Whether foreign assessees are liable to interest u/s 234B if the business profits cannot be subjected to tax in India in accordance with DTAA?

Last updated: 26 June 2014

Court :
ITAT DELHI

Brief :
The assessee Nortel Networks India International Inc. is a company incorporated in USA, a leading supplier of hardware and software productsfor GSM Cellular Radio Telephones System. During the year underconsideration, the assessee has supplied telecommunication hardwareto Reliance Infocom. The assessee had not filed its return of incomevoluntarily for the relevant year nor audited accounts. The assesse claimed loss on supply of equipment to Reliance Infocom which was purchased from its group company, Nortel Canada. AO held that the Indian company constituted a PE of the assessee and assessed its income under Rule 10 and adopted the global gross profit margin percentage as 42.6% and allowed 5% of the turnover as deduction pertaining to other selling general and marketing expenses. The CIT(A) held that only 50% of such profits had to be considered to be attributable to the PE.Since theunaudited accounts have no sanctity, the gross trading loss incurred from transaction cannot possibly be explained, except for the reason that it has beendesigned as suc and to avoid taxation in India. Thus, 50% of theresultant figure to be attributed to PE and cannot be absolved from the liability to pay tax u/s.234B.

Citation :
M/s Nortel Networks India International Inc. – Appellant – Versus - Deputy Director of Income Tax - Respondent