Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (7) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (7) TMI 220 - AT - Income TaxIncome accrued in India - taxability of receipts from services rendered by head office in Germany - receipts attributable to the PE - benefit of treaty - HELD THAT:- Income derived by a resident of a Contracting State from certain specified activities including technical services provided in the other Contracting State through a PE situated in that State shall not be attributable to that PE. The receipts are not taxable as FTS under Article 12 and have to be treated, either as business profit under Article 7 or independent personal services under Article 14. Once the receipts fall under Article 7 of the treaty, the protocol comes into play. That being the case in terms of protocol 1(b) of the tax treaty, the receipts even though connected to the PE cannot be made taxable in India. However, protocol 1(b) of the tax treaty specifically refers to income from planning, project, construction or research activities and technical services. Income derived from aforesaid activities will be protected under protocol 1(b) of the treaty, hence, not taxable in India. Whereas, the rest of the income will be taxable under Article 7 of the tax treaty. Accordingly, the Assessing Officer is directed to examine the nature of income and not to tax the income of the nature specified in protocol 1(b) of the tax treaty. Disallowance of office and administrative cost - assessee has not furnished any evidence to establish that the expenses were incurred by the head office exclusively for the PE - HELD THAT:- Though, in principle, we agree that the expenditure incurred by the head office directly connected to the PE has to be allowed without imposing the restrictions of section 44C of the Act, however, burden is entirely on the assessee to establish on record through authentic evidence that such expenditure was actually incurred by head office for the PE. In the present case, the assessee has failed to do so. Article 7(3) of the tax treaty speaks of allowance of expenditure subject to the limitation prescribed in domestic law. No reason to interfere with the decision of learned DRP on the issue. Ground raised is dismissed. Taxation of interest on income tax refund - applying the rate of 40% by treating it at par with profits of business, as against the assessee’s claim of tax rates of 10% under Article 11(2) of India – Germany DTAA - On going through the Article 11(5) of the treaty, we agree with the decision of Commissioner (Appeals) as the said Article specifically carves out an exception by providing that in case the debt claim in respect of which interest is paid is effectively connected with the Permanent Establishment, the provisions of Article 7 or Article 14 would apply. As in case of ACIT Vs. Clough Engineering Ltd. [2011 (5) TMI 562 - ITAT, DELHI] a view favourable to the assessee has been taken. However, in case of B.J. Services Co. Middle East Ltd. [2015 (5) TMI 1036 - UTTARAKHAND HIGH COURT] the Hon’ble Uttarakhand High Court, while examining pari materia provision contained in Article 12(6) of India-UK Treaty has held that interest on income tax refund is taxable as business profits under Article 7 of the treaty. In our humble opinion, the decision of the Hon’ble Uttarakhand High Court will carry greater precedentiary value. This ground is dismissed.
|