In the Income Tax Appellate Tribunal (Delhi Bench ‘D’: New Delhi), the case of UK Grid Solution Ltd versus Deputy Commissioner of Income Tax, Circle-3(1)(1), International Taxation, New Delhi, was reviewed for the assessment year 2019-20. The primary issues revolved around the assessment order dated 28.07.2022 passed under sections 143(3) and 144C(13) of the Income Tax Act, 1961, which the appellant challenged.
The appellant, UK Grid Solution Limited, a UK-based entity, disputed the final assessment that encompassed challenges against the findings of the Dispute Resolution Panel (DRP). The appellant contended that the facts of the case in A.Y. 2019-20 were similar to those in A.Y. 2018-19, with differences only in the assessment year and amounts involved. They argued that their income derived from offshore supplies was not taxable in India, citing the offshore nature of transactions and lack of a permanent establishment in India as per the India-UK Double Taxation Avoidance Agreement (DTAA).
Significantly, the tribunal’s scrutiny focused on whether the appellant had a Permanent Establishment (PE) in India, which could impact the taxability of its operations under Indian tax laws and the DTAA. The tribunal analyzed various submissions and evidence presented by both the appellant and the respondent. Key points included the nature of contracts, the division of responsibilities, and the detailed activities undertaken by the appellant and its associates related to the projects executed in India.
One critical aspect of the case was whether the splitting of a composite contract into three separate contracts by the appellant was an artificial arrangement intended to avoid the establishment of a PE in India. The tribunal found that the contracts were genuine and that the splitting was a legitimate business arrangement, not devised for tax evasion. This finding was pivotal in determining the absence of a business connection or a dependent agent PE of the appellant in India.
The tribunal ultimately ruled in favor of the appellant, allowing the appeal and quashing the income adjustments made by the tax authorities. This decision underscored the importance of understanding the specifics of contractual arrangements and the definitions of a permanent establishment under international tax treaties.
UK Grid Solution Ltd vs DCIT, International Taxation, New Delhi (2019-20)
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