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Chapter-heads v
List of Cases Digested I-23-I-94
List of Cases Affirmed/Reversed/Overruled/Approved/ Disapproved I-95-I-104
List of Cases against which SLP Dismissed/Granted/ Notice issued by Supreme Court I-105-I-118
List of Circulars & Notifications Judicially Analysed by Supreme Court/High Courts I-119-I-130
SECTION 2
CASE NOS.
SECTION 9
Income deemed to accrue or arise in India
Transfer of capital asset situated in India [Section 9(1)(i)] 35
Permanent establishment [Article 5 of OECD Model Convention] 36-44
Business profits [Article 7 of OECD Model Convention] 45-56
Shipping, inland waterways transport and air transport [Article 8 of OECD Model Convention] 57
Dividend [Article 10 of OECD Model Convention] 58
Interest [Article 11 of OECD Model Convention] 59-62
Royalty/fees for technical services [Article 12 of OECD Model Convention] 63-103
Capital Gains [Article 13 of OECD Model Convention] 104-105
SECTIONS 10 TO 10B
Exemptions
Interest received by non-resident [Section 10(4)] 106
Pension [Section 10(10A)] 107
Leave Encashment [Section 10(10AA)] 108
Educational Institutions [Section 10(23C)(iiiab)/(iiiad)/(vi)] 109-112
Charitable fund/institution [Section 10(23C)(iv)] 113
Superannuation Fund [Section 10(25)(iii)] 114-115
Compensation received on compulsory acquisition of agricultural land [Section 10(37)] 116
Income arising from transfer of long-term securities [Section 10(38)] 117-120
Free trade zone, etc. [Section 10A] 121-122
Newly established units in special economic zones [Section 10AA] 123
100% Export Oriented Undertaking (EOU) [Section 10B] 124
SECTIONS 11 TO 13
Charitable/religious trusts
Charitable purpose [Section 2(15)] 125-132
Exemption of income from property held under charitable/ religious trust [Section 11] 133-155
Conditions for applicability of sections 11 and 12 [Section 12A] 156-161
Procedure for registration [Sections 12AA & 12AB] 162-169
Denial of exemption [Section 13] 170-172
SECTION 13A
Political parties
Late filing of return 173
Stay of demand 174
Electoral bonds details 175
SECTION 14A
Expenditure incurred in relation to income not includible in total income
Finance Act, 2022 amendments 176-177
Scope of provision 178-184
Rule 8D 185-191
Disallowance not permissible 192-198
SECTIONS 15 TO 17
Salary
Perquisite [Section 17(2)]
SECTIONS 22 TO 27
Income from house property
Income from house property, chargeable as [Section 22] 205-206
Arrears of rent [Section 25A] 207
SECTIONS 28 & 29
Profits and gains of business or profession
Adventure in nature of trade [Section 2(13)] 208
Business income - Chargeable as [Section 28(i)] 209-212
Business deduction/loss - Allowable as [Section 28(i)] 213-219
Compensation [Section 28(ii)] 220
Value of any benefit or perquisite arising from exercise of business or profession [Section 28(iv)] 221
SECTION 32
CASE NOS.
Use of asset
Assets entitled to depreciation
Power generation undertakings, in case of
Additional depreciation [Section 32(1)(iia)]
Unabsorbed depreciation [Section 32(2)]
SECTION 35
Scientific Research Expenditure
Bio-Technology Company, etc. [Sub-section (2AB)] 238-239
SECTION 35ABB
Telecommunication licence operation expenditure New Telecom Policy, 1999 240-241
SECTION 35D
Preliminary expenses, amortisation of Revision 242
SECTION 36(1)(iii)
Interest on borrowed capital For purpose of business
SECTION 36(1)(va)
Employees Contribution
Deposit beyond due date 251-252
SECTION 36(1)(vii)/(viia)
Bad debts Write off of debt
In case of banks [Section 36(1)(viia)]
CONTENTS
SECTION 36(1)(viii)
Special reserve created by financial corporation
Computation of deduction 259
SECTION 37(1)
Business expenditure
Allowability of 260-318 Year in which deductible 319-321 Miscellaneous 322-323
SECTIONS 40, 40A & 43B
Business disallowance
Interest, etc., paid to a non-resident without deducting TDS [Section 40(a)(i)] 324
Interest, etc., paid to a resident without deducting TDS [Section 40(a)(ia)] 325-329
Taxes on profits or gains of any business or profession [Section 40(a)(ii)] 330-331
Excessive or unreasonable payments [Section 40A(2)] 332-333
Cash payment exceeding prescribed limit [Section 40A(3)] 334-340
Contribution to Employees’ Welfare Trust, etc. [Section 40A(9)] 341
Certain deductions to be allowed only on actual payment [Section 43B] 342-346
SECTION 41(1)
Remission or cessation of trading liability
SECTION 43A
Foreign currency, changes in rate of exchange
SECTION 43D
Income of public financial institutions/scheduled banks, etc. Interest on bad debts 356
CASE NOS.
SECTION 44AD
Special provision for computing profits and gains of business on presumptive basis
Civil construction business 357
SECTION 44BB
Mineral oils, special provisions for computing profits & gains in connection with business of exploration, of Scope of provision 358-359 Service tax 360
SECTIONS 45 TO 55A
Capital gains
Capital asset [Section 2(14)] 361-364
Slump sale [Section 2(42C)] 365-367
Transfer [Section 2(47)] 368-371
Capital gains, chargeable as [Section 45] 372-392
Transactions not regarded as transfer [Section 47] 393-396
Computation of capital gains [Sections 48, 49 & 55] 397-405
Special provision for computation of capital gains in case of depreciable assets [Section 50] 406-407
Slump sale, cost of acquisition in case of [Section 50B] 408
Special provision for computation of full value of consideration in certain cases [Section 50C] 409-418
Exemption: Profit on sale of property used for residence [Section 54] 419-421
Exemption: Transfer of land used for agricultural purposes [Section 54B] 422
Exemption: Capital gain not to be charged on investment in units of a specified fund [Section 54EE] 423-424
Exemption: Investment in a residential house [Section 54F] 425-428
SECTIONS 56 TO 59
Income from other sources
Income from other sources, chargeable as [Section 56] 429-447
SECTION 69A
SECTION 69B
Undisclosed
SECTION 69C
CONTENTS
SECTIONS 70 TO 80
CASE NOS.
Losses
Set-off of loss from one head against income from another [Section 71] 631
Carry forward and set off of business losses [Section 72] 632-633
Speculative business losses [Section 73] 634
Losses under the head ‘Capital Gains’ [Section 74] 635-636
Carry forward and set-off of losses in case of certain companies [Section 79] 637
SECTIONS 80A TO 89
Deductions & Reliefs
Deduction not to be allowed unless return furnished [Section 80AC] 638
Maintenance including medical treatment of a dependant [Section 80DD] 639
Donation to certain charitable institutions, etc. [Section 80G] 640-644
Exporters [Section 80HHC] 645-652
Profits and gains from export or transfer of film software [Section 80HHF] 653-654
Profits and gains from industrial undertakings, etc., after certain dates [Section 80-I] 655
Profits and gains from infrastructure undertakings [Section 80-IA] 656-672
Profits and gains from industrial undertakings other than infrastructure development undertakings [Section 80-IB] 673-680
Special provisions in respect of certain undertakings or enterprises in certain special category states [Section 80-IC] 681-687
Profits and gains from business of collecting and processing of bio-degradable waste [Section 80JJA] 688
New workmen, employment of [Section 80JJAA] 689
Inter-corporate dividends [Section 80M] 690
Royalty, etc., from certain foreign enterprises [Section 80-O] 691
Income of Co-operative societies [Section 80P] 692-697
Relief available when salary is paid in arrears or in advance [Section 89] 698
SECTION 90
Double taxation relief where agreement exists Overriding effect of DTAA [Section 90(2)] 699
CASE NOS.
Elimination of Double Taxation [Article 23 of OECD Model Convention] 700-701
Non-discrimination [Article 24 of OECD Model Convention] 702 Most Favoured Nation (MFN) Clause 703-706
SECTIONS 92 TO 92F & 144C
Transfer Pricing
Scope of Provision 707-709
International transaction [Section 92B] 710-714
Computation of Arm’s Length Price [Section 92C] 715-757
Transfer pricing adjustments 758-783
Reference to TPO [Section 92CA] 784-791
Reference to dispute Resolution Panel [Section 144C] 792-814
SECTIONS 95 TO 102
General anti-avoidance rule
Bonus Stripping 815
SECTION 115A
Tax on dividends, royalty and technical services
Investment in shares in an Indian subsidiary 816-817
SECTION 115BAA
Domestic companies, tax on income of Form 10-IC 818-819
SECTION 115BAB
New manufacturing domestic companies, tax on income of Form 10-ID 820
SECTION 115BBC
Anonymous donations
Cash donations 821
Non-applicability [Sub-section (2)] 822-823
CONTENTS
SECTIONS 115J TO 115JB
Minimum Alternate Tax (MAT)
CASE NOS.
Computation of Book Profit [Section 115JB] 824-831
MAT Credit [Section 115JAA] 832
SECTION 115-O
Tax on distributed profits of domestic companies
Stay of demand 833
SECTIONS 117, 119, 124, 127 & 130
Income-tax authorities
Appointment [Section 117]
834-835
Instructions to Subordinate Authorities [Section 119] 836-857
Assessing Officer, Jurisdiction of [Section 124] 858-859
Transfer of Cases [Section 127] 860-869
Faceless Jurisdiction [Section 130] 870
SECTIONS 132 TO 132B
Search, Seizure and Requisition
Search & Seizure [Section 132]
871-882
Application of seized or requisitioned assets [Section 132B] 883-885
SECTION 138
Disclosure of information respecting assessees
Right to Information Act 886
SECTION 139
Return of Income
Revised Return [Sub-section (5)] 887
Invalid/Defective Return [Sub-section (9)] 888-890
SECTION 139A
Permanent Account Number (PAN)
Allotment of same PAN to more than one person 891
Person holding more than one PAN 892
CASE NOS.
SECTION 142
Inquiry before assessment
Notice [Sub-section (1)] 893-896
Special Audit [Sub-sections (2A) to (2D)] 897-900
SECTION 142A
Estimate by Valuation Officer in certain cases
Conditions precedent 901-902
SECTIONS 143 & 144
Assessment
Summary Assessment [Section 143(1)] 903
Centralised processing of returns [Section 143(1A)] 904
Notice for Scrutiny Assessment [Section 143(2)] 905-914
Scrutiny assessment [Section 143(3)] 915-922
Best judgment assessment [Section 144] 923-926
SECTION 144B
Faceless assessment
Standard Operating Procedure (SOP) 927
Physical notice 928
IBC Proceedings, in case of 929
Opportunity of hearing 930-931
Video conference hearing 932-936
Oral hearing 937
Personal hearing 938-946
Non-consideration of assessee’s reply 947-948
Insufficient time 949-957
Draft assessment order 958
Composite issuance of show-cause notice and draft assessment order 959-961
Final assessment order 962
I-15
CONTENTS
SECTIONS 145 & 145A
CASE NOS.
Method of accounting
General [Section 145] 963-972
Revision 973
Special cases [Section 145A] 974-977
SECTIONS 147 TO 153
Income escaping assessment
Income escaping assessment [Section 147] 978-1015
Others 1016-1033
Notice for reassessment [Section 148] 1034-1082
Procedure before issuance of notice u/s 148 [Section 148A] [as it stood prior to 1-9-2024] 1083-1125
Time limit for issue of notice [Section 149] 1126
TOLA, effect 1127-1142
Sanction for issue of notice [Section 151] 1143-1162
Time-limit for completion of assessment, reassessment and recomputation [Section 153] 1163-1174
SECTIONS 153A TO 153C
Search or requisition, assessment in case of Assessment in case of search or requisition [Section 153A] 1175-1189
Time limit for completion of assessment under section 153A [Section 153B] 1190-1192
Assessment of income in case of any other person [Section 153C] 1193-1218
Prior approval necessary for assessment [Section 153D] 1219-1222
Non-applicability of block assessment provisions 1223
SECTION 154
Rectification of mistake
Scope of provision 1224
Faceless notice for rectification 1225
Opportunity of being heard 1226
Error apparent on face of record, illustrations 1227-1229
Wrong return of income 1230
Rectification order 1231
CASE NOS.
SECTION 156
Notice of demand
Scope of provision 1232
IBC proceedings, in case of 1233-1234
SECTION 157A
Faceless rectification, amendments and issuance of notice or intimation
Notice for rectification 1235
SECTIONS 158B TO 158BI
Block assessment in search cases
Undisclosed income of any other person [Section 158BD] 1236-1237
Certain interests and penalties not to be levied or imposed [Section 158BF] 1238
Levy of interest and penalty in certain cases [Section 158BFA] 1239
SECTIONS 159 TO 179
Liability in special cases
Legal representatives [Section 159] 1240
Agent [Section 163] 1241
Succession to business otherwise than on death [Section 170] 1242
Order of tribunal/court in respect of business reorganisation, effect of [Section 170A] 1243
Business discontinued [Section 176] 1244
SECTIONS 190 TO 206C AND 234E
Deduction/Collection of Tax at Source (TDS/TCS)
Salary [Section 192] 1245
Interest other than interest on securities [Section 194A] 1246
Contractors/sub-contractors, payment to [Section 194C] 1247-1252
Commission or brokerage [Section 194H] 1253-1257
Rent [Section 194-I] 1258-1260
Fees for professional/Technical services, etc. [Section 194J] 1261-1262
Payment of certain amounts in cash [Section 194N] 1263-1264
Non-resident, payment to [Section 195] 1265-1266
CONTENTS
CASE NOS.
Income payable net of tax [Section 195A] 1267
Certificate for deduction of tax at lower rate [Section 197] 1268-1272
Non-deduction of tax in certain cases [Section 197A] 1273
Credit for tax deducted [Section 199] 1274-1276
Consequences of failure to deduct or pay tax [Section 201] 1277-1282
Bar against direct demand on assessee [Section 205] 1283-1286
Requirement to furnish PAN [Section 206AA] 1287
Collection of tax at source [Section 206C] 1288-1290
Fee for default in furnishing statements [Section 234E] 1291-1293
SECTIONS
220 TO 226
Collection and recovery of tax
When tax payable and when assessee deemed in default [Section 220] 1294-1318
Certificate proceedings [Section 222] 1319-1320
Validity of TRO certificate, etc. [Section 224] 1321
Other modes of recovery [Section 226] 1322-1326
SECTIONS 234A TO 234D
Interest, chargeable as
Defaults in furnishing return of income [Section 234A] 1327-1330
Defaults in payment/deferment of advance tax [Sections 234B & 234C] 1331-1336
SECTIONS
237 TO 245
Refunds
Refund [Section 237] 1337-1342
Effect of order passed on appeal [Section 240] 1343-1344
Withholding of refund [Section 241A] 1345-1346
Interest on Refund [Section 244A] 1347-1359
Refunds, setting off against tax due [Section 245] 1360-1363
SECTIONS 245A TO 245M
Settlement Commission
Discontinuation of ITSC 1364
Jurisdiction and powers [Section 245BA] 1365
Application for settlement of cases [Section 245C] 1366-1372
CONTENTS
Procedure on application under section 245C [Section 245D] 1373-1381
Power and procedure [Section 245F] 1382
Abatement of proceedings [Section 245HA] 1383
Order of settlement to be conclusive [Section 245-I] 1384-1385
SECTION 245MA
Dispute Resolution Committee
Grievance Petition 1386
SECTIONS 246 TO 251
Commissioner (Appeals)
Form of appeal and limitation [Section 249] 1387-1389
Procedure in appeal [Section 250] 1390
Powers of [Section 251] 1391-1395
SECTIONS 252 TO 255
Appellate Tribunal
Appeals [Section 253] 1396-1402
Adjournment 1403
Orders [Section 254] 1404-1414
Income-Tax Appellate Tribunal Rules, 1963 1415
SECTIONS 260A & 260B
High Court, appeals to
Scope of provision 1416
Territorial jurisdiction 1417-1418
Power to condone delay 1419-1428
Power to review/recall 1429
Review petition 1430-1431
Writ jurisdiction 1432-1435
Others 1436
SECTIONS 261 & 262
Supreme Court, appeals to Article 142 of Constitution of India 1437
CONTENTS
SECTIONS
263 & 264
Revision by Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner
Revision of order prejudicial to interest of revenue [Section 263] 1438-1443
Revision of other orders [Section 264] 1444-1453
SECTION 268A
Filing of appeal by income-tax authorities
Instruction No. 3/2011, dated 9-2-2011 1454
Circular No. 3/2018, dated 11-7-2018 1455
Circular No. 17/2019, dated 8-8-2019 1456-1458
Circular No. 5/2024, dated 15-3-2024 1459
Circular No. 9/2024, dated 17-9-2024 1460
SECTIONS 269SS, 269ST AND 269T
Mode of acceptance, payment or repayment in certain cases to counteract tax evasion
Mode of taking/accepting certain loans, deposits and specified sum [Section 269SS] 1461
Pawning 1462-1464
Cash transactions 1465
Mode of repayment of certain loans/deposits [Section 269T] 1466
SECTIONS 270A TO 275
Penalty
Immunity from imposition of penalty under section 270A [Section 270AA] 1467-1471
Concealment of income [Section 271(1)(c)] 1472-1487
Failure to keep and maintain information and document in respect of international/ specified domestic transactions [Section 271AA] 1488
Search cases [Sections 271AAA & 271AAB] 1489
Failure to furnish information or document under section 92D [Section 271G] 1490
Procedure for imposition of penalty [Section 274] 1491
Bar of limitation for imposing penalties [Section 275] 1492-1494
SECTIONS 275A TO 279
Offences & Prosecution
General 1495-1497
Contravention of order made u/s 132(3) [Section 275A] 1498
Failure to pay tax to credit of Central Government [Section 276B] 1499-1505
Wilful attempt to evade tax, etc. [Section 276C] 1506-1511
Failure to furnish return of income [Section 276CC] 1512-1517
False statement in verification, etc. [Section 277] 1518
Offences by companies [Section 278B] 1519-1521
Presumption as to culpable mental state [Section 278E] 1522
Prosecution to be at instance of Chief Commissioner [Section 279] 1523-1531
SECTIONS 280A TO 280D
Special Courts
Order Appealable in Court of Sessions 1532
SECTION 281
Certain transfers to be void Mortgage 1533
SECTION 281B
Provisional attachment to protect revenue in certain cases Deceased assessee’s property 1534
SECTION 282
Service of notice generally
SECTION 292B
1535
1536
1537
1538
Return of income, etc., not to be invalid on certain grounds Order without DIN 1539 CASE NOS.
CONTENTS
OTHER ACTS /SCHEMES
CASE NOS.
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 1540-1547
Chartered Accountants Act, 1949 1548-1554
Direct Tax Vivad Se Vishwas Act, 2020 1555-1568
Income Declaration Scheme, 2016 1569
Income Tax Informants Rewards Scheme, 2018 1570
Prevention of Corruption Act, 1988 1571-1572
Prohibition of Benami Property Transactions Act, 1988 1573-1581
WORDS AND PHRASES
Words and Phrases 1582-1599
PAGE NO.
SUBJECT INDEX 1085
SECTION 9
Income deemed to accrue or arise in India
Transfer of capital asset situated in India [Section 9(1)(i)]
Shares of a company incorporated outside India 35
Permanent establishment [Article 5 of OECD Model Convention]
Fixed place PE 36-38
Service PE 39
Agency PE 40
Dependant Agent PE 41
Liaison Of ce 42
Subsidiary PE 43-44
Business pro ts [Article 7 of OECD Model Convention]
Global net loss 45
Composite Contract 46
Commission 47-48
Consultancy Services 49
Subscription fees
Database access 50
Income attributable to PE 51
Expenses, allowability of 52
Pro ts attributable to PE 53-55
Withholding tax rate 56
Shipping, inland waterways transport and air transport [Article 8 of OECD Model Convention]
Shipping business 57
Dividend [Article 10 of OECD Model Convention]
Revision 58
Interest [Article 11 of OECD Model Convention]
Banking Company 59
Guarantee Charges 60
Joint Venture 61
Non-convertible debentures 62
Royalty/fees for technical services [Article 12 of OECD Model Convention]
General
More than one agreement 63
Royalty
Bandwidth Services 64
Broadcasting Rights/live transmission rights 65-68
Cloud Computing Sevices 69
CRM Services 70
S. 9 INCOME DEEMED TO ACCRUE OR ARISE IN INDIA 24
Domain Registration Services 71-72
Software 73-79
Off Shelf Sale 80-81
Telecom Equipment 82-83
Reimbursement 84
Subscription Fees 85
Technical Services 86
CAS 87
Reassessment 88 Fees for technical services
Retrospective Amenment 89-90
Business Support Services 91
Disaster recovery playout services 92
Information Technology Services 93
Make available 94
Management Fees 95
Reimbursement of expenses 96
Software 97
Subscription Fees 98
Services rendered/utilised outside India 99-101
Background checking & veri cation services 102
Marketing services 103
Capital gains [Article 13 of OECD Model Convention]
Reassessment 104-105
TRANSFER OF CAPITAL ASSET SITUATED IN INDIA [SECTION 9(1)(i)]
SHARES OF A COMPANY INCORPORATED OUTSIDE INDIA
35. Explanations 6 and 7 to section 9(1)(i) has to be treated retrospectively as they have to be read along with Explanation 5 which operates from 1-4-1962 [Assessment year 2015-16] [In favour of assessee]
CIT, International Taxation v. Augustus Capital Pte. Ltd. [2023] 157 taxmann.com 88/[2024] 296 Taxman 398/463 ITR 199 (Delhi)
The judgment of the Supreme Court rendered in Vodafone International Holdings BV v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/247 CTR 1/341 ITR 1 (SC) excluded from the scope and ambit of section 9(1)(i) gain or income arising from the transfer of shares of a company located outside India, although the value of the shares was dependent on assets which were situated in India. It is to cure this gap in the legislation, Explanations 4 and 5 were introduced via Finance Act, 2012, which were given effect from 1-4-1962. Explanations 4 and 5 presented difficulties in that the expressions ‘share and interest’ and ‘substantially’ found in the explanations were vague, resulting in undue hardship for transferors/assessees where the percentage of share or interest transferred was insignificant. The Finance Minister’s speech
PERMANENT ESTABLISHMENT
while introducing the amendments via Finance Act, 2015 is revelatory since a dim view was taken of the retrospective amendment brought about by Explanations 4 and 5, effective from 1-4-1962. Therefore, it is opined that the legislature took a curative step regarding the vague expressions used in Explanation 5, i.e., ‘share/interest’ and ‘substantially’. Explanations 6 and 7 alone would have no meaning if they were not read along with Explanation 5. Therefore, if Explanations 6 and 7 have to be read along with Explanation 5, which concededly operates from 1-4-1962, they would have to be construed as clarificatory and curative. The Legislature took recourse to the mischief rule to clarify Explanation 5, which otherwise was in danger of being struck down as vague and arbitrary. If Explanations 6 and 7 are not read along with Explanation 5, no legislative guidance would be available to the Assessing Officer regarding what meaning to give to the expression ‘share/interest’ or ‘substantially’ found in Explanation 5. It is to be concluded that although Explanations 6 and 7 were indicated in Finance Act, 2015 to take effect from 1-4-2016, they could be treated as retrospective, having regard to the legislative history which led to the insertion of Explanations 6 and 7.
Case review : Augustus Capital Pte. Ltd. v. Dy. CIT [2020] 120 taxmann.com 325 (Delhi - Trib.) affirmed.
PERMANENT
ESTABLISHMENT
[ARTICLE 5
OF OECD MODEL CONVENTION]
FIXED PLACE PE
36. Where assessee, a resident of UAE, had entered into an agreement with Indian company for providing strategic planning services and knowhow to ensure that hotel located in India was developed and operated as an efficient and highly quality international full-service hotel, since hotel premises were at disposal of assessee in respect of its business activities, Tribunal had rightly held that assessee had a PE in India in form of fixed place through which it carried on its business [Assessment years 20092010 to 2017-2018] [In favour of revenue] [Article 5 of DTAA between India and UAE]
Hyatt International-Southwest Asia Ltd. v. Addl. DIT [2024] 158 taxmann.com 136/297 Taxman 497/464 ITR 508 (Delhi)
The assessee, a tax resident of UAE, entered into two Strategic Oversight Services Agreements (SOSA) with AHL India in respect of hotel located at Delhi. In terms of SOSA, the assessee agreed to provide strategic planning services and know-how to ensure hotel was developed and operated as an efficient and high quality international full-service hotel. The Assessing Officer and the Tribunal held that the assessee had a
Permanent Establishment (PE) in terms of article 5(2) of DTAA. It was observed that the assessee exercised control in respect of all activities at hotel, inter alia, by framing policies to be followed by hotel in respect of each and every activity, and by further exercising apposite control to ensure that said policies were duly implemented. Admittedly, the assessee also performed an oversight function in respect of hotel which was also carried out, at least partially if not entirely, at hotel premises.
Held that since the hotel premises were at disposal of the assessee in respect of its business activities, the Tribunal had rightly held that the assessee had a PE in India in the form of fixed place through which it carried on its business.
37. Where Indian company only rendered support services which enabled assessee, a foreign company, in turn to render services to their clients abroad, this outsourcing of work to India would not give rise to a fixed place PE [Assessment years 2003-04, 2004-05, 2009-10, 2011-12, 201213 and 2014-15] [In favour of assessee] [Article 5 of DTAA between India and Mauritius]
CIT (International Taxation) v. ESPN Star Sports Mauritius S.N. C ET Compagnie [2024] 160 taxmann.com 389 (Delhi)
The assessee, incorporated under the laws of Mauritius, was engaged in the business of distribution of television channels in India. It entered into an agreement with an Indian entity which was engaged in the business of acquiring airtime from the assessee and allotting it to various Indian advertising agencies. The Assessing Officer held that the said Indian entity constituted to be fixed place PE of the assessee as per article 5 and in alternative by virtue of distribution agreements, Indian entity could be treated as DAPE.
Held that where the Indian company only renders support services which enable the assessee, a foreign company, in turn to render services to their clients abroad, this outsourcing of work to India would not give rise to a fixed place PE. In the instant case, since no part of the main business and revenue earning activity was carried on through fixed business place in India which had been put at their disposal and, thus, Indian company rendered only support services, the assessee did not have a fixed place PE in India. Further, the agreement between the parties did not make out a case of DAPE as Indian entity did not exercise authority to conclude contract on behalf of the assessee. Moreover, since the said Indian entity was remunerated at arm’s length price by the assessee, which was also accepted by TPO of both entities, no further attribution of profits was to be made.
Case review : ESS Distribution (Mauritius) SNC at Compagnie v. Dy. DIT [2022] 145 taxmann.com 267 (Delhi - Trib.) affirmed.
38. Where Indian subsidiary of assessee, US company, was not a mere conduit created for business interests of assessee, it could not be said that fixed place PE had come into being [Assessment years 2012-13 to 2018-19] [In favour of assessee] [Article 5 of DTAA between India and USA]
Progress Rail Locomotive Inc. v. Dy. CIT, International Taxation [2024] 163 taxmann.com 52/466 ITR 76 (Delhi)
The assessee, a US company, was engaged in the business of manufacturing and sale of locomotives and locomotive parts. It was also engaged in supplying equipments directly to Railways. It had a subsidiary in India. On the basis of survey, it was alleged that the assessee had an office in Noida and Varanasi and on the basis of said report and statement of employees of the said office and Varanasi branch, it was concluded that the assessee had a ‘Virtual projection’ and PE in India in the form of its subsidiary as fixed place PE.
Held that since the aforesaid reasons nowhere allude to a particular space or part of premises situated in Noida and Varanasi having been placed under significant control or disposal of the assessee for use of its business and collaborative team comprising of Indian and foreign employees would not be indicative of evidence of Noida or Varanasi premises having been virtually placed fully at ‘disposal’ of the assessee and, thus, Indian subsidiary was not a mere conduit created for business interests of the assessee, it could not be said that fixed place PE had come into being.
SERVICE PE
39. Mere fact that assessee, foreign company, standing in shoes of parent company, deemed it appropriate and expedient to exercise a degree of managerial oversight over its wholly owned Indian subsidiary, same would not result in a Service PE coming into existence and visit of employees of parent company, their interaction with employees of Indian subsidiary, discussion on subjects of mutual concern or interest was not rendering of a service[Assessment years 2012-13 to 2018-19] [In favour of assessee] [Article 5 of DTAA between India and USA]
Progress Rail Locomotive Inc. v. Dy. CIT, International Taxation [2024] 163 taxmann.com 52/466 ITR 76 (Delhi)
The assessee, a US company, engaged in the business of manufacturing
and sale of locomotives and locomotive parts, had a subsidiary in India. On the basis of survey, the said subsidiary was treated as service PE of the assessee in India.
Held that in order to fall within the ambit of Article 5(2)(1)(ii), it is incumbent upon revenue to have established that employees of the assessee are in fact discharging functions in connection with business of Indian entity. Mere fact that the assessee standing in shoes of parent company, deemed it appropriate and expedient to exercise a degree of managerial oversight over its wholly owned Indian subsidiary, same would not result in a Service PE coming into existence and visit of employees of parent company, their interaction with employees of Indian subsidiary, discussion on subjects of mutual concern or interest did not amount to rendering of a service. Further since solely on basis of visits of employees and their travel itinerary, it was concluded that the assessee had a service PE in India, but periodic visits of employees of the assessee to India were at best liable to be recognized as an extension of right of holding company to oversee India operations and exercise broad managerial oversight, same would not result in a Service PE coming into existence.
AGENCY PE
40. In order to fall within scope of Article 5(4), it is imperative for revenue to have found that Indian subsidiary not only stood conferred with authority to conclude contracts but also that it in fact habitually engaged in acting in discharge of that authority [Assessment years 2012-13 to 201819] [In favour of assessee] [Article 5 of DTAA between India and USA] Progress Rail Locomotive Inc. v. Dy. CIT, International Taxation [2024] 163 taxmann.com 52/466 ITR 76 (Delhi)
In order to fall within the scope of Article 5(4), it is imperative for revenue to have found that Indian subsidiary not only stood conferred with the authority to conclude contracts but also that it is in fact habitually engaged in acting in discharge of that authority. Thus, where an Indian subsidiary was not a mere arm or an extension of the assessee, a foreign company, established to secure orders on behalf of the assessee, and had independent transactions with other Indian entities and had no authority to conclude contracts on behalf of the assessee, it could not be said that it was engaged in the activities of preparatory or auxiliary character.
PERMANENT ESTABLISHMENT S. 9
DEPENDANT AGENT PE
41. Where MIPL was not performing additional function, in absence of material, it could not be taken as dependant agency PE to assessee, a non-resident company [In favour of assessee] [Article 5 of DTAA between India and Japan]
CIT (International Taxation) v. Mitsui & Company Ltd. [2024] 161 taxmann.com 634 (Delhi)
Where MIPL was not performing additional function, in absence of material, it could not be taken as dependant agency PE to the assessee (a non-resident company) liable to tax in India.
Case review: SLP dismissed in CIT v. Mitsui & Co. Ltd. [2024] 161 taxmann. com 635/299 Taxman 365 (SC).
LIAISON OFFICE
42. Where liaison office (LO) of assessee in India did not finalize and transact a business deal on its own or in name of head office, activities carried out by LO could not be said to be preparatory or auxiliary in nature and thus, LO did not constitute Permanent Establishment of assessee [In favour of assessee] [Article 5 of DTAA between India and Japan]
CIT (International Taxation) v. Mitsui & Company Ltd. [2024] 161 taxmann.com 634 (Delhi)
Where liaison office of the assessee in India did not finalize and transact a business deal on its own or in the name of the head office, activities carried out by LO could not be said to be preparatory or auxiliary in nature and thus, LO did not constitute Permanent Establishment liable to tax in India.
Case review : SLP dismissed in CIT v. Mitsui & Co. Ltd. [2024] 161 taxmann. com 635/299 Taxman 365 (SC).
SUBSIDIARY PE
43. A subsidiary would be deemed to be a PE only if it satisfies test as laid down in Articles 5(1), 5(2), 5(4) and 5(5) [Assessment years 2012-13 to 2018-19] [In favour of assessee] [Article 5 of DTAA between India and USA]
Progress Rail Locomotive Inc. v. Dy. CIT, International Taxation [2024] 163 taxmann.com 52/466 ITR 76 (Delhi)
A subsidiary would be deemed to be a PE only if it satisfies test as laid down in Articles 5(1), 5(2), 5(4) and 5(5). A group company may well engage in discussions at different levels so as to evolve a marketing
strategy or identify research output with respect to future prospects but that cannot be sufficient to hold that Indian establishment attained character of PE.
44. Where on basis of survey, it was alleged that assessee, US company, had an office in Noida and Varanasi and on basis of statement of employees of said office and Varanasi branch, it was concluded that assessee had a ‘Virtual projection’ and PE in India in form of its subsidiary and reassessment was initiated, since neither emails, communication trails or for that matter statement of employees could lead to conclude that business of assessee was managed by Indian subsidiary, opinion as formed by revenue was wholly perverse and untenable and, consequently, impugned reassessment notice was liable to be quashed [Assessment years 2012-13 to 2018-19] [In favour of assessee][Article 5 of DTAA between India and USA]
Progress Rail Locomotive Inc. v. Dy. CIT, International Taxation [2024] 163 taxmann.com 52/466 ITR 76 (Delhi)
The assessee, a US company, engaged in the business of manufacturing and sale of locomotives and locomotive parts, was supplying equipments directly to Railways. It had a subsidiary in India. On the basis of survey, it was alleged that the assessee had an office in Noida and Varanasi and on the basis of the said report and statement of employees of the said office and Varanasi branch, it was concluded that the assessee had a ‘Virtual projection’ and PE in India in form of its subsidiary as fixed place PE and reassessment was initiated.
Held that since neither e-mails, communication trails or for that matter statement of employees could lead to conclude that the business of the assessee was managed by Indian subsidiary, opinion as formed by revenue was wholly perverse and untenable and, consequently, impugned reassessment notice was liable to be quashed.
BUSINESS PROFITS [ARTICLE 7 OF OECD MODEL CONVENTION]
GLOBAL NET LOSS
45. Article 7 cannot be viewed as restricting right of source State to allocate or attribute income to PE based on global income or loss that may have been earned or incurred by a cross-border entity [In favour of revenue]
Hyatt International Southwest Asia Ltd. v. Addl. DIT [2024] 166 taxmann.com 466 (Delhi)
Assessee contended that in case enterprise at an entity level had suffered a loss in the relevant assessment year, no profit or income attribution would be warranted insofar as PE in India would be concerned.
Held that Article 7(1) constructs clear dichotomy between profits that may be earned by an enterprise on a global scale and those which are attributable to a PE situate in Contracting State. It becomes further evident from Article 7(2) which stipulates that where an enterprise carries on business through a PE in other Contracting State, profits would be liable to be attributed to that PE as if it were a distinct and separate enterprise engaged in similar activities and independent of enterprise of which it may be a part. Furthermore, Article 7(1) itself excludes profits of an enterprise from being subjected to tax till such time as such an entity carries on no business in other Contracting State through a PE. Thus, the fact that a PE was conceived to be an independent taxable entity could not be questioned. Article 7 cannot be viewed as restricting right of source State to allocate or attribute income to PE based on global income or loss that may have been earned or incurred by a cross-border entity. Thus, where an assessee had a PE in India, it would be liable to pay tax on income attributable to that PE notwithstanding that assessee at an entity level had suffered a loss.
Case review : Hyatt International Southwest Asia Ltd. v. ADIT [2024] 158 taxmann.com 136/297 Taxman 497/464 ITR 508 (Delhi) affirmed; CIT (International Taxation) v. Nokia Solutions and Networks OY [2023] 147 taxmann.com 165/455 ITR 157 (Delhi) overruled
COMPOSITE CONTRACT
46. Where assessee had entered into a contract with a company for supply of equipments and services, offshore as well as onshore, since terms of contract distinctly set out quantum of offshore supplies to be made by assessee and also quantum of payment to be received by assessee outside India, Tribunal was justified in holding that income arising from offshore supplies was not taxable in India [Assessment year 2012-13] [In favour of assessee] [Article 7 of DTAA between India and Korea]
CIT (International Taxation) v. Iljin Electric Co. Ltd. [2023] 156 taxmann.com 501/[2024] 296 Taxman 516 (Bom.)
The assessee, a South Korean company, was engaged in the business of manufacturing and installation of electric cables. It had entered into contract with MRVC through its Mumbai project office for supply onshore and offshore. Assessee submitted that the said contract was a composite contract, but the scope of work envisaged that the price for plant and equipment to be supplied from abroad was a separate contract and the price for plant and machinery to be supplied within India quoted in the currency of India in rupee terms would be a separate contract. During the assessment, as there was one single contract for supply of equipment offshore as well as onshore, the entire amount earned by the assessee was held to be taxable in India, i.e., for both components,
as per the Act as well as the DTAA and the Assessing Officer held that the income from the offshore supply was also taxable in India. The Assessing Officer further went on to hold that assessee should be taxed on estimation of profit on presumptive basis @ 10 per cent because assessee had not shown the whole contract/receipt of onshore supply and services of offshore supply. The DRP rejected the objection filed by the assessee. The Tribunal allowed the appeal of the assessee and held that though the assessee had entered into a contract with MRVC for supply of equipments and services, offshore as well as onshore, terms of contract distinctly set out quantum of offshore supplies to be made by assessee to MRVC and also quantum of payment to be received by assessee from MRVC outside India and, therefore, income earned by assessee on account of offshore supplies was not taxable.
Held that there was no fault with the factual findings and decision of the Tribunal in holding that income arising from offshore supplies was not taxable in India.
COMMISSION
47. Where assessee, engaged in business of mining, processing, and exporting of iron ore, appointed commission agents for facilitating its export business outside India, since payments on account of commission to these overseas agents were made on behalf of assessee directly by foreign counter-parties abroad to whom exports were made by assessee, same was not liable to be assessed in India, and, provisions of section 9(1)(i) could not be invoked [Assessment year 2012-13] [In favour of assessee] [Ariticle 7 of OECD Model Convention]
Pr. CIT (Central), Kolkata v. Shantilal Khushaldas and Bros. (P.) Ltd. [2019] 108 taxmann.com 549 (Bom.)
The assessee was engaged in business of mining and extraction of iron ore and processing, trading and exporting of same. Assessee appointed commission agents for facilitating its export business outside India. Payments were made to these commission agents on behalf of assessee directly by foreign counter-parties to whom exports were made by assessee.
Held that since payment on account of commission to overseas agents was made by importers abroad, same was not liable to be assessed in India, and, provisions of section 9(1)(i) could not be invoked
Case review: SLP dismissed in Pr. CIT (Central) v. Shantilal Khushaldas & Bros. (P.) Ltd. [2023] 155 taxmann.com 350/295 Taxman 239/[2024] 461 ITR 361 (SC).
48. Where pursuant to agreement entered between assessee and a non-resident entity, assessee received certain commission on account of
rendering services of supply of currency notes to RBI, since no incriminating material was found during search to show any indelible link that payments received by assessee from said entity after expiry of agreement were in relation to undisclosed commission, impugned additions made by Assessing Officer on account of said receipts could not be sustained [Assessment years 2012-13 to 2017-18] [In favour of assessee] [Article 7 of the OECD Model Tax Convention]
Pr. CIT v. Satya Prakash Gupta [2024] 164 taxmann.com 137 (Delhi)
The assessee entered into an agreement with a non-resident entity CMF for sharing of profits in lieu of services to CMF on supply of currency paper by CMF to RBI including its subsidiaries. Pursuant to such agreement, the assessee was required to assist and aid CMF for procurement of tenders and carrying out supplies related to bank note paper to concerned buyers and in return, the assessee received certain commission or share in profits. During the search, a copy of agreement between the assessee and CMF was found. The Assessing Officer observed that the assessee continued to receive commission from CMF through other foreign entities of CMF’s parent group and since CMF did not have any other agent in India for supply of currency notes, said amount was received pursuant to that agreement only. Thus, the Assessing Officer added certain amount as undisclosed income for the assessment years 2012-13 to 2017-18. It was noted that agreement between the assessee and CMF was already in knowledge of revenue and commission received by the assessee pursuant to that agreement was duly reflected in his return. Additionally, the Tribunal had concluded that revenue was not able to show any indelible link that payments received from foreign entities were in relation to agreement between CMF and the assessee for supply of bank note paper in India.
Held that the Tribunal was correct in deleting additions pertaining to relevant assessment years based on settled legal position that revenue could not be permitted to sustain any addition in absence of any incriminating material for that relevant assessment year.
Case review: Dy. CIT v. Satya Prakash Gupta [2022] 136 taxmann.com 175 (Delhi - Trib.) affirmed.
CONSULTANCY SERVICES
49. Where assessee-company a resident of UAE, had entered into Strategic Oversight Services Agreements (SOSA) with Indian company in respect of a hotel located in India for providing strategic planning services and know-how, since fee received by assessee was not for use of or right to use any process or for information of commercial or scientific experience,
therefore, same was not royalty under article 12 of DTAA but was in nature of business income[Assessment years 2009-2010 to 2017-2018] [In favour of assessee] [Articles 7 and 12 of India-UAE DTAA]
Hyatt International-Southwest Asia Ltd. v. Addl. DIT [2024] 158 taxmann.com 136/297 Taxman 497/464 ITR 508 (Delhi)
The assessee, a tax resident of UAE, entered into two Strategic Oversight Services Agreements (SOSA) with an Indian company in respect of hotel located at Delhi. In terms of SOSA, the assessee agreed to provide strategic planning services and know-how to ensure that hotel was developed and operated as an efficient and high quality international full-service hotel and received fee (strategic fee as well as incentive fee) as set out in SOSA. The Assessing Officer and the Tribunal held that payment received from owner under SOSA was royalty under DTAA as same related to provisions of know-how, skill, experience, commercial information and other intangibles. Held that the said fee was not a consideration for use of or right to use any process or for information of commercial or scientific experience but was in consideration of providing services as set out in SOSA. Therefore, the said fee received by the assessee was not royalty under article 12 of DTAA but was in the nature of business income.
SUBSCRIPTION FEES
Database access
50. Subscription fee received by assessee, a tax resident of USA, for providing access to data base pertaining to legal and law related information was in nature of business profits which could not be brought to tax in India in absence of PE [Assessment years 2018-19 and 2019-20] [In favour of assessee] [Articles 5 and 7 of the India-USA DTAA]
CIT, International Taxation v. RELX Inc. [2024] 160 taxmann.com 109 (Delhi)
The assessee, a tax resident of USA, was engaged in the business of maintaining online data base (Lexis Nexis) pertaining to legal and law related information. It received subscription fee for providing access to data base. Since the assessee had no PE in India, it filed return of income by treating subscription fee received for providing access to data base as business income, not taxable in India as per provisions of India-US DTAA. The Assessing Officer, however, treated receipt of the assessee as FIS on the ground that the same was in the nature of technical consultancy. The Tribunal held that subscription fee received
by the assessee was in the nature of business profit which could not be brought to tax in India in the absence of Permanent Establishment (PE).
Held that the access to data base did not constitute rendering of any technical or consultancy services and in any case did not amount to technical knowledge, experience, skill, know-how or processes being made available to subscriber neither there was any transfer of copyright. Therefore, the impugned order passed by the Tribunal was justified.
Case review: RELX Inc. v. ACIT [2023] 149 taxmann.com 78 (Delhi - Trib.) affirmed.
INCOME ATTRIBUTABLE TO PE
51. Where assessee, a tax resident of Japan, claimed that Assessing Officer had erred in taxing purchases while taxing sales and not excluding turnover from export of goods from India while computing total income attributable to activities of Liaison Office (‘LO’) and Tribunal remanded matter to Assessing Officer to accord relief to assessee, Assessing Officer could not have denied relief to assessee by relying on CBDT Circular No. 549, dated 31-10-1989 on ground that same would result in assessed income falling below threshold as disclosed in return of income [Assessment years 2005-06] [In favour of assessee]
Mitsubishi Corporation v. Asstt. CIT, International Taxation [2024] 165 taxmann.com 79 (Delhi)
The assessee had filed a revised return on the ground that the said revision was necessitated in the light of settlement which had been arrived at with revenue in earlier years. The Assessing Officer, while framing order of assessment, refused to accept the aforesaid declarations. Assessee raised additional grounds before the Commissioner (Appeals) with respect to error in taxing purchases while taxing sales and not excluding turnover from export of goods from India and error in holding that its Indian subsidiary was a PE. However, the Commissioner (Appeals) upheld the order of the Assessing Officer. Thereafter, the Tribunal remanded the matter to the Assessing Officer. However, the Assessing Officer by relying on CBDT Circular No. 549, dated 31-10-1989 held that assessee could not be accorded relief which would result in assessed income falling below to disclosed income in the return of income.
Held that while ordinarily an assessee might be bound by return of income as furnished, in case Tribunal were to admit a question and proceed to accord relief, same could not be denied or be made subject to a return of income being revised. Insistence of revenue on a revision of return being a precondition clearly failed to take into consideration plenary powers which stood conferred upon Tribunal by virtue of section 254. Once Tribunal had called upon the Assessing Officer to examine
the issue afresh, the said direction could not have been disregarded by reference to a Circular issued by CBDT.
EXPENSES, ALLOWABILITY OF
52. Where Assessing Officer disallowed engineering fees paid by assessee-company in executing a project of DMRC to its head office on ground that time log sheets were not filed but debit notes furnished by assessee provided sufficient information not only concerning names of employees but also as to nature of duties and number of hours that they spent on job assigned to them, disallowance made by Assessing Officer was to be deleted [Assessment year 2005-06] [In favour of assessee]
CIT (International Taxation) v. Cobra Instalaciones Y Servicios S.A. [2023] 156 taxmann.com 309/[2024] 296 Taxman 287 (Delhi)
The Assessing Officer had disallowed the engineering fees paid by the assessee-company in executing a project of DMRC to its head office on the ground that time log sheets were not filed. The Commissioner (Appeals) had sustained the view taken by the Assessing Officer. The Tribunal had noted that the debit notes furnished by the assessee provided sufficient information not only concerning the names of the employees but also as to the nature of duties and number of hours that they spent on job assigned to them and deleted the disallowance made by the Assessing Officer.
Held that the Tribunal being the final fact-finding authority, no interference was called for, especially when the revenue had not proposed any question which was indicative of the fact that any of the findings returned by the Tribunal was perverse.
PROFITS ATTRIBUTABLE TO PE
53. Where assessee, a US based company, provided information, reservations, transaction processing and related services to airlines, travel agencies and other travel related entities by utilizing a CRS which was being distributed in India through an independent distributor, since assessee had not deployed any assets in India and major part of business activities took place in USA, Appellate Authority was justified in holding that 15 per cent of assessee’s profit was to be attributed to India [Assessment years 2008-09 to 2010-11] [In favour of assessee] [Article 5 of DTAA between India and USA]
CIT, International Taxation v. Travelport L.P. USA [2024] 158 taxmann.com 351 (Delhi)
The assessee, a US company, carried on business of providing information, reservations, and related services for airlines, travel agencies, etc., by
utilizing a Computerized Reservation System (CRS). A UK Company was further marketing and distributing CRS of the assessee in India through an independent third-party company, namely, CDPTL, registered in India. The Assessing Officer held that the assessee had a business connection in India under section 9(1)(i) and PE in terms of article 5(4) (a) of Indo-US Treaty and, accordingly, the assessee’s income generated in India was chargeable to tax under section 9(1). The Commissioner (Appeals) held that only 15 per cent of revenue generated from booking made within India was revenue attributable to PE of the assessee and as payment to PE was more than revenue attributable to PE the assessee’s tax liability was nil. On appeal, the Tribunal had dismissed appeal of revenue on ground that final assessment order was barred by limitation under section 153. In earlier year, on similar facts in the assessee’s own case the Tribunal noted that computers at desk of travel agent in India were merely connected to extent that it could perform a booking function but were not capable of processing data of all airlines together at one place and no assets were deployed to India and held that as major part of business activities were carried out outside India in USA and only limited activities were attributable to India, 15 per cent of revenue was enough to attribute towards activities done in India and High Court upheld order of Tribunal.
Held that since on merits matter stood closed, appeals filed by revenue need not be entertained.
54. Where assessee, a UK-based company, provided testing services at its centre in UK to its clients in India and Assessing Officer concluded that assessee company had a Permanent Establishment (PE) in India and based on this he attributed 50 per cent of business profits, since PE had been remunerated at arm’s length, then no further attribution of profit to PE would be warranted [Assessment year 2016-17] [In favour of assessee] [Article 5 of DTAA between India and UK]
CIT (International Taxation) v. Ricardo U.K. Ltd. [2024] 158 taxmann. com 320 (Delhi)
The assessee, a UK-based company, provided testing services for transmission systems designed for automobiles in UK to its clients in India. It claimed that the income earned by it from customers located in India was not taxable. The Assessing Officer concluded that the assessee company had a Permanent Establishment (PE) in India through its subsidiary, Ricardo India, and based on this, he attributed 50 per cent of business profits.
Held that the Tribunal rightly observed that since the PE had been remunerated at arm’s length, then no further attribution of profit to PE would be warranted and if commission/remuneration paid to Ricardo
India was reduced from profit attributed to PE, no taxable income was left in hands of PE and, then no further attribution could have been made and consequently, addition made by the Assessing Officer was not sustainable. Thus, no substantial question of law arose for consideration.
55. Where notice under section 148 was issued to assessee, Malaysian company, on issue of profit attribution to DAPE, based on contents and findings of Commissioner in his revision order, which order was already set aside by Tribunal and pursuant to which, Assessing Officer also passed order giving effect to Tribunal order under section 143(3) read with section 254, impugned notice being a ‘change of opinion’ by Assessing Officer was liable to be quashed [Assessment year 2016-17] [In favour of assessee] [Article 5 of DTAA between India and Malaysia]
MFE Formwork Technology SDN. BHD. v. Dy. CIT IT [2024] 161 taxmann.com 292/298 Taxman 790/464 ITR 645 (Bom.)
The assessee, a Malaysian resident company, entered into a marketing service agreement and a technical service agreement with an Indian entity. Since the Indian entity constituted a dependent agent permanent establishment (DAPE) of the assessee in India, the assessee determined profits that were attributable to its DAPE in India and, accordingly, offers same to tax in India. The Assessing Officer passed an assessment order accepting income returned by the assessee. Thereafter, the assessee was issued a show cause notice under sections 148 and 148A(b) accompanying by reasons to believe escapement of income. It was observed that the reasons for reopening indicated in notice was an order passed under section 263 for assessment year 2017-18 which was set aside by the Tribunal. Further, pursuant to the order passed by the Tribunal, the Assessing Officer also passed an order giving effect to the Tribunal’s order under section 143(3) read with section 254 thereby nullifying demand raised.
Held that since the show cause notices and notice issued under section 148 was based on the contents and findings of the Commissioner in his revision order, which order was already set aside by the Tribunal, impugned notice being a ‘change of opinion’ by the Assessing Officer were liable to be quashed.
WITHHOLDING TAX RATE
56. Where assessee, a US based company, had a permanent establishment (PE) in India and accepted profit attributable to PE was at rate of 26 per cent, withholding rate of tax would not exceed 1.04 per cent and thus, AO was not justified in granting withholding tax certificate at rate of 4 per
39
SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT S. 9
cent of gross receipt [Assessment years 2023-24 and 2024-25] [In favour of assessee] [Articles 5, 7 and 12 of the DTAA between India and USA]
GE Energy Parts Inc. v. ITO (International Taxation) [2024] 161 taxmann.com 706 (Delhi)
The assessee, a foreign company incorporated in USA, entered into independent contracts with various customers for supply of spare parts from outside India. The Assessing Officer held that the assessee had a permanent establishment in India and, accordingly, granted withholding tax certificate at rate of 4 per cent of gross receipts. It was noted that for assessment years 2001-02 to 2008-09, the Tribunal held that the assessee had a permanent establishment in India and, accordingly, reduced rate of profit attribution to 26 per cent.
Held that the factum of withholding tax rate could not exceed 1.04 per cent, when computed alongside profit attribution rate of 26 per cent and thus, impugned order granting withholding tax certificate at rate of 4 per cent of gross receipts could not be sustained.
SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT [ARTICLE 8 OF OECD MODEL CONVENTION]
SHIPPING BUSINESS
57. Where assessee, a Singapore based company, was engaged in business of owning and operation of ships and also accepted cargo for carriage internationally to and from India, since assessee submitted certificate issued by IRAS (Singapore Tax Authority) confirming taxability of income in Singapore on accrual basis, same would constitute sufficient evidence and freight income from shipping business activity would not be taxable in India [Assessment year 2008-09] [In favour of assessee] [Article 8 of DTAA between India and Singapore]
CIT v. APL Co. Pte. Ltd. [2023] 156 taxmann.com 530 (Bom.)
The assessee, a Singapore based company, was engaged in the business of owning and operation of ships. The assessee-company also accepted cargo for carriage internationally to and from India. In India, assessee had a shipping agent in the form of a wholly owned subsidiary. The assessee sought benefit of Article 8 for its gross freight earnings collected from India. Accordingly, the assessee filed nil return on the ground that the gross earnings would not be taxable in India. The Assessing Officer noted that assessee had shown income from shipping in respect of 136 ships and claimed the entire freight income as exempt. The Assessing Officer observed that the assessee produced ship registration certificates of only 128 ships. He, thus, held that the freight earned from those 8
ships would not be entitled for benefit under Article 8. The Assessing Officer taxed receipt at rate 7.5 per cent. On appeal, the Commissioner (Appeals) enhanced the income by denying benefit to 97 ships in addition to 8 ships by invoking limitation clause under article 24 and held that applicability of Article 24 of DTAA was only with respect to specific exempt income under the DTAA and not to income under Article 8. On further appeal, the Tribunal primarily relied upon a certificate/ confirmation given by the Inland Revenue Authority of Singapore (IRAS) and held that limitation of benefit provided under Article 24 would not be applicable in the case at hand. The Tribunal further held that those 8 ships which were not included by the Assessing Officer would fall within the ambit of operation of ships in terms of Article 8 of DTAA. It was noted from various judicial precedents, i.e., CIT v. Citicorp Investment Bank (Singapore) Ltd. [2023] 151 taxmann.com 501/457 ITR 203 (Bom.) and M.T. Maersk Mikaje v. DIT (International Taxation) [2016] 72 taxmann.com 359/242 Taxman 300/[2017] 390 ITR 427 (Guj.), wherein it was held that certificates issued by Singapore Tax Authorities confirming taxability of income in Singapore on accrual basis would constitute sufficient evidence.
Held that since, in the instant case, the assessee has submitted certificate issued by IRAS, freight income from shipping business activity would not be taxable in India.
DIVIDEND [ARTICLE
10 OF OECD MODEL CONVENTION] REVISION
58. Where assessee filed revision application under section 264 seeking benefit of concessional rate of tax on dividend distributed to its foreign holding company, Pr. Commissioner was not justified in rejecting revision application on ground that assessee could have filed a revised return or an appeal under section 248 [Assessment year 2018-19] [Matter remanded] [Article 10 of India-Mauritius DTAA]
Dun & Bradstreet Technologies & Data Services (P.) Ltd. v. Pr. CIT [2024] 158 taxmann.com 462/297 Taxman 323 (Mad.)
The assessee-company, engaged in business of providing IT and IT enabled services, declared and paid dividend to its holding company, a company incorporated in Mauritius and in respect of such dividend, the assessee paid dividend distribution tax (DDT). Based on the assessee’s return, DDT was assessed by CPC as being payable at rate of 20.36 per cent. Subsequently, the assessee became aware that, as per section 90,
it was entitled to benefit of DTAA between India and Mauritius, namely, concessional rate specified in article 10(2). Accordingly, the assessee filed application for revision under section 264 before the Principal Commissioner. However, the said application was rejected on grounds that the assessee could have filed a revised return or an appeal under section 248.
Held that the first ground of rejection in the impugned order was untenable, as time limit for filing revised return had expired. Since section 248 applies to a case where tax deducted on payments made under section 195 to a non-resident, other than by way of interest, is required to be borne by person by whom income is payable as per contract or arrangement between parties and person making deduction claims that tax was not payable whereas instant case pertained to declaration and distribution of dividend by the assessee to its shareholders and tax payable thereon, and, thus, impugned order was to be set aside and matter was to be remanded back to the Principal Commissioner for reconsideration on merits.
INTEREST [ARTICLE 11 OF OECD MODEL CONVENTION]
BANKING COMPANY
59. Where assessee, a Mauritius based company, was carrying on bona fide banking business in Mauritius, interest earned by it in India on securities, being beneficially owned by it, was exempt under article 11(3) (c) of Indo-Mauritius DTAA [Assessment year 2011-12] [In favour of assessee] [Article 11 of the DTAA between India and Mauritius]
CIT (IT)-2 v. HSBC Bank (Mauritius) Ltd. [2024] 159 taxmann.com 180/298 Taxman 54 (Bom.)
The assessee-company, a tax resident of Mauritius, earned certain amount as interest income from securities. The assessee claimed said income would be exempt under clause (c) of article 11(3) of India-Mauritius DTAA. However, the Assessing Officer disallowed said claim of the assessee. Revenue contended that clause (c) of article 11 of DTAA would not apply to the assessee as it did not have a banking business license from RBI. It was noted that in the draft assessment order, the Assessing Officer had granted exemption to interest on ECB by accepting that the assessee was carrying on bona fide banking business in Mauritius. Held that since the assessee was carrying a bona fide banking business in Mauritius, interest that the assessee earned would be exempt in India. Case review : HSBC Bank (Mauritius) Ltd. v. Dy. CIT [2017] 78 taxmann.com 174 (Mum. – Trib.) affirmed.
Rs. 3,995/-
