Imax Corporation Vs ACIT (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal filed by a Canadian company engaged in developing, selling, and leasing large-format theatre systems, along with installation and related support services. The dispute arose from the assessment order passed under Sections 143(3) read with 144C(13) of the Income Tax Act, wherein the Assessing Officer (AO) alleged that the company had a Permanent Establishment (PE) in India and attributed income to such PE.
The assessee had entered into agreements with Indian customers involving: (i) sale of theatre systems, (ii) installation and related services including training, and (iii) licensing of the IMAX trademark. The AO initially proposed additions in respect of sale of theatre systems, sale of glasses and other items, installation services, and theatre design services. Applying Rule 10 of the Income Tax Rules, the AO proposed an addition based on a profit rate of 25%. However, after directions from the Dispute Resolution Panel (DRP), the final assessment order retained additions relating to sale of glasses and other items, installation services, and theatre design services.
The assessee challenged the findings on several grounds, primarily disputing the existence of a fixed place PE and an installation/supervisory PE in India under the India-Canada Double Taxation Avoidance Agreement (DTAA). The assessee also objected to the attribution of profits, the inclusion of sale of glasses despite DRP directions, the computation of income, levy of interest, and initiation of penalty proceedings.
