Recent Important Decisions on International Tax in India. BY- Mr. Salil Kapoor, Advocate.

Transcription

1 Recent Important Decisions on International Tax in India BY- Mr. Salil Kapoor, Advocate. 1

2 DIT v. OHM Ltd. Citation- (2013) 352 ITR 406 (Delhi HC) Issue- interpretation of the amendment in proviso to S. 44BB(1) and second proviso to S. 44DA(1) (w.e.f 01/04/2011 via Finance Act, 2010) 2

3 Held by the Hon ble Delhi High Court If the business is of the specific nature envisaged by S. 44BB, the computation provision therein would prevail over the computation provision of S. 44DA. The Court upheld the view taken by AAR in the case of Geofizyka Torun Sp. Zo. O, In re [2010] 320 ITR

4 Held by the Hon ble Delhi High Court (Cont.) The amendment in second proviso of S. 44DA(1) and similar amendment in proviso of S.44BB(1) makes the position clear. When both sections are read harmoniously, where the services are in the nature of fees for technical services and are general in nature, then the provisions of S. 44DA will apply w.e.f 01/04/2011 and where the services are in the nature provided under S. 44BB, then the income shall be assessed under S. 44BB. Both the provisions operate in their specific sphere and the amendment in the proviso cannot take away the identity of S. 44BB(1). 4

5 Held by the Hon ble Delhi High Court (Cont.) In another recent decision, after the decision of DIT v OHM Ltd., in PGS Geophysical v ADIT, ITA 612/2012 (09/07/2014), Delhi High Court has held that where the assesse has PE in India, then the provisions of S. 44DA shall apply, then it will be out of the ambit of S. 115A(1)(b) and in view of the decision of DIT v OHM Ltd.case, it will be taxable under S. 44BB(1) if the assesse is in the business of providing services in connection with prospecting for or extraction or production of mineral oil. 5

6 CIT, Central Circle v De Beers India Minerals (P.) Ltd., Citation- [2012] 346 ITR 467 (Karnataka HC). Issue- Meaning of make available clause provided in the DTAA (Indo Netherlands-Article 12). 6

7 Held by the Hon ble Karnataka High Court The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. To fit into the terminology "making available", the technical knowledge, skill, etc., must remain with the person receiving the services even after the particular contract comes to an end. 7

8 Held by the Hon ble Karnataka High Court (Cont.) The latest agreement between India and Singapore further clarifies this position, where they have explained the meaning of the word 'make available'. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', has to be applied, and to be read into this agreement also. 8

9 Held by the Hon ble Karnataka High Court (Cont.) Similar issue was raised before the Delhi High Court in DIT v. Guy Carpenters & Co. Ltd. ([2012] 346 ITR 504). However, the interpretation of the make available clause has been explicitly discussed and elaborated in this case (CIT v De Beers India Minerals (P) Ltd). In DIT v. Guy Carpenters & Co. Ltd., it was held that a plain reading of Article 13(4) of Indo-UK DTAA, would mean payment of any kind for rendering of any technical or consultancy services which, interalia, make available technical knowledge, experience, skill etc. It upheld the view of the ITAT that no technical knowledge, experience, skill etc has been made available to the assesse. 9

10 DIT (IT) v. Copal Research Limited. Writ Petition Number- W.P. (C). 2033/2013 (Delhi High Court). Issue- Whether the Explanation 5 inserted in S.9(1) via Finance act 2012 w.e.f 01/04/1962 will cover the sale of shares of overseas companies which derives only minor part of its value from the assets located in India and it could be deemed to be situated in India. 10

11 Held by the Hon ble Delhi High Court The clear object of S. 9(1)(i) is to cast the net of tax also on income which arises on transfer of assets in India irrespective residential status of recipient of income. Explanation 5 to S. 9(1) introduced the legal fiction for limited purpose of imputing that assets which substantially derive their value from assets situated in India will also deemed to be situated in India. 11

12 Held by the Hon ble Delhi High Court (Cont.) There is no justification to read Explanation 5 to provide for taxing income from transfer of assets overseas and which do not derive bulk value from assets in India. The expression substantially in explanation 5 is synonymous to principally mainly, or at least majority. Explanation 5 does not enlarge the scope of S. 9(1)(i) so as to cast the net of tax on income that may arise from transfer of an asset outside India which derives bulk of its value from value of assets outside India. Relying on the OECD Model Tax Convention, it is held that gains arising from sale of shares of a Company incorporated overseas which derives less than 50% of its value from assets situated in India, would not be taxable in India under S. 9(1)(i) read with Explanation 5. 12

13 Kohinoor Foods Ltd. v ACIT ITA No.-ITA No.3688/Del./2012. (Delhi) (Trib). Issue- Whether, in the absence of any incriminating material, second reference can be made to the TPO, to determine the ALP. 13

14 Held by Hon ble ITAT (Delhi) During the course of the regular assessment, the TP working, as submitted by the assesse was accepted by the TPO. In the absence of incriminating material, whatsoever, in respect of assessee s TP working indicating any flaw or inconsistent in any manner, it will be wholly unjustified for TPO to review his own acceptance of assessee s TP report. 14

15 DIT v. Alcatel Lucent USA. Inc. Citation- 264 CTR 240 (Delhi High Court). Issue- Whether the non-resident company can be held liable to pay interest under S. 234B where the liability to deduct tax was on the payers who are resident in India. In view of S. 209(1)(d), the assesse was entitled to take credit for tax deductible at source while computing its liability for paying advance tax. 15

16 Held by the Hon ble Delhi High Court In view of the peculiar facts of the case, where the assesse had denied the existence of PE at the assessment stage but did not challenge the existence of the PE before CIT(A). In this background, it was held that it is inequitable that the assesse who accepted tax liability after initially denying it, should be permitted to shift the responsibility to the Indian payer. 16

17 Held by the Hon ble Delhi High Court (Cont.) Even though there may not be any positive or direct evidence to show that the assesse did make a representation to Indian dealers not to deduct tax from remittances, such a representation or informal communication of the request can be reasonably inferred or presumed. The Hon ble Delhi High Court took a different view from its view taken earlier in DIT v. Jacabs Civil Incorporated & Mitsubishi Corpn. [2010] 330 ITR 578 (Delhi). 17

18 Thank You. 18