SIRC of ICAI CPE Study Circle Meeting Wednesday 20.01.2016 Issues!!! CA. V Sathyanarayanan, Kochi
Foreign Remittance Whether to liable to tax under The Income Tax Act No Yes No TDS No Whether liable to tax as per DTAA Yes Deduct Tax
Provision recognizing DTAA between India and other countries 90(2) whichever is more beneficial 90(4) TRC to be obtained Additional particulars as per Form 10F Rule 2 AB if the tax liability is imposed under the IT Act, provisions of DTAA prevail 206ITR 706 (SC) Azadi Bachao Andolan
I.INCOME TAX ACT Section 194 E - Tax on income u/s 115 BBA to be deducted at 20% from payment to non-resident Sports Association etc. Section 199 LB - Infrastructure debt paying interest to deduct tax at 5% Section 194 LC - Indian company or business trust paying interest on certain Government approved loans in FC, tax at 5% Section 194 LD - Interest paid to F.I.I or QFI on rupee denominated bond or Government security, tax at 5%. Section 195 - Tax to be deducted from income credited/paid to a Non-resident (other than above interests and salary)
Section 195 A - If payment is to be paid net of taxes, then tax to be grossed up Section 196 B - Tax to be deducted @ 10% from LTCG payable to offshore fund Section 196 C - Tax at 10% to be deducted from interest, dividend or LTCG on transfer of bonds or GDR referred to in 115AC Section 196 D - Tax at 20% to be deducted from interest payable to F.I.I. on securities referred to in Section 115AD. Section 197 - Payee can get a Nil/Lower tax deduction certificate from AO.
II.INCOME TAX RULES Rule 28/28AA - Application for paying without TDS, certificate to be obtained u/s 197 Rule 29B - Application for getting no TDS certificate u/s 195 Rule 37 BB - Furnishing information by the person making remittance in Form 15CA/15CB Form 10F - Information to be provided u/s 90 (5) Form 10FA - Application for obtaining TRC in India Form 13 - Application for obtaining certificate u/s 197 Form 15CA/CB - Foreign remittance certificates
Any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act from such Income deduct tax at the rates in force when in doubt approach AO u/s 195(2)- GE India Technology - 327 ITR 456
Flowchart of changes in form 15CA &15CB w.e.f 01.04.2016 Remittance by an individual and no FEMA required Or Covered under specified list YES No information to be furnished NO Information to be furnished Payment exceed 5 lakhs in a financial year YES Taxable in India (Not exempt under IT Act or DTAA) YES 197 or 195(2) or (3) obtained NO Part C of Form 15 CA NO NO YES Part A of form 15 CA Part D of form 15 CA Part B of form 15 CA Form 15 CB required Form 15 CB not required
Source of the income Vs. the source of receipts of the monies Exception to Section 9(1) (vii) (b) 352 ITR 376 (Del) Translation from one language to another is FTS- 2014-TIOL- 508
Payment to non-resident for on-line use of data base is Royalty Expl. 2 to Section 9(1)(vi) 355 ITR 284(kar) WIPRO payment for use of trade mark in India is Royalty 238ITR99(AAR) supply of design of the machine proposed to be supplied is only incidental to sale and not Royalty 243ITR459(Mad) To be Royalty there must be some special featurescompilation of data not Royalty 263ITR230(MP)
To determine taxation u/s 9(1)(i) of the IT Act Explanation 2 to Section 9(1)(i) Business in India Business with India Composite contract for supply and design Principal to Principal basis
Models of DTAA o OECD (Organization for European Economic Co-operative and Development) o UN o US India is a non-member of OECD No much difference between these, but differences exists Need to ascertain tax residency of the payee Understand the nature of payment correctly- facts must be clear Principles of legal interpretation does not apply interpreted in good faith
Permanent Establishment Fees for technical services Royalty Interest Business Profit Independent Personal services Dependent services
CIT Vs. BKI (347 ITR 570) Project site to exist for more than 6 months to be PE under Article 5(3) In some DTAAs concept of service PE is also prevalent 249 CTR 11 (AAR), 364 ITR 256(Del),306 ITR 374(AAR) Preliminary activities to be excluded but preparatory activities to be included Multiple projects to be taken separate -338 ITR 386(AAR) It is not Man days, but Solar days Auxiliary activities to be excluded UAE Exchange -313 ITR 94(Del)
Services comprising tax & legal advice and IT services is FTS and not Royalty 342 ITR 223(AAR) Recipient should be capable of using technical knowledge without reference to provider of service -346 ITR 467(Kar) Logistic services in India not make available -227 Taxman 117 Fees for raising finance in FTS -371 ITR 453(SC)
For the use of a copyright etc hiring of dredgers is not royalty -373 ITR 133(Mad) Supply of hardware and software not royalty -372 ITR 476(Del) When licence is granted to make use of software by making copy and store in hard disc is royalty 345 ITR 494 (Kar)
Definition of interest to be seen 221 Taxman 305(Uttaranch) 343 ITR 202(AAR) If PE exists these may be taxable as Business profit Discounting of bills of exchange or PN is not interest 241CTR 289(AAR) Interest on fully convertible bonds liable for TDS 307 ITR 40 (AAR)
Profit relatable to PE only taxable in India -143 ITD 1(SB) Clifford Chavan Supply and installation TDS to be effected -369 ITR 167(AP) Liaison office doing business, even if RBI not permitted it, taxable -245 CTR 300(Kar) Managing Computerized Reservation System is taxable -367 ITR 319(Del)
Generally contained in Protocol attached to DTAA Protocol is an integral part of DTAA -242 ITR 208(AAR), 343 ITR 381,2263 CTR 549, 114 ITD 61 Even though as per DTAA with Sweden the payment is taxable in view of subsequent agreement with Portugal, the payment is not taxable -167 TTJ 217
To be applied by the payee in Form 13 The application to be disposed off within 1 month (Instruction No.1/2014 Dated 15.1.2014) PAN of Payee is compulsory Certificate to be issued to the person responsible for deducting tax Certificate is issued in the ITD system Validity unless cancelled Not retrospective Board to condone the delay Cir.No.774 dt.17.3.1999
On purchase from NRI tax to be deducted on gross and not on Capital gains 55 SOT 441(Bang) Section 195 does not make any distinction between payment within India and outside India (99 ITD 91) Payments to foreign banks having branch in India - 195 (2)- application required CBDT Circular No.20(11-4) dt. 3.8.1961 Payments to agents of non-resident ship owners Section 172 apply and not 195 CBDT circular 723 dt.19.9.1995
Section 195 not to apply to reimbursement Stanfoess Industries -138 Taxman 280(AAR) TDS not required on foreign agents commission 90 CCH 49 Kikani Exports (Mad), 367 ITR 155(Mad) 343 ITR 366(Del), 363 ITR 66(All) Interest u/s 244A eligible on refund of excess tax deducted u/s 195 Tata Chemicals (SC) 363 ITR 658 Lump sum including design and engineering Not royalty and no TDS - 243 ITR 459(Mad) Neyveli Lignite
Provision of DTAA shall prevail over Section 206AA Serum Institute 56 Taxmann.com Sale of shares of a foreign company holding shares in Indian company Provisions of DTAA Sanofi Pasteur Holding 354 ITR 316(AP) Membership fee to International Press Institute No TDS required Malayala Manorama -222 Taxman 378 (Ker) Substantially in Expl.5 to Section 9(1)(i) means more than 50% - 270 CTR 223(Del) Success fee for loan syndicate taxable in India GVK Industries (231 Taxman 18 (SC) No SC & Cess on tax under DTAA 156 TTJ 137(Coch) >No SC and Cess on tax u/s 206AA????