Indian Tax Solution
Â applicant is not eligible to seek the aid of cl.(b) of Explanation 1 to Section 9(1)(i) to nullify the accrual or arising of income in India. When cl.(b) of the Explanation is excluded from consideration, there is no denial of the fact that Section 5(2) squarely applies in order to fasten the tax liability on the applicant in respect of the income by way of mark-up received on account of the support services rendered in India for its affiliate entities.
In the light of the above discussion, it is ruled that no capital gains accrued or arose at the time of conversion of partnership firm into a private limited company under Part IX of the Companies Act and therefore, notwithstanding the non-compliance with clause (d) of proviso to Section 47(xiii) of the Income Tax Act, by reason of premature transfer of shares, the said company is not liable to pay capital gains tax.
The loan was payable in quarterly installments. This request has been favorably considered by the applicant as seen from the communication dated 26.7.2006. The statement explaining the calculation of premium has been filed by the applicant. It appears to us that the amount realized by way of premium from the said party is integrally connected with the transaction of long term financing even if it is not in the nature of interest. It cannot be regarded as anything other than the profits derived from long term financing provided to Arkay Energy Ltd. In this context, one significant fact to be taken note of is that in the loan agreement between the applicant and Arkay Energy Limited, a specific provision has been made for pre-mature repayment.
There is nothing like sharing the trade secrets or imparting skills in a practical manner. No doubt, the workshop an enlightening exercise, opening up new vistas of thinking. The participants will benefit by the lectures and deliverables and they may be better motivated or equipped to deal with the problems in the field of commercialization/marketing of the technology. But, on that account, it cannot be said that the definition of FTS as explained earlier has been satisfied in the instant case. Orientation towards business and inculcation of entrepreneurial outlook does not really amount to â??making availableâ? the technical knowledge, experience or skills of the experts of IC2 Institute.
Catering to the function of referring the potential Indian candidates to the Indian based recruitment company without creating any commitment to recruit them does not, without anything more, give rise to an inference of PE. For rendering such services, a fixed place of business in India or dependent agent need not necessarily be there.
Then, the arguments were addressed by the learned Counsel for the applicant on the point whether it is a case of diversion of income by overriding title. There is no need to express any view on this aspect. So also, section 167(B) which is a provision for ascertaining the income of AOP members, which has been referred to by the learned departmental representative, need not be discussed as it has no bearing on the basic issue whether on the facts of the case, an AOP exists.
Whether the policy considerations underlying the crucial Treaty provisions and the spirit of the Circular issued by the CBDT would still be relevant and expedient in the present day fiscal scenario is a debatable point and it is not for us to express any view in this behalf.
Though there is some force in the contention advanced by the learned counsel, we are not inclined to give a ruling at this stage. We agree with the learned counsel for the Revenue that the question has to be decided on the basis of actual facts but not on hypothetical basis. No doubt, the advance ruling can be sought in respect of a transaction “proposed to be undertaken”. But where the determination of the question depends on assessment of certain crucial facts, the actual pattern of dealings or the modus operandi of the transactions, it would not be appropriate to undertake the task of giving a definite ruling at this juncture, especially when we are called upon to reconsider the earlier ruling of this Authority on the same issue.
There is no transfer of technical know-how in that process nor can it be said that the recipient of these coordinated/centralized services has been enabled to apply the technology which EMEIA is possessed of. In fact, EMEIA has not developed any technology of its own nor does it innovate anything.
As regards the payment of fees for technical advisory services at the construction document stage, it cannot be considered to be ancillary and subsidiary to the sale of property and, therefore, does not get excluded from para 4 of Article 12 by virtue of clause (a) of Article 12.5 of Treaty. As regards payment for “additional services” to HOK, no view is expressed as the details thereof are not available.
The applicant is liable to deduct tax at source on the payments made to Raytheon Co, other than those for hardware. The rate of withholding tax is governed by Section 115A(1)(b)(BB) which is more beneficial to the tax payer when compared to the rate prescribed in Art.12 of the Treaty.
The legal position has been stated thus: “each participant in a CCA would be entitled to exploit his interest in the CCA separately as an effective owner thereof and not as a licensee, and so without paying a royalty or other consideration to any party for that interest. Conversely, any other party would be required to provide a participant proper consideration (e.g. a royalty), for exploiting some or all of that participant’s interest
We agree with the applicant’s submission that it is closely linked to the investments already made and to be made by the applicant and the question cannot be characterized a hypothetical one. We say so especially for the reason that the expression ‘arising out of’ a transaction is wide in its scope and can reasonably encompass the disposal of shares as it cannot be isolated and dissociated from the applicant’s stake in India having regard to substantial investments it made.
Offshore and onshore sale contracts have identified the components for sale with separate stipulations as to passing of ownership, price and mode of payment. Moreover, it is seen from the various documents filed that the clause relating to transfer of title to goods before importation into India has been acted upon and implemented by the parties. Thus, viewed from any angle, we find no force in this contention.
For the purpose of computation of profits of the PE in relation to the sales activity in India, it should be treated as a separate and distinct enterprise wholly independent of the enterprise of which it is a PE. The amounts paid to ISP/YCH and other expenses, if any, incurred should be deducted.