Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Sunday, 09 August 2015 11:33

If Permanent Establishment has been compensated at arm’s length no taxes to be paid by the assessee Featured

Written by
  • font size decrease font size increase font size
  • Print
  • Email
  • Be the first to comment!
Rate this item
(0 votes)

Gist

If any amount is to be taxed by virtue of having a Permanent Establishment in India or otherwise, the amount that can be taxed is Rs. Nil, as the Permanent Establishment has been compensated at arm’s length and has offered the said compensation for tax in India.

Facts

1. Appellant is company incorporated in the United States and is engaged in the business of selling and marketing medical equipments

2. Appellant has a wholly owned subsidiary in Hongkong

3. Both were making direct sales to customers in India

4. Wholly owned subsidiary setup a liaison office in India which was later converted to branch office

5. Even after setting up branch office they both were making direct sales

6. Indian branch office was getting management fees which was offered for taxation

7. Management fee was received as arm’s length compensation calculated on the basis of direct sales quantum

8. Receipt of management fees fell within the transfer pricing provisions and thus the matter was scrutinized by the Transfer Pricing Officer who held that sales made was at arm’s length and thus no addition was called for

9. AO held that the Indian branch had a permanent establishment in India and made an adhoc estimate of 20% of the direct sales

10. Assessee appealed to the CIT(A) who decided the matter partly in favour of assessee and revenue

11. AO issued notice u/s 148 in respect of the amounts deleted by the CIT(A)

12. Assessee and Revenue both preferred appeal to the Tribunal

13. Tribunal decided in favour of the assessee

Adjudication

Thus in view of the above mentioned finding it is held that even if any amount is to be taxed in the hands of SJMI (the appellant) by virtue of having a Permanent Establishment in India or otherwise, the amount that can be taxed is Rs. Nil, as the Permanent Establishment has been compensated at arm’s length and has offered the said compensation for tax in India which satisfies any charge in view of inter alia the decision of the Supreme Court in the case of DIT Vs Morgan Stanley & Co. (2007) 292 ITR 416 (SC) and the order of the TPO. Ground No. 4 is thus allowed.

Case referred to

DIT Vs Morgan Stanley & Co. (2007) 292 ITR 416 (SC)

Additional Info

Read 12949 times Last modified on Monday, 29 February 2016 18:36
Taxpundit

Founder & CEO with over 20 years of total professional experience spread across Internal Audit, IT Audit, Enterprise Risk Management, Financial statement audit & Business Finance Management.

https://www.linkedin.com/in/taxpundit | This email address is being protected from spambots. You need JavaScript enabled to view it.

Leave a comment

Thank you for reading! We welcome and appreciate your comments, but at the same time, make sure you are adding something valuable to this article. If you have any serious queries, suggestions or anything related to this article, feel free to share them, we really appreciate that.

If you want to give us any feedback or report any errors, you can email your concerns on taxpundit@taxpundit.org and we'll revert back soon.

Recommended Articles

 

Have you done Analysis of any Case? Tell Us About It.

SITE INFORMATION

All content herein is the copyright of Taxpundit. No images, text, or any other content may be, reproduced or redistributed without the express written consent of Taxpundit.

All Rights Reserved. All Content Copyright.

Newsletter

Subscribe to our newsletter and stay updated on the latest developments and special offers!

Create your own website as per ICAI guidelines. Plan starts at Rs. 15000/- with Free Premium Membership. Read more
Toggle Bar