Date of Order: 22nd June 2023
Appellant: DCIT, Circle-2(2)(2), International Taxation, New Delhi
Respondent: National Petroleum Construction Company, Noida
The DCIT appealed against the CIT(A)-43, New Delhi’s decisions pertaining to the assessment year 2019-20, challenging the CIT(A)’s interpretation of the India-UAE Double Taxation Avoidance Agreement regarding the existence and implications of a permanent establishment (PE) in India. The disputes revolved around whether the Project Office of National Petroleum Construction Co. in India constituted a fixed place of business and hence a Permanent Establishment under the DTAA, and the nature of activities deemed ‘preparatory and auxiliary’.
The Tribunal referred to previous rulings from ITA No.5563/Del/2017 and ITA No.1727 and 1728/Del/2021 which addressed similar issues in earlier assessment years. The consensus in earlier rulings indicated that the company did not establish a Permanent Establishment according to the criteria set forth in the DTAA. Additionally, it was determined that the income from interest on tax refunds and deposits should be taxed in accordance with the DTAA’s stipulations rather than as profits attributable to any permanent establishment.
The Tribunal upheld the CIT(A)’s decision, confirming that the activities and operations of the Project Office were indeed preparatory and auxiliary, thereby not constituting a permanent establishment. Furthermore, the Tribunal agreed with the CIT(A)’s findings that no income could be attributed to a non-existent PE and that the profits were not taxable in India under Section 44BB of the Income Tax Act, 1961, as per the provisions of the DTAA.
Outcome: The Tribunal dismissed the revenue’s appeals, supporting the view that National Petroleum Construction Co. did not have a Permanent Establishment in India for the assessment year 2019-20, and hence its profits were not subject to Indian taxation.
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