TaxTMI 
TaxTMI 
2026 (3) TMI 118
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2) "Whether on the facts and circumstances of the case, the Id. CIT(A) erred in following the decision of Hon'ble ITAT for AY 2009-10 wherein the ITAT has applied the provisions of India-UAE DTAA without examining whether the assessee is a resident under Article 4 of that DAA and without appreciating the fact that the assessee had not provided Tax Residency Certificate from UAE Tax Authority?" 3) "Without prejudice to the above, even if it is found that the India-UAE DTAA is applicable, whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in following the decision of Hon'ble TAT for AY 2009-10 wherein the ITAT held that the assessee was not having Permanent Establishment in India without taking into account that the assessee was present in India for 121 days in FY 2010-11 relevant to AY 2011-12 and he had business premises at his disposal which is sufficient for creating such a PE in light of decision of the Hon'ble Supreme Court in the case of Formula One World Championship Limited [2017] TS-161-SC-2017?" 4) "Without prejudice to the above, even if it is found that the India- UAE DTAA is applicable, whether on the facts an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....companies of the Valuable Group?" 3. Grounds no.1-5, raised in Revenue's appeal, pertain to the taxability of INR 465 crores in the hands of the assessee. 4. The brief facts of the case pertaining to this issue, as emanating from the record, are: Pursuant to the information received from the Investigation Wing, Thane, regarding the search operation carried out under section 132 of the Act in the case of Valuable Group and the assessee and his companies, wherein, inter-alia, it was found that the assessee, who claims to be resident of UAE, has rendered consultancy services to two non-resident entities, i.e. Gulf Finance House ("GFH") and Khaleej Bank of Commerce ("KBHC"), and GFH has, over the years, for certain of its projects in India paid amount of USD 51.15 million to DAR Capital Ltd., Mauritius, and USD 41.5 million to Thurles International Ltd., British Virgin Islands, in which the assessee is a Director and owned 100% shareholding in both entities, notice under section 148 of the Act was issued to the assessee and proceedings under section 147 of the Act were initiated. During the search proceedings, the assessee claimed to have rendered consultancy services to GFH and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee for consultancy services for projects undertaken in India by GFH and KBHC with Valuable Group are deemed to accrue or arise in India on account of provisions of section 9(1)(vii) of the Act. (d) Rejecting the contention of the assessee that it has not been established that the consultancy fees were accrued/received in the year under consideration, the AO held that the documentary evidence establishes beyond doubt that the said services (partly or wholly) were provided during the year under consideration. (e) The burden of proof was on the assessee to establish the quantum of services that were to be chargeable to tax in the year under consideration, and he failed to file any details. (f) Rejecting the contention of the assessee that the amount was received by his group companies which were incorporated outside India and not by him, the AO held that the assessee has not submitted any details of the said companies and has also not furnished the copy of the agreements, invoices, details of other company employees involved in the project, despite specific query. Accordingly, the AO held that the above-mentioned companies are 100% owned by the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nformation sought, the only conclusion which can be drawn is that all the activities have been carried out by the assessee himself. Thus, the AO held that both, i.e., DAR Capital Ltd. and Thurles International Ltd., are shell companies existing only on paper, based in tax havens to avoid taxation in India. Accordingly, the AO held that INR 465 crore received by DAR Capital Ltd. and Thurles International Ltd. is actually for the consultancy services rendered by the assessee to GFH in India. (m) Without prejudice to the aforesaid findings, in para-12 of the assessment order, the AO held that if the assessee is working for DAR Capital Ltd. and Thurles International Ltd. and giving consultancy services to GFH and KBHC for the project work in India, the money received by these two companies would be taxable as fees for technical services and would be liable to tax in India. 6. Accordingly, treating the entire sum of INR 465 crore as taxable in India, the AO made an addition of INR 325,50,00,000 in the hands of the assessee after allowing a deduction of 30% as business expenditure. 7. The learned CIT(A), vide impugned order, following the decision of the Tribunal in assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment notice under section 148 of the Act on a substantive basis for the assessment year 2009-10, while in the year under consideration the said notice was issued on protective basis. 9. The findings of the AO vide assessment order dated 28/12/2017 passed under section 147 r.w. section 143(3) of the Act, for the assessment year 2009-10, wherein the assessment was reopened on the basis of the very same information received from the Investigation Wing, Thane, on a substantive basis, as noted on pages 2-5 of the assessment order for this year, are summarised as follows: - (i) The money was received by DAR Capital Ltd. and Thurles International Ltd. in view of the consultancy services rendered by the assessee to GFH and KBHC from the fixed place of business in India for the project work in India. (ii) Due to the consultancy services rendered by the assessee in India, his two foreign-based companies received an amount equivalent to INR 465 crore. (iii) The contention of the assessee that since he is an NRI based at UAE and his two companies are foreign companies, the income cannot be taxed in India was rejected, as the assessee failed to furnish the proof ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch. (x) Accordingly, the entire receipt of INR 465 crore was held to be taxable in the hands of the assessee on a substantive basis of the assessment year 2009-10. 10. During the hearing, the learned Authorised Representative ("learned AR") submitted that the substantive addition made in the hands of the assessee in the assessment year 2009-10 has been deleted by the Tribunal in assessee's own case. The learned AR submitted that all the grounds raised by the Revenue, in the present appeal, have already been adjudicated in favour of the assessee by the Tribunal in assessee's own case for the assessment year 2009-10, and thus the said decision squarely covers the issues involved. 11. On the contrary, the learned Departmental Representative ("learned DR"), by vehemently relying upon the findings of the AO, submitted that the assessee has not furnished any evidence to prove that he was a tax resident of the UAE in the year under consideration, and therefore, the provisions of the India-UAE DTAA are not applicable. The learned DR submitted that the assessee has stayed in India for 121 days and has been found to have been rendering his consultancy and other business activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and background are that assessee is an individual who is a non-resident Indian and settled in UAE. He is also director and shareholder in M/s. Dar Media Pvt. Ltd. which is mainly into business of advertisements, media, films, etc. The assessee is also director and shareholder of two companies, M/s. Dar Capital Limited incorporated in Mauritius; and M/s. M/s. Thurles Investments which is incorporated in British Virgin Islands. The assessee has rendered consultancy services to Gulf Finance House (GFH), UAE & Khaleej Bank of Commerce (KBHC), UAE who were executing certain projects in India in association with Valuable group in India. The consultancy services include identification of land, local partners in India and Energy City Panvel and Logistics Park, Pen etc. The assessee was doing liaison work for these two banking entities in UAE for which they pay consultancy fees to M/s. Dar Capital Ltd., and M/s. Thurles Investments, two companies' resident outside India. Thus, the payment was made by a non-resident entity to a non-resident company and none of the amount has been credited in any bank account in India either of the assessee or it is also not the case that these two compani....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere at the disposal of the assessee for carrying out the consultancy work for GFH and KBHC. It only states that it has made payments to Dar Capital Ltd and Thurles International Ltd for its projects. Nowhere, it has been brought on record or any enquiry has been done, whether assessee had used the premises of Dar Media Pvt. Ltd. for rendering consultancy services to two foreign entities. To establish that assessee had a PE in India, the onus is heavily on the department, because the allegation that assessee has a PE in India is by the AO, so he has to bring on record that assessee was carrying out consultancy from the premises of Dar Media in India. AO has to conduct some enquiry or bring some evidence or material to prove that assessee had been carrying out his activity from India through PE or any premise was at his disposal for rendering services to the foreign entities so as to constitute business connection or PE in India. AO's presumption is that, since assessee was one of the Directors in Dar Media Pvt. Ltd. which is based in Mumbai, therefore, he must be doing his consultancy services on behalf of the two foreign companies from these premises. The assessee is a non-resident....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "8. Permanent Establishment Notwithstanding to the above, in the instant case, PE in India is also being established on the basis of following findings 8.1 At the time of search action ws. 132 of the Income tax Act on 10/04/2013 at the premises of Mix Dar Media Pvt Ltd at 201, Centre Point, Andheri Kurla Road, J.B. Nagar, Andheri, Mumbai, which is owned 100% by Shri Anın Rangachari, he was present at the said business premised and his statement was recorded Us. 132(4) of the Act. 8.2 Hence, it is clear that Sh. Arun Rangachari has been rendering his consultancy on behalf of M/s Dar Capital Ltd and M/s Thurles International Lad from the said business premises. Hence, the income earned by him by making use of the said business premises is liable to be taxed under Article 7(1) as he has a permanent establishment. In other words, the assessee is making use of the business premises of Dar Media Pvt. Ltd in India as a fixed base and is available at the disposal of assessee for management of his activities in India. 8.3 In the case of Sh. Arun Rangachari, he is engaged in the business activity by way of providing consultancy services on b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed at British Virgin Islands through Mr. Arun Rangachari, who is a 100% share holder of the assessee company. During the course of post search proceedings, summons was issued to Shri Arun Rangachari asking to appear on 03/09/2013, 19/09/2013, 04/10/2013 and 17/10/2013 in the Investigation Wing. Thane and provide the names of employees, date of visits by the employees who have actually provided the services for acquisition of land. Further, he was asked to submit copies of invoices raised by him and the company on GFH and KHCB. These information were called for by the notices issued from this office also. However. Arun Rangachari has neither appeared nor submitted any details called for in the instant case of M/s Thurles International Ltd. Thus the submission of the assessee is nothing but Ipse Dixit. The only conclusion which can be drawn from this is that all the activities have been carried out by Arun tangachari himself on behalf of M/s Thurles International Lid 9.2 Here it is pointed out that Sh. Arun Rangachari is 100% shareholder of Thurles International Lid and as such he is in a position to control it totally. They were asked to give details of the names and addre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e name of M/s Thurles International Lad, British Virgin Islands from GFH. Thus the consultancy service was given to GFH and KBHC for operations in India but payment was received by M/s Thurles International Ltd, a foreign company based outside India, in tax haven. This was done purely to save tax in India. 10. In view of the above facts and circumstances of the case, the income of the assessee is taxable as business income under the provisions of the IT Act of India u/s 9(1) of the Income tax Act. 11 Without prejudice, it is observed that if Sh. Arun Rangachari is working for M/s Thurles International Ltd and giving consultancy services to GFH and KBHC for the project work in India. Hence, the money received by M/s Thurles International Ltd would become taxable as Fees for Technical Services and would be liable to tax as such as per the provisions of section 9(1)(vii) of the Income tax Act. 12. The total amount received by M/s Thurles International Ltd from GFH is 207,50,00,000/- Taking a genuine stand 30% of it is allowed as business expenditure and an amount of Rs. 145,25,00,000/- is taken us net income from this work. The amount of Rs. 145,25,00,000/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned as "well established" nor has it established by any material on record. Even in the statement recorded during the course of search proceedings u/s 132(4) clearly mentions the services have been rendered from Middle East (UAE). For sake of ready reference, the same has been reproduced as follows: "Q. 17 Please explain the source of investments by the M/s Dar Ventures Mauritius, in the shares of M/s Nisarga Building Art & Technologies Pvt Ltd. alongwith supporting documents. Ans: These funds are proprietary funds that have been earned by me providing investment advisory services in the Middle East. I have also taken unsecured loans from associates to assist in my funding requirements for DAR Media. The supporting documents explaining the source for transfer of funds will be provided on or before 19th April, 2013." "Q.28 Since when are you associated with Gulf Finance House ? Kindly explain your association with and responsibility towards the Gulf Finance House. Ans: My association with GFH dates back to 2001. I have worked with the company and several of its subsidiaries across various geographies in Asia, Europe. I continue to work with GFH cu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the same as fees received for technical services provided u/s 9(1)(vii) of the Act as in absence of FTS clause in India - UAE DTAA, the same is taxable as FTS under the Act. However, we are unable to appreciate such a contention; because, in absence of FTS clause in Treaty, the said income can be taxed as business income only and that to be if the assessee has Permanent Establishment (PE) in India. However, as held by us in the earlier paras, the revenue has merely drawn an assumption that the assessee has PE in India without having any evidence to prove the same. Also it is a it is a well-settled law that if there is no FTS clause in the tax treaty, then the payments can be subject to tax in India only if the overseas company which has rendered the services has a permanent establishment (PE) in India and then such services may be taxed under Article 7 of India UAE Tax Treaty as business income 28. Now, coming to the applicability of Article 14 of DTAA, first of all for the sake of ready reference, the said Article is reproduced hereunder:- "1. Income derived by a resident of a Contracting State in respect of professional services or other independent activiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that fixed base - It is not in dispute that the assessee is a NRI, and does not have any fixed base in India. AO could not establish that the assessee had any such PE/ fixed base available to him in India to render services in individual capacity and treated office of M/s Dar Media Pvt. Ltd. as his fixed base where the assessee was present at the time of search. The so called office at Mumbai was leased office of M/s. Dar Media Pvt. Ltd. and the assessee was present there in his capacity as a director to carry out business activities and was not carrying out any activities in the form of a sole proprietorship/ sole enterprise. The same is clearly evident from the assessee's statement recorded u/s 132(4) of the Act, for which our attention was drawn at page 30 of the paper book, and from perusal it is seen that the company was involved in activity of Film Production and distribution whereas the income taxed in the hands of the assessee is on account of providing consultancy services on real estate affairs. Thus, there is no correlation whatsoever in between them. 31. Further, the contention of the Ld. DR stating that the assessee was found during search at the offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ties of physicians, surgeons, lawyers, engineers, architects, dentists and accountants can be taxed under the said Article. In the instant case, it has been alleged by the revenue that the assessee has provided 'consultancy services' which falls under any of the category mentioned in the said article. However, provision of the article has to be read as is and no assumption can be drawn from the same. If the said approach is allowed that one can assume all the services and professions to be included and defeat the purpose of such DTAA entered between countries. On this issue, the Ld. DR stated that the Article 14(2) is inclusive definition and not an exhaustive one. But in stating so, the Ld. DR failed to substantiate the same with any evidence as to how such assumption was drawn by him. 31. Thus, we agree with the contention of the ld. Counsel and hold that consultancy services do not fall under any category mentioned in said Article and therefore, the consultancy services cannot be taxed under Article 14(2). Accordingly the order of Ld. CIT (A) is upheld." 13. Thus, the findings of the Coordinate Bench of the Tribunal in assessee's own case for the assessment year 2009....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see on the ground that it is a business income was also rejected, as there is no Permanent Establishment or a business connection of the assessee in India for rendering these consultancy services. (h) It was held that the Revenue has not been able to bring anything on record to prove that the income was earned by the assessee in India. (i) As regards the applicability of Article 14 of the India-UAE DTAA, it was held that the assessee does not fall in the category of "professional" as defined in Article 14(2), because it is a purely consultancy/liaison service, which does not fall in any of the category of professional services as defined in Article 14 of the India-UAE DTAA. Thus, it was held that the said income cannot be taxed under Article 14, because it has to fall in the category of "professional services" so as to be taxed under the said Article. (j) Despite the above findings, the Coordinate Bench held that both the conditions mentioned in Article 14(1) of the India-UAE DTAA are not applicable. It was held that the assessee did not have any fixed base in India, and the AO could not establish that the assessee had any such Permanent Establishment/fix....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. It is also pertinent to note that the statement recorded during the search was also taken into consideration by the Tribunal while rendering the findings in favour of the assessee. Therefore, respectfully following the aforesaid decision, we do not find any merit in the submissions of the learned DR that the amount received by the assessee is taxable under section 9(1)(i) of the Act, as the business connection of the assessee in India for rendering these consultancy services has not been established by the Revenue. 15. As regards the applicability of the India-UAE DTAA, it is pertinent to note that the AO invoked the provisions of the DTAA to tax the income in the hands of the assessee in India as business income as well as under Article 14 of the DTAA. On the other hand, it is the consistent plea of the assessee that the said amount was received by his group companies, which are incorporated outside India and not by him. Further, by referring to the evidence relied upon by the Revenue, the assessee has always submitted that nowhere has it been mentioned that any money has been received by the assessee. Therefore, as per the assessee, the money is not taxable in his hands. In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase to prove the existence of Permanent Establishment of the assessee in India to render services in an individual capacity. It is also undisputed that in the year under consideration, the assessee stayed in India only for a period of 121 days. Therefore, even in the year under consideration, neither of the conditions mentioned in Article 14(1) of the India-UAE DTAA is applicable. Thus, without going into the question whether the definition of the term "professional services" is an inclusive definition, and therefore, includes within its ambit the consultancy services provided by the assessee, it is evident from the record that the both conditions as laid down in Article 14(1) for taxability of the income as "Independent Personal Services" are not fulfilled in the present case. Accordingly, we are of the considered view that the submission by the learned DR, as well as Ground no. 4 raised in Revenue's appeal, is rendered merely academic in the facts and circumstances of the present case. 17. Now, as regards the taxability of the income in the hands of the assessee as fees for technical services under section 9(1)(vii) of the Act, it is evident from the record that the AO rejecte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave merit by the Coordinate Bench of the Tribunal in assessee's own case for the assessment year 2009-10 cited supra. During the hearing, the learned DR, inter alia, relied on the response given by the assessee to Question No. 33 of his statement recorded under section 132(4) of the Act and submitted that the invoices were raised by the assessee to both GFH and KBHC for the services rendered. In this regard, it is pertinent to note that there is no dispute that the assessee is a Director of DAR Capital Ltd. and Thurles International Ltd. Further, a person in a higher managerial position can only sign certain documents for the company. Thus, the mere fact that the assessee admitted to having raised the invoices cannot obliterate the fact that such invoices can be raised as a Director in the company, which can only mean invoices raised by the company, and nothing else. In the present case, the AO also failed to bring any material on record to substantiate its claim that both companies are merely shell companies. Therefore, in the absence of any change in facts or in law, respectfully following the decision of the Coordinate Bench cited supra, we are of the considered view that in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. We have gone through the submission made by the Ld. DR and also the finding given in the order of the AO and CIT (A). On perusal of details of investment, it is seen that investments have been made by various companies and not by the assessee. It is trite that a shareholder is a different person than the company for the purpose of Income Tax Act, 1961 and he cannot be taxed for investments made by the company. 33. To make an addition u/s 69 of the Act, some factual information is required that the explanation offered is not satisfactory and it has to be established that assessee indeed made the investment, of which source is not proved. However, upon going through the Assessment order (paragraph 15) as well as counter comments by Ld. DR, the thrust of the argument of revenue is that the investing companies are shell companies. If that is so, then information should have been sought from these companies through proper channel to know the source of funds. If the source is not proved and if it is found that there is any routing of unaccounted funds linking with the assessee, then it needs to be examined if the funds transferred are form undisclosed sources from India. With....