In a compelling verdict by the Income Tax Appellate Tribunal, Delhi Bench ‘D’, presided over by Shri G.S. Pannu, Hon’ble President and Shri Saktijit Dey, Judicial Member, the case between FCC Co. Ltd., a recognized entity in the global automotive industry with its manufacturing unit in Gurgaon and the ACIT, (International Taxation)-1(3)(1), New Delhi was slated for discussion. This case, denoted ITA No.1789/Del/2022, pertains to the assessment year 2017-18, involving critical considerations under the Income-tax Act, 1961, particularly sections 143(3) and 144C(13), steered by directives from the learned Dispute Resolution Panel (DRP).
The appellant, FCC Co. Ltd., filed the appeal challenging the final assessment order dated 27 June 2022. This move was in response to the assertion by the Assessing Officer (AO) that FCC Co. Ltd. had established a Permanent Establishment (PE) in India under the bilateral India-Japan Double Taxation Avoidance Agreement (DTAA). This determination was paramount as it had significant implications on the attribution of profits to the PE, fundamentally affecting the company’s tax obligations in India.
The crux of the matter revolved around whether transactions between FCC Co. Ltd. and its wholly owned subsidiary in India, FCC Clutch India Pvt. Ltd., constituted business activities that would amount to the former having a PE in India. Initially, the appellant entered into various international transactions with its Indian counterpart, declaring income of approximately Rs 79.65 crores for the said assessment year and offered to tax at the rate of 10% as prescribed by the treaty provisions. However, the AO opined differently, thereby triggering the appeal.
Delving into the specifics, the dispute hinged on the sale of raw materials and capital goods which, according to the appellant, were conducted on a principal to principal basis outside India. The transfer of property/title in goods purportedly took place outside India. Assessments from previous years, notably 2015-16, were brought into consideration to ascertain the presence of a PE in India. Contrary to the appellant’s claim, the AO argued and subsequently concluded that revenues from such transactions were closely linked with the Indian subsidiary’s activities, effectively rendering it the appellant’s PE in India. Noteworthily, this decision heavily referenced prior assessments.
The judicial discourse unfurled at the tribunal deliberated upon the essence of what constitutes a PE under the India-Japan DTAA, scrutinizing the conditions and activities that might hallmark such a status. Authorities and representatives from both sides presented substantial arguments, citing similar precedents and tribunal decisions to bolster their cases.
After thorough consideration and debate, the tribunal, in a detailed judgment, upheld that the factual circumstances of the said case were parallel to those in preceding years, specifically referencing tribunal orders from assessment years 2014-15 and 2015-16. The ruling accentuated the principle that for a PE to exist, certain predefined conditions must be unequivocally met. Based on the collective evidence and arguments presented, the tribunal determined that FCC Co. Ltd. did not have a PE in India during the assessment year in question. Consequently, the addition made to the taxable income of the appellant, attributing a portion of its income to the alleged PE, was ordered to be deleted.
This landmark adjudication not only provided relief to FCC Co. Ltd. but also reiterated the intricacies associated with establishing a PE in India under international tax treaties. Moreover, the tribunal addressed another pivotal aspect regarding the imposition of surcharge and cess over treaty-stipulated tax rates, aligning its verdict with established precedents to rule in favor of the appellant.
In conclusion, the tribunal’s decision in ITA No.1789/Del/2022 marks a significant development in the discourse on international taxation and the interpretation of DTAAs. The outcome, favoring FCC Co. Ltd., underscored the necessity of adhering to the precise stipulations of tax treaties and the rigorous standards for determining a PE’s existence. This judgment is poised to influence future cases with similar contests, offering a clarion call to multinationals navigating the complex terrain of international taxation.
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