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Posted on by itatbar
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DATE: March 23, 2016 (Date of pronouncement)
DATE: May 26, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Installation services provided by a foreign enterprise which are inextricably connected to the sale of goods are not assessable as "fees for technical services" or as "business profits" under the DTAA

Though service of installation is covered by the FTS clause as well as Installation PE clause of the India China treaty and though the installation contract (including period of after sales service) exceeded 183 days, the income from installation activity was neither taxable as FTS nor as business income since (i) the service of installation was inextricably connected to sale of goods, the same could not be treated as FIS or FTS (ii) specific installation PE clause in India China Treaty will override General FTS clause (iii) the aforesaid threshold limit of 183 days would have to be applied to the actual period of installation (which was less than 183 days) and not the contractual period

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Posted on by editor
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DATE: May 16, 2016 (Date of pronouncement)
DATE: May 19, 2016 (Date of publication)
AY: 2004-05, 2005-06, 2006-07
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CITATION:
Entire law on what constitutes a Permanent Establishment (PE) in India in terms of Article 5(1), 5(2)(l) or Article 5(5) of the Indo-USA DTAA explained. If the alleged PE has been assessed on ALP basis in terms of Article 7, no income has escaped escapement so as to justify issue of s. 148 notice

Even if the subsidiary of a foreign company is considered as its PE, only such income as is attributable in terms of paragraphs 1 and 2 of Article 7 can be brought to tax. In the present case, there is no dispute that Adobe India – which according to the AO is the Assessee’s PE – has been independently taxed on income from R&D services and such tax has been computed on the basis that its dealings with the Assessee are at arm’s length (that is, at ALP). Therefore, even if Adobe India is considered to be the Assessee’s PE, the entire income which could be brought in the net of tax in the hands of the Assessee has already been so taxed in the hands of Adobe India. There is no material that would even remotely suggest that the Assessee has undertaken any activity in India other than services which have already been subjected to ALP scrutiny/adjustment in the hands of Adobe India

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Posted on by Ankul Goyal
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DATE: May 4, 2016 (Date of pronouncement)
DATE: May 5, 2016 (Date of publication)
AY: 2003-04, 2004-05 and 2005-06
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CITATION:
Important principles laid down whether profits arising from off-shore supply of goods can be taxed in India on basis that (a) the goods continued in the possession of seller till acceptance of the goods by buyer in India, (b) the seller had a liaison office in India, (c) the seller had a wholly-owned subsidiary in India which negotiated contacts with the buyer, (d) installation, commissioning etc services were provided in India etc

The controversy whether the Assessee has a PE in India is interlinked to the finding that Nortel India had discharged some of the obligations of the Assessee under the Equipment Contract. Whilst, the Income Tax Authorities have held that the contracts entered into with Reliance – the Equipment Contact, Software Contract and Services Contract – are essentially a part of the singular turnkey contract, the Assessee contends to the contrary. Further, the Income Tax Authorities have held that a part of the Equipment Contract assigned to the Assessee was, in fact, performed by Nortel India. This too, is stoutly disputed by the Assessee. The question whether the Assessee has a PE in India is clearly interlinked with the issue whether Nortel India or Nortel LO had performed any of the functions or discharged any of the obligations assumed by the Assessee. Assessee argued that agreement for supply of hardware (Equipment Contract) could have been directly executed between Reliance and the Assessee but owing to relaince’s insistence on an Indian company being responsible for the entire works, agreements were executed between Nortel India and Reliance, with Nortel Canada as a surety.

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Posted on by itatbar
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DATE: March 8, 2016 (Date of pronouncement)
DATE: April 5, 2016 (Date of publication)
AY: 2011-12
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CITATION:
100% stay of demand has to be granted in high pitched assessments as per Instruction No. 96 of 1969

The Tribunal granted 100 percent stay of demand because (a) The assessed income was more than 10 times the returned income. (Instruction 96 of 1969 was relied upon) & (b) The stand taken by the AO was at variance with the stand taken by TPO

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Posted on by editor
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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 17, 2016 (Date of publication)
AY: 2011-12
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CITATION:
A Power of Attorney executed by the Head Office in favour of the Liaison Office in India does not create a Permanent Establishment if the powers are specific to the liaison office and are not unfettered powers to enable to Liaison Office to act on behalf of the enterprise

The sole basis on which the AO as well as the DRP came to a conclusion that the assessee had a P.E. in India is the clauses in power of attorney executed by the head office in favour of its employee in the L.O. in India. Reliance was also placed on the permission granted by the RBI to the assessee for setting up the L.O. A plain reading of the clauses in the power of attorney takes us to a conclusion that the powers given therein are L.O. specific. The AO’s conclusion that the power of attorney granted unfettered powers to its L.O. employee, to do all or any acts for and on behalf of the assessee, is incorrect. In our view the finding of the AO that the power of attorney is an open ended document, which is clearly outside the scope of initial permission granted by the RBI is also perverse. No doubt the AO can investigate, call for evidences and come to a conclusion where any income earning activity has been carried out by the L.O. so as to construe it as fixed P.E. but, in our view it is beyond the jurisdiction of the AO to adjudicate and conclude that the assessee has filed false declarations before the RBI. At best, he can bring his findings to the notice of the RBI which may consider the same in accordance with law. The RBI has not found any violation of conditions laid down by it while permitting the assessee to have an L.O. In such circumstances, no adverse inference can be drawn

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Posted on by editor
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DATE: September 3, 2015 (Date of pronouncement)
DATE: October 27, 2015 (Date of publication)
AY: -
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CITATION:
A liaison office of a foreign co which identifies a manufacturer in India, negotiates the price, helps in choosing raw material to be used, ensures compliance with quality and gets material tested is not a ‘permanent establishment’ under Article 5 of India-USA DTAA

If the petitioner has to purchase goods for the purpose of export, an obligation is cast on the petitioner to see that the goods, which are purchased in India for export outside India is acceptable to the customer outside India. To carry on that business effectively, the aforesaid steps are to be taken by the seller i.e., the petitioner. Otherwise, the goods, which are purchased in India may not find a customer outside India and therefore, the authority was not justified in recording a finding that those acts amounts to involvement in all the activities connected with the business except the actual sale of the products outside the country. In our considered information, all those acts are necessary to be performed by the petitioner – assessee before export of goods

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Posted on by editor
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DATE: February 13, 2015 (Date of pronouncement)
DATE: February 16, 2015 (Date of publication)
AY: 2010-11
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CITATION:
Service PE: Establishing subsidiary in other treaty country does not result in creating PE of a foreign holding company in the third country. As the employees of SRSIPL are not providing services to the assessee as if they were the employees of the assessee, there is no "service PE"

The AO is not right in (i) treating the assessee as having a Dependent Agency Permanent Establishment; (ii) laying down that the assessee has a business connection in India; (iii) treating SRSIPL as service PE and (iv) treating SRSIPL as Agency PE

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Posted on by editor
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DATE: December 24, 2014 (Date of pronouncement)
DATE: December 31, 2014 (Date of publication)
AY: 2010-11 & 2011-12
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CITATION:
Though construction, installation and assembly activities are de facto in the nature of technical services, the consideration thereof will not be assessable under Article 12 but will only be assessable under Article 7 if an “Installation PE” is created under Article 5. As Article 5 is a specific provision for installation etc, it has to prevail over Article 12

On the question as to whether the said receipt for installation, commissioning or assembly etc activity can be assessed as “fees for technical services”, it is seen that the DTAA has a general provision in Article 12 for rendering of technical services and a specific provision in Article 5 for rendering of technical services in the nature of construction, installation or project or supervisory services in connection therewith. As there is an overlap between Article 5 and Article 12, the special provision (Article 5) has to prevail over the general provision (Article 12). What is the point of having a PE threshold time limit for construction, installation and assembly projects if such activities, whether cross the threshold time limit or not, are taxable in the source state anyway. If we are to proceed on the basis that the provisions of PE clause as also FTS clause must apply on the same activity, and even when the project fails PE test, the taxability must be held as FTS at least, not only the PE provisions will be rendered meaningless, but for gross versus net basis of taxation, it will also be contrary to the spirit of the UN Model Convention Commentary. Accordingly, though construction, installation and assembly activities are de facto in the nature of technical services, the consideration thereof will not be assessable under Article 12 but will only be assessable under Article 7 if an “Installation PE” is created

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