Wednesday, March 12, 2014

Income of Malaysian branch of Indian Co. not taxable in India if it was taxable in Malaysia on existence of PE

a)  The assessee, an investment company, had a branch in Malaysia. It had admitted foreign income from Malaysian branch in its return of income and had claimed exemption on as per India-Malaysia DTAA.
b)  Thus, the issue that arose before the Tribunal was whether the Malaysian Branch of the assessee-company had a permanent establishment in Malaysia?.
c)  The levy of tax on the income of Malaysian Branch entirely hinges on the aforesaid question. In case the answer to above question was in affirmative, the income arising from foreign Branch would be exempt from tax in view of DTAA between India and Malaysia.
The Tribunal held as under:
1)  The order passed by Tribunal in earlier assessment year relating to assessee's own case was as under:
a)  There was nothing on record to deny the Malaysian branch of assessee-company the status of a permanent establishment operating in Malaysia;
b)  There was no dispute that the taxability of the income of the assessee and its Malaysian branch was governed by the India-MalaysiaDTAA (‘treaty’);
c)  As far as the income attributable in the hands of the assessee's Malaysian branch was concerned, the income was to be taxed in Malaysia;
d)  The income generated in the hands of the Malaysian branch of the assessee company was rent and interest income. They were generated from assets of assessee situated outside India;
e)  Therefore, the income of Malaysian branch of assessee-company was liable for taxation in Malaysia. Once it was liable for taxation in Malaysia, treaty made it clear that the said income was not subjected to the jurisdiction of Indian taxation.
2)      Thus, following the aforesaid order, it was held that the Malaysian Branch of the assessee was having a permanent establishment in Malaysia and the income arising there from was not taxable in India in view of treaty.
3)      Thus, the appeal of revenue was to be dismissed. – ACIT v. Sivagami Holdings (P.) Ltd [2014] 42 418 (Chennai - Trib.)