GEMOLOGICAL RESEARCH (THAILAND) CO. LTD. ,THAILAND V. THE ASSISTANT COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) - CIRCLE 2(3)(2), MUMBAI

ITA 1291/MUM/2025

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The case involves Gemological Research (Thailand) Co. Ltd., a Thai company engaged in gem trading, which appealed against the order of the Assistant Commissioner of Income-tax (International Taxation), Mumbai. The dispute centered on the assessment year 2019-20, where the tax authorities had reopened the assessment under section 148 of the Income-tax Act, 1961, and held that the appellant had a PE in India, attributing certain income to this PE and taxing it. The appellant contested the reopening of the assessment and the determination of a PE in India, arguing that the income from services provided to Indian customers and a Dubai branch was not taxable in India. The Tribunal, referencing decisions from similar cases, ruled in favor of the appellant, stating that the appellant did not have a PE in India and thus the income should not be taxed in India.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775906 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2019-2020
• Appeal Filed On: 25-02-2025
• Other Referred Cases: GIA India Laboratories Pvt. Ltd. vs. Income Tax Officer
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATYAPAL KUMAR; DR AW KRISHNA KUMAR; DR
• Assessee Lawyers: J.D. MISTRY; .; NIRAJ SHETH; ARS
• Keywords: Business income; TDS; Double taxation relief; Permanent establishment
• Section: 147; 148; 260A

Judgement Text

" | | | | आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | | | | IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI ANIKESH BANERJEE, HON’BLE JUDICIAL MEMBER I.T.A. No. 1291/Mum/2025 Assessment Year: 2019-20 Gemological Research (Thailand) Co. Ltd. 944, Mitrtown Ofce Tower 19th Floor, Unit 1903-1910 Rama IV Road Wang Mai Pathum Bangkok Thailand - 10330 [PAN: AADCG7850L] Vs The Assistant Commissioner of Income-tax (International Taxation) Circle- 2(3)(2), Mumbai अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri J.D. Mistry, Sr. Adv. & Shri Niraj Sheth, A/Rs Revenue by : Shri Satya Pal Kumar, CIT D/R a/w Shri Krishna Kumar, Sr. D/R सुनवाई की तारीख/Date of Hearing : 03/09/2025 घोषणा की तारीख /Date of Pronouncement : 09/09/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order dated 27/12/2024 framed u/s 147 r.w.s. 144C(13) of the Act pertaining to AY 2019-20. 2. The grievance of the assessee reads as under:- “1: 0 Re: Validity of re-assessment proceedings: 1: 1 The Assessing Officer / the Dispute Resolution Panel has erred in re-opening the Appellant's assessment u/s. 148 of the Income-tax Act, 1961 (\"Act\"). 1:2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject the re-opening u/s. 148 of the Act was in excess of jurisdiction and is also otherwise bad in law. 1: 3 The Appellant submits that the proceedings u/s. 148 of the Act were not in accordance with law and consequently ought to be struck down. Printed from counselvise.com I.T.A. No. 1291/Mum/2025 2 Without prejudice to the foregoing: 2: 0 Re.: Holding that the Appellant has a 'Permanent Establishment' (\"PE\") in India:: 2:1 The Assessing Officer/the Dispute Resolution Panel has erred in holding that the Appellant has a 'Permanent Establishment' (\"PE\") in India. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 2:3 The Appellant submits that the Assessing Officer/the Dispute Resolution Panel has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer/the Dispute Resolution Panel's stand that the Appellant has a PE in India be struck down. Without prejudice to the foregoing: 3: 0 Re.: Attribution: 3:1 The Assessing Officer/the Dispute Resolution Panel has erred in holding that 50% of the receipts are attributable to the alleged PE of the Appellant in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject no part whatsoever of its receipts are attributable to the alleged PE of the Appellant in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is incorrect, illegal, arbitrary, not in accordance with law and hence ought to be struck down. 3: 3 The Appellant submits that the arbitrary action of the Assessing Officer/the Dispute Resolution Panel be struck down and the Assessing Officer be directed to accept the total income as returned. Without prejudice to the foregoing: 4:0 Re.: Estimation of gross profit: 4: 1 The Assessing Officer/the Dispute Resolution Panel has erred in holding that the 20.31% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE taxable in India. 4: 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, even if it is held that the Appellant has a PE in India no further income can be taxed in India as the remunerated at an arm's length and hence the stand taken by the Assessing Officer/the Dispute Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 4: 3 The Appellant submits that the Assessing Officer be directed to accept the total income as returned. Printed from counselvise.com I.T.A. No. 1291/Mum/2025 3 5:0 Re.: General: The Assessing Officer / the Dispute Resolution Panel have erred in assessing the total income of the Appellant at Rs. 2,63,46,880/- against the returned income of Rs. Nil/- thereby determining a demand of Rs. 1,88,93,360/- against the refund claimed of Rs. Nil/- while returning the income for the year. The Appellant craves leave to add, alter, amend and/or substitute all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” 3. Briefly stated the facts of the case are that the assessee is a company incorporate in and a tax resident of Thailand and is engaged in the business of providing gem trading services. Assessee is one of the companies of GIA Group, a trusted name in gems and diamond grading and gemstone identification industry and is regarded as an authority in gemology. During the year under consideration, the assessee has rendered diamond grading services to its associate enterprise in India i.e., GIA India Laboratory Private Ltd. and to third parties. The income receipts as per return is as under:- Particulars Gross TDS Income From The Following Transactions: Diamond Grading Services -Indian Customers (Note 2) -Dubai Branch of GIA India Lab (Note 3) 25,74,81,665 19,65,739 Less: Not taxable 25,94,47,404 25,94,47,404 - - Gross Total Income - - 4. In its notes appended to the return, the assessee claimed that it provides gem grading services from Thailand to unrelated parties in India which are not taxable in India since they do not fall within the definition of term “royalty” as defined under Article 12 of India Thailand Printed from counselvise.com I.T.A. No. 1291/Mum/2025 4 DTAA. The assessee also contended that gem grading services cannot be treated as fees for technical services under the India Thailand DTAA as the treaty does not cover this item. Insofar as the grading fees earning by the assessee from the Dubai Branch of GIA India Laboratory Private Limited is concerned, the assessee was claimed not taxable under the Act as it has not business connection in India nor a dependent agent in India and even assuming there were one, the income earned by the assessee is not from India. The AO issued a showcause notice to the assessee asking it to showcause as to why amount of Rs. 25,94,47,404/- should not be treated to be attributable to PE in India and taxed in similar lines as in earlier assessment years. 4.1. The intention of the AO is clear that he wants to base his findings as per the findings given in the earlier assessment orders. When it was brought to the notice of the AO that in earlier AYs, the issue has been decided by the Tribunal in favour of the assessee, the AO observed as under:- “7.1. As regards the contention of the assessee that the appeals of earlier A.Ys. have been decided by the ITAT in assessee’s favour, it is pertinent to mention here that the Department has not accepted the said decision of the ITAT and has preferred appeal u/s 260A of the Act before the High Court for the said A.Ys. The same is pending before the Hon’ble High Court. 8. Further in earlier years i.e. from AY 2010-11 onwards Assessing Officer (A.O.) had considered 50% of the expenses incurred by the H.O. and recovered from the PE (including executive & general administrative), shall be allowed as deduction in determining profits of the PE. The Hon'ble DRP directed the A.O. to apply the profit margin of 20.31% to the gross receipts attributable to P.E. The same direction has been given by the Hon’ble DRP in assessee's own case for the A.Y. 2016-17 & 2017-18. 9. Thus, it is being held that assessee is deriving business income from India through its PE GIA India. The entire receipts of assessee are as under: Printed from counselvise.com I.T.A. No. 1291/Mum/2025 5 Particulars Amount in Rs. Income from the following transactions: Diamond Grading Services -Indian Customers -Dubai Branch of GIA India Lab 25,74,81,665 19,65,739 25,94,47,404 10. From above, during the year assessee has earned total business receipts of Rs. 25,94,47,404/- on account of diamond grading service charges. Further, out of total business receipts of Rs 25,94,47,404/-, it is held that 50% of its receipts is attributable to assessee’s PE in India i.e. Rs. 12,97,23,702/-/- (50% of Rs. 25,94,47,404)/-. On these receipts, profit ratio of 20.31% is applied i.e. Rs.2,63,46,884/- (20.31% of Rs. 12,97,23,702/-), which is the total business income attributable to PE. [Addition: Rs. 2,63,46,884/-] 5. We find that the Co-ordinate Bench by way of a consolidated order for AY 2010-11 to 2016-17 in ITA Nos. 2309/Mum/2017, 1136/Mum/2015, 851/Mum/2016, 2295/Mum/20217, 7040/Mum/2017, 6380/Mum/2018 and 7741/Mum/2019, has considered the quarrel and held as under:- “7. We find that Article -5 of India-US DTAA and Article -5 of India -Thailand DTAA have almost similar clause. Both sides are unanimous in stating that the nature of transactions and terms and conditions of transactions between assessee and Indian AE in both the cases are similar. The Revenue has not brought on record any distinguishing factor in the present set of appeals before us. Therefore, the findings given by the Co-ordinate Bench of Tribunal while adjudicating the appeal in the case of assessee's group concern GIA-US would mutatis mutandis apply to present appeal. Respectfully following the order of Co-ordinate Bench, we hold that GIA India Laboratories Pvt. Ltd. is not agency PE/PE of the assessee. Consequently, ground No.2 of the appeal is decided in favour of the assessee.” 6. Similar decision was followed by the Co-ordinate Bench in ITA No. 978/Mum/2021 for AY 2017-18 and in ITA No. 790/Mum/2024 for AY 2018-19. 7. Respectfully following the decision of the Co-ordinate Bench (supra), Ground No. 2 with all its sub-grounds is allowed. Since we have allowed the grievance for Ground No. 2, issues raised vide Ground Nos. 3 & 4 become infructuous. Printed from counselvise.com I.T.A. No. 1291/Mum/2025 6 8. The assessee also challenged the validity of re-assessment proceedings. This issue is left open as the appeal has been allowed on merits of the case. 9. In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 9th September, 2025 at Mumbai. Sd/- Sd/- (ANIKESH BANERJEE) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 09/09/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u0015 थ / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai Printed from counselvise.com "