1. Capital Gains – Second proviso to Sec. 48 &
Section 112(1)
Applicant, a non resident paid interest as
directed by SEBI for delayed payment for acquisition of shares under public
offer as per SEBI guidelines.
Issue arose whether such payment of interest
be treated as cost of acquisition of shares under the IT Act,1961., Held –
Yes.
a) Facts
(i) The applicant, Burmah Castrol Plc. a
non resident company acquired the shares of Foseco India Limited (FIL)
during the financial year 2001-02, for an acquisition price of Rs. 221.86
per share and an amount of Rs. 49.1429 per share for delay in making open
offer. The consideration so paid is calculated as per SEBI directives.
(ii) The Cookson Group Plc. made a public
announcement to the shareholders of FIL pursuant to the SEBI Regulation to
acquire up to 20% of the shares of FIL at a price of Rs. 420 per share. It
accepted to buy 12,75,689 shares of FIL from the applicant.
b) Questions
(i) Whether the tax payable on the long
term capital gains arising on sale of equity shares of Foseco India Ltd.,
being listed securities, will be 10 per cent of the amount of capital gains
as per the proviso to section 112(1) of the Income-tax Act, 1961?
(ii) While calculating the
amount of long term capital gain chargeable to tax, whether interest paid by
the applicant to the shareholders of Foseco India Limited as per the
directives of the Securities Exchange Board of India will also be treated as
a part of the cost of acquisition of the shares?
c) Contention of the
applicant
(i) The applicant relied on
the Timken’s case and contended that the rate of 10% specified in second
proviso to section 112(1) is attracted. In Timken SAS case, revenue
emphasized on the words “before giving effect to the provisions of the
second proviso to section 48” and contended that in case of non residents
where there is no possibility of applying second proviso to section 48,
proviso to section 112(1) is not applicable. It was observed that
applicability of second proviso to section 48 is not a condition precedent
for availing the benefit under proviso to section 112(1) and authority
therein ruled that non resident foreign company can avail the said benefit.
(ii) The applicant
contended that the cost of acquisition of asset is the aggregate of the
purchase price paid to the shareholders of FIL including the amount paid as
interest in view of the delay in making the open offer. The applicant states
that the interest was paid as per the directive of SEBI for the period
between the date on which the open offer should have been made and the
actual date of paying the consideration to the shareholders. No part of the
interest pertains to a period after the acquisition has been made. Hence the
payment made towards interest should enter into the cost of acquisition.
d) Conclusion and Ruling
(i) Authority followed the
ruling in case of Timken SAS, France and answered the first question in
affirmative and in favour of the applicant.
(ii) Section 55(2)(b)
purports to give the meaning of ‘cost of acquisition’, it is not exactly a
definition clause. It is more in the nature of explanation to work out the
cost in relation to certain capital assets and in certain situations.
However the instant case is not covered under section 55(2)(b) and shall be
understood according to commercial sense coupled with common sense. Interest
paid to the shareholders to compensate for the delay and pursuant to the
order of a statutory body legitimately enters into the cost of acquisition
of shares in addition to the payment of price. But for the payment by way of
interest, it would not have been possible to acquire the shares. Either in
plain sense or commercial sense, it becomes an inseparable part of cost of
acquisition. In this connection the authority referred the cases of CIT vs.
Mithlesh Kumari (92 ITR 9), Miss Dhun Dadabhoy Kapadia vs. CIT, Bombay (63
ITR 651) and Challapalli Sugars vs. CIT 98 ITR 106) and answered the second
question in favour of the applicant.
AAR No. 772 – Burmah
Castrol Plc (2008) 307 ITR 324 (2008) 175 taxman 353
2. An option to NRI,
investment in specified asset – S. 115H
NRI Dr. Virindra Kumar Raina
is returning to India for permanent settlement and is having income from
specified assets as defined under section 115C(f) of the Income-tax Act, 1961
The issue arose as to the
applicability of concessional treatment under section 115H for investment from
existing NRO and fresh NRO account after NRI returns to India, so long as
income is from specified assets
Held – Yes, Concessional
treatment will be available after NRI returns to India, so long as NRI can
retain NRO Account or open a fresh NRO account.
a) Facts
(i) Dr. Virindra Kumar
Raina, the applicant is an Indian citizen working and living abroad for
several years. He now intends to return to India for indefinite period.
(ii) The applicant has
opened various Non-Resident Rupee Accounts (NRO accounts) with State Bank of
India and other nationalized banks through convertible foreign currency
remittances. After his return the applicant will remain non resident for one
year. During this period he proposes to extend the maturity of the existing
NRO accounts and open new NRO accounts with convertible foreign exchange.
The applicant proposes to file declaration under 115-H after his return to
India
b) Questions
(1) Whether investment
income derived from the NRO deposit with State Bank of India made out of the
convertible foreign inward remittances in foreign exchange is liable to be
taxed at a concessional rate of 20% + applicable surcharge and cess under
the provisions of sections 115-A/115-E read with provisions of sections
115-C, 115D?
(2) Whether the above
investment in NRO deposits will continue to be taxed @ 20% + applicable
surcharge and cess till its maturity after the applicant becomes the
resident on his return to India on complying procedural requirement under
section 115-H?
(3) Whether the interest
income from investment made in NRO account is not liable to be clubbed with
other Indian income and will continue to be taxed @ 20% under section 115-H
in case the assessee opt for a tax @ 20% gross without any deduction?
(4) Whether during the
period of applicant’s return to India for an indefinite period and taking up
employment in India, the applicant can deposit in NRO account from his
foreign currency (US $) till he becomes Resident?
c) Conclusion
(i) According to section
115E of the Income-tax Act, 1961 (ITA) income from investment as defined in
section 115C of ITA shall be taxed @ 20% plus applicable surcharge and cess.
As held in the case of Ravi Narayanan, deposit made in convertible foreign
currency in a banking company which is a public company, would be specified
asset within meaning of section 115C(f). Thus NRO account with a bank which
is a public company would be foreign exchange asset and the interest income
arising from it would be investment income liable to be taxed @ 20%.
(ii) Section 115H gives an
option to non resident for continued treatment of his income from specified
asset for concessional rate of tax specified u/s 115E until transfer or
conversion of asset into money. This option may be availed on furnishing a
declaration to the assessing officer.
(iii) As regards
applicability of section 115E to the new NRO accounts, the two criterians
required to be satisfied are applicant should be non resident Indian (NRI)
and income should be investment income defined u/s 115C. Applicant claims
that his stay in India during the financial year 2008-09 would be less than
182 days and he would open NRO accounts with remittances from convertible
foreign currency. Thus his case would be covered u/s 115E if he opens
accounts in SBI or a bank which is a public company.
(iv) In pursuance of
section 6 read with section 2(zd) of Foreign Exchange Management Act, 1999 (FEMA)
Reserve Bank of India has been making regulations/issuing instructions on
currency transactions between residents and non residents. Paragraph 9(b) of
Master Circular No. 03/2007-08 dated 21-2-2008, states that when NRI returns
to India for an uncertain period, his NRO account may be re-designated as
‘resident rupee account’. Thus on return to India NRI can avail the benefits
of Chapter XIIA so long as his bank account is treated as NRO account by
RBI. The moment that account is converted into rupee account, the provisions
of this Chapter would cease to apply
d) Ruling
(1) The income of the
applicant arising from the existing NRO deposits with SBI shall be taxed @
20% plus applicable surcharge and cess.
(2) After his return to
India, the applicant can invoke the provisions of section 115H until
conversion of his NRO account into rupee account as per the extant RBI
regulation / instruction.
(3) Until conversion,
income from NRO account shall be segregated from other income of the
applicant and subjected to tax @ 20% plus applicable surcharge and cess.
(4) So far as question no.
4 is concerned, whether the applicant can open fresh NRO account after his
return to India will depend on the then prevailing regulations /
instructions of RBI.
AAR No. 784 – Dr. Virindra
Kumar Raina dt. 17th December, 2008
3. Activities limited to
purchase of goods – S. 9(1)(b)
The applicant, a non resident
multinational Ikea, a trader in goods has established a liaison office at
Delhi to carry out permitted activities such as identification of potential
suppliers for purchase of goods, its quality check, communication and
co-ordination between suppliers in India and Head Office.
The issue arose as to whether
any income can be attributed to the activities as described of the liaison
office of non resident and taxed in India as per section 5(2) (b) of the
Income-tax Act, 1961 read with section 9 (1)(i), Explanation 2, Held – No.
a) Facts
(i) The Ikea Group is a
multinational retailer of furniture and home furnishing products under the
brand name IKEA.
(ii) The research &
development activities, design, determination of range of products, quality
and functionality etc. are centralized to Ikea of Sweden AB. Ikea trading
companies throughout the world have been granted the right to purchase
products in the IKEA range from suppliers in different geographic markets.
For India, this right is vested with Ikea Trading (Hong Kong) Limited (the
applicant)
(iii) The applicant has
established a liaison office (‘IHK LO’) in New Delhi to undertake following
functions:
-
Enquiry into and consideration of potential
suppliers for the IKEA product range
-
Collecting information and samples of
various home furnishing items from manufacturers and passing on
information with regard to various textiles, rugs & carpets and other
material (such as plastics, metals and lighting products) available in
India.
-
Doing quality check of the various products
at labs to see whether they adhere to the costing and quality parameters
as prescribed by IKEA group.
-
Co-ordinating and acting as the channel of
communication between the applicant and the Indian exporters.
-
Follow up with the Indian exporters for
timely export of goods ordered by the applicant and supervising the inland
logistics.
-
Doing social audit of the suppliers to
ensure that they adhere to various environmental and other regulations
(iv) Purchased items are
invoiced by the Indian suppliers directly to the applicant or the customers
of the applicant.
b) Questions
(i) Whether looking at the
nature of activities carried on or to be carried on by the liaison office of
Ikea Trading (Hong Kong) Ltd. in India, any income would accrue or arise or
deemed to accrue or arise in India in terms of section 5(2)(b) of Income-tax
Act, 1961?
(ii) Whether looking at the
nature of activities carried on or to be carried on by the liaison office of
the applicant in India, the applicant can be said to have a business
connection in India as per the provisions of section 9(1)(i) read with its
Explanation 2, of the Act?
(iii) Whether various
activities carried out by liaison office of applicant in India is covered
under the phrase ‘through or from operations which are confined to the
purchase of goods in India for the purpose of export’ as used in part (b) of
Explanation 1 to section 9(1)(i)?
(iv) If the answer to the
Query 1 is affirmative, whether the whole or any part of applicant’s income
(if so what part) is liable to be taxed in India.
c) Contention of applicant
Applicant stated that
Reserve Bank of India granted approval to open a liaison office in India
with a condition that except liaison work; office in India will not
undertake any other activities of trading, commercial or industrial nature
nor shall it enter into business contract in its own name without prior
permission and no commission/fee will be charged or any other income earned
for the liaison activities rendered. The entire expenses will be met
exclusively out of the funds received from abroad through normal banking
channels.
d) Contention of Revenue
During the course of
hearing, the modus operandi of the applicant revealed that:
(i) goods were supplied /
consigned to Ikea groups wholesale companies outside India however applicant
was named as the purchaser.
(ii) in some other
situations, goods were supplied to the consignee and the payment for sale
was made to the applicant by “Ikea Handles AG, Switzerland, who acted as
paying agent to applicant and also at times as purchaser of goods for onward
sale.
Based on above modus
operandi, revenue contended that applicant is not a purchaser of goods but
an agent facilitating the purchase for some other entities outside India,
thus acted as service agent. Since such function is carried out by liaison
office in India, income is attributable to liaison office as applicant is
not covered by the exemption applicable to purchase of goods as provided at
Explanation 1(b) to section 9(1)(i). Service agent’s income accrues under
section 5(2) of the Act itself and therefore taxable in India
e) Conclusion
The applicant sells goods
outside India and the sale price is also recovered outside India. The
delivery of the goods was requested to be consigned to the customers of the
applicant with a view to save time and the freight. The payment for the sale
of goods sometime received from the intermediaries is merely a commercial
arrangement with the agent entrusted with the function of central treasury
and payments to various third parties.
f) Ruling
Leaving aside the revenue’s
argument that the applicant does not actually purchase the goods but acts as
service agent to other, authority held that applicant’s activity in India is
confined to the purchase of goods only.
AAR No. 771 – Ikea Trading
(Hong Kong) Ltd. (2008) 221 CTR 201
4. Swapping premium treated
as interest – S.36(1)(vii)
Rural Electrification
Corporation Ltd. agreed to accept a premium from its borrower for reducing
interest rate on the loans.
Issue arose as to whether
such amount accepted as swapping premium or by any other name reflected in the
books of account shall be treated as such or as interest as provided under
section 36(1)(vii) of the Income-tax Act, 1961 – Held – Yes.
a) Facts
(i) M/s Rural
Electrification Corporation Limited, the applicant is a public sector
undertaking and a non banking financial company engaged in providing
long-term finance primarily to State Electricity Boards (SEBs) for the
purpose of transmission, distribution and generation of electricity.
(ii) The applicant is
approved by the Central Government as eligible business entity for claiming
the benefit u/s 36(1)(viii). Since the applicant derived income from
advancing long term finance for the industrial or agricultural development
or for the development of infrastructural facility in consonance with the
specified objectives, it was claiming deduction u/s 36(1)(viii) of
Income-tax Act, 1961 (ITA)
(iii) Applicant has
provided long term finance to SEBs at a fixed rate of interest. In view of
steep fall in interest rates and on requests from SEBs, the applicant
lowered the interest rates in consideration of Swapping Premium of Rs.
170,58,24,000/-.
(iv) Applicant claimed that
Swapping Premium earned had a direct and immediate nexus with the business
operations and as such qualified for deduction u/s 36(1)(viii) of ITA.
(v) Assessing officer
observed that the phraseology ‘profits derived from’ such business of
providing long-term finance has got a narrow and restricted connotation as
laid down in certain judicial pronouncements and in the absence of direct
and immediate nexus between the source and the premium earned, he allowed
the restricted deduction u/s 36(1)(viii)
b) Questions
(i) Whether the swapping
premium amounting to Rs.170,58,24,000/- is profit derived from the business
of providing long-term finance (computed under the head ‘Profits & Gains of
Business or Profession’ before making any deduction under this clause) in
terms of section 36(1)(viii) of the Income Tax Act, 1961.
(ii) Whether specified
percentage thereof is eligible for deduction u/s 36(1)(viii) of the
Income-tax Act in view of the fulfillment of condition for carrying this sum
to the special reserve
c) Contention of the
Revenue
(i) Revenue submits that in
view of lower interest rate scenario, clients would have breached the
contract with applicant and entered into agreements with other financiers.
Thus swapping premium tantamounts to compensation charged for the breach of
contract and it does not have any nexus with the applicant’s business.
(ii) Swapping premium can
also be termed as renegotiation fees charged for revising the interest rate,
and is not directly derived from the business as immediate source. The
revised agreement has to be seen as fresh agreement and the period of five
years should be counted therefrom.
(iii) Applicant himself has
shown the receipt in the Balance sheet under the head ‘Other income’.
(iv) The applicant does not
qualify as ‘eligible business’ in consonance with the definition of
‘Infrastructure facility’ as laid down in section 10(23G) read with section
36(1)(viii) of ITA.
d) Contention of the
Applicant
(i) The interest rate fixed
at the time of advancing the long term finance is set and rescheduled, and
the original loan has not been tampered with. Buyers of loan and nature of
transaction remaining the same, swapping premium earned has got immediate
nexus with the long term loans given and it does not by any stretch of
imagination tantamount to compensation for breach of contract.
(ii) Long term finance was
given in the beginning itself and the same has remained intact therefore it
is not proper to count five year period from the date of rescheduled
interest.
(iii) The applicant
contended that the entries made in the books of accounts are not
determinative of the correct nature of income or expenditure.
(iv) Reference to section
10(23G) in section 36(1)(vii) has been made only for the limited purpose of
defining ‘Infrastructure facilities’ so as to enlarge the scope of the
section and the initial requirement of providing long term finance for the
‘industrial and agricultural development’ remained unchanged.
e) Conclusion and the
Ruling
(i) Authority examined
whether the applicant is an eligible entity for the deduction u/s
36(1)(viii). The ‘eligible entity’ is a ‘financial corporation’ which
includes a ‘public company’ and a ‘Government Company’. The applicant is a
public company incorporated under the Companies Act 1956 in which more than
50% share is held by Central Government and paid up capital is Rs. 780.6
crores. As such the applicant is an eligible entity.
(ii) Next point to be
examined is whether the applicant fulfils the criteria of being engaged in
business of providing long-term finance for industrial or agricultural
development or for the development of infrastructure facility in India. The
applicant is engaged in the business of providing long-term finance to its
clients for rural electrification which paves the way for industrial
development, agricultural development and infrastructural development. Also
the Government of India granted approval to the applicant for the deduction
under section 36(1)(viii)
(iii) It is seemingly
doubtful whether the applicant falls within four corners of the definition
of infrastructural facilities as per section 10(23G) read with section
80-IA(4). However it is not necessary to go into this question further
because the applicant can be said to be engaged in providing long term
finance for the industrial and agricultural development in India.
(iv) It is also accepted
fact that long term loans advanced in the beginning has not been tampered
with on the event of rescheduling of the interest and no fresh agreements
have been drawn, so the period of five years will be counted from the date
of advancing initial loan.
(v) Authority referred the
cases CIT vs. Sterling Foods 237 ITR 539 (SC) and CIT vs. Raja Bahadur
Kamakhya Narain Singh 16 ITR 325 which states that essence is that there
should be direct nexus, not incidental one between the income earned and the
source of income. On applying the principles of the above cases, the
‘swapping premium’ is nothing but discounted interest and has ‘originated’
in the long term finance initially advanced.
(vi) By no stretch of
imagination, swapping premium can be termed as compensation for the breach
of contract because neither party has breached the terms of the contract.
(vii) In light of the
findings of the Apex Court in case of Sutlej Cotton Mills Ltd. 116 ITR 1,
the entries in the books of accounts are
not determinative of true character of the receipt.
(viii) Accordingly ruling
is given answering both the questions in affirmative.
AAR No. 758 – M/s. Rural
Electrification Corporation Ltd. (2008) 221 CTR 210
5. Operations with Residence
limited to the activities of purchase – S. 9(1)(i)
Applicant, a non resident in
India is a resident of Singapore. Applicant is engaged in manufacture and sale
of gold jewellery under the proprietory concern, through which goods are also
exported for resale outside India which are purchased in India or manufactured
in India for export. Applicant contends exemption under section 9(1)(i) for
the export activity as he is a non resident and his operation is limited to
purchase of goods only or purchased goods are manufactured for exports.
Issue arose as to whether the
applicant’s Income is exempt under section 9(1)(i) for the export activity as
he is a non resident and his operation in India is limited to purchase of
goods only.
Held – No. Section 5(2) is
applicable to income which accrues in India. Since Export proceeds are
received in India, income is accrued in India and taxable in India u/s 5
(2)(b) of the Act itself.
a) Facts
Applicant Mr. Mustaq Ahmed,
a non resident in India and a resident of Singapore is carrying on three
types of activities in India, namely:
(i) Business of manufacture
and sale of gold jewellery in Chennai under proprietary name “Mustafa Gold
Mart”
(ii) Business of purchasing and export through the proprietary concern, and
(iii) Business of purchasing for manufacture and export through the
proprietary concern
Applicant revised his
return of income for the years 2005-06 and 2006-07 claiming the benefit of
Explanation 1(b) to section 9(1)(i) in respect of activity at (ii) and (iii)
above as operations in India are confined to the purchase of goods only.
b) Questions
(i) Whether on the facts
and in the circumstances of the case the income derived by the applicant on
purchase in India and export of gold jewellery accrues or arises in India
and taxable in India?
(ii) Whether on the facts
and in the circumstances of the case the income arising to the applicant on
purchase in India of gold for the purpose of manufacturing gold jewellery in
India for export and export of the same accrues or arises in India and
taxable in India?
(iii) Whether on the facts
and in the circumstances of the case income arising on the (i) purchase of
export of gold and (ii) the purchase of gold for the purpose of
manufacturing gold jewellery for export and export of the same by the
applicant who is a non resident would constitute income accruing or arising
through or from the operations which are confined to the purchase of goods
in India for the purpose of export falling within clauses (a) and (b) of
Explanation 1 of section 9(1)(i) and whether such income is taxable in
India?
c) Contention of the
Applicant
The contention of the
applicant is entirely based on the fact that:
(i) no income shall be
deemed to accrue or arise in India through or from operations confined to
the purchase of goods in India for the purposes of exports
(ii) though the income is
received in India, the chargeability to tax the income has to be first
tested on the anvil of the accrual because receipt follows accrual
(iii) Once the accrual is
ruled out by applying explanation 1(b) of section 9(1), no liability can be
fastened on the non resident by reason of the receipt of income in India on
account of exports.
(iv) By reason of
exporting, the applicant does not forfeit the claim for exclusion under
explanation 1(b) of section 9(1) because the said Clause itself contemplates
the purchase of goods for exports.
(v) Section 5(2) is subject
to other provisions of the Act and therefore Explanation 1(b) of section
9(1) should be given full effect, notwith-standing what is contained in
section 5(2)(b).
d) Contention of the
Revenue
Revenue argued that
(i) the charge to tax is
attracted under section 5(2)(b) itself and purpose of section 9 is to expand
the scope of chargeability of certain income even though it is not
chargeable to tax under section 5(2)(b).
(ii) the income accrues in
India and in fact actually received in India and therefore section 5(2)
alone comes in to play.
(iii) on the facts of the
case even explanation 1(b) to section 9(i) does not come to the aid of the
applicant as entire export is effected from India and export proceeds are
received in India in all cases.
e) Conclusion
Authority considered the
history of legislation, the various landmark judgments under the 1922 Act to
analyse the mechanism of section 9 and interplay between section 5(2) and
section 9. Authority also relied upon the commentary of the learned authors
Kanga, Palkhiwala & Vyas in respect of scope of sections 9 and 5(2) as
follows:
“Section does not apply
where income actually accrues or is received in India. This section which
deem certain categories of income to accrue in India has no application in
cases where income actually accrues in India. A fiction is not needed to
create situations which exists in reality. Likewise it does not apply in
cases where income is received in India. The reason is that in respect of
income which is received in India, residents and non residents are alike
chargeable u/s 5 irrespective of the place of accrual of the income;
therefore if an assessee receives income in India, that would be sufficient
to attract tax and further question “whether the income should be deemed to
accrue in India by virtue of this section would not arise for
consideration.”
Authority also considered
the case of Turner Morrison Co. vs. CIT 23 ITR 152 (SC) and the decision in
Performing Right Society Ltd. vs. CIT, 106 ITR 11 (SC).
f) Ruling
Authority after reviewing
above concluded that:
(i) The income derived by
the applicant out of the purchase and export activities undertaken by him
attracts charge to tax under sub-section (2) of Sec.5 of the IT Act, 1961 as
the income is received in India and has accrued in India.
(ii) The provision relied
upon by the applicant, namely, Explanation 1(b) to Section 9(1)(i) does not
come to the aid of the applicant. The answer to the concluding part of each
of the questions is in the affirmative, that is to say, the income is
taxable in India.
AAR No. 743, Mr. Mustaq
Ahmed dt. 19th November, 2008
6. Equipment use of the
facility – Article 13 of India – UK DTAA – S. 195
An applicant ISRO, developing
satellite technology hires space segment capacity consisting of specified
transponder on satellite, for navigation purposes. Applicant pays fixed sum –
irrespective of actual use – Transponder is operated and under control of the
owner payee – question arouse, as to the nature of payment as Equipment
leasing – Royalty liable to taxation – Article 13 of Indo-UK tax treaty
Held – No, as it is a use of
facility and not the equipment leasing.
a) Facts
(i) Applicant, which is a
part of Department of Space, Government of India, has the objective of
developing satellite technology and the application of space technology, has
entered into a contract with M/s. Inmarsat Global Ltd. UK (IGL) for “Leasing
of the Inmarsat navigation transponder capacity” for its GAGAN – Technology
Demonstration System project.
(ii) The project Gagan,
through Indian Navigation Land Uplink Station (INLUS) required the use of
IGL’s transponder for first transmitting certain data for onward
transmission by the transponder to spread over the entire footprint area of
the IGL’s satellite.
(iii) Entire operations and
maintenance of Inmarsat spacecraft is under control of IGL, U.K.
(iv) Satellite is located
at 64 degrees East and is in a Geo-Synchronous orbit of 36,000 km altitude
which is much above the Earth’s atmosphere. The IGL’s satellite carries many
transponders out of which transponder for Navigation purposes providing
signals at frequencies i.e. 1575.42 MHZ and 1176.45 MHZ are accessed for
Gagan.
(v) The spacecraft
maintenance, repositioning of the satellite in the orbit, re-orientation
etc. are totally carried out by IGL U.K. Isro can only access the passive
navigation transponder for uplinking the data, which can not affect the
satellite operations or that of the transponder.
b) Questions
(i) Whether the payment to
M/s. Inmarsat, UK, for leasing of transponder is not Royalty having regard
to the provisions of Income-tax Act and Double Taxation Avoidance Agreement
(DTAA) with UK and hence not liable to TDS u/s 195 of the Act?
(ii) Whether having regard
to the fact that it is the business of M/s. Inmarsat, to lease out the
navigation transponder and it is not liable to tax in India in respect of
lease amount and hence not liable to TDS u/s 195 of the IT Act 1961 having
regard to the fact that M/s. Inmarsat has no permanent establishment or
business connection in India and the said leasing is a part and parcel of
the business of M/s. Inmarsat, UK, carried on outside the taxable
territories of India?”
c) Contention of the
Applicant
Applicant submitted that
access to navigation transponder does not amount to use of any equipment
because applicant will not be able to operate the satellite or transponder
by itself.
d) Contention of the
Revenue
Revenue contended that in
substance there is use of equipment; i.e., transponder by the applicant. The
exclusive capacity of the specific transponder is kept entirely at the
disposal of the applicant. The use of the transponder is ensured when it
responds to the directions sent through the ground station. Such direction
it is stated, are akin to the operation of TV by remote control apparatus.
e) Conclusion
(i) Authority found that
the transponder automatically responds to the data commands sent from the
ground station network and transmits the same data over a wider footprint
area covered by the Inmarsat Satellite, it does not mean that the control &
operation of transponder is with the applicant. Also analogy of TV
operations by means of remote control is not appropriate as remote control
device is an accessory to the TV and possessor of TV himself operates the TV
with the remote control device, here in the applicant’s case INLUS cannot be
used to operate the transponder or the satellite. Thus there is no user of
equipment but applicant is only accessing it as a transmission media for the
data sent through INLUS. Therefore charges paid by applicant cannot be
treated as payment for use of equipment.
(ii) Other contention of
the revenue was as to the PE of the IGL in India. Authority found that
presence of website indicting the Indian office and its address has no
relevance for the IGL’s transponder related activity in India as no support
or assistance of whatsoever nature is being taken from the regional office.
f) Ruling
(i) With reference to the
first question it is held that the income arising out of the payments
received by IGL from the applicant pursuant to the agreement, is not in the
nature of Royalty under the ITA or Treaty nor it is fees for technical
services as per the treaty
(ii) The nature of
operations carried out under the contract indicates that IGL is not
rendering any assistance to the applicant and it was held that existence of
PE has no factual basis and hence no part of the business profits flowing
from the contract is attributable to PE in India. As the income of IGL
arising out of the contract with the applicant is not chargeable to income
tax under the provisions of the Treaty and the applicant is under no
obligation to deduct tax at source.
AAR No. 765 of 2008,ISRO
Satelite Centre (ISAC) (2008) [220 CTR 13, 307 ITR 40]
7. Authority of Advance
Ruling – Once application u/s 197 is rejected the aar cannot entertained the
applicable before it is not correct – S. 245R
The Department opposed the
admission of the application before Authority of Advance Ruling on the ground
that assessing authority has already rejected the application of applicant u/s
197. The AAR rejected the objection with the observation that it is trite that
the advance ruling authority, the applicant and the revenue are bound by the
provisions of the statute and nothing shall be done or suggested which will
have the effect of nullifying the clear provisions creating a speedy remedy
under the aegis of an independent adjudicating body. The apparent attempt of
denuding the authority of its undoubted jurisdiction and raising a bogey of
creating judicial disarray even when the authority is seeking to exercise its
legitimate jurisdiction without, in anyway, out stepping the contours assigned
by law is not in keeping with healthy traditions. The stand taken by the
commissioner would be like this; whenever there is a decision of the Tribunal
favourable to the revenue, the AAR must stay its hands off and decline to
entertain the application unless, for sure, the authority would be in judicial
disarray or chaos such an attempt to be little the role of the authority in
the statutory scheme of adjudication cannot be countenanced.
Burmah Castrol Plc., In ve
(2008)174 Taxman 95 (AAR- New Delhi)
8. Capital Gain – Lower Tax
Rate – Applicability of Section 48 is not precondition to such lower rate of tax
u/s 112(1) – S. 112(1)
Assessee, as non-resident,
earned capital gains on sale of certain equity shares of an Indian company. The
Assessee can claim benefit of lower rate of tax u/s 112(1). The applicability of
second proviso to Section 48 is not a condition precedent for availing benefit
of Section 112(1) of the Act.
Burmah Castrol Plc In re(2008)
175 Taxman 353 (AAR – New Delhi)
[Source : www.aar.gov.in] |