Case Law Details
1. Being a tax resident of UK, the assessee opted to be taxed in India under the provisions of the India UK Double Taxation Avoidance Agreement for the previous year relevant to the assessment year under consideration. As per the assessee under the provisions of the Tax Treaty, income derived by him from supply of network equipment (hardware and software) to Indian customers qualified as “business profits” and, therefore, not liable to taxation in India under the provisions of Article 7(1) of the Tax Treaty in the absence of a “permanent establishment” (PE) of assessee in India. Accordingly, assessee did not offer the Revenue from supply of network equipment to tax in India.
2. In response to notice under section 142(2) requiring the assessee to file its return of income, it filed a letter submitting that it did not constitute a PE in India under the terms of the Tax Treaty and is not taxable in India. In compliance of further notice issued under section 142(1) it, however, filed its return of income declaring ‘NIL’ income. It was selected for scrutiny and in the assessment framed under section 143(3), income earned from some sources was taxed. The entire revenue from supply of hardware was held to be taxable in India and profit margins at the rate of 40% were attributed to the Indian activities. Income from supply of software was taxed as “royalty” at the rate of 30% on a gross basis on the ground that software has been licensed by the assessee and not sold. The Id. CIT (Appeals) gave part relief,which was upheld by the Tribunal. The Revenue went in appeal against the said order of the Tribunal before the Hon’ble High Court. The Hon’ble High Court admitted the appeal and after passing a detailed order dismissed the appeal on 23.12.2011 after answering the questions of law against the Revenue. In the meanwhile, vide order dated 27.04.2007 Assessing Officer levied penalty under section 271(1)(c) of the Act at Rs.18,02,291/- @ 100% on the tax of Rs. 18,02,291/- sought to be evaded.
The Id. CIT (Appeals) has deleted the penalty, which has been questioned by the Revenue before Tribunal.
3. In support of the ground, the Id Sr. DR, Shri Rajesh Kumar has placed reliance on the penalty order with this submission that the assessee tried to evade payment of tax by not filing its return of income. It had filed its return of income only in compliance of notices issued under section 142(1) of the Act. The Assessing Officer was thus justified in initiating and imposing the penalty as the assessee has furnished inaccurate particulars of its income by claiming that income derived by it from supply of network equipments to Indian customers qualifies as “business profits” and, therefore, not liable to taxation in India under the provisions of Article 7(1) of the Tax Treaty in the absence of a `permanent establishment’ of the assessee in India,
4. The Id, AR, Shri Sanat Kapoor, Advocate, with Ms. Ananya Kapoor, Advocate, has on the other hand, reiterated submission made before the authorities below and placed reliance on the decisions cited before them.
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