Search Results For: International Tax


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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

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DATE: April 9, 2018 (Date of pronouncement)
DATE: May 26, 2018 (Date of publication)
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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

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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

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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

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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)

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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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DATE: October 30, 2017 (Date of pronouncement)
DATE: November 1, 2017 (Date of publication)
AY: -
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S. 44BB: Amounts received as “mobilisation fee” on account of provision of services and facilities in connection with the extraction etc. of mineral oil in India attracts s. 44BB and have to be assessed as business profits. S. 44BB has to be read in conjunction with ss. 5 and 9 of the Act. Ss. 5 and 9 cannot be read in isolation. The argument that the mobilisation fee is “reimbursement of expenses” and so not assessable as income is not acceptable because it is a fixed amount paid which may be less or more than the expenses incurred. Incurring of expenses, therefore, would be immaterial. Also, the contract was indivisible

Section 44BB starts with non-obstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of Sections 28 to 41 and Sections 43 and 43A of the Act. It is not in dispute that assessees were assessed under the said provision which is applicable in the instant case. For assessment under this provision, a sum equal to 10% of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head ‘profits and gains of the business or profession’. Sub-section (2) mentions two kinds of amounts which shall be deemed as profits and gains of the business chargeable to tax in India. Sub-clause (a) thereof relates to amount paid or payable to the assessee or any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in the prospecting for, or extraction or production of, mineral oils in India. Thus, all amounts pertaining to the aforesaid activity which are received on account of provisions of services and facilities in connection with the said facility are treated as profits and gains of the business.

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DATE: October 24, 2017 (Date of pronouncement)
DATE: October 25, 2017 (Date of publication)
AY: -
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Permanent Establishment (PE) under Article 5 of DTAA: Entire law on concept of “fixed place of business”, “service PE” and “agency PE” explained. The fact that there is close association and dependence between the US company and the Indian companies is irrelevant. The functions performed, assets used and risk assumed, is not a proper and appropriate test to determine whether there is a location PE

The Income Tax Act, in particular Section 90 thereof, does not speak of the concept of a PE. This is a creation only of the DTAA. By virtue of Article 7(1) of the DTAA, the business income of companies which are incorporated in the US will be taxable only in the US, unless it is found that they were PEs in India, in which event their business income, to the extent to which it is attributable to such PEs, would be taxable in India. Article 5 of the DTAA set out hereinabove provides for three distinct types of PEs with which we are concerned in the present case: fixed place of business PE under Articles 5(1) and 5(2)(a) to 5(2)(k); service PE under Article 5(2)(l) and agency PE under Article 5(4). Specific and detailed criteria are set out in the aforesaid provisions in order to fulfill the conditions of these PEs existing in India. The burden of proving the fact that a foreign assessee has a PE in India and must, therefore, suffer tax from the business generated from such PE is initially on the Revenue

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DATE: September 14, 2017 (Date of pronouncement)
DATE: September 25, 2017 (Date of publication)
AY: 2010-11
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S. 195 TDS: Entire law explained on whether payment of commission to non-resident agents for services rendered outside India is liable to tax in India u/s 5(2)(b) and 9(1)(i) on the ground that the "source" of the payment is in India and that the insertion of the Explanation to s. 9(2) with retrospective effect by the Finance Act 2010 makes such payments taxable

The Hon’ble Allahabad High Court in the case of CIT vs. Model Exims reported in 363 ITR 66 has held that failure to deduct tax at source from payment to non-resident agents, who has their own offices in foreign country, cannot be disallowed, since the agreement for procuring orders did not involve any managerial services. It was held that the Explanation to section 9(2) is not applicable. It was further held that the situation contemplated or clarified in the Explanation added by the Finance Act, 2010 was not applicable to the case of the assessee as the agents appointed by the assessee had their offices situated in the foreign country and that they did not provide any managerial services to the assessee. Section 9(1)(vii) deal with technical services and has to be read in that context. The agreement of procuring orders would not involve any managerial services. The agreement did not show the applicability or requirement of any technical expertise as functioning as selling agent, designer or any other technical services

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DATE: July 13, 2017 (Date of pronouncement)
DATE: July 17, 2017 (Date of publication)
AY: 2010-11
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S. 5(2)(a): Salary of a non-resident seafarer for services rendered outside India on-board foreign ships accrues outside India and is not assessable in India even if received by the seafarer into the NRE bank account maintained in India by the seafarer. CBDT Circular No. 13/2017 dated 11.04.2017 is clarificatory

Whether on the facts and in the circumstances of the case and in law, income by way of salary which became due and has accrued to the assessee, a non-resident, for services rendered outside India and which is not chargeable to tax in India on the “due” or “accrual” basis, can be said to be chargeable to tax on the “receipt” basis merely because the foreign employers, on the instructions of the assessee, have remitted a part of amount of salary to the assessee’s NRE bank account in India?