DDIT (IT)3(1), MUMBAI vs. GERMANISCHER LLOYD AD - INDIA BRANCH, MUMBAI

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ITA 4906/MUM/2014Status: DisposedITAT Mumbai30 March 2016AY 2005-065 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that only business profits attributable to the Permanent Establishment in India are taxable in India, as per Article 7 of the Indo-Germany Double Taxation Avoidance Agreement. The CIT(A)'s deletion of additions was upheld as it followed a previous Tribunal decision in the assessee's own case.

What were the facts?

The Revenue appealed against the CIT(A)'s deletion of additions made by the AO. The AO had treated the Head Office's share of income as taxable in India, arguing it was generated by the Indian branch's activities. The assessee is a foreign company with an Indian branch engaged in ship classification and certification.

What were the issues?

Whether the Head Office's share of income, generated from activities of the Indian branch, is taxable in India. Whether the CIT(A) correctly deleted the AO's additions based on a prior Tribunal ruling.

Which sections of the Income-tax Act were involved?

Section 144C,Section 147,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI

Before: SHRI G.S. PANNU & SHRI AMIT SHUKLA

For Respondent: Shri Sanjeev Jain
Hearing: 22/03/2016Pronounced: 30/03/2016

The captioned appeal by the Revenue is directed against the order of CIT(A)-10, Mumbai dated 29.01.2014, pertaining to the Assessment Year 2005-06, which in turn has arisen from the order passed by the Assessing Officer dated 10.02.2011 under section 144C r.w.s. 147 r.w.s. 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2.

In this appeal, Revenue has raised the following main Grounds of appeal :

2 M/s. Germanischer Lloyd AG-Indian Branch

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the additions made by AO without appreciating the fact that assessee is a branch office and source of income is in India and the whole income is generated from the activities of the branch office in India.

Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the additions made by AO without appreciating the fact that all the activities were held in Indian Water and there is no specific work allotted to the Head Office for Indian Office to pay to the head office in big ratio of 30:70.”

3.

At the time of hearing, it was noticed that none appeared on behalf of the respondent-assessee inasmuch as the notice of hearing sent by Registered post has been delivered un-served. As a consequence, the appeal is being disposed of after hearing the learned Departmental Representative (in short ‘the DR’) on merits and ex parte qua the respondent-assessee following Rule 25 of the ITAT Rules, 1963.

4.

In brief, the relevant facts are that the respondent-assessee is a foreign company which is tax resident of Germany. The respondent- assessee is engaged in the business of classification and certification of ships and marine related materials and components. Its operation in India started in November, 1989 when its branch in Mumbai started functioning. The Indian branch is mainly engaged in the activities of classification and certification of ships and inspection of ships; certification of marine related materials and components; and, certification relating to international safety management. For the assessment year under consideration, it filed a return of income declaring a total income of Rs.1,54,84,430/-. Subsequently, a notice

3 M/s. Germanischer Lloyd AG-Indian Branch u/s. 148 of the Act was issued on 30.3.2010 whereby the Assessing Officer formed a belief that certain income chargeable to tax had escaped assessment. As per the Assessing Officer, the entire invoice value billed to the non-resident ship owners, including the Head office’s share of income ought to have been offered as business profits earned by the assessee inasmuch as the entire income is generated from the activities carried out by the branch office in India. In the ensuing reassessment proceedings finalized u/s. 144C(3) r.w.s. 147/143(3) of the Act dated 10.2.2011 the Assessing Officer treated the Head office’s share of income as taxable in India on the footing that such income was generated from the activities of the branch office in India. Accordingly, the addition of Rs.76,51,192/- was made to the returned income. The CIT(A) has since deleted the addition made by the Assessing Officer following the decision of the Tribunal in assessee’s own case for Assessment Year 2007-08 rendered vide dated 5.6.2013. Against such a decision of the CIT(A), Revenue is in appeal before us.

5.

Before us, the ld. DR appearing for the Revenue conceded the factual matrix that the decision of the CIT(A) is in line with the decision of the Tribunal in assessee’s own case for Assessment Year 2007-08 dated 5.6.2013 (supra) and that the same has not been altered by any higher authority.

6.

Notably, in terms of the aforesaid precedent it has been held that in terms of Article 7 of the Indo-Germany Double Taxation Avoidance Agreement the business profits of ‘Permanent Establishment’ in India

4 M/s. Germanischer Lloyd AG-Indian Branch are only liable to be taxed in India. The order of the Tribunal dated 5.6.2013 (supra) reveals that the activities being carried out by the Indian branch have been analyzed and also the arrangement of splitting fee between the Indian branch office and the German Head office has also been examined. The Tribunal has reiterated that the business profits attributable to the Permanent Establishment in India are alone required to be taxed in terms of Article 7 of Indo-Germany Double Taxation Avoidance Agreement. After considering the entire factual matrix of the splitting of fee between Indian branch and the Head office, the Tribunal concluded that the income returned by the assessee was in compliance with the requirement of Article 7 of Indo-Germany Double Taxation Avoidance Agreement. Before us, the ld. DR has not brought out any change in facts in the instant year, which would require us to depart from the order of the Tribunal dated 5.6.2013 (supra). As a consequence, we find no error on the part of the CIT(A) in allowing the plea of the assessee following the precedent in assessee’s own case for Assessment Year 2007-09 (supra).

7.

In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 30th March, 2016.

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