Expenses Incurred by PE to be Set Off in Legal Expenses Against Interest Income: ITAT deletes Disallowance [Read Order]

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) deleted disallowance in the matter of expenses incurred by the Permanent Establishment (PE) to be set off in legal expenses against the interest income.

The assessee, SIS Live, is a non-resident partnership firm incorporated under the laws of United Kingdom (UK) and is a tax resident of UK. In the year 2010, the assessee entered into an agreement with Prasar Bharti for production and telecasting of Common Wealth Games, 2010 through Doordarshan. In terms with the contract, the assessee was to receive an amount of Rs.246 crores.

Be that as it may, as a consequence of the contract with Prasar Bharti, the assessee has set up a Project Office (PO) in India in 2010, which constitutes a Permanent Establishment (PE) in terms of Article 5 of India – UK Double Taxation Avoidance Agreement (DTAA), and started filing its return of income offering income to tax.

The Assessing Officer held, since, the assessee had no business activity or operation in India, it cannot be said that it has a PE in India. Therefore, the business expenditure claimed by the assessee cannot be allowed. Insofar as taxability of interest income is concerned, the Assessing Officer observed that such income has to be taxed on gross basis by applying the rate of 15% as per Article 12(2) of India – UK Double Taxation Avoidance Agreement (DTAA).

The Counsel submitted, even in the immediately preceding assessment year, i.e., assessment year 2017-18, the Assessing Officer has accepted assessee’s claim of set off of business expenses against the interest income. Thus, he submitted, without any change in the factual position, the Assessing Officer cannot alter the position taken by him in the preceding assessment years, as, rule of consistency has to be applied.

A Two-Member Bench of the Tribunal comprising GS Pannu, President and Saktijit Dey, Judicial Member observed that “As regards assessee’s claim of disallowance of brought forward loss and set off of current year loss against the current years income, issues have become consequential in view of our decision qua the issue of existence of PE and taxability of interest income. Hence, the Assessing Officer has to give effect in accordance with the relevant statutory provisions.”

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates