TaxTMI 
TaxTMI 
2026 (9) TMI 788
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....s to GIA US. Apart from grading fees, management fees and royalties are also paid by the Petitioner to GIA US, from which appropriate taxes, as applicable, are deducted. 4. A question arose in case of GIA US for A.Y. 2010-11 as to whether the Petitioner is a Permanent Establishment ("PE") of GIA US and, consequently, whether the income of GIA US was chargeable to tax in India. It was held by the Assessing Officer of GIA US that the Petitioner would constitute a PE of GIA US and the business profits were taxable in India under Article 7 of the Double Tax Avoidance Agreement between India and the USA ("the India-US DTAA"). While the Assessing Officer and the Dispute Resolution Panel ("DRP") in case of GIA US took the view that GIA US had a PE in India, the Tribunal reversed this view and held that GIA US did not have a PE in India. Consequently, GIA US's income of grading fees and management fees was held not to be taxable in India. The Tribunal has, thereafter, consistently followed this ruling in the Appeals filed by GIA US for the subsequent years, including for the A.Y. 2020-21, and held that GIA US does not have a PE in India and, therefore, its income from grading fees and m....
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....n. The ITAT, being the last fact-finding authority, after examining the facts, came to the conclusion that, in the present case, there was no joint venture arrangement between GIA US and GIA India vis-à-vis gem grading services rendered by GIA US to GIA India. To come to this conclusion, ITAT found that GIA India, which enters into an agreement with its client, bears all the risk, including credit risks, client facing risks, etc., and also GIA India bears the risk of loss or damage to articles while in transit to and from GIA US and also during the time when the articles are at or in the facilities of GIA US. Looking at these facts, the ITAT found that the economic risks of gem grading services rendered by GIA US vis-à-vis stones/diamonds of the customers of GIA India were borne by GIA India, and hence there was no joint venture arrangement between GIA US and GIA India. The ITAT also took into consideration the provisions of Article 5(6) of India-US DTAA, which provided that the mere fact that a company has a controlling interest in the other company did not, by itself, without anything more, construe the other company to be its PE. The ITAT therefore found that GIA U....
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....uthority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) he has no such authority but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of goods or merchandise; or (c) he habitually secures those orders in India wholly or almost wholly for the enterprise. The Tribunal also noted the provisions of Article 5(5), which stipulates that an agency PE excludes any business activity carried out through a broker, general commission agent, or any other agent having an independent status, if such broker, general commission agent, or any other agent having independent status acts in the ordinary course of business. Having examined the provisions of Articles 5(4) and 5(5), the ITAT thereafter applied those provisions to the facts ....
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.... in India, as it clearly: (a) did not have a fixed place of business in India; (b) was not a service PE as contemplated under Article 5(2)(1); and (c) was not an agency PE as contemplated under Article 5(4) of the India-US DTAA. From the facts narrated, it is clear that GIA India was an independent, separate legal entity rendering grading services to its clients upto a particular capacity (at the relevant time upto 1.99 carats). If the stones to be graded were of a higher capacity (more than 1.99 carats), it is only in those circumstances that GIA India would forward those stones for grading purposes to GIA US or to other enterprises of the GIA Group, depending upon the service requirement. These were independent and individual transactions and can never be termed as one which could take the colour of a joint venture arrangement, a service PE or an agency PE as contemplated under Article 5 of the India-US DTAA. This is more so when one takes into consideration that the entire risk in relation to the stones forwarded by GIA India to GIA US on behalf of its own customers was borne entirely by GIA India, and no risk was attached whatsoever to GIA US....
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....ing Officer (TDS). 6. On similar lines as A.Y. 2014-15 and A.Y. 2016-17, proceedings under Section 201 of the Act were thereafter initiated against the Petitioner for the A.Y. 2018-19 and A.Y. 2019-20 and orders dated 24th March 2025 were passed under Section 201 holding the Petitioner to be an Assessee in default on the same ground, namely, that the Petitioner was a PE of GIA US. Reliance was placed on the Assessment Order as well as the DRP directions Section in the case of GIA US for the AY. 2010-11 and, even though these orders were overturned by the Tribunal, the Tribunal's rulings were not followed on the ground that the same have not been accepted by the Department and appeals have been filed before this Court. The Petitioner challenged the said orders before this Court and by an order dated 8th October 2025, this Court quashed them observing: "11. It is common ground before us that the facts of the case for the present years [A.Y. 2018-19 and A.Y. 2019-20] are identical to the facts of the case for A.Y. 2014-15 and A.Y. 2016-17 and, therefore, the impugned orders cannot survive. Hence, they are quashed and set aside. However, keeping in mind the decision of ....
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....n it has been held that the judgment delivered by the Tribunal is binding on the Assessing Officer and he is bound to follow it in its true letter and spirit. The mere fact that the order of the Appellate Authority is not "acceptable" to the Department, in itself is an objectionable phrase, and merely because the same is the subject matter of an Appeal is no ground for not following the Tribunal's order, unless its operation has been suspended by a competent Court. He submitted that the Petitioner has filed an Appeal against the impugned order out of abundant caution with a view to save limitation, and without prejudice to the rights and contentions raised in this Petition. He submitted that the Petitioner undertakes to withdraw the Appeal in the event this Petition is allowed. 10. On the other hand, Mr. Subir Kumar, learned Counsel appearing for the Respondent, submitted that the Petitioner ought to have made an Application under Section 195(2) of the Act to the Assessing Officer if it was of the opinion that tax was not required to be deducted at source and, having failed to do so, it had been rightly treated as an Assessee in default. He submitted that if the proceedings ....