Arun Madhavachari Rangachari Vs DCIT (International Taxation) (ITAT Mumbai)
Conclusion: Investments made by a foreign company could not be attributed to a non-resident individual shareholder without “lifting the corporate veil.” AO could not tax these investments in the assessee’s hands without proving the funds were routed personally by him.
Held: Revenue appealed against the deletion of addition of ₹325.5 crore (out of ₹465 crore) made on protective basis in the hands of the assessee, a non-resident individual allegedly rendering consultancy services to foreign entities in relation to Indian projects. AO treated the receipts routed through foreign companies (100% owned by the assessee) as income of the assessee, taxable in India as business income/fees for technical services, alleging existence of Permanent Establishment (PE) and use of Indian premises. It was held that mere physical presence at a premises during a search did not establish a Fixed Place PE or a Fixed Base. Revenue failed to conduct any inquiry to prove that the premises were actually used to render consultancy services. Under Article 14 of the India-UAE DTAA, income was only taxable in India if there was a fixed base or a stay exceeding 183 days. Since assessee stayed for only 121 days and no fixed base was proven, the income was not taxable in India. Invoices raised by assessee in his capacity as a Director are legally the invoices of the company. AO failed to provide evidence that the foreign companies were “shell companies.” Therefore, their income could not be assessed in the individual hands of the Director. Investments made by a foreign company could not be attributed to a non-resident individual shareholder without “lifting the corporate veil.” AO could not tax these investments in the assessee’s hands without proving the funds were routed personally by him.
