INCOME TAX ACT, 1961

Section 9(1)(vii) Section 115A Article 13(4)

Double taxation - Business profit - Permanent establishment (PE) vis-a-vis FTS -

This was the order passed under set aside proceedings. The assessee, M/s. Idiada Automotive Technology was a company incorporated in Spain IDIADA). A consoritum led by IDIADA was selected by Government of India as Global Consultants for 'National Automotive Testing and R&D Infrastructre project' (NATRIP), through global tendering process, providing consultancy and advising on the matter pertaining to implementation of the project. An agreement was signed between the IAIADA and Natrip Implemtnation Society (NATIS) on 27-1-2006 at a total cost of Rs. 39.50 crores and certain responsibilities were entrusted to Global Consultants under this agreement. One important fact noted by the AO and also highlighted by the assessee was that, later on, in terms of Governing Council's apporval, the construction supervision task has been removed from IDIADA's scope of work costing Rs. 17.69 crores. As on date, NATIP had also stopped availing any consultancy services from IAIADA. During the year under consideration, the assessee had shown receipt of Rs. 7,40,91,233 from NATIS, which was stated to be in connection with project consultancy agreement entered into by a consortium. Assessee's contention was that these services were in the nature of 'fees for technical services' rendered from Spain and since there is no permanent establishment (PE) in India in respect of rendering of these services, therefore, same is taxable under section 115A of the Act only, in view of Article 13(4) of the India-Spain DTAA where the taxable rates applicable for FTS was 10%. AO asked the assessee as to why the gross receipts shown as FTS should not be taxed as business profit, since they were effectively connected with PE in India. However, the AO did not accept the assessee's contention and had incorporated the various terms of the contract and the scope of the work, etc., which had also been incorporated in the impugned order. He had atrributed profits PE project at 75% of the income from NATRIP and brought to tax amount of Rs. 4,89,36,723 and only sum of Rs. 66,31,701 was allowed by him under section 44AD. The DRP had also confirmed the said finding of the AO on this point. Held: There is no such material or finding in the impugned order that any such kind of project or supervisory activity was carried out for more than six months in India. There has to be some kind of onsite planning and supervision activity which is completely absent here in this case, firstly, for the reason that the services have been rendered from outside India and secondly, there is no finding that any personnel of assessee has been performing any kind of such activity in India for a period of more than six months. Activity duration can be seen once any kind of such activities has been carried out on any site or any project in India, which finding is absent completely in the impugned orders, except for hypothesis and presumption without looking into the real activity and the income earned. It has to come on record that there was some kind of actual activity which was carried out especially prior to 1-9-2006 through any fixed place of business or through any personnel in India having crossed the threshold period of six months. Thus, in view of finding above. There was no Permanent Establishments during the relevant assessment year 2007-08 for the activities relating to DPIR and engineering services from which the assessee has earned the revenue and same cannot be taxed as business profit carried out through PE in India. It is in the nature of FTS which was to be taxed in accordance with article 13(4) of India-Spain DTAA.

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