provisions of section 14 of the Act, which deals with the determination of income under six heads of income. Under the Income Tax Act, it is taxed on income, which is determined in the manner specified in section 14 of the Act, as per w....
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....concerned it has earned the above income or loss sourced thru India. Therefore, the provisions of section 71 are applicable. Just because the income is chargeable to tax under special provisions and also TDS is collected, it does not change the determination of income under the Act. The Provisions of section 44DA and 115A are applicable or not and how it will impact the income declared by the assessee has to be analysed. 14. As per the provisions of section 44DA, the income of Royalty or FTS earned by the assessee through its PE is concerned, the same is chargeable to tax under this provisions and it is chargeable to tax on gross basis. In the given case, the assessee has earned the FTS directly without the assistance of its PE. Therefore, the above section has no application. Coming to the provisions of section 115A, the provisions starts with the words, 'Where the total income of' connotes the meaning that first we have to determine the total income and if the above total income includes the FTS as per the provisions of section 115A(1)(b) then the relevant FTS has to be excluded from the above income and then chargeable to tax at the specified rate (as per section 115A(1)(b)(B....
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....cal services and none of them stayed in India for more than 90 days. It is also contended that as the services of training and technical support was to be provided on need basis, after that neither there was any need nor any such assistance was provided by employees of the assessee. In any case, no services have been provided by the employees of the BO of assessee in India. Letter dated 23rd December 2009 explains the whole issue before Ld AO and DRP. Contents of this letter remain uncontroverted. Therefore, it is incorrect to state that assessee has not provided the details of the persons who provided services in connection with that agreement. Further, it is also not brought on record by revenue that whether during the year any services were in fact provided by the assessee to the licensee or not. Revenue has not made any inquiry with the licensee also about the nature of services provided by the assessee during the year and who are the persons who provided these services. In absence of this inquiry and material on record, and in view of affirmative statement by the assessee at all stages that employees of the BO of the assessee are not at all capable and are engaged in performan....
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....yalty income with the PE revenue should establish that (1) PE should be engaged in the performance of technical services or should be involved in actual rendering of such services, or (2) it should arise as a result of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such services irrespective of the other activities PE performs. Revenue could not bring any material on record, which proves above facts in substance. Honourable Delhi high court in CIT V Sumitomo Corporation [382 ITR 75] held as under : "27. Article 12(5) of the Double Taxation Avoidance Agreement is on the lines of the OECD Model Convention. It is noticed that the clause in the OECD Model Convention allows the State, where the permanent establishment is located, to "tax only those profits which are economically attributable to the permanent establishment". The clause makes a distinction between those incomes which are the result of activities of the permanent establishment and the income that arises by reason of direct dealings by the enterprise from the head office without the aid or assistance of the permanent establishment. Thus, article 12(5) adopts th....
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....raight line method without recourse to the provisions of the Act and by taking into account the wear and tear of the rig with reference to its original cost, its age, and the condition in which it was used. The Commissioner (Appeals) also directed that the wear and tear in each year of use outside India should be deducted in arriving at the actual state of the rig before its use in India. The Commissioner (Appeals) rejected the claim of the assessee that depreciation was to be allowed as per the provisions of the Act in accordance with section 32(1), read with section 43(6), and it was to be computed at cost as the rig was neither operated in India before, nor was any depreciation claimed on it earlier in India." They held as under :- "10. The following provisions of the Treaty dated March 26, 1969 between the Government of India and the Government of French Republic may be extracted : Sub-article (2) of Article II: In the application of the provisions of the present agreement in either Contracting State, any term not otherwise defined in the present agreement shall, unless the context otherwise requires, have the meaning which it has under the laws in....
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....eld so and his finding to the above fact has not been disputed by either of the parties. It is further not in dispute that the depreciation has to be allowed as an item of expenditure for computing reasonable profits. The quantum of depreciation to be allowed is in dispute. At what rate and on what written down value (WDV) the depreciation is to be computed is to be determined. The learned C1T(A) held that actual "wear and tear of the rig" both in India and outside India should be taken into account for quantification of depreciation. The assessee, on the other hand, contends that depreciation be allowed as per provisions of Income Tax Act. In other words, it is claimed that depreciation be computed with reference to Section 32(1) read with Section 43(6) and allowed as per the rate prescribed in the schedule to the Income Tax Rules. For working out WDV, actual cost of rigs and other machinery be taken into account and not depreciation allowed outside India under any law other than those mentioned in Sub-section (6) of Section 43 of the Indian Income-tax Act. On careful consideration of provision of double taxation treaty and income-tax law, we are inclined to agree with the assesse....
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.... relating to double taxation avoidance treaties inserted by the Finance (No. 2) Act, 1991 with effect from 1-4-1972. The said sub-section provides as under :- "Where the Central Government has entered into an agreement with the Government of any country outside India under Subsection (1) for granting relief of tax, or as the case may be, avoidance of total taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." [Emphasis supplied] It is clear from the aforesaid sub-section that a foreign national governed by avoidance of double taxation treaty is entitled to ask for application of provision of this Act, "to the extent they are more beneficial to that assessee". The sub-section is applicable only to the cases governed by avoidance of double taxation treaty. There is thus no justification for holding that foreign nationals, having selected to be governed by double taxation treaty cannot ask for application of any provision of the Income-tax Act even when such provision is beneficial to them. The choice of selection is clearly with the foreign natio....