2013 (1) TMI 601 - HC - Income Tax

Presumptive Taxation Permanent establishment (PE) in India India US DTAA - PGBP of the business of exploration etc. of mineral oils Deemed profit - 10% of any remuneration received by an assessee A US enterprise has no permanent establishment in India - Held that - Article 7 of DTAA requires a non-resident US enterprise to have a permanent establishment in India for being taxed in India otherwise it is not taxable in any view of the said treaty even it received any remuneration in connection with any matter provided in Section 44BB. In favour of assessee

Summary

Issues: Interpretation of Section 44BB of the Income Tax Act, 1961; Application of Article 7 of DTAA for non-resident US enterprises; Requirement of a permanent establishment in India for taxation.

Interpretation of Section 44BB of the Income Tax Act, 1961:
The judgment addressed the interpretation of Section 44BB of the Income Tax Act, emphasizing that the provisions of this section are legislative mandates that cannot be contradicted. It was highlighted that 10% of any remuneration received by an assessee falling under Section 44BB must be deemed as profits chargeable to tax under the head of profits and gains of business or profession. The judgment stressed the necessity for the assessee to maintain proper books of accounts, get them audited, and furnish the audit report to claim that the actual profit was lower than the deemed profit specified under Section 44BB. In the absence of such documentation, the deemed profit stands, irrespective of whether the assessee actually made a profit or not.

Application of Article 7 of DTAA for non-resident US enterprises:
The judgment discussed the relevance of Article 7 of the Double Taxation Avoidance Agreement (DTAA) concerning non-resident US enterprises. It was established that as per the DTAA, a non-resident US enterprise providing services mentioned in Section 44BB must have a permanent establishment in India to be taxable in India. The judgment differentiated a case where a US enterprise had a permanent establishment in India from the scenario where it did not. The court referred to a previous case where relief was granted to an assessee due to the absence of a permanent establishment in India, as determined by the fact-finding authorities.

Requirement of a permanent establishment in India for taxation:
The judgment concluded that as per the DTAA, a non-resident US enterprise must have a permanent establishment in India to be taxed in India under Section 44BB. It was emphasized that without a permanent establishment, such an enterprise would not fall within the taxable jurisdiction in India. The court relied on a previous judgment where relief was provided to an assessee based on the fact that the assessee had no permanent establishment in India. Consequently, the court dismissed the appeals in the instant case, following the precedent set by previous judgments in similar matters.

This comprehensive analysis of the judgment provides a detailed understanding of the issues related to the interpretation of Section 44BB, the application of DTAA for non-resident US enterprises, and the requirement of a permanent establishment in India for taxation purposes, as deliberated and decided by the High Court.