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Amount payable for transmission and bandwidth not fee for included services or royalty AIT News Network The applicant, Dell International Services ( The following Questions were raised by the applicant. 1. Whether or not the amount payable by the applicant under the terms of “BT Private Line Connect Service Schedule” – the agreement between the Dell US and BT America (which has been confirmed by the applicant) read with the Master Service Agreement would be in the nature of “fees for included services” within the meaning of the term in Article 12 of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital gains entered into between the Government of Republic of India and the Government of US (for short the “Treaty”). 2.Whether the amounts payable by the applicant under the terms of the Agreement would be in the nature of “royalty” within the meaning of the term in Article 12 of the Treaty, or not? 3.Whether the amounts payable by the applicant under the terms of the agreement would be in the nature of “Fees for technical services” within the meaning of the term in Explanation 2 to clause (vii) of section 9(1) of the Act, or not? 4.Whether the amounts payable by the applicant under the terms of the Agreement would be in the nature of “royalty” within the meaning of the term in Explanation to clause (vi) of section 9(1) of the Act, or not? 5.If the answer to question ((3) and/or (4) above is in affirmative, whether the amounts paid by the applicant are for the purposes of making or earning any income from any source outside India and hence covered within the exception carved out in section 9(1)(vii)(b) or 9(i)(vi)(b) of the Act, as applicable or not? 6. Based on the questions 1 to 5 above and in view of the facts stated in Annexure-III, whether the applicant is required to withhold taxes under sec. 195 of the Income-tax Act on payments made to BT Americas as per the Agreement or not? 7. Whether the declaration of B.T. America that it does not have a ‘permanent establishment’ in India as defined in Article 5 of the Indo-US Treaty is correct, and if so, whether and to what extent it has bearing on the applicant’s obligation to withhold tax on payments made to B.T. America ? 8. To what relief, if any, the applicant is entitled? R U L I N G : Question 1: Answered in the negative. Payment is not liable to be treated as fee for included services within the meaning of Article 12 of the Treaty. Questions 2 & 4: Answered in the negative. Not royalty within the meaning of the term in Article 12 of the Treaty or Explanation 2 to clause (vi) of section 9(1) of the Income-tax Act, 1961. Question 3: No need to give ruling in view of the answer to question No. 1. Question 5: Answered in the negative and against the applicant. The exception carved out in sub-clause (b) of clauses (vi) & (vii) of section 9(1) cannot be invoked by the applicant. Question 7: The issue relating to P.E. is left open for determination in appropriate proceeding. Questions 6 & 8: The applicant should approach the appropriate authority under the relevant provisions of I.T. Act and such authority shall decide the applicant’s claim most expeditiously keeping in view the observations made in this Ruling. (Click here for full text of Ruling AIT-2008-236-AAR ) Related News:
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