Sec. 9 of Income-tax Act, 1961— Income - Income deemed to accrue or arise in india —There is nothing on record to prove that the LO at Mumbai was functioning as an independent profit centre to constitute as PE of the assessee, thus, no income of the assessee can be brought to tax in India.

Facts: Ground raised by assessee is that CIT(A) agreed with the AO that since the assessee was carrying on commercial activity from the LO at Mumbai, it has to be treated as PE of the assessee. Hence, the income/profit attributable to the PE has to be brought to tax. However, CIT(A) directed the AO to adopt the sales figures for all the assessment years i.e., asst. yrs. 1995-96 to 2002-03 except asst. yrs. 1999-2000, 2000-01 as per the certified exhibits submitted by the assessee. Further, he directed the AO to adopt the gross profit rate @ 8 per cent and expenditure incurred by the assessee on actual basis. Accordingly, he disposed of the appeals of the assessee relating to asst. yrs. 1996-97 to 2002-03 in a consolidated order. Being aggrieved with the decision of CIT(A), the assessee and the Revenue are in appeal before the Tribunal.

Held, that the very same impounded documents referred to by the Departmental authorities for coming to the conclusion that the LO at Mumbai constitute PE and consequently making the addition were considered, looked into and examined by the Tribunal while deciding assessee’s appeal on the issue of identical addition made in asst. yr. 1998-99. The Tribunal while deciding the appeal held that the impounded documents, including the performance review reports on which the Departmental authorities have heavily relied upon, in no way establish that the LO at Bombay constitutes the PE of the assessee in India. The Tribunal observed that until and unless some reliable evidence is brought on record by the Department to demonstrate that the LO is doing business independently including dealing with the customers, concluding contracts, etc., it cannot be said that the LO constitutes a PE. The Tribunal observed, what needs to be seen is, with whom the decision making power lies. If the LO has to follow the directions and the command of the Head Office, then the reins of the business would not be in the hands of the LO, hence, cannot be treated as an independent entity. Thus, on the basis of the facts and evidences available on record, which are very much the same in the impugned assessment year, the Tribunal ultimately concluded that there is nothing on record to prove that the LO at Mumbai was functioning as an independent profit centre to constitute as PE of the assessee. The facts involved in the impugned assessment year are no different. It is a fact on record, on the basis of very same impounded documents, the AO has computed business profit of the assessee in the impugned assessment year in a manner similar to the preceding assessment years, thus, it was held that the LO at Bombay does not constitute a PE of the assessee under art. 5 of Indian Japan tax treaty. Hence, no income of the assessee can be brought to tax in India. - NAGASE & COMPANY LTD. V/s ASSTT. DIT - [2020] 205 TTJ 068 (ITAT-MUMBAI)