The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT), deleted penalty as Overseas Consultancy Income (OCI) is fees for technical services under Section 115A of the Income Tax Act, 1961.
In the return of income filed by the Appellant, M/s. Aecom Asia Co. Ltdoffshore income was offered to tax at 10% on gross basis as Fee for Technical Services (‘FTS’) in terms of section 115A of the Income Tax Act. Income earned from the activities carried out in India by the Project office was offered to tax as business income on a net income basis.
The return was selected for scrutiny assessment and the Assessing Officer (AO) passed the assessment order making an addition of Rupees six crores to the returned income treating 50% of Overseas Consultancy Income as chargeable to tax at 40% on net income basis. The AO treated services renderedfrom overseas as effectively connected to the Permanent Establishment (‘PE’) or PO of the Appellant in India as per section 44DA of the Income Tax Act.
In the course of assessment proceedings, the Assessing Officer required the assessee to show cause as to why the Overseas Consultancy Income (OCI) of Rs.13.11 crores should not be treated as income as per the provisions of section 44DA of the Income Tax Act as profits and gains of business or profession.
The Counsel for the assessee submits that in assessee’s case the OCI has arisen because of services rendered by the employees of the assessee at Hong Kong and not from the activities and operations carried out by the PE in India. Therefore, it is submitted that the OCI cannot be said to be effectively connected with the PE in India as per the provisions of section 44DA of the Income Tax Act.
A Division Bench consisting of observed that “The assessee has rightly offered the OCI as fees for technical services under the provisions of section 115A of the Income Tax Act and the addition made under section 44DA of the Act is liable to be deleted.”
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