We had earlier discuss in detail about the concepts of International taxation and payments along with various case laws earlier in two different articles. In case you want to refer, the same, please click on the link below:
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Over a period of time, there are number of judgements comes from various levels of courts from different locations of India and hence it is very important to know the same for the correct treatment of international payments.
Commission : Payment of commission to Indian agent at arm’s length price does not relieve non-resident from further attribution of profits to PE in India. Refer, MTV India Limited.
The applicant is an Indian company engaged in the manufacturing and supply of Rice Par Boiling and Dryer Plants as per requirement of customers. It had received orders from two agents situated in Pakistan. The
plant was shipped and commission was payable to agents on completion of export orders. The question was raised whether the income of non –resident agent can be considered as deemed to accrue or arise in India and whether tax deduction would be mandatory under section 195 on export
commission paid to non-resident agent if so , at what rate. The Authority for Advance Ruling held that the fact that the agents have rendered services abroad in the form of soliciting the orders and the commission is to be remitted to them abroad are wholly irrelevant for the purpose of determining the situs of their income . Following the ruling in Rajive Malhotra ( 2006)284 ITR 564 (AAR) , it is to be held that income arising on account of commission payable to the two agents is deemed to accrue and
arise in India and is taxable under the Act in view of section 5(2)(b) read with section 9(I)(i) . The provision of section 195 would apply and the rate of tax will be as provided under the Finance Act for the relevant year. Refer, SKF Boilers and Driers (P) Ltd, 248 CTR 121(AAR).
Mumbai ITAT in the case of Armayesh Global v. ACIT, 51 SOT 564, held that the assessee is a firm engaged in the business of manufacturing and exporting of hand embroidery and handicraft items. The assessee used commission agent to procure export orders. It was held that the income earned was not taxable in India i.e. it did not accrue or arise in India as it was acting merely as a commission agent and did not provide any managerial/ technical services. The agreement was merely of providing non‐technical services. As also that there was no PE of the said non‐resident in India there was no need to deduct tax at source . (A.Y. 2007‐08) (Note: Referred to: Circular No. 23 dated 23/7/1969 ,(C& P Vol 10 P.no 142‐5 p Circular No. 786, dated 7/2/2000( 2000) 241 ITR 132 (st) and Circular No. 7, dated 22/10/2009)
The assessee was non –resident and was living in Singapore. He has earned brokerage and commission out of import and export of agricultural produce like cashew nuts . The imports were made from African Countries and exports were made to other countries and no activities was routed through Indian waters, The remittances was first received by foreign correspondent bank of Indian Bank and there after the amounts were transferred to NRE account in Chennai by way of cheques /DD//TTs. The Tribunal held that when funds were handed over first in accounts of foreign correspondent bank outside India , income could not be treated as income received or accrued or arose or deemed to accrue in India, therefore not exigible to Indian taxation. (A.Ys 2004-05 to 2009-10 ) Refer, JCIT v. V. Deenadayalavel , 52 SOT 511 (Chennai) (Trib.) .
It was held that to constitute “fees for technical services”, it is necessary that some sort of ‘managerial’ ‘technical’ or ‘consultancy’ services should have been rendered in consideration. In the instant case, services rendered under a buying service agency agreement are routine services offering procurement assistance. They consist of negotiating between the Principal and manufacturers for purchase of merchandise. Hence, consideration received was classified as “ commission” and not for “ fees for technical services” Appeal of the assessee was allowed. Refer, Adidas Sourcing Limited v.ADI, (A.Y. 2007-08)(ITA no 5300/Del/2010 Bench ‘D’ dated 18-9-2012) .
The assessee was engaged in the business of manufacturing and export of garments. It made remittances to a non-resident company SEL, without deduction of tax at source. It was held that the payment in the issue did not fall within the ambit of Fees for technical services u/s 9(1)(vii) as the services were availed to ensure that imports were received in India import were received in India on time and in correct quantity. It was clear from the records that SEL nowhere was involved in identification of exporter or selecting material and negotiating price and thus, no consultancy services were involved. Role of SEL did not involve much technical knowledge. Further, there was no managerial services involved as SEL was acting on behalf of assessee as its agent and there no independent application of thought process in any activity. (A.Y. 2007-08). Refer, Jeans Knit (P.) Ltd. v. Dy. CIT, 53 SOT 76.
Acquire controlling rights : Appellant company, namely Vodafone International Holdings BV(VIH), was resident for tax purposes in Netherlands. A sale purchase agreement (SPA) was entered between appellant and HTIL under which HTIL agreed to transfer to appellant its entire issued share capital in CGP and thereby entire interest of HTIL in HEL was transferred to appellant. High Court held that VIH on purchase of CGP got indirect interest in HEL, acquired controlling right in certain indirect holding companies in HEL, controlling rights through shareholder agreements which included right to appoint directors in certain indirect holding companies in HEL, rights to use ‘Hutch’ brand in India, etc., which all constituted capital asset as per section 2(14). High Court further held that VIH by virtue of its diverse agreements had nexus with Indian Jurisdiction and hence proceedings initiated under section 201 for failure to with hold tax by VIH on payments made to HTIL could not be held lack of jurisdiction. On facts it was noted that investment in to India by a holding company (Parent company),HTIL through a maze of subsidiaries. It was also apparent that transaction involved ‘outright sale’ between two non‐resident companies of a capital asset (Shares) outside India. Since the parties to transaction had not agreed upon a separate price for CGP share and for High Court called as ‘other rights and entitlements’ (Including options, right to non‐compete, control premium, customer base, etc.) it was not open to Revenue to split payment and consider a part of such payments for each of above items. Even otherwise, since there was an off shore transaction between two non–resident companies namely, HTIL and VIH and subject–matter of transaction was transfer of CGP (another non‐resident company),Indian tax authorities had no territorial jurisdiction under section 9(1)(i) to tax said off shore transaction. Accordingly the Supreme Court set aside the order of High Court. Refer, Vodafone International Holdings B.V. v. UOI, 341 ITR 1.
Assessee a resident of India was holding shares in company T incorporated in Sri Lanka. The said shares were sold by the assessee. The assessee claimed that the capital gain could not be taxed in India because such sale was governed by Article 13(4)of India - Sri Lanka DTAA. It was held that the words ‘may be taxed’ under Art. 13(4) of DTAA gave exclusive power to tax such income in Sri-Lanka and thus, said income could not be taxed in India. (A.Y. 2007-08). Refer, Apollo Hospital Enterprise Ltd. v. Dy.CIT, 53 SOT 103.
Supply of software : Assessee obtained orders from Department of Telecommunications for manufacture and supply of telecommunications/switching equipments. In order to execute its orders in India it had placed orders on ‘L’ Technologies, USA for supply of software. Assessee also placed order with ‘L’ Technologies, Taiwan for supply of hardware. Assessing Officer took a view that payment made toL’ Technologies USA for supply of software were in the nature of royalty under provisions of section 9(1)(vi) read with DTAA between India and USA and thus the assessee was required to deduct tax at source under section 195.On appeal Tribunal held that acquisition of software without hardware did not serve any purpose hence, payment made to ‘L’ Technologies, USA could not be termed as royalty and not liable to deduction at source as it was an integrated import could not be sustained. In an appeal before the High Court, by revenue High Court upheld the view of the Assessing Officer.(A. Ys. 2000‐01, 2002‐02 & 2002‐03). Refer, CIT v. Sunary Computers (P) Ltd., 204 Taxman 1.
Further, assessee a Swedish company, supplied hardware and software to an Indian cellular operator under supply agreement whereby both the transfer of the property in the goods and risk passed outside India, and the installation activity having been carried out by two separate companies, though belonging to the same group, which received separate remuneration and have been independently assessed, in respect of their income, assessee did not have any business connection in India and therefore, no taxable even took place in India. Software supplied by the assessee being an integral part of the GSM mobile telephone system incapable of independent use and there being nothing to establish that the cellular operator has obtained any copy right of such software, no part of the payment received by the assessee under supply agreement can be classified as royalty either within the meaning of section 9(1)(vi) or under Article 13(3) of the DTAA between India and Sweden.(A.Y. 1997‐98). Refer, DIT v. Ericsson A.B., 66 DTR 1.
In the case of Novel Inc. v. Deputy Director of Income-tax, Vol 16 Pg 101, it was held that U. S. company selling software to its distributor in India and distributor reselling it to customers--Income received by non-resident was not royalty but business profits . Hence, U. S. company not having permanent establishment in India--Income not taxable in India
Shrink-wrap application software : The assessee sold “shrink-wrap application software” called “Solidworks 2003″ to customers in India and claimed that the same was “business profits” and not assessable to tax as it did not have a PE in India. The Assessing Officer held that the income was assessable to tax as “royalty” under section 9(1)(vi)/ Article 12(3) though the Tribunal (for an earlier year) reversed it on the ground that the product was a “copyrighted article” and not “copyright“. Before the Tribunal, the department claimed that the earlier view should not be followed in view of Samsung Electronics Co. Ltd. v. CIT(2011)203 Taxman 477(Karn.) while the assessee relied on DIT v.Ericsson AB (2012)204 Taxman 192 (Delhi). Held by the Tribunal: The department’s argument that DIT v.Ericsson AB(2012) 204 Taxman 192 (Delhi) was confined to a case where the software was embedded to the equipment is not correct. The Court did hold that consideration paid merely for right to use cannot be held to be royalty and the ratio would also apply when “shrink wrap” software is sold. Where two views are possible, the view in favour of the assessee has to be preferred. This principle is applicable to non‐resident assessees as well in view of Article 24(1) of the DTAA (non‐discrimination) which provides that nationals of a Contracting State shall not be treated less favorably than the nationals of the other Contracting State. Dy. DIT v. Solid Works Corporation.
The Tribunal held that the assessee is not liable to deduct tax at source in respect of payments made for purchase of software as the same cannot be treated as income liable to tax in India as royalty or scientific work under section 9 of the Act read with Double Taxation Avoidance Agreements and treaties. On appeal by revenue the Court following the Judgment in CIT v. Samsung Electronics Co Ltd (2011) 203 Taxman 477 (Karn.)(High Court and in view of retrospective amendment in section 9 Explanation 4 and explanation from 1-6-1976, decided the issue in favour of revenue. The Court held that the assessee is liable to deduct tax at source. (A.Y.2001-02
). Refer, CIT v. P .S .I .Data System Ltd, 208 Taxman 452 (Karn.)(High Court).
). Refer, CIT v. P .S .I .Data System Ltd, 208 Taxman 452 (Karn.)(High Court).
Market Research : The assessee is a manufacturer of auto mobile products in India. LDV is a resident of UK and is also in the business of manufacturing of automobiles in UK. The assessee and LDV had proposals for joint venture in the area of auto mobile manufacture.LDV wanted to do market research to find out the potential market for different vehicles and consumer preferences. LDV carried out market research and raised invoice on assessee. Assessee remitted certain amount to LDV without deducting tax at source. Lower authorities held that the payment was not confined to only market research but to provide technical assistance in improving quality of their minibus and to move towards fully engineered minibus and therefore, amount in question was part of fees for rendering technical services by LDV liable to deduct tax at source. Tribunal held that since LDV merely conducted market research on acceptability of possible market for its product in India, and no technical service was being made available to assessee,payment in question was reimbursement of expenses and was not in nature of fees for technical services as contended by revenue, hence, there is no obligation to deduct tax at Source.(A.Y.1998‐99). Refer, Mahindra & Mahindra Ltd. v. ADIT, 134 ITD 312.
The assessee is a company engaged in the business of providing hotel related services to various hotels across the world. Following the view laid in the decision of Sheraton International Inc. v. Dy. DIT (2006) 207 ITD 120(Delhi) and Dy. DIT v. Sheraton International Inc.(2009) 313 ITR 267 (Delhi), the Tribunal held income received from providing marketing services and ‘Frequent Flier Program’ and ‘Starwood Preferred Guest’ services outside India cannot be taxed as Fees for Technical Services. (A.Y.
2005-06, 2006-07). Refer, Dy. DIT (IT) v. Sheraton International Inc, 135 ITD 373 (Delhi).
Liaison Office : Karnataka High Court rules that Liaison Office engaged in certain commercial activities would constitute a Permanent Establishment in India under the India-Korea tax treaty. Refer, Jebon Corporation India.
In case of DY.DIT v. Western India Financial Services Inc. 50 SOT 109(Delhi) (Trib), it was held that Agents merely carried out concluding step in embodied in contracts, there was no PE in India and hence the assessee could not be taxed in India in respect of profits arising from its activities in India.- DTAA-India-USA-Art.5.
Delhi high court in the case of DIT v. Nokia Networks OY and others, held that the assessee, a French company, sold GSM equipment manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis, under independent buyer-seller arrangements. Installation activities were undertaken by the assessee’s subsidiary. The Assessing Officer and Commissioner (Appeals) held that the assessee’s liaison office and subsidiary constituted a Permanent Establishment(PE) and a portion of revenue was attributable to the PE and the whole of software revenue was held as assessable as “royalty” under section 9(1)(vii) and Article 13. The Tribunal decided the issue in favour of assessee. On appeal by revenue, the court held that as regards the profits on supply of equipment, the legal position is that the places of negotiation , the place of signing of agreement or formal acceptance thereof or overall responsibility of the assessee are irrelevant circumstances. The only relevant factor is as to where the property in the goods passes. As the goods were manufactured outside India and the sale has taken place outside India, even in a “composite contract”, the supply has to be segregated from the installation and only then would question of apportionment arise to the determine the extent to which it arises in section 9(1)(i). The departmental argument that composite contracts cannot be split so as to exempt supply profit is not acceptable.
As regards the profits on supply of software, there is a distinction between the supply of a “copy right” and supply of a “copyrighted article” . Though the Explanation 4 was added to section 9(1)(vi) by the Finance Act , 2012 with retrospective effect from 1-6-1976 to provide that all consideration for user of software shall be assessable as “royalty” the definition in the DTAA has been left unchanged . In CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom.)(High Court), it was held that amendments cannot be read in the treaty. As the assessee has opted to be assessed by the DTAA, the consideration cannot be assessed as “royalty” despite the retrospective amendments to the Act.(A.Ys 1997-98 and 1998-99( ITA 512 of 2007 .1137of 2006/ 1138 of 2006/ 505 of 2007/506 of 2007/359 of 2005/ 1324 of 2007/30 of 2008 dated 7-9-2012)
Transfer of know-how : The assessee a non-resident Swedish company had entered in to an agreement with Atlas Copo (India) Ltd. for supply of the technical know how for the manufacture of screw type air compressors and to render technical assistance that may be required in the said manufacture during the existence of the agreement against the lump sum consideration payable in three installments. It was contended by the assessee that the amount received during the year pursuant to the aforesaid agreement was not taxable as per the provisions of the Double taxation Avoidance Agreement. The Assessing Officer held that the amount received by the assessee was royalty which is covered under DTAA. The said order was confirmed in appeal by the Tribunal. In an reference at the instance of the assessee the Court held that since amount was paid to assessee on account of transfer of know-how by assessee–company to Indian Company it was in the nature of ‘royalty’ covered under Article VII of DTAA , hence, the Tribunal was justified in holding that the amount in question was taxable in India. (A. Y. 1986-87). Refer, Atlas Copco AB Sweden v. CIT, 205 Taxman 5.
Offshore supplies : As per the terms of the contract, applicant is responsible for off shore supplies, off shore services and mandatory spares (for off shore supplies). Applicant can be said to have a business connection in India, however, it has not carried out any part of the business relating to offshore supplies in India. As the applicant is not the owner of the supplies in India. Right title, payment, etc. in the supplies had passed on to P. Ltd. outside India, therefore, the amount received /receivable by the applicant from P. Ltd. for off shore supplies in terms of contract is not liable to tax in India. Refer, CTCI Overseas Corporation Ltd, 247 CTR 233.
Further, in another case, applicant Chinese company entered in to a supply contract with JP Ltd. to carryout design, engineering, procuring and transportation to the port of loading of the equipment for a coal fire power station built for the Indian company. In the agreement the parties had stipulated for passing of the title to the equipment outside the country. Technical requirements were that of the owner. The payments were to be made in Euros and Dollars. In bill of lading and bill of entry, the Indian company was shown as the owner of the equipment, therefore, there was an off shore sale and amount received by the applicant was not liable to tax in India. Refer, Speco III Electric Power construction Corporation, 247 CTR 230.
Film Rights : Assessee was a non-resident company having business in production and distribution of films. It entered in to an agreement with an Indian company, WBPIPL whereby the assessee granted exclusive rights of distribution of cinematographic films on payment of royalty. The assessee received certain sum as royalty. WBPIPL deducted the tax at source while remitting the amount. The assessee filed the return and claimed the refund of tax deducted at source. The Assessing Officer held that the royalty received was taxable as per article 12(2) at 15%. The Commissioner (Appeals) held that royalty received was ot taxable. The Tribunal held that assessee did not have any permanent establishment in India, income in question arising outside Indian Territories could not be brought to as business income. (A. Y. 2006-07). Refer, ADIT (International) v. Warner Brother Pictures Inc., 49 SOT 438.
Cost Share arrangement : The applicant has entered in to cost contribution agreement with foreign company SIPCL for the provision of business support services, in the form of general finance advice, taxation advice, legal advice on information technology, media advice on information technology, media advice, taxation advice, legal advice, etc. SIPCL is in the business of providing of providing various advices and services to various Shell operating companies. On the facts the applicant will be able to use any know how intellectual property generated from the services independent of the service provider and hence the services under the agreement are made available to the applicant, hence payment received by SIPCL is chargeable to tax in India and the applicant is liable to with hold tax under section 195. Refer, Shell India Markets (P) Ltd., 67DTR 3.
Similar decision given in the case of Shell Technology India Private Limited, In re, 345 ITR 206, where it was held that share service provided by Netherlands & Philippines were taxable in India.
In the case of Systems , In re, 345 ITR 479 again it was held that allocation of research cost by one legal entity of the global group and then reimbursement of the same is payment for Royalty.
Subscription for updates : -Payment for subscription advantage programme is Royalty and Indian distributor to withhold taxes in India on payments. Refer, Citrix Systems Asia Pacific Pty. Limited , In re (AAR), 343 ITR 1.
In another case of Thoughtbuzz (P) Ltd., 250 CTR 1, it was held that, the applicant is a Singaporean company engaged in providing social media monitoring services for a company, brand or product. It is a platform for users to hear and engage with their customers brand ambassadors etc across the internet. The applicant offered services on charging a subscription. The clients who subscribed can log into its website to search on what is being spoken about various brands and so on. The applicant raised the two question before the Authority ;
(a) Whether the amount received by offering subscription bases services is taxable in India?
(b) Whether tax is required to be deducted from such amount by the subscribers who are resident in India?
The Authority for Advance Rulings held that the applicant being engaged in providing social media monitoring service by generating reports with analytics on the basis of the inputs given by the clients which amounts to business of gathering collating and making available or imparting information concerning industrial and commercial knowledge , experience and skill and therefore , the subscription received by it form the Indian subscribers would be royalty in terms of clause (iv) of Explanation 2 to section 9(1) (vi) as well as para 12 of the India –Singapore DTAA , consequently tax is required to be deducted in terms of section 195 from the payment made to it by the subscribers who are resident in India.
Transportation Fees : The assessee is a foreign company incorporated under the laws of Hong Kong is engaged in the business of provisions of supply chain management , including the provisions of freight and forwarding and logistic services. It entered into a ‘Regional Transportation Services Agreement’ with an Indian Company for providing freight and logistics services to each other. The Assessing Officer held that the transportation fees received by assessee from Indian Company is taxable as ‘fees for technical services’ under section 9(1) (vii), as it was for services in the nature of ‘managerial ,technical or consultancy services’. The view of Assessing Officer was confirmed by the Commissioner (Appeals).On appeal, the Tribunal held that the role of assessee in entire transaction was to perform only destination services outside India by unloading and loading of consignment hence cannot be said to be managerial services. It has not rendered any consultancy services hence it cannot fall within the ambit of section 9(10) (vii).On the facts the assessee has rendered ‘International services’ outside India the provisions of section 9 (1)(i) cannot be applied hence cannot be taxed in India. (A.Y. 2006-07). Refer, UPS SCS(Asia) Ltd v. Asst. DIT, 50 SOT 268.
Book Entry : In the case of CIT v. EON Technology P. Ltd, 343 ITR 366, it was held that mere book entries in the books does not means actual payment. Refer, Central Board of Direct Taxes Circular No. 23, dated 23-7-1969--Circular No. 786, dated 7-2-2000.
Sale of Hardware along with Software : In the case of Director of Income-tax v. Ericsson A. B, 343 ITR 470, it was held that when purchase of software is integral part of hardware, same cannot be termed as royalty.
HO & Branch Transactions : Payments of interest by branch in India by a foreign branch on advances by head office. Branch office not a separate entity hence, Payment is to itself and not taxable and hence no tax deductible at source. Refer, Sumitomo Mitsui Banking Corporation v. Deputy Director of Income-tax.
Mumbai ITAT in the case of BNP Paribas SA v. Dy. DIT held that the assessee is a commercial bank having its head office in France, carried on its activities including financing of foreign trade and foreign exchange transactions through its eight branches in India. It was held that the interest paid to the head office and overseas branches by Indian branches could not be taxed in India since these were payments to self which did not give rise to income that was taxable in India. (A.Ys. 2002-03 & 2003-04)
Assessee is a foreign bank incorporated in UAE. It had two branches i.e. PEs in India. Profits of PE were computed in hands of assessee as per provisions of article 7(3). An amount of Rs. 40.04 lakhs was allocated to PEs representing head office expenses incurred and attributable to such Indian PEs. The AO restricted the deduction for head office expenses by applying provisions of section 44C. Applicability of domestic law, viz, section 44C had been provided for allowing deduction of section expenses of PEs by amendment brought in article 7(3) w.e.f. 1/4/2008 and it would not have any retrospective effect. Thus, provisions of section 44C had been provided for allowing deduction of expenses of PEs by amendment brought in article 7(3) w.e.f. 1/4/2008 and it would not have any retrospective effect. Hence, it was held that the provisions of the said section were not applicable to the instant case and therefore, income of Indian PEs of assessee was to be computed after allowing all expenses attributable to its business in India including head office expenses.(A.Y. 1995 – 96 to 2000-01), Abu Dhabi Commercial Bank Ltd. v. Asst. DIT, 138 ITD 83.
Reimbursements : The assessee company had made payment abroad to a US based company under the head “remittance of manpower cost” claiming that the payment were reimbursement of salaries to persons deputed by US company. The Assessing Officer held such a payment to be Fees for Technical Services under Section 9(1) (vii) of the Act and thus, fastened with the consequences under Section 40(a)(i). On appeal to Tribunal it was observed that the agreement between the assessee and US company clearly shows that no technical know-how was made available to the assessee and since expatriates were employees of US company which deducted tax at source , assessee had no liability to deduct tax at source. Therefore, as assessee made a bona-fide belief that the no part of payment made to US company had any element of income in it, the assessee was not in default. (A.Y. 2002-03 to 2006-07). Refer, Asst. CIT v. CMS (India) Operations & Maintenance Co. P. Ltd. 135 ITD 386 (Chennai).
Chennai ITAT in the case of Van Oord ACZ Marine Contractors BV v. ADIT, held that fact that third party invoicesare paid does not necessarily show “reimbursement”.
Mumbai ITAT in the case of ACIT v. First Advantage (P.) Ltd., it was held that The assessee is a resident company engaged in the providing employment background screening services to its clients, which consists of checks such as education screening, employment screening, address verification. The assessee entered into an agreement with a US associate as per which the assessee had to pay US company actual cost for various purchases/ upgrades made by said company which included data cards, application, support software and OS/OS upgrades. The AO opined that the payment made amounted to royalty u/s 9(1)(vi). The matter was restored back to file of CIT(A) on the premise that the assessee had reimbursed the expenses, and had not examined the nature of software acquired by the assessee, as the agreement and other material were not on record. (AY 2008‐09 and 2009‐10)
Make Available: Delhi High court in the case of DIT v. Guy Carpenter & Co Ltd held that Income deemed to accrue or arise in India-Fees for technical services- Make available- DTAA-India-UK- To “make available” technical knowledge, mere provision of service is not enough; the payer must be enabled to perform the service himself.
The assessee is a foreign company located in Singapore providing services to various clients all over the world for development of Balance Score Card (BSC) project. The AO held that the receipts to be divided into two parts : charging one as royalty for sale of software and other as professional fees from rendering the said services. On appeal before Tribunal it was held that the software used by assessee cannot be considered independent, but part of services rendered by assessee to client. It was held that the fees for designing of BSC was Fees for Technical services as per provisions of Article 12 of India- Singapore DTAA as the assessee made available the knowledge for using BSC for their business purposes for meeting their long term targets and benefit ran into future. (A.Y. 2007-08). Refer, Organisation Development Pte. Ltd. v. Dy. DIT, 50 SOT 421 (Chennai).
In the case of Spectrum Geo Limited , In re, 346 ITR 422, it was held that, providing technical personal covered under FTS.
However, in the case of Assistant CIT v. Viceroy Hotels Ltd., it was held that Consultancy agreements with non-resident companies for making interior and exterior changes is not a transfer of technology and hence not assessable for tax in India.
The assessee was a US company specialized in providing highly qualified technocrats and technology relating to telecom sector and higher solutions in telecom engineering services. The assessee entered into an agreement with an Indian company for providing qualified technocrats for its project in India. It was held that as it was clear from various clauses of agreement that it was a contract for providing technical experts and making available expertise of assessee in this field, hence the service rendered assessee clearly fell within purview of clause 4(b) of Art 12 of Indo- US DTAA, and thus amount received in respect of said services was taxable in India as fees for included services. (A.Y. 2003-04). Refer, Avion Systems Inc. v. DDIT, 138 ITD 57 (Mum.) (Trib.).
Where consultancy charges were paid by the Indian Company to non-resident consultants rendering services on Indian Company’s offshore projects, source rule exclusion carved out u/s 9(1)(vii)(b) is applicable even though the payments are made from India. (A.Y. 2008-09). Refer, Ajappa Integrated Project. V. ACIT, ITA No.349/Mds./2012, Dt.25-06-2012, BCAJ Pg. 38, Vol. 44-A Part 5, August, 2012. (Chennai)(Ttib.).
Other Income : The assessee is a US company having its project office in India received interest on income tax. The Tribunal observed that expression “attributable” used in Article 11(5) of India US DTAA is equivalent to term “ effectively connected”. Thus, interest would be chargeable at the rate of 15% as per Article 11(2) of the India – USA DTAA and not at the rate of 40% as per Article 11(5). (AY 2008-09) Followed Special Bench decision of Clough Engineering Ltd. (2011) 130 ITD 137(SB) (Delhi)(Trib) . Refer, Bechtel International Inc. v. Asst. DIT, 135 ITD 377 (Mum).
The assessee is a foreign company incorporated in Mauritius, engaged in the business of telecasting of TV channels. B4U Multimedia International Ltd and B4U Broad Band Ltd. ‘(B)’ was granted general permission by RBI to act as advertisement collecting agent of the assessee. As per the agreement the ‘B’ had no powers to conclude the contract nor was dependent on the assessee. The assessee did not have any PE in India and hence not taxable in India. It was held that even if it is presumed that there was a PE of assessee in India, in view of the fact that payment of service fee by assessee to B was at arm’s length price, there was no need to attribute profits to the PE. (A.Y. 2001-02). Refer, DDIT (IT) v. B4U International Holdings Ltd, 137 ITD 346 / 148 TTJ 274 (Mum.)(Trib.) .
Fee was charges by the assessee irrespective of whether or not the loan transactions were entered into between the assessee and the applicants. Fee was charged prior to and entirely independent of the loan transaction that was subsequently entered into parties had agreed that the assessee would be entitled to the said fee irrespective of whether the loan transaction was entered into or not. Interest was separately charged by the assessee in respect of the moneys lent pursuant to the agreements that were entered into ,nor can the fee be said to be in respect of credit facilities granted but not utilized for the said fees preceded the credit facility and had nothing to do with it. Upfront appraisal fee, therefore, does not fall within the ambit of art. 12(5) of the DTAA, further, by no stretch of imagination can it be said that the assessee imparted to the applicants or the borrowers, any technical services, much less technical services of the nature referred to in art. 13(4)(c) of the DTAA, said Upfront appraisal fee was business income and as the assessee did not have a PE in India, the same could not be charged to tax in India under art. 7 of the DTAA. (A.Y. 1998-99). Refer, DIT(International Taxation) v. Commonwealth Development, 76 DTR 233.
Rental of Assets : Payment made for taking dredger(equipment ) on hire are not in the nature of royalty. Refer, Dy. DIT v. Dharti Dredging & Infrastructure Ltd., 50 SOT 413 (Hyd).
Inspection & Testing : Section 9(1)(vii)(b) shows that, when a resident of India is engaged in a business carried on outside India or earns any income from any source outside India, makes a payment by way of a fee falling under thedefinition of FTS, then such payment despite being in the nature of FTS is out of charge to tax in India. In the instant case, the payment received in connection with Inspection, Verification, Testing and Certification (IVTC) services are taxable as FTS u/s 9(1)(vii) and exceptions u/s 9(1)(vii)(b) are not available. As the applicant has tax presence in India. Indian Customers are required to with hold taxes under section 195 at the rate in force mentioned in the Finance Act for the relevant year on the payment made / proposed to be made to the applicant. The applicant has taxable income in India it is required to file to tax return under the provisions of Section 139. Refer, XYZ Ltd., In re, 206 Taxman 416 (AAR).
Composite Contract : AOP Contract is indivisible and consortium is to be taxed as an AOP, the amount receivable for supply of equipment, material and spares allegedly outside India is taxable in India. [S. 2(31) (V), 5 (2)]. Refer, ABC, 70 DTR 49 ( 2012) 249 CTR 329 (AAR).
Similar decision was given in the case of Linde AG, 207 Taxman 299.
Applicant, a Dutch Company, having entered into a contract with an Indian Company for supply of machinery, spare and wearing parts and technical documentation for the production of autoclaved aerated concrete, and another contract on the same day for supply of project services for erection and installation of the machinery supplied under the first contract, it was actually one indivisible contract for supply, erection, commissioning, testing, etc. of the project which was artificially split up merely to ward off liability to tax on the whole of the transaction and, therefore, the consideration received by the applicant is fees for technical services under the Act as well as the Indo-Netherlands DTAA, chargeable to tax in India and it does not fall under the exception in para 6(a) of Article 12 of the DTAA. Refer, HESS ACC Systems B.V., In Re, 76 DTR 122 / 252 CTR 457 (AAR).
EPC Contract : The applicant is a Company located in San Diego and incorporated under the America. It has a branch office in Singapore. The applicant is a manufacture of industrial gas turbines. In addition to supply and installation, the applicant has entered in to a contract with ONGC for carrying out trouble shooting repair and maintenance of the turbines. It had also entered in to another contract for repair and over haul services of turbines. The applicant approached the authority for a ruling on the question whether the amount received by it for fulfilling its obligations under the contract for overhauling and repair is chargeable to tax in India. The authority held that part of the amount received by the applicant a US company, for overhauling the gas turbines supplied and installed by it at the ONGC’s facility in Mumbai which is attributable to the services rendered in modifications and replacement of parts and make available intellectual property rights in engineering, designs, data and specifications to ONGC in terms of the contract is taxable as included services in India under Article 12 of the DTAA, and on that part of the apportioned payment, tax has to be with held under section 195. Refer, Solar Turbines International Company, 250 CTR 337/72 DTR 145 (AAR).
Salary : The assessee in the return of income claimed that the salary received from Pharmaceutical Works Polpharma S.A. Poland being exempt from tax on the basis of DTAA between Poland and India. The Assessing Officer held that during the year the assessee was employed as a “service provider” providing services for Polpharma Indian representative office at Bangalore, thus the place of employment is Bangalore and not outside India and therefore any income that arise or accrued ,due to employment ,in India Only, hence taxable in India. On appeal , Commissioner (Appeals) held that the assessee is entitled to relief under DTAA , and allowed the claim. On appeal by the revenue, the Tribunal held that, Assessee having been employed as “service provider” by a Polish company to support establishing and preparing organization of the company’s representative office in India cannot be said to be holding “top level managerial position” and therefore, he is not entitled to benefit of art 17(2) of the Indo‐Poland DTAA in respect of the salary received by him from the said company, further such income is to be deemed to have accrued or arisen in India as the assesseehas been functioning mainly from India, hence the income is deemed to accrue or arise in India. Refer, DCIT v. Mohan Balakrishnam Pookulanagara, 71 DTR 365 (Ahd.) (Trib.).
Delhi High Court in the case of Anant Jain , 207 Taxmann 117 held that The assessee was an employee of American company from 1991 till November, 1999 and during this period he was non‐resident Indian. On termination of employment , he received certain amount as leave encashment according to the number of years of service. The assessee claimed that the said amount was exempt under section 5(1)(c) read with section 9(1)(ii). The Assessing Officer held that the said amount is taxable as perquisite treating the said amount as profit in lieu of salary .In appeal the Commissioner (Appeals) held that the amount received was in respect of past services, rendered outside India at a time when he was non‐resident and thus could not be deemed to have accrued or arisen in India and would not come under the purview of section 9(1)(ii). In appeal Tribunal also confirmed the order of CIT(A). On appeal by revenue the court also confirmed the order of Tribunal and held that in terms of section 6 and 9(1)(ii), amount received by assessee had not accrued /deemed to be accrued /paid in India hence not taxable . (A.Y. 2001‐02).
Insurance : payment and received from Insurance companies are not FTS. Refer, Guy Carpenter and Co. Ltd. (No. 1) v. Additional Director of Income-tax (International Taxation) (Delhi).
Associated Companies: Wholly owned subsidiary of AX group, which is facilitating the overseas express shipment business carried on by the said group in India through the applicant, a Singapore company, by securing orders, collecting articles, transporting them and delivering the same to addresses in various countries through the group entities is PE of applicant in India within the meaning of art. 5 of Indo‐Singapore DTAA and, therefore the receipts by applicant from outbound and inbound consignments attributable to PE in India are taxable in India. Refer, Aramex International Logistics (P.) Ltd. In re, 251 CTR 9/208 Taxman 355 (AAR).
Information technology sharing agreement between non-resident and Indian subsidiary for provision of wide area network, messaging system, licence user rights and application support. Services involving hardware controlled by non-resident which constitutes permanent establishment thus Income of non-resident taxable in India--Income constitutes fees for technical services ref. Income-tax Act, 1961, ss. 9(1)(vi), (vii), Expln. 2(iva), 195--Double Taxation Avoidance Agreement between India and France, arts. 5, 7, 13 Refer, AREVA T & D India Limited, In re, 346 ITR 456.
Applicant, an Indian Company, engaged in the business of development of computer software and related services, undertakes work in Australia and sub contracts a part thereof to its Australian subsidiary Infosys Australia which performs the work wholly in Australia . Though Infosys Australia is a 100 per cent subsidiary of the applicant, they are independent entities in the eye of law . Unless it is postulated that the applicant is a PE of Infosys Australia, the income of Infosys Australia from the work done by it cannot be taxed in India. As per para 5 of art. 12 of the DTAA, it has to be deemed that the income has arisen in India . As per para 5 of art. 12 of the DTAA, it has to be deemed that the income has arisen in India . Fact that the services are rendered in Australia cannot override the legal effect of the circumstances that the contract, as far as Infosys Australia is concerned, is secured from India and the applicant is giving directions to Infosys Australia about the performance of its work. Admitedly, the payment made to Infosys Australia would be fees for technical services under s. 9(1)(vii) However, no services are performed in India by Infosys Australia. Thus, it cannot be held that Infosys Australia is making available any technical service to the applicant to as to satisfy the requirement of cl. (g) of para 3 of ar. 12 of the DTAA, therefore, the fees for technical services paid to Infosys Australia is not chargeable to tax in India in terms of the DTAA, hence the provisions of section 195 would not be applicable. Refer, Infosys Technologies Ltd, 76 DTR 287 (AAR).
Routine Repairs: Hyderabad ITAT in the case of ADIT v. BHEL‐GE‐Gas Turbine Servicing, held that routine repairs are not FTS.
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