Though s. 2(17) defines a “company” to include a “foreign company”, the context of the definition has to be seen. Income, which does not have a source in India, cannot be made part of the book profits. The annual accounts, including the P&L Account, cannot be prepared as per s.115JB(2) in respect of the world income and laid before the company at its AGM in accordance with s. 210 of the Companies Act. The speech of the Finance Minister and the Memorandum explaining the provision also become out of sync if the meaning of “company” appearing in s. 115JB is adopted as ‘foreign company”. Any other meaning would take away force and life from the true intent of the makers of the Act. The contention of the department that there is no demarcation between a ‘domestic company’ and a ‘foreign company’ while applying s. 115JB is not acceptable. As the applicant did not have a place of business in India and was not required to prepare its accounts under s. 594 r.w.s. 591 of the Companies Act, it could not have prepared its accounts in accordance with the provisions of Part II and III of Schedule VI of the companies Act, 1956

The effect of Azadi Bachao Andolan is that there is no “legal taboo” against ‘treaty shopping’. Treaty shopping and the underlying objective of tax avoidance/mitigation are not equated to a colourable device. If a resident of a third country, in order to take advantage of a tax treaty sets up a conduit entity, the legal transactions entered into by that conduit entity cannot be declared invalid. The motive behind setting up such conduit companies is not material to judge the legality or validity of the transactions. The principle that “every man is entitled to order his affairs so that the tax is less than it otherwise would be” is applicable though a colourable device adopted through dishonest methods can be looked into in judging a legal transaction from the tax angle. Tax avoidance is not objectionable if it is within the framework of law and not prohibited by law. However, a transaction which is ‘sham’ in the sense that “the documents are not bona fide in order to intend to be acted upon but are only used as a cloak to conceal a different transaction” stands on a different footing. For an act to be a ‘sham’, the parties thereto must have a common intention not to create the legal rights and obligations which they give the appearance of creating

The Applicant’s case falls within s. 44BB because the words in connection with therein have an expansive meaning. The services provided by the Applicant have a real, intimate and proximate nexus with the prospecting for or extraction of mineral oils. The seismic survey and data acquisition is a prelude and critical component of the oil and gas exploration activity. Without seismic data acquisition and interpretation, it is impracticable to carry out the activity of prospecting which is a step in aid to exploration.

No capital gains in a business reorganization if consideration not determinable. Transfer pricing law does not apply if there is no income

Where the assessee, an Australian company, entered into an agreement with Reliance and it was agreed that the consideration thereof constituted “royalty” but the assessee claimed (i) that the said royalty was “effectively connected” with a permanent establishment (PE) and consequently assessable as business profits, (ii) that the portion of such “profits” as was not “attributable” to the PE was not assessable to tax in India and (iii) that even otherwise the royalty was not assessable to tax in view of Ishikawakima 288 ITR 408 (SC) where it was held that fees for technical services (and royalty) was not assessable to tax u/s 9(1)(vii) (9(1)(vi)) if it was not rendered and utilized in India, HELD:

(i) In order to be “effectively connected”, the PE should be engaged in the performance of royalty generating services. There must be a real and intimate connection and clear co-relation between the services giving rise to royalty and the PE. A connection between the PE and the contract is not enough;

A non-resident earning long-term capital gains on transfer of listed securities is entitled to the benefit of the lower tax rate in the proviso to section 112(1) in addition to the benefit granted by the first proviso to s. 48.

Where the income is actually received or has accrued in India, the resort to deeming provision is not warranted and s. 5(2) is sufficient to create a charge in respect of non-resident’s income. Clause (b) to Explanation 1 makes no difference to this position.

During the days when the golf tournament is conducted, the Golf Course can be regarded as a “place of business” because the center of income earning activities was at that particular place and the Golf Course was at the disposal of the applicant for the stipulated time frame and it could exercise some limited rights. The fact that the duration is short is not relevant.

The s. 197 proceedings did not create any embargo because the order had worked itself out and in any event the s. 197 order was a tentative measure for TDS and did not in anyway fetter the jurisdiction of the AAR.

In order to consider the meaning of the term “make available” in Article 12 of the India-Canada DTAA, one can have regard to the India-USA DTAA. The term requires that the service provider should also make his 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. In other words, payment of consideration would be regarded as ‘fee for technical / included services’ only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.