INCOME TAX ACT, 1961

Section 44DA

Presumptive taxation under section 44DA - Income by way of royalties in case of non-residents - Overseas consultancy income -

The assessee was a tax resident of Hongkong. The company was a provider of technical and Management Services for Engineering Solutions throughout the world. It provided fully integrated engineering, design and programme management service for a broad range of markets including infrastructure building etc. During the year under consideration, the assessee had a Project Office ('PO') in India for performing certain services in connection with two projects namely Chennai Metro Rail Project Ltd. and Kolkata East West Rail Project. The assessee rendered certain services from India and remaining service were rendered by overseas staff from Hongkong earned from such services rendered from Hongkong has been treated as overseas consultancy income ('OCI') by the assessee chargeable to tax at 10% as Fees for Technical Services ('FTS') in terms of section 115A of the Act. The assessee filed its return of income for the year under consideration declaring total taxable income (including income taxable at special rate as per section 115A of the Act) of Rs. 286,745,096 and claim refund of Rs. 9,533,840. In the case of the assessee, since the entire contracts are effectively connected to the PE/Business Connection, any services rendered under these contracts even though rendered from outside India are effectively connected to such PE/Business Connection. In the present case, since AECOM Asia Company Limited was receiving Fees for Technical Services from India for carrying out services in relation to agreements for which Project Office has been established, it can be said that such Fees for Technical Services are effectively connected to PE/business connection in India and therefore, should be taxed as per section 44DA of the Act. Held: The 'effective connection' comes into play if activities in order to deliver contractual obligations stand performed through project office. Since in this Case, situs of performance of the activities is outside India, the effective connection is not there with the project office. In this case, the assessee has offered the fee for technical services on gross basis and the activities conducted outside India are not effectively connected with PE in India, therefore, the addition made under section 44DA of the Income Tax Act is liable to be deleted. In view of the discussion made above. Hence, ground of appeal is allowed.”

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

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