Section 44BB of the Income Tax Act cannot be applied in the absence of PE: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that Section 44BB of the Income Tax Act could not be applied in the absence of a Permanent Establishment (PE).

The assessee, Baker Hughes Energy Technology UK Limited, was a company incorporated in and a tax resident of the United Kingdom (UK). It was a part of the Baker Hughes Group of companies. The Assessing Officer (AO) is treated the same as a composite contract.

It was contended by the assessee before the AO that the offshore manufacture and supply of equipment and parts to ONGC was not taxable in India since neither the assessee had a Permanent Establishment (PE) in India nor provisions of Section 44BB of the Income Tax Act could be applied to the sale of equipment made from outside India.

The Assessing Officer held that the "consortium member was working on behalf of the Assessee Company which formed the PE of the Assessee Company.

The AO further held that the assessee was also involved in the survey, installation and commissioning of the equipment in India and since the payments were not bifurcate the entire receipt of the assessee was taxable in India under Section 44BB of the Income Tax Act.

Sachit Jolly, on behalf of the assessee, submitted that the AO had not even pointed out when the PE had come into existence or how was the offshore supply of equipment attributable to the PE.

Vijay Vasanta, who appeared on behalf of the revenue strongly relied upon the orders of the lower authorities.  

The Division Bench of Yahya, (Accountant Member) and Kul Bharat, (Judicial Member) allowed the appeal filed by the assessee holding that “It is settled proposition that unless Revenue is able to prove that the assessee has a PE in India, its business profits cannot be subject to tax in India.”

To Read the full text of the Order CLICK HERE

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