Western Union cannot be taxed for its business income in India in the absence of PE: ITAT


The Delhi Bench of the Income Tax Appeal Tribunal (ITAT) ruled that Western Union cannot be subject to income tax for business profits made in India in the absence of a permanent establishment (PE) in India.

A bench of two members of the Tribunal comprising the accountant Shri. NK Billaiya and Judicial Member Shri. Sudhansu Srivastava was considering an appeal filed by the department against the order of the Commissioner of Income Tax (Appeals) in which the First Appeals Authority deleted the addition made by the assessment officer believing that the income Commission earned by the assessor from its operations in India is subject to tax under the provisions of the Income Tax Act 1961.

The assessed person, a United States company, is engaged in the business of providing money transfer services. The activity of the person assessed includes the transfer of money across international borders. For the purpose of doing business in India, the assessed person had entered into agreements appointing agents in India. There are four types of agents (i) the Post Office (ii) commercial banks (iii) non-bank financial companies and (iv) tour operators. The appraiser, during the appraisal process, concluded that the appraised company had a permanent establishment (PE) in India under Article 5 of the United States Indian Double Taxation Agreement (DTAA ) in the form of a fixed investment PE due to the use of software developed and owned by the assessor in India. The Assessing Officer also noted that there was the existence of a PE agency due to agents working in India. As a result, the valuation manager determined that the commission income earned by the assessor from its operations in India was taxable in India.

The formation of the Tribunal recalled its decisions in the similar cases of the appraised, observed that the agents in India pay the money to the beneficiaries or to the claimants, to whom they are bound by virtue of the agreement with the appraised for which they are remunerated does not seem to us to be a case of the exercise of all authority.

In previous judgments, it has been held that “agents do not usually exercise the power to enter into contracts on behalf of the person assessed. For the above reasons, we are of the opinion that there is no PE rated agency in India. In the absence of any MOU in India, it follows that the profits, if any, attributable to the Indian operations cannot be assessed as business profits under Article 7 of the Treaty.

Based on the above decisions, the formation of the Tribunal dismissed the appeal filed by the ministry and ruled that “the conclusions drawn by this tribunal for the 2001-02 evaluation year were subsequently followed by the other coordination chambers of this tribunal during the assessment years 2002-03, 2003-04, 2004-05, 2005-06, 2007-08, 2008-09, 2009-10 and 2010-11. As the facts are similar for all the years involved in this case, it is difficult for us to come to a different conclusion, and we are of the view that the consistent view taken by the Tribunal for all previous assessment orders does not can be changed for no comparable reason. We therefore consider that the conclusions of Ld. CIT (A) cannot be interfered with.

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