TMI Blog2023 (7) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/Del/2014 Assessment Year: 2007-08 3. At the outset, learned counsel appearing for the assessee did not press ground nos. 1, 2, 4, 8 and 9. Accordingly, these grounds are dismissed as not pressed. 4. In ground No. 3, the assessee has challenged taxability of Rs. 1,46,52,283/- representing receipts from services rendered by head office in Germany 5. Briefly the facts are, the assessee is non-resident corporate entity and a tax resident of Germany. As stated, the assessee is a global airport operator offering comprehensive airport management services, including terminal and traffic management, aviation ground handling, baggage and cargo handling, aviation security and consulting etc. The assessee entered into a contract with Delhi International Airport Limited (DIAL) relating to development, modernization, expansion, upgradation, operation and management of Indira Gandhi International Airport, Delhi. Further, DIAL entered into an Airport Operator Agreement with the assessee to provide airport related services to DIAL. As per the terms of Airport Operator Agreement, the assessee was required to provide airport management services to DIAL for providing following a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the head office and PE are single and integrated activity of airport management and is complementary in nature as services cannot be exclusively rendered as both are supporting each other and dependent on each other. Accordingly, the receipts are taxable under Article 7 of the tax treaty, in view of exceptions provided under Article 12(5) of the treaty. He submitted, the PE is able to function because of Head Office. Hence, in relation to work performed by head office, both activity test and economic connection test are satisfied, since, the work has been done by Head Office through active participation of PE. He submitted, the entire activity of airport management services is a single integrated activity, hence, cannot be bifurcated between PE and the Head Office. He submitted, applying the dominant purpose test, which is to manage the airport, it has to be held that the services are rendered through PE, as, the pith and substance of services was inextricably connected to the management of the airport. In this context, he relied upon the decision of the Hon ble Supreme Court in case of Oil Natural Gas Corporation Ltd. Vs. CIT [2015] 59 taxmann.com 1 (SC). He submitted, once i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g resident of one contracting state carries on business in the other contracting state through a PE or fixed place of business in respect of which the royalty and FTS are paid. Article 12(5) further makes it clear, in such a situation, the provisions of Article 7 or Article 14 may apply. The receipts certainly cannot fall within the definition of independent personal services under Article 14 of the tax treaty. Therefore, the only provision under which the receipts can fall is business profits as provided under Article 7 of the tax treaty. Thus, since, the receipts are attributable to the PE, we have to examine whether such receipts are taxable in India. In this context, we have to refer to paragraph 1(b) under protocol appended to India Germany tax treaty, which reads as under: (b) Income derived by a resident of a Contracting State from planning, project, construction or research activities as well as income from technical services exercised in that State in connection with a permanent establishment situated in the other Contracting State, shall not attributed to that permanent establishment. 11. The aforesaid protocol makes it clear that income derived by a resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee neither furnished any evidence, nor justified the claim, the Assessing Officer disallowed the amount. The assessee contested the disallowance before the DRP. After examining assessee s claim in the context of facts and materials on record, learned DRP found that the amount, in reality, represents a markup of 19% on the expenses under various heads debited to the profit and loss account. However, learned DRP found that out of the deduction claimed, an amount of Rs. 45,96,723/- forms part of mobilization expenses, which has already been disallowed. Accordingly, learned DRP restricted the disallowance to Rs. 1,46,94,562/-. 13. As regards assessee s claim that the expenditure directly related to the PE is allowable under Article 7, learned DRP held that the amount charged by the head office is a fee of 19% on various expenditure claimed on notional basis, hence, cannot be allowed under Article 7 of the DTAA. Further, learned DRP has alleged that the assessee did not furnish any evidence to establish that the expenses were incurred by the PE at all. 14. Before us, learned counsel appearing for the assessee submitted that the expenditure relates to various tasks undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential in nature, does not require adjudication. Ground is dismissed. 19. Ground No. 7, being consequential in nature, does not require adjudication. 20. In the result, the appeal is partly allowed. ITA No. 3869/Del/2015 Assessment Year: 2008-09 21. Ground nos. 1, 6 and 7 are not pressed, hence, dismissed. 22. Ground nos. 2 and 3 are identical to ground No. 3 of ITA No. 3257/Del/2014. Accordingly, we direct the Assessing Officer to compute income, if any, following our direction therein. 23. The issue raised in ground No. 4 is identical to the issue raised in ground No. 5 of ITA No. 3257/Del/2014. Following our decision therein, we uphold the disallowance. This ground is dismissed. 24. Ground No. 5, being consequential in nature, does not require adjudication. 25. In the result, the appeal is partly allowed. ITA No. 3870/Del/2015 Assessment Year: 2009-10 26. Ground nos. 1, 5 and 6 are not pressed, hence, dismissed. 27. The issue raised in ground No. 2 and 3 are identical to ground No. 3 of ITA No. 3257/Del/2014. Accordingly, we direct the Assessing Officer to compute income, if any, following our direction therein. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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