Computation of Income u/s 44BBB on bonafide belief that Assessee does not have PE in India: ITAT deletes Penalty against Lahmeyer Holding GambH [Read Order]

In a major relief to Lahmeyer Holding GambH, the ITAT, Delhi bench has held that the penalty cannot be levied based on the fact that the assessee opted to compute income under section 44BBB of the Income Tax Act, 1961 under a bonafide belief that they don’t have a PE in India.

The assessee claimed that period of presence of employees of the Assessee in India qua projects with MPCPL, VIWSCL and APTC was lesser than the threshold period of 183 days and in fact no supervisory services have been rendered from the contracting state (i.e. India) for a period exceeding 6 months and the services rendered by the Assessee were in nature of technical and consultancy services and therefore, falls outside the purview of supervisory activities . Accordingly, the Assessee was under genuine belief that no supervisory/ installation of PE has been constituted as per Article 5 of the Tax Treaty by the Assessee, under the above contracts with MPCPL, VIWSCL and APTC. It was also claimed by the Assessee that in the absence of PE in India and considering the nature of services rendered by the Assessee i.e. technological/consultancy services, the Assessee has rightfully offered the revenues earned from the said contracts to tax @10% as FTS as per Article 12 of the India-Germany Tax Treaty.

The Tribunal bench comprising Shri R.K.Panda, Accountant Member And Shri N. K. Choudhry, Judicial Member allowed the appeal of the assessee and held that “considering the peculiar facts and circumstances as narrated above and specifically to the effects that in the instant case, the retuned income and assessed income is the same, which in our considered view favors the Assessee’s case and respectively following the judgments referred above, we are of the considered view that simply because the Assessee may be on bonafide belief or misconception that the Assessee does not have “PE” in India and/or on the basis of certificate dated 19.05.2004 issued u/s 197 of the Act by the revenue department, chosen to compute the tax payable on its income u/s 44BBB of the Ac, that itself cannot entail imposition of penalty. Hence, we are inclined to delete the penalty imposed by the ld. AO and affirmed by the ld. Commissioner vide impugned order.”

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