| 2017-TII-INSTANT-ALL-462 | 19 May 2017 |
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CASE LAWS PIONEER OVERSEAS CORPORATION Vs CIT: DELHI HIGH COURT (Dated: May 17, 2017) Income Tax - Section 220(2) & (2A) Keywords - Agricultural income - research activities - MAP. The assessee is the branch office of Pioneer Overseas Corporation, USA (POC US). The assessee is engaged in Contract Research Activities and cultivation of parent seeds. It had been regularly filing its returns since the AY 1993-94, it has been claiming exemption by treating its entire income as agricultural income in terms of Section 10 (1) r/w Section 2 (1A). This claim was accepted by the Department for the said AY as well as for the succeeding AYs 1994-95, 1995-96 and 1996-97. While concluding the assessment for the AY 1997-98 and onwards, the AO treated the entire income of the Assessee as 'business income'. The AO attributed the deemed income from research activity holding the Petitioner to be a PE of POC US carrying on research activity in India. The appeal filed by the assessee was partly allowed by the CIT (A) by deleting 50% of the addition made by the AO on account of estimated attribution of income holding inter alia that only that much profit could be attributed to the PE which was derived from the assets and activities of the PE in India. In the further appeal, Tribunal for the AYs 1997-98 to 2001-02 held that only 10% of income was, therefore, to be treated as agricultural income and the balance was to be taxed as 'business income'. On the issue of attribution of income on account of research activity carried out by the assessee, Tribunal remanded the matter to the AO for attribution of profits based on the transfer pricing method employed by the AO in subsequent AYs 2002-03 to 2006-07. In the remand proceedings, the AO attributed reimbursed cost plus mark-up of 17% as appropriate ALP for the research services provided by the assessee to POC US for the AYs 1997-98 to 2001-02. In the year 2005 POC US invoked the MAP under Article 27 of the India-US Double Taxation Avoidance Agreement (DTAA) and sought resolution of the tax matters pertaining to the assessee. Consequent upon negotiations between the Competent Authorities of the two countries , an agreement was concluded with respect to allocation of taxing rights qua the income taxable in India in the hands of the PE and setting off of the taxes paid in India by the Petitioner against the taxes payable in the US by POC US. On this basis, the assessment for AYs 1997-98 to 2006-07 were finalized and taxes along with interest were paid by the Petitioner u/s 220. MAP ruling was finalized by the US authorities by providing tax credit in USA to the assessee for the tax assessed in India on 90% of income held to be business income. Assessee filed an application before the CIT for waiver of interest levied u/s 220 (2). CIT dismissed the application on the ground that no genuine hardship had been caused to the assessee. Having heard the parties, the High Court held that, Whether interest u/s 220(2) can be waived if no genuine hardship is caused to the assessee from payment of the said amount - NO: HC + u/s 220 (2A), the three conditions that are required to be satisfied are (i) payment of the amount towards interest u/s 220 (2A) should cause the Assessee 'genuine hardship' (ii) default in the payment of the amount should be due to circumstances beyond the control of the Assessee; and (iii) the Assessee should have cooperated in the proceedings for recovery of the amount. Assessee submitted that interest u/s 220 (2) was paid besides incurring costs on maintaining a bank guarantee was more than 1.5 times of the tax amount. As rightly noted by the CIT, the mere fact that the interest was 1.5 times the tax by itself does not have any relevance for determining whether the Assessee was suffering from any 'genuine hardship'. The fact that the Assessee is a part of 'DuPont', a global conglomerate which had in 2011 $37.96 billion in net sales and $6.253 billion as operating profit, cannot be said to be an irrelevant factor in considering whether any 'genuine hardship' was undergone by the assessee. Further, in comparison to the profitability of the Petitioner over the years, the amount paid by it towards interest u/s 220 (2) was merely $0.004 billion (approx). In the circumstances, the conclusion arrived at by the CIT that no 'genuine hardship' can be said to have been caused to the assessee cannot be said to be an erroneous exercise of discretion by the CIT. Assessee's writ petition dismissed DIMENSION DATA ASIA PACIFIC PTE LTD Vs DCIT: MUMBAI ITAT (Dated: May 5, 2017) Income Tax - Section 92B - Income Tax Rules, 1962 - Rule 10. Keywords - Permanent Establishment - Management fees - Profit Earned - Service Provided. The Assessee company, a tax resident of Singapore, entered into an agreement with Dimension Data India Limited (DDIL) to provide advisory services in the field of management, sales, marketing, finance and administration, human resources and information technology. For such services the assessee earned management fees which was not offered as income in India. Assessee contended that in absence of a Permanent Establishment (PE), the fees earned from DDIL was not taxable in India. The AO observed that employees of the assessee company had visited India during the relevant previous year for rendering services to DDIL and stayed for more than 30 days. Therefore, even as per the DTAA, there is a PE in India. It was held that the fees received was the business receipt of the assessee. Alleging that the assessee had not given any details of expenditures incurred for earning such income, the AO resorted to Rule 10 of the Income Tax Rules, 1962. The AO estimated allowable expenditures at 10% of the fees received. The assessee challenged the determination of business income by the AO before the DRP who confirmed the income determined by the AO. After hearing the parties, the ITAT held that, Whether a case is fit for remand when assessee had not produce sufficient evidence with regard to profit attributable to the India PE before the AO & DRP - YES: ITAT + the assessee gave up the issue relating to existence of PE in India as raised. Tribunal proceeded on the footing that the assessee has PE in India. Having held so, the issue remained to be decided was what was the quantum of profit earned by the assessee and what income out of such profit is attributable to the PE in India. As perused from the assessment order and more particularly, the observations of the DRP, specific allegation was that the assessee had not produced any evidence with regard to the expenditures incurred from earning of fees from India operations. Though, the assessee submitted the working of profit attributable to the PE in India, however, on a specific query raised by the Bench, it was submitted that working of profit attributable to the India PE was not submitted either before AO or DRP. Thus, as could be seen, assessee’s claim and contentions with regard to the profit element of fees received from DDIL and income attributable to the India PE has not been properly considered either by the AO or by the DRP. In view the aforesaid facts, since the assessee’s contention with regard to the exact profit attributable to PE in India has not been properly analysed/examined, therefore,the issue was remitted to the file of the AO for fresh adjudication. Assessee's Appeal Partly Allowed |
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