INCOME TAX ACT, 1961

Section 90 Article 7

Double taxation relief - Agreement between India and UAE - Taxability of income from foreign branch offices -

Assessee was an Indian company with branch offices in UAE and Qatar. Assessee had earned profits in these branches, which, for the purposes of the provisions of the respective tax treaties, constituted permanent establishments. AO and TPO had not reduced the income earned by assessee's branch offices located in the United Arab Emirates (UAE) and Qatar (amounting to Rs. 11,91,18,391) from assessee's total income chargeable to tax in India, as per article 7 of the Double Taxation Avoidance Agreements between India and UAE/Qatar. Assessee claimed that the foreign branches create permanent establishments (PEs) in the foreign countries, the income from the same was liable to tax in these foreign countries, i.e., source States, and, hence, the income from aforesaid foreign branches should be exempt in India as per article 7 of the tax treaties. Assessee claimed that the matter had not been examined, on merits, by the authorities below and the claim had been simply rejected on the ground of certain technicalities therefore, the matter was remitted to the file of AO, without any adjudication on merits, for taking a call on merits. Held: AO had accepted the claim of the assessee, in the assessment year 2016-17, for exclusion of Rs 56,39,11,560 from its taxable income on the ground that it pertained to the profits of its branches in Italy, UAE, Qatar and Saudi Arab and India had DTAAs with these countries. This decision by AO, whatever was its merits, certainly did not constitute any estoppel against the statute, and, in any case, there was no res judicata in the income-tax proceedings. Just because AO himself had allowed a relief to assessee, the officer was not obliged to give assessee the same relief. If at all the stand of AO indicated or explained anything, it explained the anxiety of the assessee to go back to the assessment stage on this issue. No matter how tempting was it to get a quick disposal by remitting the matter to the assessment stage, as the matter was not adjudicated on merits at that stage, but clearly it was patently inadmissible claim.

REFERRED : PAVL Kulandagan Chettiar (1983) 3 ITD 426 (SB) : 1983 TaxPub(DT) 1239 (Mad-Trib), which has been upheld right upto Supreme Court (2004) 267 ITR 654 (SC) : 2004 TaxPub(DT) 1681 (SC) and a review petition has also been dismissed by Hon'ble Supreme Court (2008) 300 ITR 5 (SC) : 2008 TaxPub(DT) 1212 (SC), CIT v. Bank of India 64 taxmann.com 335 (Bom), CIT v. VRSRM Firm 208 ITR 401, CIT v. R.M. Muthiah (1993) 202 ITR 508 (Karn) : 1993 TaxPub(DT) 0965 (Karn-HC), DCIT v. Patni Computer Systems Ltd. (2008) 114 ITD 159 (Pune) : 2008 TaxPub(DT) 2400 (Pune-Trib), Apollo Hospitals Enterprises Limited (2012) 53 SOT 103 (Chen) : 2012 TaxPub(DT) 2835 (Chen-Trib), DCIT v. Turquoise Investments & Finance Ltd. (2008) 300 ITR 1 (SC) : 2008 TaxPub(DT) 1681 (SC), Pooja Bhatt v. DCIT (2009) 26 SOT 574 (Mum) : 2009 TaxPub(DT) 0951 (Mum-Trib), DCIT v. Mideast India Ltd. (2009) 28 SOT 395 (Del) : 2009 TaxPub(DT) 1277 (Del-Trib), CIT v. Patni Computer Systems Ltd. [ITA No. 1148 of 2012 (Bom-HC)] : 2013 TaxPub(DT) 1576 (Bom-HC); and Apollo Enterprises Ltd.'s DCIT (2012) 23 taxmann.com 168 (Chenn-Trib) : 2012 TaxPub(DT) 2835 (Chen-Trib)

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