Case Nos.

Advance Tax - Payment by cheque, dishonoured on first presentation, honoured on second presentation, date of payment is the date of second presentation.

7

Amalgamation – In an amalgamation of a subsidiary company with the holding company (both were foreign companies), there is no capital gain taxable in India on transfer of shares of the Indian company from the subsidiary to the holding company.

123

Application to AAR - Maintainable even if return filed and processed u/s. 143(1) subsequent to the date of application.

3, 4, 22

• Even if the matter is referred to transfer pricing officer, the matter cannot be said to be pending before any authority. Therefore the advance ruling can be given.

129

• An advance ruling application was filed before the revised return. The matter raised in the revised return cannot be said to be pending before any authority at the time of filing the application.

129

• The applicant had applied for an Advance Ruling. Prior to the application, the applicant had applied for a certificate for lower withholding of tax. This application was rejected by the revenue. For the advance ruling, the revenue claimed that the matter was pending before a revenue authority and therefore advance ruling cannot be given. The Authority for Advance ruling held that TDS is only tentative. Further the ruling was given prior to the assessment. Therefore the authority can given a ruling.

146

·         Application before the AAR did not give immunity to the applicant from filing of the return of income before the due date.

44

• for ascertaining correct date of payment of advance-tax maintainable.

7

• if the applicant is a NR, the application is maintainable even if the question pertains to the period when he was a Resident.

16

• maintainable despite under the agreement between parties, resident party is obliged to discharge the tax liability of the non-resident.

21,90

• maintainable where resident party had sought clarification from the income tax department regarding the rate of deduction of tax while making payments and non resident makes an application for advance ruling on the same matter.

31

• An employer can file an application regarding the tax liability of an employee where such liability is actually borne by the employer.

48

• Ruling can be sought by a resident on a question relating to the  tax liability of the non resident 

63 

• A foreign Company can not make an application as regards the tax liability of its wholly owned subsidiary in India

72

• One Indian subsidiary gave a loan to another Indian subsidiary. Both the subsidiaries were of Netherlands holding company. The Netherlands company’s application was not maintainable as there was no transaction with a non-resident.

95

• Advance ruling can be amended if there is a mistake apparent from record. However segregating the facts from the question and keeping the question intact after referring it to the applicant’s counsel, cannot be said to be mistake apparent from the record.

89

• The application was sought on the basis of agreement between the Indian party and Dubai party. On asking for documents of the Dubai party, the applicant sought to substitute the Dubai party with the Mauritius party. The application was dismissed.

110

• An Indian firm where the control will be partly in India with an Indian partner will be considered as an Indian resident. Therefore the application was not maintainable.

119

• A non-resident was working in USA and wanted to return to India. He proposed to transfer his funds from 401K account to IRA account. The transaction did not fall within the eligible list of transactions for which advance ruling could be given. The application was not maintainable.

120

• Revision of order - The power of the Authority under rule 5 of the Authority for Advance Rulings (Procedure) Rules, 1996, for determination of an interlocutory application, petition or representation was for a complete and effective disposal of the application under section 245Q(1) had to be exercised before the pronouncement of the ruling.

The power under rule 19 empowering the Authority to amend any order passed by it for the purpose of rectification of a mistake apparent from the record, could be exercised by the Authority after the pronouncement of the ruling but before it was given effect to by the Assessing Officer.

The power under rule 18 to modify the ruling in such respects as it considered appropriate could be exercised provided there was change in law or facts on the basis of which the ruling was pronounced. This power also could be exercised only before the ruling was given effect to by the Assessing Officer.

124

• The applicant did not furmish details and information. Without giving details, the applicant filed a resh application. The authority rejected the first application and did not admit the second application.

186

• After considering the arguments, the AAR had admitted the application for Advance Ruling. On a request from the department to recall the order, the authority ruled that department’s objection regarding the maintainability could not be sustained.

197

Association of Persons - In order to constitute an association of persons there will have to be a common purpose or common action and the object of association must be to produce income jointly. It is not enough that the persons receive the income jointly.

An Austrian company came together with two Indian companies to provide project concultancy services. Based on the facts of the case, the Authority held that there was a “meeting of minds” coupled with a “common design” and a “common purpose”. Having separate bank account by members where their incomes were deposited, demarcation of tasks are by themselves not sufficient.

56

143

The consortium was awarded a bid for supply of design, manufacture, supply. Testing and transfer of technology for electrical units to the Delhi Metro. Each party in the consortium has a specific role. The consideration given by the Delhi Metro would be divided between the consortium partners in the agreed ratio. It was held that there was no interchangeability or overlapping of functions of the members of consortium. Hence it could not be considered as an AOP.

200

Business Connection – See under “liaison office”.

Binding Nature of AR - AR is binding in the case of one transaction only and on the parties involved in respect of that transaction. For other transactions and for other parties, the ruling will be of persuasive nature. Nonetheless, a principle of law laid down in a case may be followed in future.

49

Business Profits - Transaction of large magnitude of shares coupled with elaborate business scheme and object stated in Memorandum of Association of the applicant company was held to be business activity and proceeds of sale of shares in India was held to be business profits and not Capital Gains.

58, 77

The payment made by an Indian company to a foreign company for downloading of a “ Business Information Report” was  held to bear the character of ‘ Business Profits” and not “Royalty or Fees for technical services”. In the absence of a PE of a foreign company in India, the said payment was held to be not taxable in India. 

82

Profit arising to a foreign company from transactions in Exchange Traded Derivatives were held to be ‘Business Profits‘.     

Profit or loss from derivative transactions of an FII were considered as Business income. In the absence if a PE, it could not be taxed in India.

83

 201

Income from the securities provided to the Bank in connection with the performance guarantees to be treated as ‘Income from other Sources’ and not “Income from Business” 

87

If the HO pays the PE, an arms length price, no further profits can be attributed to the PE.

107

An agent in France of an Indian resident rendered services outside India, but procured business for the exhibition which was to held in India. Held that the source of income was in India u/s. 5(2)(b) r/w 9(1). Under the DTA, the income was other income and therefore was liable to tax in India.

108

Amount payable by an Indian company to a Swiss company for assignment of rights to the Indian company for manufacturing turbochargers, is not royalty. In absence of business connection, the income is not taxable in India.

127

Referral fee paid to a Singapore company for a Real estate client, did not amount to a business connection.

Referral fee for referring Indian clients to a third party recruitment agency did not amount to fees for technical services. These were considered as business income. For recruitment fees for placing a candidate, the authority declined to give a ruling due to lack of information.

145

190

A resident of Singapore was carrying on business in Chennai of jewellery. One of the activities was purchase of gold jewellery for export. It was held that the export proceeds were deposited in the account of the assessee in Chennai. The exemption u/s. 9(1)(i), explanation (b) was for non-residents who purchase goods from India through business connection, and export the same to self. In this situation, the assessee was taxable in India.

154

Support services provided by the Indian office of a foreign company cannot avail of the exemption given under Explanation (b) to section 9(1)(i) for purchase activities. The activities are liable to tax under section 5(2).

192

In a turnkey contract, where the title of goods passed outside India, the profits are not liable to tax in India. The assessee was required to deliver and install the plant at its own risk. Still as the title passed outside India, it was held no to be taxable in India.

189

Capital Expenses – Refund of liquidated damages (liquidated damages paid for delay in supply of capital equipments) by the company as per the directions of Telecom commission was considered as capital expenses and not allowable as revenue expenses.

113

Capital Gains - Capital gain arising to a Canadian company on the alienation of the Indian Company’s shares consequent upon "vertical short form amalgamation" may be exempt u/s 47(via) provided such gain is not taxable in Canada. If for any reason such gain is taxable in Canada at a future date, the same will be subjected to tax in India.

51

Front end fees, like premium on redemption of debentures, received on discretionary basis from 60 portfolio companies by the applicant was held to be capital gains falling under Article 13 of the India-Mauritius Tax Treaty as the applicant was not engaged in money lending business.

58, 78 81

Transfer of technical information in the form of a dossier is a transfer of capital asset. Such transfer of capital asset outside India is not liable to be taxed in India. 

97

Capital gain arising to a person resident in UAE from sale of shares in Indian Company is not taxable in India in view of Article 13 of the DTAA between India and UAE.

98 

Capital Gain arising to a person resident in UAE is taxable in India. India UAE DTA is not applicable as an individual is not taxable in UAE.

98

Capital Gain is taxable in the year of transfer even if the consideration may be paid in installments.

Consideration payable to the transferors which was dependent on the performance of the business, was considered as salary.

FIIs do not have a choice to opt out of section 115AD and go under normal provisions of Capital Gains computation (where inflation adjustment is possible). S. 115AD is a specific section for FIIs.

96

FII investing in stock market as per SEBI rules can earn capital gain and not business income. SEBI rules permitted only investments and not trading. Investment cannot be with the intention of trading. In the earlier rulings, SEBI rules were not brought on record.

122

Netherlands company transferred shares of the 100% Indian subsidiary, to its Netherlands subsidiary. Under the Netherlands-India DTA, as the shareholding exceeded 10% of the Indian shares, the capital gain was taxable only in Netherlands and not in India.

128

Contract entered into with a developer whereby the non-resident gave possession of land amounted to transfer under section 2(47)(v).

131

Sale of bonus shares are taxable @ 10% u/s. 112. Applicability or otherwise of provisos to section 48 would not affect the concessional tax u/s. 112. Similarly, where the non-resident has invested the cost in foreign currency, the Capital Gain will be taxable @ 10% u/s. 112.

132, 135, 153

Interest paid to the shareholders pursuant to the order of SEBI is deductible while computing the Capital Gain.

153

Bonus shares were acquired prior to 1.4.1981. The fair market value of the shares as on 1.4.1981 can be considered as the cost of the share.

139

A non-resident who purchases shares of an Indian company from another non-resident can be considered as an agent under section 163 for recovery of tax.

133

Intangible property such as trade mark and goodwill can have more than one situs. Goodwill is territorial in the sense that it exists at the place where the related business exists. The registration of a trade mark has no bearing on the ownership ; nor does the registration of a trade mark create an asset. Registration confers statutory remedies for its effective protection. The non-resident was taxable on transfer of trademark even though the transfer was carried out outside India.

141

In a restructuring exercise, the foreign company transferred the shares of the Indian company to its group company in Cyprus withouy any consideration. It was held that there was no Capital Gain earned by the transferor.

195

Under bankruptcy proceedings, there was a restructuring of the group. Shares in the Indian company and the liabilities were transferred from the assessee to another group company. It was held that there was no transfer. Take over of liabilities cannot be considered as consideration. As there was no capital gain, transfer pricing provisions also cannot apply.

184

The German company had sold the shares in the Indian company to its Netherlands company. The Netherlands company was now the hundred percent holding company of the Indian company. On sale, capital gains will not be taxable in India under the India-Netherlands DTA.

196

Transfer of shares of an Indian subsidiary company by the Mauritius holding company to its another Indian subsidiary company was exempt from tax u/s. 47(iv). It was also not taxable due to India-Mauritius DTA. MAT was not applicable to a foreign company which does not have a PE in India. Transfer pricing provisions were not applicable as the income was not liable to tax in India.

208

Capital gain arising on sale of shares to a company in Mauritius is not liable to tax. Under the India-Mauritius DTA exclusive rights of taxation have been given to Mauritius.

217, 218

Canadian company sold shares held in the Indian company. It was held that the second proviso to section 48 which permits inflation adjustment only to Indian residents, does not amount discriminatory treatment under article 24 of the India-Canada DTA. Thus the assessee cannot claim inflation adjustment.

213

The Netherlands company sold the shares of an Indian company to a Swiss company. The Capital gain was not liable to tax under the India-Netherlands DTA. As there was no income liable to tax, transfer pricing provisions were not applicable. However even if the income was not liable to tax in India, the return of income had to be filed.

216

Choice of Beneficial Provisions - A specific provision will override a general one. The assessee is entitled to invoke the provision most beneficial to him, be they the provisions of a treaty or statute.

34, 40, 35, 65

Commission and retainer fees- Payment of Commission and retainer fees outside India for securing business  from outside India is not liable to deduction of tax at source.

Payment of commission by the Indian company to the US company for procuring orders in the US, held as accruing or arising in India as the same was in respect of business carried on in India and therefore, TDS was held to be deducted.

99

Deductions – For companies engaged in Long term finance, relief under section 36(1)((viii) is available. The assessee converted high interest loans into low interest loans for which it charged a “swapping premium”. The authority held that it was a discount interest. Relief u/s. 36(1)(viii) is available.

The assessee had given a loan to Madhya Pradesh State Electricity Board. Due to defaults, the loan was taken over by Madhya Pradesh Government as it was the guarantor of the loan. Bonds were issued for the loan. Interest on the bonds was considered as income from long-term finance for the purpose of deduction u/s. 36(1)(viii).

157

207

Dependent Personal Services - Salaries - The provisions of Article 16(2) of the Indo-USA-DTAA squarely covered facts of the case, hence remuneration of the employee was held not taxable in India.

43

Where profits of the business are taxed on a presumptive basis under section 44BB or 44BBA, revenue expenses such as salaries and the like are deemed to be allowed as deductions and therefore, it can be concluded that such expenses are borne/deductible by a P.E. while determining the taxability of non-resident employees under Article 15(2)(c) of the Indo-Australian DTAA.

57

Amount received by an employee resident of USA from superannuation fund of Indian company was held to be taxable in India.

71

Honararium paid by a branch of a foreign society can be regarded as Salary subject to deduction of tax act source U/S 192 of the IT Act.

73

Salary paid to non resident technician in respect of work carried out in India- salary paid by a foreign company abroad- salary deemed to accrue or arise in India and taxable in India. Special allowances and facilities to the extent exempt u/s 10(14) are not included in total income.

80

Salary paid by Indian company in rupees in India to employees who had been deputed to UK and had become non-residents, was not liable to tax in India. Indian company need not deduct tax at source provided it is satisfied that tax has been paid in UK.

118

An employee was deputed to Norway where his stay exceeded 182 days. Salary received in India by the employee for rendering services in Norway is taxable in India if the same is not taxed in Norway.

130

Dividend - Art 10 of UAE DTAA wide enough to cover income distribution by UTI/other mutual funds as Div.  

9 

Issue of bonus preference shares did not amount to dividend u/s 2(22) of the Act at the time of allotment, as it did not involve release of funds. 

93

For loan to be considered as dividend under section 2(22)(e), it is necessary that the loan is given to a registered shareholder. Even If the holding company of the borrower is also shareholder of the lending company, it is not sufficient for satisfaction of S. 2(22)(e).

94

EPC Contracts – In a contract for manufacture, installation, sale or supply of goods some elements of services will always be present. Where services are inextricably linked with manufacture, installation, sale or supply, they cannot be evaluated for the purpose of fees for technical services; it is only where services are independent that fees for technical services will be assessable.

103

Based on the facts, it was held that the entire consideration for the contract was taxable in India as the services were linked to the Indian contract.

79

Exempt Income - u/s. 10(5B) - technician employed during commissioning of the plants amounts to being employed in "business carried on in India".

11

• liberal construction of exemption provisions to promote Industrial development.

• u/s. 10(15) Interest accrued on NRNR-R.D. accounts are not taxable if the assessee maintains his account on cash basis. NRNR-R.D. account is an eligible foreign exchange asset for the purpose of S. 115H. Person becoming R but NOR can avail of benefits u/s 115H subject to filing a declaration as provided in that Section.

33

• to avail the Ex. u/s. 10(5B), not necessary for the employer to be in India.

13

• u/s. 10(22) - assessee, a W.O.S. of American Hotel Association, conducting courses, education and training programmes, seminars - held - exemption available.

5

• Interest on NR.NR.RD a/c taxable once the applicant ceases to be a non-Resident.

18

• For the purpose of S. 10(5B) general knowledge is not sufficient, the applicant has to establish that he has specialised knowledge of the constructional operation.

32

• An employee claiming exemption u/s 10(5B) need not be exclusively employed in the Indian business. The mere fact that the employee, besides qualifying as technician u/s 10(5B), possesses MBA degree and looks after business aspects is not sufficient to disentitle him from claiming exemption.

38

• On the facts of the case the Managing Director of an Indian subsidiary holding master's degree in mathematics and computer science having responsibility of overseeing the day-to-day operations of the company, accountability to the customers for the technician performance, etc. may held to be qualified technician within the meaning of section 10(5B)

59

• For the purpose of S. 10(5B) sales and marketing is not one of the prescribed fields.

39, 55

• For the purpose of S. 10(5B) formal technical education is not necessary; instead, requisite knowledge and experience are sufficient for one to qualify as a technician in constructional operations.

41, 53

• Collection of rent in India in rupees for letting out of residential apartments in the UK to Indian businessmen and tourists was held to be taxable in India. Such earnings cannot be equated to invisible exports of goods or services, which are exempt from tax.

47

• Income tax borne by an employer held not be perquisite and exempt u/s 10(5B).

48, 61

• For the purpose of S. 10(5B), installation of machinery in a laboratory or in the office of a customer, would not amount to "constructional activity".

55

• Foreign technician having engineering degree and specialised knowledge in designing and development of tapered roller bearings and speciality steels was held to be entitled to exemption u/s 10(5B).

60

Fees for technical services (FTS) - In absence of specific prov. in the Malaysian DTAA to tax FTS, FTS can be regarded as Business Profits under Art. 7 of the DTAA and cannot be taxed in India u/s. 9(1)(vii) in absence of a P.E.

8

• FTS to be taxed in India as Business Profits - DTAA allowed deduction of expenses "subject to domestic laws" Disallowance u/s. 44D applicable. Applicable tax rate u/s. 115A of 30% and not 55%.

14

• A French Co. (FC) engaged in execution of major projects entered into 7 agreements with Indian Co. (IC) to provide complete project services on single responsibility basis. Part activities to be carried on in and outside India. Payments by IC held as ‘Royalties’ and ‘FTS’ but taxable as Business Profits as they are "effectively connected" with Indian PE. Only profits attributable to Indian operation liable to Indian taxation (S. 9 and para 3 of Protocol to French DTAA). Payments to HO for procuring technology/other services held not allowable.

20

• S. 44D is wide enough to cover income from business of rendering technical services besides fees for technical services per se.

24

• Consideration paid in lump sum for installation of gas pipelines crossing under Yamuna River with optic fibre cable was held to be consideration for the execution of a construction or installation project covered by Article 5(3) of the Indo-French DTAA and not by Article 13.

34

• The contribution received to recover part of the cost of the technical assistance provided by the applicant as per its aid programme from the companies assisted by it in India was held not to be regarded as FFTS under Article 13 of the Indo UK-DTAA or u/s. 9(1)(vi) of the I. T. Act.
• Payment by the Indian company to the group’s Swiss company for conducting common research activities for the group was based on cost allocation key. It was held that the Swiss company did not provide any technical services.

36

191

·        Consideration received by an American company for deputing some personnel for rendering managerial services to a JV project in India under a management provision agreement is assessable not as fees for included services but as business profits under India-USA DTAA.

54

Liability of foreign company to tax in India in respect of royalty /fees for  technical services from a company in India arises on crediting the account of the foreign company by the Indian Co. The liability is in accordance with the principles of  Double Tax  Avoidance Agreement.

66

Foreign Company rendering technical services to Indian Company charges fees on the basis of cost incurred by it. The Indian company is liable to withhold tax for the fees payable.

68,85

Fees for Feasibility report prepared in USA by a resident US to another resident US. A resident Indian company carries out work in pursuance of the said feasibility. Resident Indian is in no way connected with the payment made by US company. Payment received by the US company for preparing feasibility report is not taxable in India.

76

Payment to non resident for repair of software in Air Traffic System can be regarded as “fees for Included services” within the meaning of Article 12 of DTAA between India and USA.

Hardware repair support contract was not liable to tax in India.

88, 136

 136

Payment of consultancy fees and legal fees by the Indian company to the US company for advising on markets in the US was held to be accruing and arising in India as the same were in respect of business carried on by the Indian company in India and therefore, liable for TDS.

99

Fees paid for testing charges for testing of ore samples abroad were held to be taxable in India as the services in the form of reports were utilized in India in the business of the applicant and also because the source of income was in India.

100

Employees who were seconded to the Indian resident, were still under the supervision of the non-resident. Even though Indian resident reimbursed the salary cost to, it did not amount to salary. It was considered as Fees for technical services.

116

Reimbursement of expenses by an Indian Hotel (calculated as a percentage of revenue of the Indian hotel) to a non-resident for promoting and conducting international marketing and sales program was considered as Fees for technical services.

121

A Contract research organization in Canada did not make any knowledge technical knowledge, experience, skill, know-how, etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider. Therefore the payment was not taxable under the DTA.

148

The Indian resident company engaged a Korean company to provide an employee in Korea for helping them with the insurance business there. The company reimbursed a part of the salary to the Korean company. It was held that the payment does not amount to Fees for Technical services.

159

An Australian company was providing services of monitoring a pipleline which was being laid by the Indian company. It was held that it does not amount to royalties as no knowledge was being made available to the Indian company. However as the company has a PE, the income was taxable as business income.

138

The UK company provided general testing and inspection services. Some group companies had expertise in management, financial, and other areas. On the facts of the case, the Authority held that whether the services make available any knowledge etc. to the Indian company can be determined during the assessment. Therefore to what extent should the tax be deducted will have to be determined in the appropriate proceedings.

155

The UK group company provided services to the entire group on account of area services, market development support services and global services. Payment by an Indian company to the UK company for such services could not be considered as FFIS as per India-UK DTA. The payment was to a group company. Hence the assessing officer could examine whether the payment was at Arms Length or not.

198

The assessee was awarded a contract for administering an innovation growth programe jointly with a US tax exempt entity. The assessee had to make payments to the  US entity for technical assessments and travel expenses. It was held that the US entity will be considered as a resident of USA and get the benefit of India-US DTA as even though the entity may be exempt from tax but it had no general immunity. Further as the US entity did not make knowhow available to the Indian entity, the payments were not Fees for included services.

202

A US firm was engaged for providing architectural design services. The contract included several services like development of master plans, designs and drawings, coordinating and review of documents, assisting in contractor selection, observing construction process and review of cost saving proposal. It was held that the contract was for fees for included services as it involved transfer of designs. Various services cannot be split into watertight compartments. Reimbursements made to the architecture firm for payment to other consultants could also be fees for included services. However as it was not the beneficiary and that other consultants had rendered services outside India, these would not attract tax liability. The rate of tax was 10% u/s. 115A(1)(b)(BB).

205

The Indian company procured services from the group company in Singapore. The services pertained to business support, marketing information technology support services and strategy support, etc. It was held that the services did not impart any technical knowledge. Even if it is assumed that some services imparted technical knowledge, the services did not enable the Indian company to apply the knowledge. Providing comments and suggestions, providing HR support assistance, reviewing the actual methodologies developed by the applicant and providing suggestions and inputs to achieve standard actuarial practices and processing guidelines in connection with the settlement of claims, marketing and risk analysis, fell short of the requirements laid down in the definition of "fees for technical services" in the DTAA.

209

Foreign Institutional Investors do not have a choice to opt out of section 115AD and go under normal provisions of Capital Gains computation (where inflation adjustment is possible). S. 115AD is a specific section for FIIs.

96

Fringe Benefits Tax – Even if there is no income-tax payable on the income, Fringe Benefits Tax is payable. Section 115WA begins with a non obstante clause. This is the clear meaning.

114, 150

Transport charges paid for transporting employees from their home outside India to offshore rigs is liable to Fringe Benefits tax. The relief provided in section 115WB(3) applies only in case of transport form home in India to the place of work.

126

Government employee – An employee of a liaison office of a non-profit undertaking of the Korean Government cannot be considered as Government employee. The assessee also could not establish that the source of funds of salary were Korean Government funds. Therefore the article on Government functions could not apply.

147

Income from House Property - Taxable in the year in which rent received/receivable where H.P. is let out, arrears of earlier years not taxable.

3

Interest Income - Statutory interest on delayed refund of income tax u/ss. 243 and 244 of the Act would be taxable as interest income where there is no PE.

30

·         In absence of a business of money lending through a PE in India, interest including penal interest received by the applicant pursuant to loan agreements, in respect of debentures or any other debt claims (issued pursuant to RBI approval) was held to be the Income covered by Article 11 of the India-Mauritius Tax Treaty

58

67,70

Interest on Convertible bonds was interest under section 2(28A) read with article 11 of the India-US DTA. Till the time shares are issued against the bonds, the funds remain as a loan.

151

Approval of loan agreement and interest payable thereon by Reserve Bank of India does not amount to approval for exemption under Income tax Act or DTAA. Interest payable on such borrowing is subject to withholding tax.         

Interest was payable net of tax to a Singapore resident. Whether tax was deductible at source? Held it was liable to tax under the Singapore DTA and the resident payer was required to deduct tax at source.

90

Jurisdiction - AAR constituted under the I.T. Act, 1961. Hence no jurisdiction to decide on taxes leviable under other Acts.

18 

·   The Authority for Advance Ruling  has no Jurisdiction to answer a question if it  requires determination of a fair market  Value . The question should relate to the tax liability of the non resident, the question can not relate to the consequences of implementation of the provisions of the Act on the State exchequer.

84

Liability to tax – See also cases under “Residential Status” 

When no tax liability arises under the Act, the treaty per se does not create any tax liability.

- 

101

Minimum Alternative Tax (Deemed income u/s. 115JA) - Applicable to foreign company having PE in India.

23

Minimum Alternative Tax provisions are not designed to be applicable to foreign companies which do not have a PE in India. Hence MAT is not applicable to sale of shares on which STT was paid.

206

Transfer of shares of an Indian subsidiary company by the Mauritius holding company to its another Indian subsidiary company was exempt from tax u/s. 47(iv). It was also not taxable due to India-Mauritius DTA. MAT was not applicable to a foreign company which does not have a PE in India. Transfer pricing provisions were not applicable as the income was not liable to tax in India.

208

·        S. 115JA is applicable even when activities are covered by S. 42. Neither S. 293A nor the notifications dated March 31, 1983 and July 6, 1987 issued there under can cut down the scope or effect of S. 115JA.

Depreciation and Advance against depreciation were one of the components for determining  the tariff rates for supply of power. Income attributable to advance against depreciation can not be deducted for the purpose of determining the “Book Profits” under section 115 JB of the IT Act .         

86

• Income-tax provision made by foreign branches of the Indian company for income-tax payable in foreign countries has to be added back to book profit for the purpose of Minimum Alternative Tax.

134

• On the facts of the case, interest on the loans from financial institutions had tpo be allowed before calculating book profits. Unascertained liabilities of previous years were accounted as prior period expenses. These could not be added back to determine the profits.

183

Non discrimination - Article on Non-discrimination can be invoked only (a) in the case of individuals and (b) in the cases of enterprises (other than individuals) only where they have PE in India and not otherwise.

24

• A French bank and a nationalised Indian bank do not carry on the same activities nor do they can be said to be in the same circumstances. Hence, article 26 of the France DTAA cannot be applied.

28

• Mere charging of a higher rate of tax does not constitute discrimination between a domestic and non-domestic company.

58

• Differential tax treatment which is based on the residential status of a person (FII) and not on the Nationality. was held not to be discriminatory.

96

• Canadian company sold shares held in the Indian company. It was held that the second proviso to section 48 which permits inflation adjustment only to Indian residents, does not amount discriminatory treatment under article 24 of the India-Canada DTA. Thus the assessee cannot claim inflation adjustment.

213

NRI – Chapter XII-A – Income on NRO deposits where funds were brought in foreign exchange were entitled to concessional tax treatment under Chapter XII-A. After return to India, the provisions of section 115H will apply till the maturity of deposits.

137, 156

Other Income - Deference fees intended to deter portfolio companies from shopping around using information from the Investment advisor was held to be in the nature of compensation for loss of possible investment falling within the purview of Article 22 of the Indian-Mauritius tax treaty.

58

Permanent Establishment (PE) - Applicant engaged in dispatching labour recruited by it to India and involved no operations in India, mere presence of barges on Indian territory cannot be regarded as a PE in India.

8

• An Indian W.O.S. (IC) of a Swiss Company (SC) held to be a PE of SC in India unless IC carries on independent activities also on behalf of other persons in India.

11

• Applicant, a Singapore Co. activity of burial of pipelines onshore and offshore India, duration of 46 days - held - no PE under DTAA.

17

• S. 115JA of the I.T. Act, 1961 is applicable to foreign company having PE in India

23

• Directorship in an Indian Company per se cannot result in a PE. (Indirect conclusion and not ratio of PE).

27

• The expression "fixed place" envisage the possibility of locating, identifying or pointing out to a definite place as the place from which a business is carried on and does not require that the place of business should be stationary and not moving. An activity of working on installation of pipeline can be described as an "installation project".

40

• "Agency PE" – If the Mauritian company only has the power to conclude contracts, the Indian company appointed for selling airtime, will not be a PE.

37

A broker/commission agent/custodian cannot be termed as PE where such person is carrying on his own business and dealing with the enterprise only as one of his many clients and on a commercial basis.

50, 83

An advertising agent of an independent status will not constitute PE even if engaged in collection of advertisement revenue on behalf of the principal.

50,91

An Indian company collected parcels for delivering it to USA. It paid the US company the necessary charges. However the manner in which the US company determined the charges payable lead the Authority to conclude that the Indian company was a dependent agent of the US company.

 92 

UK publishing company had appointed an Indian agent to collect advertisement revenue from Indian advertisers. The agent’s income was about 75-80% from the UK client. The remaining income was from other clients. Hence the agent did not carry out activities wholly or almost wholly for the UK client.

91

The Indian resident was collecting fees for examination conducted by a US company, and remitting the same to the US company. It was held that the Indian company was an independent agent. Hence there was no PE.

140

·         Services rendered in India by an American Company through its employees resulted in establishment of P.E. under Article 5(2) of the Indo-USA-DTAA.

54

• A US company had a wholly owned subsidiary in India to carry out some back office functions. Based on the facts, it was held that the Indian subsidiary was not a PE as Indian subsidiary’s office was not the office of the US company, nor did it exercise any authority to conclude contracts on behalf of the US company.

107

• If the employees of the US company spent more than 90 days in India for undertaking stewardship activities.

107

• Liaison office - Activity carried on by the Indian liasion office of a foreign company was held to be business Connection /PE in India. Income attributable to such activity was held to be  taxable in India.

69

• Activities carried out by the liaison office (LO)  would  not amount to carrying on business in India  so long as LO did not enter into negotiations with customers in India. In such a scenario, activities of LO would not amount to having a “business connection” in India.

102

• Local paid agent of a foreign company authorized to collect information, submit tenders and sign contract on behalf of the foreign company was held to be business connection /P.E of the foreign company. Foreign company liable to tax in India on the Income attributable to P.E in India.

75

• A liaison office set up in India to collect information, select samples and garments and pass on the information to HO, was considered as confined to purchase activity. Whether the export of goods from India was to the country where HO was situated or to a third country. No income accrued in India u/s. 9(1), explanation 1(b).

A liaison office for purchase of goods was not taxable due to exemption for purchase operations under section 9(1)(i).

115

 158

Payment to non resident for repair of hardware outside India is not taxable in   India. Deputation of engineer for checking repairs for few days in India can not be regarded as P.E of the non resident.

88

A company in Dubai organised Golf tournaments in India. They contracted the work to independent parties. The parties did not have authority to conclude contracts. They were acting in the ordinary course of business. Hence they did not form agency PE. Further organising tournaments for a week in India did not amount to a fixed place PE. As there was no PE, the business income was not taxable.

149

• The assessee was stocking hard disks in the warehouse of a third party service provider. There was a distinct and demarcated space in the warehouse. It was held to be a PE.

194

Minimum Alternative Tax – Under section 115JB, the  company can reduce current year’s only by the brought forward losses or unabsorbed depreciation, whichever is less. The company had shown only the aggregate of brought forward loss and depreciation. These have to be segregated.

109

Presumptive Income - On the facts as stated by the applicant, S. 44BBB of the Act, for turnkey power project approved by the Central Government, was applicable and more advantageous for both the department as well as the applicant.

29

• Provisions of section 44BBA are equally applicable to operation of aircrafts/helicopter between places in India. However, having regard to the nature of transactions, the applicant’s case is covered by section 44BB and not section 44BBA.

57

• Payment for hire of vessel was covered under section 44BB and liable to tax on a presumptive basis.

193

• The UAE company was engaged in providing geophysical services to oil and gas exploration industry. For the purpose, it hired vessels on bare boat charter basis. The agreements were entered outside India. The vessels were delivered and redelivered outside India. It was held that mere presence of vessels did not constitute a PE in India. It cannot be said that income was derived from the Indian source. However the contracts for renewal of hire were considered to entered into India as contract and delivery were an integral part. Provision of facilities will be considered to be in connection with prospecting of extraction of mineral oil. Hence section 44BB applied.

211

• The applicant was engaged in the business of seismic data acquisition and processing for oil exploration and extraction industry. It was eligible for taxation under section 44BB.

215

• The applicant was awarded the contract for erection and installation of power plant by the Indian company. Whereas for supply of offshore machinery, the contract was awarded to the applicant’s holding company. It was held that the applicant will be eligible for presumptive tax under section 44BBB. The revenue’s ground was that the entire contract should be considered together. It was held that that aspect could be considered at a later stage.

214

Question of Fact - Whether amount received on behalf of the sub-consultants amounted to only reimbursement of actual expense, was held to be a question of fact to be examined at the time of assessment of income of the applicant.

31

• A question of application of the law of a foreign country is liable to be determined as if it were a question of fact and on the basis of such expert evidence as may be let in by the parties.

51

Rate of Tax: The rate of tax applicable for the purpose of deduction of tax at source would be the lesser of the rates prescribed under the Act, or DTAA whichever is more beneficial.

100

Return of Income - The applicant has to file a return of Income under I. Tax Act of India if its income exceeds the maximum amount not chargeable to tax. Further, in determining such income exemptions and deductions cannot be taken by the assessee on his own, it is for the A.O. to decide whether such deductions or exemptions are permissible or allowable.

58

The Netherlands company sold the shares of an Indian company to a Swiss company. The Capital gain was not liable to tax under the India-Netherlands DTA. As there was no income liable to tax, transfer pricing provisions were not applicable. However even if the income was not liable to tax in India, the return of income had to be filed.

216

Reduction of Tax Liability by the DTAA - The C.G. cannot waive or reduce the rate of any tax imposed by the statute by entering into DTAA when a tax corresponding to the Indian tax is not in force in the other state.

49

Reorganisation – The trustee of funds was redesignated as a depository of Open ended Investment companies due to reorganisation of funds. There was no transfer of Indian assets. Based on the facts, it was held that there is no tax liability in India.

101

Residential Status - u/s. 245N(b) to be determined w.r.t. the ‘Previous Year’ preceding the Financial Year in which the application is made.

1, 4, 16, 22, 33, 38, 41

• Individuals cannot avail of benefits of Indo-UAE DTAA as they are not "liable to tax" in UAE. The DTAA is meant only for the benefit of tax payers who are liable to pay tax twice on the same income.

49, 52, 97, 102

• to be determined by ignoring the period of stay not attributable to any source of income in India, definition of ‘P.Y’ u/s. 3 relied on.

1

• under Art. 4(1) of UAE DTAA - "Liable to tax" means "Liable to be subjected to tax" under UAE laws - Even though there is no tax in UAE, a person having closer personal/economic ties in UAE can be regarded as Resident of UAE. (Reversed by Cyril Pereira v. CIT 239 ITR 650 - (see case No. 48)

2, 9

• to apply the ‘No. of days’ test, the day on which the individual entered India and the day on which he left India should both be counted.

12

• scope of total income of a Resident but not ordinary resident (NOR) discussed in detail especially covering Dividend and Interest income of a NOR.

10

• Art. 4(3) of Mauritian DTAA contemplates ‘Place of Effective Management’ between the two contracting states entering into DTAA and not a third country.

19

• "Liability to tax" is crucial for availing benefits of DTAA. If a Mauritian Company has opted for a zero rate of tax, it would become ineligible for relief under the DTAA.

37

• "Liability to tax" for determining residential status must be actual and not potential. For availing benefits of DTAA a person should be liable to tax for the year for which provisions of DTAA are sought to be applied.

49

• An individual who is not "liable" to pay any income tax in Oman cannot get the advantage of the DTAA between Oman and India.

52

• Individual residing in Oman who is not liable to pay any income-tax in Oman is not entitled to any relief under DTAA between India and Oman.
   
• A Trust being exempt from tax in USA and there being no information to prove beneficiaries were taxed in USA in respect of income derived from India, the AAR held that provisions of India-USA Tax Treaty would not be applicable as the Trust would be held as non-resident of USA as per the said Treaty.

• The assessee was awarded a contract for administering an innovation growth programe jointly with a US tax exempt entity. The assessee had to make payments to the  US entity for technical assessments and travel expenses. It was held that the US entity will be considered as a resident of USA and get the benefit of India-US DTA as even though the entity may be exempt from tax but it had no general immunity. Further as the US entity did not make knowhow available to the Indian entity, the payments were not Fees for included services.

52 

105 

202

• A person who is employed in India and leaves Indian to work abroad, will be a non-resident if his stay in India in the year in which he leaves is less than 182 days. It is not necessary that the person should be unemployed in India, and then he should leave India for employment.

111

• A person who leaves India to work outside India, is a non-resident if his stay in India is for a period of less than 182 days. His stay in India during the preceding 4 years prior to the year concerned is not relevant.

188

Royalties - Royalty payment in respect of trademark, which is used to earn income from any source in India, is taxable u/s 9(1)(vi)(c) despite the fact that the payer does not carry on business activities in India.

42

• Payments made by an Indian company to a US Company for CPU charges, CDN access/service charges and E-mail charges were held to be royalty under Article 12(3)(a) of the Indo-USA DTAA

45

• Sale of engineering drawings and designs by US Company to an Indian company was held to be outright sale and not royalty as the sale was not contingent upon the productivity, use or disposition of such drawings and designs.
• The drawings were specifically made for the client’s building. It was not sale of documents. The assessee helped the client to go the drawings so that they could execute the works. It was held as Fees for technical services.

62

 185

·         Payment to a UK resident for downloading business information reports is not Royalty.

116

·         Indian company is required to deduct tax at source while making payment for software to a non-resident. The matter was decided with reference to TDS u/s. 195.

112

·         Periodic Payment by an Indian company to a US company for licence for software applications were Royalty.

117

·         That the payment made for the right to use the software and documentation was royalty income both under the Income-tax Act, 1961, and under article 12 of the India-US DTAA and was taxable in India. Installation, testing and training services primarily related to the provision of software. They were in the nature of “technical services” under section 9 of the Income-tax Act, 1961, and also fell within “included services” in paragraph 4(a) of article 12 of the DTAA

·         Payment for hardware and software were covered under the India-US DTA and were liable for tax.

142

199

·         Payment by Indian reseller for software for own use of clients did not amount to license of copyright. In the absence of a PE, the business profits was held not liable to tax.

187

·         Payment by Indian cargo agents to a Singapore company for accessing internet based cargo portal, is Royalty.

125

·         Amount payable by an Indian company to a Swiss company for assignment of rights to the Indian company for manufacturing turbochargers, is not royalty.

127

·         Payment to a UK resident for use of transponder capacity which was stationed 36,000 kms above the earth, did not amount to Royalties. The payer did not use the use the equipment of the service provider. The operation of the transponder was always with the owner. The UK company did not have any operations in India.

152

·         Payment for bandwidth and connectivity service is not royalty or Fees of included services.

144

·         A supply contract was entered into between the Indian manufacturing unit, and foreign supplier. The foreign supplier irrevocable assigned all its rights in connection with the supply to the Indian manufacturer for a consideration. It was held that the consideration was business income.

203

·         The Australian entity was a non-profit organisation. It provided accreditation to those bodies considered competent and impartial to provide an effective service in various spheres. The accredited entities provided certification and inspection services to the concerned organisations regarding quality management systems and environmental management systems. The Australian entity received income in form of application fee, programme fee, certificate fee and fee for conducting surveillance audit and re-assessment visits. It was held that there was no transfer of skills or knowhow to the accredited bodies. Hence it was not royalty under the India-Australian DTA.

210

·         The Netherlands company provided the software to be used in exploration and production of mineral oil. It was deleievred by courier on tangible media. The tile in the software passed in the country of origin. The installation was carried out the affiliate of the applicant. There was an AMC which was also entered into with the affiliate of the applicant. It was held that software supplied could not be considered as royalty or fees for technical services.

212

Service Tax- Provision of Service of providing advertisement space to clients/advertisers on website and assisting in preparation of advertisement is covered under the definition of “advertisement service” . AAR has the jurisdiction to decide the scope and classification of jurisdiction but no jurisdiction to decide whether service provided is a taxable service.

104

Shipping Income- Non resident Shipping Company with control and management outside India and no office in India is not liable to tax in India in respect of freight income from international traffic.

64

Speculative Transaction- Hedging contract to cover the risk under speculative transactions can be for purchase or sale. It can also be for the same commodity or connected commodity.

74

TDS on Business Profits - Where whole of the payment is not be chargeable to tax, the Department at the request of the assessee may appropriately modify the rate of tax deduction. TDS is tentative and subject to adjustment at the time of the final assessment.

46

TDS on interest – Interest was payable net of tax to a Singapore resident. Held it was liable to tax under the Singapore DTA and the resident payer was required top deduct tax at source.

90

Transfer Pricing – Interest free loan given by a non-resident to an Indian resident – can it be said that Transfer Pricing provisions need not apply as the revenue does not suffer any loss? The Authority has  held that Transfer Pricing rules will have to be followed.

89

Under bankruptcy proceedings, there was a restructuring of the group. Shares in the Indian company and the liabilities were transferred from the assessee to another group company. It was held that there was no transfer. Take over of liabilities cannot be considered as consideration. As there was no capital gain, transfer pricing provisions also cannot apply.

184

Transfer of shares of an Indian subsidiary company by the Mauritius holding company to its another Indian subsidiary company was exempt from tax u/s. 47(iv). It was also not taxable due to India-Mauritius DTA. MAT was not applicable to a foreign company which does not have a PE in India. Transfer pricing provisions were not applicable as the income was not liable to tax in India.

208

The Netherlands company sold the shares of an Indian company to a Swiss company. The Capital gain was not liable to tax under the India-Netherlands DTA. As there was no income liable to tax, transfer pricing provisions were not applicable. However even if the income was not liable to tax in India, the return of income had to be filed.

216

Treaty Shopping - Where a UK co. invested in India via Mauritius and no commercial justification was established for using Mauritius, the AAR held that transactions were ‘prima facie’ for avoiding tax and hence rejected the application u/s. 245R(2)(c).

6

• where abundant business justification for investment into infrastructure and core sector in India by pooling of resources from world over at one place; i.e., Mauritius, was established, treaty benefits were duly granted.

15

• Capital Gain earned by a Mauritian company is not liable to tax in India under the India-Mauritius DTA. The tax residency certificate was a presumptive evidence that the company is the beneficial owner of shares, even if it is not a conclusive evidence. Treaty shopping was valid as held in Supreme Court’s decision in Azadi Bachao’s case.

204

Turnkey contracts – See EPC contracts

• Words and Phrases - "Government" under Article 11 of Mauritius DTAA includes ‘RBI’ and ‘FIPB’.

19

• "Information Technology" as notified by the Central Government under clause (iii) of the explanation to S. 10(5B) also covers the area of cellular networks; i.e., ‘telecommunications’.

22, 53, 44

• "national" under article 26 of UK DTAA refers to individuals and not other entities.

24

• Affixation of an instrument at a place where it is expected to function cannot amount to "construction".

55