Western Union cannot be Taxed for Its Business Income in India in the absence of PE: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the Western Union cannot be subject to income tax for the business profit earned in India in the absence of a Permanent Establishment (PE) in India.

A two-Member bench of the Tribunal comprising Accountant Member Shri. N K 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) wherein the first appellate authority deleted addition made by the Assessing Officer holding that the commission income earned by the assessee from its operations in India is subject to tax under the provisions of the Income Tax Act, 1961.

The assessee, a US company is engaged in the business of rendering money transfer services. The business of the assessee includes the transfer of monies across international borders. For the purpose of carrying out its business in India, the assessee had entered into agreements appointing agents in India. There are four types of agents (i) Department of Posts (ii) commercial banks (iii) non-banking financial companies and (iv) tour operators. The Assessing Officer, during the course of assessment proceedings, concluded that the assessee company had a Permanent Establishment (PE) in India under Article 5 of India US-Double Taxation Avoidance Agreement (DTAA) in the form of fixed placed PE due to usage of software developed and owned by the assessee in India. The Assessing Officer also noted that there was the existence of agency PE on account of agents working in India. Accordingly, the Assessing Officer held that commission income earned by the assessee from its operations in India was taxable in India.

The Tribunal bench recalled its decisions in the similar cases of the assessee, observed that the agents in India payout the money to the beneficiaries or claimants, which they are bound to under the agreement with the assessee for which they are remunerated does not appear to us to be a case of exercise of any authority.

In the earlier judgments, it was held that “the agents do not habitually exercise the authority to conclude the contracts on behalf of the assessee. For the above reasons, we are of the view that there is no agency PE of the assessee in India, In the absence of any PE 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.”

Relying on the above decisions, the Tribunal bench dismissed the appeal filed by the department and held that “the conclusions reached by this Tribunal for Assessment Year 2001-02 have thereafter been followed by the other Co-ordinate Benches of this Tribunal in Assessment Years 2002-03, 2003-04, 2004-05, 2005-06, 2007-08, 2008-09, 2009-10 and 2010- 11. Facts being similar for all the years involved in this matter, we find it difficult to reach a different conclusion and we are of the opinion that the consistent view taken by the Tribunal for all the earlier assessment orders cannot be disturbed without any comparable reason. We, therefore, hold that findings of the Ld. CIT(A) cannot be interfered with.”

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