Case Nos.

7

3, 4, 22

·         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

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.

56

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.

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. 

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

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” 

58, 77, 82, 83, 87

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.

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. 

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.

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.

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.

58, 78 81

97

98

98 

96

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.

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.

34, 40, 35, 65

 
99

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.

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

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.  

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.

57 71 73 80

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

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. 

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).

9 

93

94

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.

103

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.

36

·         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.

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.

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.

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.

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.

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.

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.

54

66

68,85

 76

88

99



100

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

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
 

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.

58

67,70

90

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

• The Authority for Advance Ruling  has no Juridiction 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.

18

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

·         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

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

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"

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.

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

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.

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.

37,

 50, 83

50, 91

 92 

91

·         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.

Liasion 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

Activities carried out by the liaision 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.

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.

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 

54

69 

75

102

88

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

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

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.

52 

105 

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.

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.

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.

62 64 74

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 

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.  

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.

46

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

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

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