GEMOLOGICAL INSTITUTE OF AMERICA, INC.,UNITED STATES vs. THE ASSISTANT COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION), CIRCLE 2(3)(2) - MUMBAI, MUMBAI

ITA 1292/MUM/2025Status: DisposedITAT Mumbai09 September 2025AY 2019-2012 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, respectfully following the findings of a Co-ordinate Bench in similar cases for AY 2011-12 to 2016-17, accepted the assessee's claim in principle regarding the impact of the Advance Pricing Agreement (APA). The Co-ordinate Bench had held that the amount refunded by the assessee to its Indian associated enterprise (AE) in terms of the APA could, in principle, reduce the taxable royalty income in the hands of the assessee. However, since the factual aspects, verifications, and quantum of actual refunds had not been examined at any stage, the Tribunal remitted the issue back to the Assessing Officer (AO) for verification of these factual elements. Therefore, Ground No. 9, concerning the restriction of royalty income in accordance with the APA, was allowed with these directions. The Tribunal did not decide on the existence of a PE, business connection, attribution, or the initial validity of reassessment proceedings on merits, but rather focused on the APA's impact on royalty income quantification.

What were the facts?

The appeals are filed by Gemological Institute of America, Inc. (the assessee) against two separate orders dated 30/12/2024 and 24/12/2024 passed by the Assistant Commissioner of Income-tax (International Taxation) Circle- 2(3)(2), Mumbai (the respondent/revenue) under section 147 read with section 144C(13) of the Income-tax Act, 1961. These orders pertain to Assessment Years (AY) 2019-20 and 2022-23. The assessee's returned income for AY 2019-20 was Rs.4,54,85,72,730/-, while the Assessing Officer assessed it at Rs.5,18,83,68,139/-. For AY 2022-23, the royalty income offered to tax was Rs.6,61,16,50,579/-, with a subsequent adjustment of Rs.1,19,54,42,515/- due to an Advance Pricing Agreement (APA). The core dispute revolves around the existence of a Permanent Establishment (PE) in India, business connection, attribution of income, and the taxation of royalty income in light of an APA entered into by the assessee's Indian associated enterprise, GIA India Laboratory Private Limited.

What were the issues?

1. Whether the reassessment proceedings under section 148 of the Income-tax Act, 1961, were valid and within the jurisdiction of the Assessing Officer. The assessee contended that the reopening was in excess of jurisdiction and bad in law. The revenue's arguments are not explicitly recorded on this point. 2. Whether the assessee has a Permanent Establishment (PE) or a business connection in India. The assessee argued that it has no PE or business connection in India, and the conclusions of the Assessing Officer/Dispute Resolution Panel were erroneous and unsupported by material. The revenue's arguments are not explicitly recorded. 3. Whether 50% of the assessee's receipts are attributable to the alleged PE in India, and whether the estimated gross profit of 20.31% on such receipts is taxable. The assessee argued that no part of its receipts is attributable to an alleged PE and that even if a PE exists, it has been remunerated at arm's length, thus no further income should be taxed in India. The revenue's arguments are not explicitly recorded. 4. Whether the royalty income received by the assessee is 'effectively connected' with the alleged PE and taxable under section 44DA of the Income-tax Act, 1961, or if it should be taxed under section 9(1)(vi) read with Article 12 of the India-USA DTAA. The assessee contended that the royalty is not taxable under section 44DA as it has no PE, and it should be taxed as per the DTAA. The revenue's arguments are not explicitly recorded. 5. Whether the taxable amount of royalty income should be restricted to the amount determined in accordance with the Advance Pricing Agreement (APA) entered into by GIA India Laboratory Private Limited. The assessee argued that the royalty income should be restricted as per the APA. The revenue argued that the adjustment in royalty income should not be allowed as the assessee is not a party to the APA.

Which sections of the Income-tax Act were involved?

Section 147,Section 144C(13),Section 148,Section 44DA,Section 9(1)(vi),Section 115A,Section 92CD

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “I” BENCH, MUMBAI

Before: SHRI NARENDRA KUMAR BILLAIYA, HONBLE & SHRI ANIKESH BANERJEE, HONBLE

For Appellant: Shri J.D. Mistry, Sr. Adv. & Shri Niraj Sheth, A/Rs
For Respondent: Shri Satya Pal Kumar, CIT D/R a/w Shri Krishna Kumar, Sr. D/R
Hearing: 03/09/2025Pronounced: 09/09/2025

PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. No. 1292 & 1293/Mum/2025, are two separate appeals against two separate orders dated 30/12/2024 and 24/12/2024 framed u/s 147 r.w.s.144C(13) of the Act pertaining to AY 2019-20 and 2022-23, respectively.

2.

Since common grievance is involved in both these appeals, they were heard together and are disposed off by this common order for the sake of convenience and

The order continues below.

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