Asstt Director Of Income Tax I New Delhi vs M/S E Funds It Solution Inc

08). The appeals from the Income Tax Appellate Tribunal (ITAT) by the assessees were allowed by the High Court, whereas cross-appeals by the department were rejected. After framing several substantial questions of law, the High Court narrated the undisputed facts as follows:

2. The assessing authority decided that the assessees had a permanent establishment (hereinafter referred to as PE) as they had a fixed place where they carried on their own business in Delhi, and that, consequently, Article 5 of the India U.S. Double Taxation Avoidance Agreement of 1990 (hereinafter referred to as DTAA) was attracted. Consequently, the assessees were liable to pay tax in respect of what they earned from the aforesaid fixed place PE in India. The CIT (Appeals) 5 dismissed the appeals of the assessees holding that Article 5 was attracted, not only because there was a fixed place where the assessees carried on their business, but also because they were “service PEs” and “agency PEs” under Article 5. In an appeal to the ITAT, the ITAT held that the CIT (Appeals) was right in holding that a “fixed place PE” and “service PE” had been made out under Article 5, but said nothing about the “agency PE” as that was not argued by the Revenue before the ITAT. However, the ITAT, on a calculation formula different from that of the CIT (Appeals), arrived at a nil figure of income for all the relevant assessment years. The appeal of the assessees to the High Court proved successful and the High Court, by an elaborate judgment, has set aside the findings of all the authorities referred to above, and further dismissed the cross-appeals of the Revenue. Consequently, the Revenue is before us in these appeals.

ChexSystems’ database includes account history data provided by or purchased from financial institutions and other data purchased from third parties including driver’s license data, deceased person’s records and suspect address lists. All such data base relates to the persons located in the US and the customers of this data base were banks and retailers located in the US.

This outsourcing of work to India would not give rise to a fixed place PE and the High Court judgment is, therefore, correct on this score.

17. Insofar as a service PE is concerned, the requirement of Article 5(2)(l) of the DTAA is that an enterprise must furnish services “within India” through employees or other personnel.

After examination of the documentation and discussion with the authorized representative of the assessee, no adverse inference is drawn in respect of the Arm’s Length Price (ALP) of the international transactions, as declared by the assessee in Form 3CEB, annexed to the return of the Income.” Shri Ganesh is correct in stating that as the arm’s length principle has been satisfied in the present case, no further profits would be attributable even if there exists a PE in India.

forward and set-off losses, etc. However, deviations are made by DTAA in cases of royalty, interest, etc. Such deviations are also made under the IT Act (for example Sections 44-BB, 44-BBA, etc.).

23. As a large portion of Shri Venugopal’s argument was in relation to the MAP settlement in the present case, it would be necessary to refer, in some detail, to the documents produced on this account.

29. Having held in favour of the assessees that no permanent establishment in India can possibly be said to exist on the facts of the present case, we do not deem it necessary to go into the cross-appeals that were filed before the High Court, which were dismissed by the High Court agreeing with the ITAT that the calculation of the ITAT would lead to nil taxation. This point would not arise in view of our decision on the facts of the present case. It is, therefore, unnecessary to go into this aspect of the matter.

30. The appeals are accordingly dismissed with no order as to costs.

October 24, 2017.