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2019 (4) TMI 1428 - AT - Income TaxTaxability of Royalty Income & FTS - assessee offer to tax @ 10% on gross basis on royalty & FTS - AO treat the same as business profit - India Russia DTAA - assessee had accepted that since it has branch office in India it constitutes a PE in India within the meaning of Article 5 of the DTAA. - HELD THAT:- To sum up, being a member of consortium, the appellant company cannot pay royalty to itself and, therefore, the share received from the execution of the three projects is business profit of the appellant company. Since there is no transfer of any technical know-how and even if the services are rendered in India by the head office and not by the branch office, then also, the revenue of the appellant company cannot be bifurcated as royalty and fees for technical services. Moreover, the entire payment received during the year has to be attributable to the PE in India, and, therefore, the same is taxable as business profit. Since the assessee is having PE in India, Article 12 of the DTAA between India and Russia is not applicable. Therefore, the findings of the lower authorities cannot be faulted with. Attribution of Income and allowance of expenses incurred by the Head Office - HELD THAT:- There is no dispute that the appellant company is having a PE in India. Therefore, whatever income the appellant company has earned from the projects has been earned through its PE. Therefore, the whole of the profit of the appellant company is attributable to its PE and since the expenses have already been allowed, incurred for the purpose of the PE, therefore, there is no need to tamper with the findings of the CIT(A) in the light of Article 7(3) of the India Russia DTAA. Transit Office Facility Expenses - HELD THAT:- AR stated that since the payments have been made to sovereign [Russian Embassy], there was no occasion to deduct tax at source. There is no dispute that the impugned amount has been paid to Russian Embassy as cost of accommodation to the Russian Employees. But the least the appellant company could have provided is the confirmation from Russian Embassy itself. We, therefore, allow one more opportunity to the appellant company to furnish the confirmations from the Russian Embassy in this regard. The appeals of the assessee are partly allowed for statistical purposes. Interest u/s 234B - HELD THAT:- This issue is covered in favour of the assessee and against the Revenue by the judgment of the Hon'ble Jurisdictional High Court in the case of GE Packaged Power Inc. [2015 (1) TMI 1168 - DELHI HIGH COURT] no interest is leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessee were liable to tax under Section 195(1), and to what extent, by taking recourse to the mechanism provided in Section 195(2) of the Act. The failure of the payers to do so does not leave the Revenue without remedy; the payer may be regarded an assessee-in-default under Section 201, and the consequences delineated in that provision will visit the payer . Also see ZTE CORPORATION [2017 (1) TMI 1338 - DELHI HIGH COURT].
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