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2023 (5) TMI 269 - AT - Income TaxAttribution of profit to PE qua the offshore supply of plants and equipments - AO and DRP have held that offshore supply of equipment, being integrally connected to the service and installing activity undertaken by the PE in India, assessee’s income has to be computed u/s 44BB - HELD THAT:- Undisputedly, in the past assessment years the AO has taken a consistent approach of attributing 1% of the receipts from offshore supplies as profits of the PE in India. Thus, in terms of Article 7(6), profits attributable to the PE have been consistently computed by adopting a particular method. In the impugned assessment year, AO has made a departure by discarding the earlier method and adopting a new method of computing profit u/s 44BB - While doing so, the AO, as it appears, has not taken note of the method of determination of profit attributable to the PE adopted in the past assessment years. DRP has completely ignored the submissions of the assessee and has proceeded to accept the view of the Assessing Officer without saying how the factual position is different from the past assessment years. Thus, it is manifest, both the AO and learned DRP have failed to provide any good and sufficient reason while departing from the methodology adopted by the department in respect of attribution of profit to the PE on receipts from offshore supply of equipment in past assessment years. Therefore, the decision of the departmental authorities militate against the specific provision contained under Article 7(6) of the tax treaty. The decision taken by the departmental authorities in computing profit of the assessee under section 44BB of the Act is unsustainable, as, it is not consistent with the position taken on the issue in past assessment years. Therefore, while deleting the addition made by the AO, we direct him to attribute 1% of the receipts from offshore supply of equipment as profit of the PE and accordingly compute the income of the assessee.
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