Search Results For: International Tax


Bellsea Ltd vs. ADIT (ITAT Delhi)

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DATE: July 6, 2018 (Date of pronouncement)
DATE: August 4, 2018 (Date of publication)
AY: 2008-09
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Article 5 Permanent Establishment (PE): The duration of 12 months specified to constitute a PE is activity specific qua the site, construction, assembly or installation project. Preparatory work for tendering of contract cannot be included in the period. The activity qua the project comes to an end when the work gets completed and the responsibility of the contractor with respect to that activity comes to end. Onus is heavily upon the revenue to establish that that assessee’s activity had crossed the threshold period of 12 months

Auxiliary and preparatory activity, purely for tendering purpose before entering of the contract and without carrying out any activity of economic substance or active work qua that project cannot be construed as carrying out any activity of installation or construction. Clause (g) of Article 5(2) ostensibly refers to activity based PE, because the main emphasis is on “where such site project or activity continues for a period of more than 12 months.” The duration of 12 months per se is activity specific qua the site, construction, assembly or installation project. If the contract would not have been awarded, then any kind of preparatory work for tendering of contract cannot be reckoned for carrying out any activity as stipulated in this clause. Hence, in this case all such preparatory work for tendering purpose before entering into contract cannot be counted while calculating the threshold period.

DCIT vs. Sterling Ornaments (P) Ltd (ITAT Delhi)

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DATE: June 27, 2018 (Date of pronouncement)
DATE: July 3, 2018 (Date of publication)
AY: 2011-12
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S. 9/ 195(1) TDS: Law on whether commision paid to non-resident agents for services rendered outside India accrues in India and whether the assessee is liable to deduct TDS thereon explained (All judgements referred)

Section 195 of the Act has to be read alongwith the charging Section 4,5 and 9 of the Act. One should not read Section 195 of the Act to mean that the moment there is a remittance, the obligation to deduct tax automatically arises. Section 195 of the Act clearly provides that unless the income is chargeable to lax in India, there is no obligation to withhold tax. In order to determine whether the income could be deemed to accrue or arise in India, section 9 of the Act is the basis

Skaps Industries India Pvt Ltd vs. ITO (ITAT Ahmedabad)

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DATE: June 21, 2018 (Date of pronouncement)
DATE: June 23, 2018 (Date of publication)
AY: 2013-14, 2014-15
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S. 90(2) DTAA: The failure to submit a 'Tax Residency Certificate' (TRC) as required by s.90(4) is not a bar to the grant of benefits under the DTAA. However, the assessee is required to produce reasonable evidence of the entitlement of the foreign entity to benefits under the DTAA

Section 90(4), in the absence of a non-obstante clause, cannot be read as a limitation to the treaty superiority under Section 90(2), we are of the considered view that an eligible assessee cannot be declined the treaty protection under section 90(2) on the ground that the said assessee has not been able to furnish a Tax Residency Certificate in the prescribed form. De hors the statutory provision under Section 90(4), the assessee has to satisfy his eligibility for treaty protection nevertheless and the onus of satisfying the same by any other mode, i.e. other than a TRC, appears to be much more demanding than furnishing of a TRC. To be entitled for Indo US tax treaty benefits in India, a foreign enterprise has to establish that it is a resident of the other contracting state, i.e. the United States

Nokia Networks OY vs. JCIT (ITAT Delhi Special Bench)

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DATE: June 5, 2018 (Date of pronouncement)
DATE: June 7, 2018 (Date of publication)
AY: 1997-98
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Entire law explained on (a) whether a subsidiary of a foreign company constitutes "business connection" and/ or "fixed Permanent Establishment" and/or "Dependent Agent Permanent Establishment" of assessee in India, (b) whether any attributes of profits on account of signing, network planning and negotiation of off-shore supply contracts in India could be attributed to such business connection/ permanent establishment and (c) whether notional interest on delayed consideration of supply of equipment and licensing of software taxable in the hands of assessee as interest from vendor financing

HELD by majority in favour of the assessee:

According to the Supreme Court in Formula One World Championship Ltd. vs. CIT, reported in 394 ITR 80 (SC), the ‘disposal test’ is paramount which needs to be seen while analyzing fixed place PE under Article 5(1). Though in our humble understanding, the test of permanency qua fixed place has been slightly diluted by the Hon’ble Court but not the “disposal test”. Again this judgment of Hon’ble Supreme Court has been reiterated and referred extensively in a subsequent judgment by the Hon’ble Supreme Court in the case of ADIT vs. E-Fund IT Solution (2017) 86 taxmann.com 240, wherein the Hon’ble Apex Court had quoted extensively the same views and commentaries and also the judgment of Formula One World Championship Ltd. and held that there must exist a fixed place in India which is at disposal of foreign enterprise through which they carry on their own business. In that case, the Indian subsidiary company of the foreign enterprise was rendering support services which enabled the foreign enterprise in turn to render services to its client and the outsourcing of work to the Indian subsidiary was held to be not giving rise to fixed place of PE. This judgment of the Hon’ble Supreme Court nearly clinches the issue before hand in so far as role of Indian subsidiary while deciding the fix place PE.

HELD by minority in favour of the revenue:

The assessee company had a PE in India by way of the premises and existence of its Indian subsidiary Nokia India Pvt Ltd, and that the profit attributable to the specified operations of this PE are 3.75% of total sales of the equipment in India. The plea of the assessee against the existence of business connection and the existence of permanent establishment is to be rejected, and plea of the assessee on the attribution of profit is to be partly accepted in the terms

Ernst & Young Ltd vs. ACIT (ITAT Delhi)

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DATE: May 31, 2018 (Date of pronouncement)
DATE: June 7, 2018 (Date of publication)
AY: 2012-13, 2013-14
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S. 44C: A non- resident assessee is entitled to claim deduction of an amount equal to 5% of the adjusted total income as expenditure in the nature of Head Office (HO) Expenses. The fact that the expenses are not debited in the Profit & loss account or the books of account is irrelevant. The entries in the books of account are not conclusive

No doubt, the assessee has not debited the said expenditure in the Profit & Loss Account. However, it is an admitted fact that the assessee has claimed the expenditure in the computation statement. The Mumbai Bench of the Tribunal in the case of British Bank of Middle East (supra) under similar circumstances has held that non-debiting of the expenditure in the books of account of India operations is not relevant for allowability of the same in the light of the law laid down by the Hon’ble Supreme Court in the case of Kedarnath Jute Mills Co. Ltd. (supra). It has been held that as long as the expenditure is really incurred and is otherwise deductible, the deduction cannot be declined on the ground that it has not been debited in the books of account. Since in the instant case there is no dispute to the fact that the head office has incurred the expenditure for the Branch office, the genuineness of which has not been doubted and since the assessee has claimed the deduction u/s 44C of the I.T. Act in the computation statement

PCIT vs. Nova Technocast Pvt Ltd (Gujarat High Court)

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DATE: April 9, 2018 (Date of pronouncement)
DATE: May 26, 2018 (Date of publication)
AY: -
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S. 9/ 40(a)(i)/ 195: Explanation 2 to s. 195(1) inserted by Finance Act 2012 with retrospective effect from 01.04.1962 has bearing while ascertaining payments made to non-residents is taxable under the Act or not. However, it does not change the fundamental principle that there is an obligation to deduct TDS only if the sum is chargeable to tax under the Act. If the conclusion is arrived that such payment does not entail tax liability of the payee under the Act, s. 195(1) does not apply

It is indisputably true that such explanation inserted with retrospective effect provides that obligation to comply with subsection [1] of Section 195 would extend to any person resident or non-resident, whether or not non-resident person has a residence or place of business or business connections in India or any other persons in any manner whatsoever in India. This expression which is added for removal of doubt is clear from the plain language thereof, may have a bearing while ascertaining whether certain payment made to a non-resident was taxable under the Act or not. However, once the conclusion is arrived that such payment did not entail tax liability of the payee under the Act, as held by the Supreme Court in the case of GE India Technology Centre P. Limited [Supra], sub-section [1] of Section 195 of the Act would not apply

Godaddy.com LLC vs. ACIT (ITAT Delhi)

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DATE: April 3, 2018 (Date of pronouncement)
DATE: April 4, 2018 (Date of publication)
AY: 2013-14
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S. 9(1)(vi) Royalty: Domain name is an intangible asset which is similar to trademark. Consequently, income from services rendered in connection with such domain name registration is assessable as "royalty" u/s 9(1)(vi) of the Income-tax Act

It is now settled law that with the advent of modern technology particularly that relating to cyberspace, domain names or Internet sites are entitled to protection as a trade mark because they are more than a mere address. The rendering of Internet services is also entitled to protection in the same way as goods and services are, and trade mark law applies to activities on Internet

Honda Motor Co. Ltd vs. ADIT (Supreme Court)

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DATE: March 14, 2018 (Date of pronouncement)
DATE: March 24, 2018 (Date of publication)
AY: -
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S. 148: The AO is not entitled to issue a reopening notice only on the basis that the foreign company has a permanent establishment (PE) in India if the transactions in respect of which it is alleged that there has been an escapement of income had already been disclosed by the Indian subsidiary and found by the Transfer Pricing Officer (TPO) to be at arm's length

In the judgment of this Court dated 24th October, 2017 in Assistant Director of Income Tax-I, New Delhi v. M/s. E-Funds IT Solution Inc., Civil Appeal NO.6082 of 2015 and connected matters, it has been held that once arm’s length principle has been satisfied, there can be no further profit attributable to a person even if it has a permanent establishment in India. Since the impugned notice for the reassessment is based only on the allegation that the appellant(s) has permanent establishment in India, the notice cannot be sustained once arm’s length price procedure has been followed

CIT vs. NGC Networks (India) Pvt. Ltd (Bombay High Court)

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DATE: January 29, 2018 (Date of pronouncement)
DATE: February 16, 2018 (Date of publication)
AY: 2009-10
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S. 40(a)(i) TDS disallowance: A party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. S. 40(a)(i) disallowance can be made only if the royalty falls under Explanation 2 to s. 9(1)(vi) but not if it falls under Explanation 6 to s. 9(1)(vi)

The view taken by the Tribunal that a party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. This is in accord with the view taken by this Court in CIT v/s. Cello Plast (2012) 209 Taxmann 617 – wherein this Court has applied the legal maxim lex non cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform)

DDIT vs. Reliance Communication Ltd (ITAT Mumbai)

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DATE: January 3, 2018 (Date of pronouncement)
DATE: January 4, 2018 (Date of publication)
AY: -
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Taxability of software payments as royalty: The fact that there is a conflict of judicial opinion on whether payments for software are assessable as royalty or not does not entitle the Dept to seek a reference to the Special Bench. The Tribunal has to follow judicial discipline. Also, if a reference is made to the Special Bench it will violate the principle in Vegetable Products 188 ITR 192 (SC) that if there are two possible views, the view favourable to the assessee must be adopted

So far as Constitution of special Bench is concerned, a reference to constitute a Special Bench flows from the members and not from the parties to the case. Furthermore, such a reference can be made by the members when they do not agree with the view taken by the earlier order of the Tribunal. However, in the instant cases before us, it is not a situation, only after hearing, the matter afresh by the division bench in terms of direction of Hon’ble High Court dated 08.08.2017, the bench may decide the issue to agree or disagree with the view already taken by the earlier bench. Furthermore merely on the conflict view .of the decision of the High Court, a reference cannot be made to constitute Special Bench. If the present application of the Revenue is accepted, the process of reference to a Special Bench / larger Bench would never reach an end. Reference to Special Bench would continue to be moved by the parties upon every subsequent non-jurisdictional High Court decision, thus, leading to a number of cases being referred to constitute Special Bench. However, correct decision is to follow the judicial hierarchy and maintain judicial discipline. Furthermore, if the applications of the Revenue were to be allowed, it would lead to the violation of the principle laid down by the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products (1973) (188 ITR 192) (SC)

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