2019 (9) TMI 232 - AT - Income Tax

Income accrued in India - Income allocable to the Appellant’s PE in India - direction issued by DRP upon conditional admission by the assessee - business connection in India - short term visits of expatriates who visited India came for purposes - whether the assessee has a permanent establishment in India and if yes what is the amount of the profit that can be attributed to the permanent establishment? - HELD THAT:- Dispute resolution panel has gone under the presumption that assessee has conceded the aspect of the existence of the permanent establishment in India of the assessee. The assessee now denies the above fact and says that it has never considered the issue of the existence of the permanent establishment.

On careful analysis of the letter dated 05/12/2016 submitted by the assessee before the learned dispute resolution panel it states in para number 3 of that letter that assessee submits that without prejudice to the assessee’s view towards the non-existence of permanent establishment in India, from the limited perspective of the attribution of income to the alleged PE, it is being acceptable to the assessee that the taxable income of the assessee in India is directed to be determined at 10% (profit margin) of 50% of salary cost of expatriates in India during the relevant year.

Says that the clarify, where the salary cost of expatriates in India during the relevant year is rupees hundred, the assessed income of the assessee will be computed at INR 5. It further says in the next paragraph that the aforesaid is without prejudice to the assessee’s right to challenge existence of permanent establishment in India for the relevant year or any other years and other grounds raised by the assessee or its associated enterprise in India viz. LG Electronics India private limited in various other proceedings in India. Thus this letter has been accepted by the learned dispute resolution panel and straightway went on to attribute the profit to the permanent establishment.

As per the letters of the assessee mentioned in the direction of the learned dispute resolution panel, the assessee has reserved its right to challenge the existence of the PE at various forums and in case of other associated concerns also for relevant year or any other assessment year. Therefore there is no clear-cut admission of the assessee of the existence of the PE before the learned dispute resolution panel.

Therefore, apparently, in all these years, the learned dispute resolution panel has not at all given any finding on the existence of the permanent establishment of the assessee in India. In almost all the cases the learned dispute resolution panel has referred the above two letters submitted by the assessee and based on that has upheld the action of the learned assessing officer except to the small extent of adjustment of the profit attribution for assessment year 2007 – 08 from the suggested lines by the assessee.

Though we have recorded the complete arguments of both the parties with respect to the existence of the permanent establishment, however, in view of the submission of the assessee before the learned dispute resolution panel and consequent understanding of the learned dispute resolution panel that the assessee has conceded the existence of the permanent establishment, we have refrained from giving our findings on the existence of the permanent establishment as it will prejudice the interest of the assessee to the extent that it will not be able to avail the benefit of the direction of the learned dispute resolution panel on the existence of the permanent establishment. In normal circumstances, as necessary facts are laid down before us, we would have decided the issue but the specific letters before the ld DRP, where DRP in its own understanding, rightly or wrongly, considered the concession by the assessee on this issue and has not directed the AO on its merit about the existence of PE. The Object of the incorporation of the provision of Dispute Resolution Panel is to ‘resolve a dispute’ by directing the ld AO on a specific issue. If that right of the assessee is not allowed to be exercised, then it may cause irreparable damage to the assessee.

We set aside all the appeals of the assessee back to the file of the learned dispute resolution panel with a direction to first ascertain the fact about the admission of the assessee with respect to acceptance of the assessee of the existence of the permanent establishment. If it is found that there is an admission on part of the assessee about the existence of the permanent establishment, then, the learned dispute resolution panel will decide the issue in accordance with the law considering the above admission. However, if it is found that there is no admission on this aspect, then to decide the issue of existence of the permanent establishment and consequent profit attribution thereto with respect to each of the assessment years. Needless to say, the learned Dispute Resolution Panel will afford reasonable opportunity of hearing to the assessee. The learned dispute resolution panel, then, will direct the learned assessing officer to pass the final assessment order incorporating its direction in accordance with the law. In absence of any admission about the existence of the PE by the assessee, all issues, with respect to the existence of the permanent establishment as well as the profit attribution thereto would be open before the learned dispute resolution panel. - Appeals filed by the assessee are allowed with above direction for statistical purposes.