Case Law Details
Gemological Institute of America Inc. Vs ACIT (ITAT Mumbai)
Conclusion: Since Indian subsidiary of assessee-company was operating in an independent manner and there was nothing to show that factually speaking the Indian subsidiary constituted a PE of assessee in India, therefore, AO had erred in invoking section 9 of the Act and/or Article 5 of the India-USA DTAA in order to say that the assessee company had a PE in India. Where assessee did not have a PE in India, income of assessee was not allowable to be taxed in India.
Held: Assessee was a company incorporated in USA and engaged in the business of diamond grading and preparation of diamond dossiers. It filed its return of income for the A.Y.2017-18 on 30/11/2017 declaring total income of Rs.597,75,36,450/-. Later a revised return was filed on 30/11/2018 declaring total income at Rs.348,35,96,480/-. Assessee was one of the companies of GIA group, a trusted name of gems and diamond grading and gemstone identification industry and was regarded as an authority in Gemology. During the year under consideration, assessee had rendered diamond grading services to its associated enterprises in India i.e. GIA India Laboratory Pvt. Ltd., and to third parties. Assessee pleaded that it did not have any PE in India in terms of Article 5 of the Double Taxation Avoidance Agreement (DTAA) entered into and subsisting between India and USA. The Indian Company i.e. GIA India Laboratory Pvt. Ltd., which was set up on 26/09/2007, was a subsidiary of the assessee company. This subsidiary company set up a laboratory in India and since then engaged in the activity of gem grading in India. AO held that assessee had a PE in India viz GIA India Lab through which it carried on its business in India. Accordingly, 50% of gem grading fees received by assessee from GIA India Lab had been held to be attributable to the Indian PE and a profit percentage of 20.31% was applied thereon to determine the total income of assessee. The total receipts of assessee company was determined at Rs.789,00,91,734/- which included royalty income of Rs.348,35,96,482/-. Hence, the remaining receipts of Rs.440,64,95,252/- represented business receipts of the assessee. AO applied the profit ratio of 20.31% of 50% of such business receipts (Rs.440,64,95,252/-). Accordingly, AO determined the profit attributable to PE at Rs.44,74,79,593/- in the final assessment order pursuant to the directions of DRP. It was held that there was no material to show that assessee dictated to the Indian subsidiary as to what activities it was authorised to engage in. It was noted earlier that the Indian subsidiary was operating in an independent manner and there was nothing to show that factually speaking the Indian subsidiary constituted a PE of assessee in India. Tribunal in assessee‟s own case for A.Y.2010-11 in ITA No.1138/Mum/2015 dated 21/06/2019 had decided the very same issue in assessee‟s favour by holding that the assessee did not have any PE in India. Thus, AO had erred in invoking section 9 of the Act and/or Article 5 of the India-USA DTAA in order to say that the assessee company had a PE in India. Since assessee did not have a PE in India and thus income of assessee was not allowable to be taxed in India.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA Nos.975/Mum/2021 for A.Y.2017-18 preferred by the order against the final assessment order passed by the Assessing Officer dated 20/04/2021 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.144C(5) of the Act dated 16/03/2021 for the A.Y.2017-18.
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