ITAT Mumbai Dismisses Revenue Appeal in ₹465 Crore Consultancy Tax Dispute

The “I” Bench of the Income Tax Appellate Tribunal, Mumbai, dismissed the Revenue’s appeal in the case of Arun Madhavachari Rangachari for Assessment Year 2011–12. The dispute concerned the taxability of ₹465 crore allegedly received for consultancy services rendered to Gulf Finance House (GFH) and Khaleej Bank of Commerce (KBHC).

No Evidence of Permanent Establishment or Business Connection

The Assessing Officer had treated the amount as taxable in India under section 9(1), alleging that the assessee rendered consultancy services from business premises in Mumbai and had a Permanent Establishment (PE) in India. The AO also invoked section 9(1)(vii) (fees for technical services) and Article 14 of the India–UAE DTAA. However, the Tribunal noted that no direct or indirect evidence established that consultancy services were rendered from India. Mere presence at the premises of Dar Media Pvt. Ltd. during search proceedings was insufficient to prove existence of a PE or fixed base. The Revenue failed to demonstrate any material linking the consultancy income to activities carried out in India.

Earlier Tribunal Decision Followed

The addition in this year was made on a protective basis, while substantive addition had already been deleted by the Tribunal in the assessee’s own case for AY 2009–10. The Coordinate Bench had earlier held that:

1. There was no proof of PE or business connection in India.
2. Consultancy services did not fall within Article 14 (“Independent Personal Services”).
3. Stay in India was below 183 days.
4. Payments were received by foreign companies having separate legal identity.

Following the earlier decision and noting no change in facts or law, the Tribunal held that the ₹465 crore could not be taxed in the assessee’s hands as business income or as fees for technical services.

The Revenue’s appeal was accordingly dismissed in full.