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2004 (3) TMI 334 - AT - Income Tax
Issues Involved:
1. Infructuous Appeal
2. Deletion of Addition by CIT(A)
3. Permanent Establishment (PE) in India
4. Taxability of Outside India Receipts
5. Application of CBDT Instruction No. 1767
Issue-wise Detailed Analysis:
1. Infructuous Appeal:
The Revenue filed two appeals against the same order of the CIT(A) for the same assessment year 1993-94, taking identical grounds in both appeals. Consequently, Appeal No. 1754/Del/1999 was treated as infructuous and dismissed accordingly.
2. Deletion of Addition by CIT(A):
The CIT(A) deleted the addition made by the AO, who had brought to tax income arising to the assessee in respect of payments shown as outside India receipts. The CIT(A) accepted the assessee's contention that outside India activities were not attributable to a permanent establishment in India. The CIT(A) relied on the order for the assessment year 1992-93, where a similar issue was decided in favor of the assessee.
3. Permanent Establishment (PE) in India:
The AO claimed that the assessee had a PE in India during the previous year, as per Article 5(3) of the DTAA between India and South Korea. The AO argued that pre-designing activities were carried out in India, and therefore, the total receipts in relation to such contracts should be included in the income of the assessee. However, the CIT(A) found that the assessee had no presence at the offshore site in any form prior to the arrival of structures for carrying out Indian operations. The CIT(A) relied on certificates from ONGC and the Korean Taxation Office, which confirmed that the payments were made for work completed outside India and were not in the nature of advance payments.
4. Taxability of Outside India Receipts:
The AO attributed 10% of the payments received for outside India operations to the PE in India, due to the lack of books and records to determine the actual income. The CIT(A) disagreed, stating that the payments made by ONGC were related to work done at the yard in Korea and were not taxable in India. The CIT(A) relied on the precedent set in the assessment year 1992-93, where similar facts were considered, and the issue was decided in favor of the assessee. The Tribunal also noted that the Department had not preferred any appeal against the CIT(A)'s order for the assessment year 1992-93, making it final.
5. Application of CBDT Instruction No. 1767:
The AO argued that the CIT(A) did not follow the spirit of CBDT's Instruction No. 1767, which lays down that payments for outside India activities for turnkey contracts are taxable at a deemed profit rate of 1%. The CIT(A) found that the issue had already been examined in detail in the assessment year 1992-93 and decided in favor of the assessee. The CIT(A) noted that the facts for the assessment year 1993-94 were similar to those of the previous year, and therefore, the claim of the assessee was allowed.
Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals. The Tribunal found that the Department had not provided any evidence to prove the existence of a PE in India or to attribute any part of the income to such PE. The Tribunal also noted that the Department had not conducted a thorough investigation into the nature of the establishment of the assessee in India or the activities carried out in respect thereto. Consequently, the Tribunal confirmed the CIT(A)'s order, which allowed the assessee's claim that the receipts from outside India operations were not taxable in India.