For purposes of Article 20 of the India-Korea DTAA, a Government undertaking with corporate status cannot be equated to the Government. Even if the Articles of Incorporation make it clear that the Government has pervasive control over the undertaking, it still cannot be treated to be a wing or an integral part of the Government. However, the fundamental requirement of Article 20(1)(a) is that the remuneration should be paid by the Contracting State. Even if it is paid out of funds allocated by the Government to the undertaking specifically towards personnel expenses, the requirement of Article 20(1) is satisfied. It is as good as payment by the State itself. The expression “payment by a Contracting State” cannot be given a rigid or literal interpretation so as to cover the payments made directly by Government or a department of the Government. Even if the payment is made out of State’s funds set apart for that purpose, the requirement of Section 20(1)(a) will be attracted and the Indian income-tax cannot be levied in such a case.

Where the applicant had entered into a joint venture with two Indian companies for providing consultancy services for the development of tunnels and the question was whether the JV constitutes an ‘Association of Persons’, HELD:

(i) An ‘AOP’ is one in which two or more persons join in a common purpose or common action with the object of producing income, profits or gains. The control and management must be unified.

(ii) On facts, as the client had entered into a contract with the ‘consortium’ and each of the companies was made ‘jointly and severally’ liable and the other provisions revealed unity of action, common management and planned coordination among the JV partners, there was an AOP.

(iii) The fact that the contract distributed duties and responsibilities and that no member could bind the other did not affect the integrity of the association;

(iv) Also, the fact that there is no sharing of profit or loss and each member of JV makes its own investment and maintains its own accounts and receives payment directly from the client (pursuant to a consolidated invoice) does not detract from the existence of an AOP. Ruling in Van Oord 248 ITR 399 distinguished on facts.

Where the applicant entered into a contract with Raytehon USA for the acquisition of hardware and customized software and the title to the hardware was to pass outside India and all activities under the contract (except for installation and support activities) were to be performed by Raytheon outside India, HELD:

(i) The profits on sale of hardware are not assessable to tax in India in the absence of a PE;

(ii) As regards the profits from supply of documents and software, as there was a mere right to use and not an outright sale of the same, it constitutes “royalty” u/s 9 (1) (vi) and Article 12 of DTAA;

(iii) The judgement of the Supreme Court in Tata Consultancy Services that once software is put on a CD it becomes a sale of goods is not applicable as it is rendered under the sales-tax Act. Under the I. T. Act, right to use software is ‘royalty’ irrespective of the fact that it is on a CD.

(iv) Profits from installation, testing and training services are chargeable as “fees for technical/included services”.

Where the applicant entered into an arrangement with BTA USA for obtaining telecom bandwith for two-way transmission of voice and data through sub-sea cables, HELD:

(i) The agreement was for rendering a ‘service’ and did not involve consideration for the ‘use or right to use equipment’ and not ‘royalty’ u/s 9 (1) (via). The consideration was not a ‘rental’ as the payee was not in custody or control of the equipment of BTA. The meanings of the words “use” and “right to use” explained in detail. It is also not ‘royalty’ u/s 9 (1) (iii). It is also not “fees for included services” under Article 12 (4) of the DTAA.

(ii) The argument that as the applicant’s business consists of revenue from offshore customers, it must be considered to have earned income from a source outside India is not correct as the entire operations are carried out in India. Source is referable to the starting point or the origin or the spot where something springs into existence.

(iii) Question as to whether there is a PE left open for want of facts.

Where an Australian company which owned trademarks, brands and other intellectual property had registered and licensed such trademarks etc to parties in India and after termination of the license agreements had assigned the said trademarks etc and the question arose whether the “situs” of such trademarks etc can be said to be in India so as to be exigible to tax on capital gains, HELD:

(i) As the trademarks etc had been registered and used in India and enjoyed high reputation and goodwill in the Indian market, they had a “tangible presence” in India and were located in India. The facts showed that they became inextricable components of the business of manufacture and marketing of Foster’s lager beer in India by the group company of the applicant.

(ii) It is not correct to say that on the termination of the license agreements with the Indian parties, the situs shifted back to Australia because the predominant component of trademarks and brands is good-will associated with them which cannot be said to have perished in India and shifted to Australia on termination.

(iii) There is no legal principle that the situs of intangible assets such as trademark and goodwill would always go with ownership and they have no situs other than the country of fiscal residence of the owner. On the other hand, there is sufficient authority for the proposition that the intangible assets or incorporeal property can have more than one situs. Goodwill is territorial in the sense that it exists at a place where the related business exists. The fact that the trademarks etc originated in Australia is irrelevant.

(iv) Though the trademarks etc property can be notionally treated to be existing also at the place where the owner resides, there is no legal basis for apportionment on the ground that the situs of the property transferred is fictionally at another place. The entire consideration is chargeable to tax in India.

(v) However, the brewing intellectual property represented by the Brewing Manual, though in the nature of a trade intangible, was also in the nature of goods and as it was located abroad at the point of transfer was not exigible to tax.