Bechte Limited Vs ACIT (ITAT Delhi)
Delhi ITAT Holds No Permanent Establishment for UK Company Rendering Offshore Services; Remands ‘Make Available’ Test for FTS under India–UK DTAA
The Delhi ITAT partly allowed the appeal of a UK company by holding that no Permanent Establishment (PE) could be inferred in India merely by relying on findings from earlier assessment years, particularly after the execution of a new service agreement effective from 1 January 2020 under which the services were admittedly rendered entirely from outside India. Accordingly, the Tribunal held that the receipts could not be taxed as business income under section 44DA in the absence of a PE.
The Tribunal further observed that the Revenue could not simultaneously make substantive and protective assessments of the same income in the hands of the same assessee, terming such an approach legally irregular. It held that the Revenue must adopt only one mode of assessment, although it stopped short of declaring the entire assessment void on that ground alone.
On the alternative issue of taxation as Fees for Technical Services (FTS) under Article 13 of the India–UK DTAA, the Tribunal found that the lower authorities had failed to properly examine whether the services satisfied the “make available” condition under the revised agreement. It held that the crucial question was whether the engineering, procurement support and technical advisory services enabled the Indian recipient to independently perform similar functions in future without further assistance from the assessee. Since this factual exercise had not been undertaken, the Tribunal restored the issue to the Assessing Officer/DRP for fresh examination after considering the new agreement, the complete nature of services rendered, and the tax treatment of the receipts in the United Kingdom. The appeal was accordingly partly allowed.
Cases Discussed
- Tungsten Automation England Limited (Delhi HC), 480 ITR 93 (Del)
- Ernst & Young (EMEIA) Services Limited (Delhi – Trib), 184 taxmann.com 671 (Delhi – Trib)
- Foster Wheeler France S.A. (Chennai – Trib), 157 ITD 793 (Chennai – Trib)
- Lalit Put Power Generation Company Ltd. (Allahabad HC), 156 taxmann.com 698 (All.)
- MSD Pharmaceuticals (P.) Ltd. vs. ACIT (Delhi – Trib), [2017] 88 taxmann.com 54 (Delhi – Trib)
- Samsung India Electronics Private Limited vs. ACIT (Delhi – Trib), [2020] 121 taxmann.com 307 (Delhi – Trib)
- Mahindra & Mahindra Limited (Mumbai ITAT Special Bench), 122 ITD 216 (Mum.) (SB)
- Neyveli Lignite Corporation Ltd. (Madras HC), 109 Taxman 369 (Mad.)
- Guy Carpenter & Company Limited (Delhi HC), 346 ITR 504 (Del)
- Vodafone International Holdings (SC), 341 ITR 1 (SC)
- Intertek Testing Services India (P.) Ltd., In re (AAR), [2008] 307 ITR 418/175 Taxman 375 (AAR – New Delhi)
- Lalji Haridas vs. ITO (SC), [1961] 43 ITR 387 (SC)
- Jagannath Hanumanbox vs. ITO, 31 ITR 603 (Cal)
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This is an appeal arising from order dated 29.01.2025, passed u/s 143(3)/143C(13) of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. AO which itself is in response to the directions of Ld. DRP dated 09.12.2024.
