COPERION GMBH,FOREIGN vs. ACIT, CIRCLE INTERNATIONAL TAXATION,1(2)(1), NEW DELHI

ITA 2431/DEL/2022Status: DisposedITAT Delhi17 January 2024AY 2019-20Bench: SHRI SAKTIJIT DEY (Vice President), DR. B.R.R. KUMAR (Accountant Member)7 pages
AI SummaryAllowed

What did the Tribunal hold?

The tribunal held that royalty and FTS income, taxed under Article 12(2) read with Article 2 of the India-Germany DTAA at a maximum rate of 10% (which includes surcharge), cannot be subjected to a higher surcharge rate (5%) by clubbing it with PE income under domestic law. This is particularly so because the royalty/FTS income was not shown to be effectively connected to the PE. The Departmental Authorities erroneously applied the higher domestic surcharge rate.

What were the facts?

The assessee, Coperion GmbH (a German non-resident company), earned income from engineering services through its Permanent Establishment (PE) in India and also received royalty and Fee for Technical Services (FTS) income from outside India. While the assessee applied a 2% surcharge on PE income and 10% tax (inclusive of surcharge as per DTAA) on royalty/FTS, the Centralized Processing Centre (CPC) clubbed both income streams. This clubbing resulted in the total income exceeding Rs.10 crore, leading the CPC to levy a 5% surcharge, cess, and interest as per domestic law, which the assessee challenged.

What were the issues?

Whether royalty and FTS income, taxable at a gross rate of 10% under India-Germany DTAA (which includes surcharge), can be subjected to a higher surcharge rate (5%) as per domestic law by clubbing it with PE income, even if not effectively connected to the PE.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 154,Section 234A,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI

Before: SHRI SAKTIJIT DEY, VICE- & DR. B.R.R. KUMAR

Hearing: 26.10.2023Pronounced: 17.01.2024

PER SAKTIJIT DEY, VICE-PRESIDENT

Captioned appeal by the assessee arises out of order dated

05.08.

2022 of learned Commissioner of Income Tax (Appeals)-42,

Delhi, pertaining to assessment year 2019-20. 2. The short issue arising for consideration in the present

appeal is levy of surcharge at 5% as against assessee’s claim of 2%. AY: 2019-20

3.

Briefly the facts are, the assessee is a non-resident corporate

entity incorporated in Federal Republic of Germany and is a tax

resident of Germany, hence, entitled to benefits under India –

Germany Double Taxation Avoidance Agreement (DTAA). In the year under consideration, the assessee had earned an amount of Rs.5,61,65,673/- from engineering services rendered to cus

The order continues below.

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