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2017 (8) TMI 416 - AT - Income TaxIncome arising from onshore services - Permanent Establishment - global profit accruing from the offshore supplies to PE in India - Composite contract - Attribution of profit - purposes of supply of BTG equipments as well as supervision of erection/installation, commissioning and performance testing at the project site in India - Held that:- Assessee having entered into a Composite contract which is relatable to the operations carried out in India and partly to outside India a proportionate part of income which is so relatable to the operations carried out in India has to be charged to tax. The extension of taxability of profits of PE by including profits directly or indirectly attributable, is akin to the provisions of Article 7(1)(b ) and 7(1)(c) of the UN MC which provides that in addition to the ‘profits attributable to the permanent establishment’ the taxability of PE profits will also extend to ‘(b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in that other State of the same or similar kind as those effected through that permanent establishment’. The connotations of ‘profits indirectly attributable to permanent establishment’ will extend to these two categories. These categories clearly incorporate a force of attraction rule. The basic philosophy underlying the force of attraction rule is that when an enterprise sets up a permanent establishment in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can properly tax all profits that the enterprise derives from that country whether the transactions are routed and performed through the PE or not. The provisions of Article 7(1) of India China DTAA, include same results as sought to be achieved by article 7(1)(c) of UN MC. As to the scope of this provision, one may find guidance from the UN MC Commentary in this regard. The connotations of ‘profits indirectly attributable to permanent establishment’ do indeed extend to incorporation of the force of attraction rule being embedded in article 7(1). In addition to taxability of income in respect of services rendered by the PE in India, any income in respect of the services rendered to an Indian project, which is similar to the services rendered by the permanent establishment, is also to be taxed in India in the hands of the assessee, irrespective of the fact whether, such services are rendered through the permanent establishment, or directly by the general enterprise. There cannot be any professional services rendered in India which are not, at least indirectly, attributable to carrying out professional work in India. This indirect attribution, in view of the specific provisions of India-China tax treaty, is enough to bring the income from such services within ambit of taxability in India. The basic philosophy underlying the force of attraction rule is that when an enterprise sets up a permanent establishment in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can properly tax all profits that the enterprise derives from that country whether the transactions are routed and performed through the PE or not. In effect, profits relating to services rendered by assessee, whether rendered in India or outside India, in respect of Indian projects are taxable in India, and are attributable to the supervisory PE of assessee in India, as they are effectively connected with each other. Ld.Counsel has not submitted any justification to adopt the segmental profits. He has also not demonstrated any illegality in the computation adopted by Ld.AO. It is observed that Ld.AO has followed the global profitability based upon the ruling of Rolls Roys (2010 (3) TMI 1157 - ITAT DELHI) and attributed 25% of global profit accruing from the offshore supplies to PE in India - Decided against assessee. Levy of Interest u/s 234B - Held that:- The undisputed fact in the present case remained that the tax on entire income received by assessee was required to be deducted, at appropriate rates by the respective payers under section 195. Had the payer made the deduction of tax at the appropriate rate, the net tax payable by the assessee would have been Nil. Thus, there was no liability to pay advance tax by the assessee. High Court of Delhi in the case of Jacabs Civil Incorporated/ Mitsubishi Corporation reported in [2010 (8) TMI 37 - DELHI HIGH COURT] on identical issue deleted the interest charged u/s 234 B - Decided in favour of assessee.
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