Mumbai ITAT on Profit Attribution & Interest on Refund for Singapore-Based UPS Asia Group Pte. Ltd.

1. Background of the Dispute

The matter concerns UPS Asia Group Pte. Ltd., a company incorporated under the laws of Singapore and engaged in global supply chain solutions, including international freight forwarding and logistics. The company operates outside India and provides international transportation and related services, while an Indian group entity, UPS SCS (India) Private Limited (“USIPL”), performs on-the-ground activities in India.

For A.Y. 2022-23, the assessee filed its return of income in India declaring a total income of Rs. 30,85,840. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS) mechanism.

The Assessing Officer (“AO”) framed a draft assessment under Section 144C(1) proposing a total income of Rs. 4,44,00,747. The key elements of the proposal were:

• Treating USIPL as constituting:
  • a “Business Connection” in India under Section 9(1)(i) of the Income Tax Act 1961, and
  • a Permanent Establishment (“PE”) under Article 5 of the India–Singapore Double Taxation Avoidance Agreement (“India–Singapore DTAA”);
• Attributing additional profits of Rs. 4,13,14,903 to the alleged business connection/PE in India from outbound and inbound consignments;
• Taxing interest on income-tax refund of Rs. 29,35,010 at normal rates under the Act, instead of at the concessional rate under Article 11(2) of the India–Singapore DTAA.

The assessee approached the Dispute Resolution Panel-2, Mumbai (DRP) and raised objections on all three issues. The DRP, however, confirmed the draft assessment in full, following which the AO passed the final order under Section 144C(13).

The assessee then appealed before the ITAT Mumbai, challenging:

1. The finding of a business connection/PE in India;
2. The consequent profit attribution of Rs. 4.13 crore;
3. The manner of taxing interest on income-tax refund.

An additional legal ground alleging that the assessment order was time-barred under Section 153 was also raised before the Tribunal.

2. Grounds Raised Before the ITAT

2.1 Business Connection and PE in India

The assessee argued that:

• It runs its core operations entirely outside India.

• It does not maintain any fixed place of business, office, or personnel in India.

• Services in India are provided by USIPL in its own right, and the assessee does not directly conduct operations in India.

• Therefore, the conclusion that there exists:

  • a “Business Connection” under Section 9(1)(i) of the Income Tax Act 1961, or
  • a PE under Article 5 of the India–Singapore DTAA,

  on account of USIPL’s activities is incorrect and contrary to law.

The assessee requested that any such finding of business connection or PE be struck down as unjustified.

2.2 Profit Attribution of Rs. 4,13,14,903

Without prejudice to its challenge on the existence of business connection/PE, the assessee disputed the attribution of profits as follows:

• The AO attributed:

  • 55% of revenues in respect of outbound consignments and
  • 22.5% of revenues in respect of inbound consignments

  as “gross India taxable revenue” attributable to the alleged business connection/PE.

• The assessee highlighted that:

  • All transactions between the assessee and USIPL are subject to transfer pricing analysis.
  • The Indian associated enterprise (AE), USIPL, has been compensated at arm’s length price (ALP).
  • No transfer pricing adjustment has been made in USIPL’s case by the Transfer Pricing Officer (TPO).

On these facts, the assessee submitted that once USIPL (treated as a Dependent Agent PE (DAPE) by the AO) is remunerated at ALP, no further profit can be attributed to the foreign enterprise under either:

• Section 9(1)(i) of the Income Tax Act 1961, or
• Business profits Article Article 7 read with Article 5 of the India–Singapore DTAA.

2.3 Taxation of Interest on Income-Tax Refund (Rs. 29,35,010)

The assessee further challenged the treatment of interest on income-tax refund: