AIT-2009-27-AAR
Shri Ramit Kumar Sharma Vs. DIT, Delhi

No tax is liable to be deducted at source by the applicant in respect of the payments made or to be made to HMFICL under the terms of the Secondment Agreement. Under that agreement, the services of Mr. Shin Bong In, (hereinafter referred to as Secondee) who was an employee of HMFICL at Korea were kept at the disposal of the applicant for a period of two years in order to assist the applicant in matters relating to Korean insurance business.

Tax payable in the long-term capital gains arising to the applicant on the sale of Indian Company shares will be 10% of the amount of capital gains as per proviso to section 112(1) of the Act.
in computing the capital gains, deduction is admissible under section 48 of the IT Act on account of legal expenses incurred in relation to transfer of shares

Whether payments received by Applicant from M.O Singapore for functions performed in Singapore under the license agreement granting manufacturing and distribution rights to MO are in the nature of ‘royalty income’ sourced and arising in India and taxable in India under the provisions of section 9(1)(vi) of the Income-tax Act, 1961 or under the provisions of DTAA between India and USA?
Whether under the arrangement (details outlined in Annexure III), the payments made by independent Indian distributors to Microsoft Regional Sales Corporation “MRSC”) should be regarded as licensing revenues accruing to the applicant which are taxable as royalty income under the provisions of the Act or the DTAA”

Whether payments received by MOL Corporation (MOLC) from the applicant for the functions performed in Singapore under the license agreement grating manufacturing and distribution rights to the applicant are in the nature of ‘royalty income’ sourced and arising in India and taxable in India under the provisions of section 9(1)(vi) of the Income-tax Act, 1961 and/or the provisions of DTAA between India and USA from which tax is required to be withheld by the applicant?
Whether under the arrangement (details outlined in Annexure III,) the payments made by independent Indian distributors to Microsoft Regional Sales Corporation (“MRSC”) should be regarded as licensing revenues accruing to MOLC which are taxable as ‘royalty income’ under the provisions of section 9(1)(vi) of the Act and/or the provisions of DTAA between India and USA, from which tax is required to be withheld by the applicant?

The parts of hulls, described by the applicant as a ship building kit, which are cleared over a period of time, for use in the manufacture of hulls, are classifiable under 7308 90 30 of the First Schedule to the Central Excise Tariff Act 1985 and not under 8906 90 00 or 7326 90 80

the long-term capital gains arising on the proposed sale of shares held in an Indian listed company by Four Star Oil & Gas Company will be taxable at the rate of 10 percent as per the proviso to Section 112(1) of the Income Tax Act, 1961
the fair market value prevailing on April 1, 1981 ought to be taken as the cost of acquisition in the case of bonus shares held by the applicant on April 1, 1981

Income-tax Authorities are not justified in making/confirming the disallowance u/s 36(1)(viii) of the Income-tax Act, amounting to Rs.34,57,00,000/- as per provisions of that section as it stood at the material point of time.
Income-tax Authorities are not justified in making/confirming the disallowance of Rs.26,50,00,00/- u/s 36(1)(viia) of the Income-tax Act pertaining to the provision for bad and doubtful debts in spite of the fact that reserve for the same has also been created

Q.nos. (a) & (b): The services rendered and the work undertaken by the applicant in terms of the Agreement for Basic Engineering and Procurement services fall within the scope of “royalties” as defined in Art. XII(3) of the DTAA between India and Australia and the receipts are taxable in India by virtue of Art. XII(2).   Under the Act too, they are so taxable.
Though the applicant had a PE in India set up in October, 2001 or thereafter, there is no proof to the effect that the services contemplated by the said Agreement were in anyway connected with the PE.   The effective connection between the PE and the royalty generating services under the BE & P Agreement is not established.
Q.nos. (c) & (d):  The exclusion clause under Art. XII(4) of the DTAA is not attracted in view of the absence of effective connection between PE and the services, and therefore, the royalty income is liable to be taxed under Art. XII(2) of the DTAA read with section 9(1)(vi) and other charging provisions of the Act.   The question of attribution of only a part of the income to the PE does not arise as Art. VII which envisages such principle does not apply.
The entire receipts under the BE & P Agreement are liable to be taxed as royalty income on gross basis and at the rate of 15 per cent However, the receipts from the P.M. Services agreement, shall be treated as business income and be taxable only to the extent they are attributable to the operations of PE in India. The permissible deductions and rate of tax concerning business income will be applicable.

Engineering Contract- the receipts of the applicant under the contract with Sterlite are in the nature of royalties as defined in Article 12 of DTAA between India and Australia
The applicant does not have a PE in India in respect of this contract
whether the receipts from this contract are taxable only to the extent of services utilized as well as rendered in India and, therefore, the services outside India is not to be taxed ?
The entire receipts representing royalty income under the agreement in question are liable to be taxed in India at the appropriate rate, both under the provisions of IT Act, 1961 as well as DTAA between India Australia.  The splitting up of such income is not permissible.

(1) Whether service tax is payable under section 66 read with 65(64)(c) on the re-rubberizing charges collected for reconditioning of used old rollers.
(2) Whether the sale of material used for reconditioning of old rollers attracts service tax under the head taxable service of ‘repairs’ or otherwise.
(3) While calculating the value of taxable services under the head of repairs and maintenance, whether the value of material sold should also be taken into account for the purpose of levying service tax under section 66 of the Finance Act, 1994.

The proposed partnership firm to be formed by the applicant with Legasi Petroleum International Inc. at Alberta, Canada can be assessed as a firm under the Income-tax Act, 1961, provided the requirements of section 184 are complied with.

The receipts of the applicant under Contract Nos. 1,2,3, & 4 with ONGC are not in the nature of royalties as defined in Article 12 of the DTAA between India and Australia.

Whether or not the applicant is eligible to import goods for the purposes of the captive coal mine, the dedicated coal transportation system, the dedicated water transportation system and the dedicated power evacuation system under the proposed project under a complete customs duty exemption under entry 400 of Notification 21/2002-Cus, or a concessional rate of customs duty under Entry 399 of Notification 21/2002-Cus?
excepting the power evacuation system, the other three items do not fall within the scope of Entry / Sl.No.400 of Notfn.no.21 of 2002, as amended. The goods required for power evacuation/transmission system to connect the power grid will be eligible for customs duty exemption as per Entry 400. It is made clear that the goods required for in-plant coal handling system however fall within the scope of Entry 400.

Whether the Liaison Office of K.T. Corporation in New Delhi constitute a Permanent Establishment in respect of Clause 2(b) of Annexure A of the Draft Reciprocal Carrier Services Agreement between K.T. Corporation, Korea and Vodafone Essar South Limited

Whether Tax is to be deducted by SREHT, India on the payments made on account of annual contract fee and additional fee to HMI, USA, when both the parties are exempt from tax in their respective countries

Whether in the case of a sale of goods simplicitor (off shore sale) by a non-resident to a resident in India, if the consideration for sale is received abroad and the property for the goods passes from the non-resident to the resident outside India, the income accrues or arises or deemed to accrue or arise to the non-resident in India?

(i) whether the amounts received/receivable by the applicant i.e. Hyosung Corporation from Power Grid Corporation of India Limited for offshore supply of equipments, materials, etc., are liable to tax in India under the provisions of the Act and India-Korea tax treaty?
(ii) If the answer to (i) is in the affirmative, in view of Explanation (a) to section 9(1)(i) of the Act and/or Article 7(1) of the India-Korea tax treaty, to what extent are the amounts reasonably attributable to the operations carried out in India and accordingly taxable in India.

The Contract Price receivable by Cal Dive Marine Construction (Mauritius) Limited for laying pipelines under the sea is not liable to tax in India under the provisions of the Income-tax Act and the India-Mauritius Tax Treaty.
When there is no permanent establishment, the question of taxing any part of the business profits in India does not arise in view of the clear provision of Article 7.1 of DTAA. It is not contended and it cannot be contended that payment received by the applicant under the contract constitutes ‘fee for technical services’.  Whatever technical services are provided, they were only integral to the performance of the project work

(1) Whether the amounts payable by the Applicant to Cable & Wireless UK (“C&W UK”) under the terms of the proposed agreement/arrangement (the “Agreement”) would be in the nature of “fees for technical services” (“FTS”) within the meaning of the term in Explanation 2 to clause (vii) of section 9(1) of the Act, or not?
(2) Whether the amounts payable by the Applicant to C&W UK under the terms of the Agreement would be in the nature of “royalty” within the meaning of the term in Explanation 2 to clause (vi) of section 9(1) of the Act, or not?

FactSet enters into a Master  Client License Agreement with its customers under which FactSet grants limited, non-exclusive, non-transferable rights to use its databases, software tools etc.
Qn. Nos.(1) & (2): The subscription fee is not taxable in India as royalty.  It is liable to be taxed only as business income if at all it is found by the Department that an agency PE exists.  At present, on the facts stated by the applicant, we must hold that PE is not in existence and therefore the income is not liable to be taxed in India.
Qn. No.(3): The customers are not required to withhold the tax, until and unless the Department finds the existence of PE after due enquiry.
Qn. No.(4): At present, there is no obligation to file the return in view of our finding that there is no royalty income and on the facts stated by the applicant, there is no PE

the applicant sold its entire shareholding to an Indian company, namely, Jubilee Investments and Industries Limited and a Cyprus company, namely, Pedriano Investments Ltd. for a consideration of Rs. 195/- per share
The rate of tax applicable on the long term capital gains arising on sale of shares of Zensar Technologies Limited will be 10% (plus applicable surcharge and education cess) as per the proviso to section 112(1) of the Act.
The beneficial rate of 10% can be applied where the long term capital gain arisen to the Applicant on sale of shares of Zensar Technologies Limited are computed by applying Section 48 of the Income-tax Act read with first proviso to Section 48 and Rule 115A.

As the income of Zaikog on account of the commission paid to it by the applicant is not chargeable to tax in India by virtue of Art.7 of DTAA and Section 9(1)(i) read with the Explanation thereto, the applicant is not obliged to deduct the tax at source under Section 195 of the Income-tax Act 1961

AIT-2009-319-AAR
M/s. Invensys Systems Inc. Vs. DIT, Chennai

The applicant entered into an Agreement titled as Cost Allocation Agreement with Invensys India (P) Ltd
the payment made by IIPL towards the costs allocated by the Applicant is not taxable in India as per the provisions of the DTAA entered into between India and USA.
IIPL is not liable to withhold tax at source under section 195 of the Income tax Act, 1961  on the payments made by IIPL towards the cost allocated by the Applicant

whether the conversion of partnership firm as a private limited company under Part-IX of the Companies Act, 1956 in September, 2005 will be regarded as transfer within the meaning of section 2(47) and other relevant provisions of the Income-tax Act, 1961?
If so, will it give rise to capital gains liable to income-tax consequent upon the transaction entered into by the applicant of buying the shares of the said company in August, 2008 and making it its wholly owned subsidiary by reason of the provision in proviso (d) to Section 47 (iii) of the Act?

The entirety of work of fabrication and assembly is carried out by the sub-contractor at the workshop set up by him at a place for away from installation site and run by him independent of any control of the applicant. Such a place of business of sub-contractor cannot be regarded as the PE of applicant. In any case, the language of section 5(1) being clear and as the concept of PE does not take in the establishment of an independent contractor or agent, the contention of the Revenue must fail.

Whether during the previous years relevant to assessment years 2008-09 and 2009-10, the applicant, in the stated facts and circumstances, had a Permanent Establishment in India under Article 5 of India-Switzerland Double Taxation Avoidance Agreement in relation to activity of charter of vessels for transporting cargoes from Indian ports to outside India?
If the answer to the first question is negative, whether income of the applicant from such charter of vessels is not liable to tax in India under the Treaty?

a. What is the classification of the four individual products namely Proactiv Solution Revitalizing Toner, Proactiv Solution Renewing Cleanser, Proactiv Solution Repairing Lotion and Proactiv Solution Refining Mask?
b. Whether CVD is required to be paid at the time of import of the Category-I products on a value determined under Section 4 or Section 4A of the Central Excise Act, 1944?
c. Whether CVD is required to be paid at the time of import of Category-II Products on a value determined under Section 4 or Section 4A of the Central Excise Act, 1944?
Question No.1 is answered as follows:
We agree with the applicant’s classification of the four products. Excepting revitalizing toner which is classifiable admittedly under heading 3304, residual sub heading 3304 99 and tariff item 3304 99 90, the other three products are classifiable under heading 3004, residual sub heading 3004 90 and the tariff item 3004 90 99 of the Customs Tariff Act.