India: India Tax Weekly - June 8, 2012

Last Updated: 21 November 2012

Alstom Transport SA – Authority for Advance Rulings (AAR)

Applicant, a tax resident of France, along with three other companies, entered into a consortium agreement (CA) to execute design, manufacture, supply, installation, testing and commissioning of signaling/ train control and communication systems tendered by Bangalore Metro Rail Corporation Limited (BMRC). In terms of the CA, the consortium members were jointly and severally responsible for the work tendered by BMRC. Applicant approached the AAR for a ruling on whether payments received for the offshore supply of plant and materials, including spare parts, offshore designing and training of operating and maintenance personnel, and offshore services were taxable in India either under the Income-tax Act, 1961 (IT Act) or the India-France DTAA.

AAR ruled that the consortium members constitute an AOP and are liable to be taxed as such. Income arising from offshore supply of equipment is subject to Income-tax in India in the hands of non-resident taxpayer. AAR noted that the consortium members jointly prepared the bid and came together for executing the project. Consortium members were jointly responsible for performing the entire work. Their common object was to perform the contract and earn income there from. Accordingly, AAR ruled that the consortium members had a common object in coming together and there was a common purpose in the concerted action.

AAR further ruled that the contract was a composite one and could not be dissected into different parts. AAR also ruled that a contract has to be read as a whole and cannot be split up into separate parts as consisting of independent supply or sale of goods and for installation at the work site and so on. AAR placed reliance on the three judge bench Vodafone judgment [341 ITR 1] and followed it in preference to the dissecting approach approved by the earlier two judge bench shikawajima judgment [288 ITR 408]. AAR relied upon the 'look at' principle postulated by the Supreme Court in the Vodafone judgment and ruled that the legal nature of the transaction has to be ascertained by looking at it as a whole, without adopting a dissecting approach. AAR has followed its recent ruling in Linde AG Germany case.

AAR No. 958 of 2010. Ruling delivered on June 7, 2012

Aramex International Logistics – AAR

Applicant, a tax resident of Singapore, is an entity belonging to the Aramex group. Aramex group is engaged in the business of door-to-door express shipments by air and land and related transport services. Aramex International Limited incorporated in Bermuda has a wholly owned subsidiary in India namely Aramex India Private Limited (AIPL). AIPL and applicant have entered into a business arrangement under which AIPL has appointed applicant as a non-exclusive service provider responsible for transportation of packages throughout the world outside India and applicant has appointed AIPL as a non-exclusive service provider responsible for transportation of packages in India.

Applicant claimed that it has no office, equipment, employee or agent in India and no operations were being carried out it in India. Thus, applicant wanted to ascertain whether it has any permanent establishment (PE) in India under the India-Singapore DTAA in connection with the International express business. If so, whether applicant's receipts from outbound and inbound consignments are attributable to such PE in India. Applicant also wanted to know whether any income can be attributed to such PE if transactions are conducted on an arm's length basis.

AAR noted that the Indian courier business and its reputation and appealability belong to Aramex Group. Applicant controlled AIPL on behalf of the Aramex Group and was carrying out the business of the Aramex Group. Relying upon the Organization for Economic Co-operation and Development's (OECD's) commentary on article 5 (PE), which suggests that for a place to constitute a PE, the enterprise using such place must carry on its business wholly or partly through such place, AAR concluded that AIPL would emerge as applicant's PE in India. AAR further ruled that the business agreement between applicant and AIPL is merely a camouflage to screen the fact that AIPL is really a PE of the applicant's group in India.

AAR also ruled that the applicant's receipts from the inbound and outbound consignments are attributable to such PE in India and are chargeable to tax in India. AAR further ruled that whether transactions are on arm's length basis or not needs to be verified in order to determine whether any income can be attributed to such PE in India. AAR also ruled that receipts received by the applicant from AIPL would be subject to tax withholding under IT Act.

AAR No. 1061 of 2011. Ruling delivered on June 7, 2012

Solar Turbines International Company – AAR

Applicant a tax resident of USA is engaged in the business of manufacturing industrial gas turbines. It supplied gas turbines to Oil and Natural Gas Corporation (ONGC) and also secured a contract for repair and overhauling services of the said turbines. Under the contract, in case of any defect, ONGC were to transport the defective turbines to USA and bring them back to India after rectification of defect by the applicant. The applicant was also responsible to furnish a report to ONGC on the rectification process. ONGC could use the technical information furnished by the applicant for its turbines but could not use the information for the benefit of anyone else. In the above background, applicant sought an advance ruling from AAR on whether the amount received from ONGC for repair and overhauling was taxable as 'fees for included services' (FIS).

Applicant contended that consideration received from ONGC was not taxable as FIS under the India USA DTAA as no technical skill, knowledge, experience etc. was made available to ONGC. Indian revenue authorities argued that the applicant had attempted to artificially split up the contract and offered income from installation and troubleshooting to tax under section 44BB of the IT Act. Section 44BB of the IT Act provides a presumptive tax regime in relation to profits and gains earned by a non resident taxpayer. Revenue further argued that the applicant had also made available technical specifications and engineering design data to ONGC along with the overhauled machinery.

AAR ruled that payment for licensing intellectual property rights in relation to the engineering, design, data and specifications to ONGC constitute royalty and are taxable under the IT Act as well as India-USA DTAA. Further, a portion of the consideration must be assigned to the inspection and boroscoping activity that takes place in India. Such portion would constitute 'fee for technical services' under the IT Act. However, the said portion does not satisfy the test of 'making available' knowledge under India-USA DTAA.

AAR further ruled that a part of the consideration relates to the modifications incorporated by the applicant and submission of report to ONGC. Such report makes available the technical knowledge to ONGC and ensures that ONGC comprehends the working of the replaced parts or new technologies. Thus, such portion of consideration will constitute FIS and subject to tax both under IT Act as well as under the India-USA DTAA.

AAR No. 931 of 2010. Ruling delivered on May 30, 2012

Assistant Commissioner of Income-tax vs Genom Biotech Private Limited – Mumbai Tax Tribunal

Taxpayer, an Indian tax resident, is a manufacturer of pharmaceutical products. It is engaged in exporting such products to its associated enterprises (AEs) outside India for further sales. Taxpayer also reimburses the advertising, marketing and brand promotion (AMP) expenses incurred by its AEs in their respective countries.

During the transfer pricing (TP) audit, the transfer pricing officer (TPO) held that the AMP expenditure incurred by the taxpayer to be excessive and rejected the comparable uncontrolled price (CUP) method used by the taxpayer to arrive at an ALP for the reimbursement of AMP expenditure. TPO instead applied the transactional net margin method (TNMM) to arrive at an ALP. Taxpayer filed an appeal before the first appellate authority. The first appellate authority ruled in favour of the taxpayer on the ground that the margin earned by the taxpayer on exports were better than the industry average. Thus, revenue filed an appeal before the Tribunal for adjudicating whether TPO had arrived at the ALP for reimbursement of AMP expenses in accordance with the provisions of the IT Act.

Tribunal ruled in favour of the taxpayer and held that the TPO compared the average AMP expenditure incurred by pharmaceutical companies without analysing the comparability of the products sold, market conditions, period of advertising and other relevant factors. TPO has not established any common attributes between the taxpayer and said pharmaceutical companies. TPO failed to give any cogent reasons for rejecting the CUP method adopted by the taxpayer. TPO also failed to explain how TNMM is more appropriate method as compared to the transfer pricing analysis carried out by the taxpayer for determination of ALP. Tribunal further noted that the TPO had already accepted the method adopted by the taxpayer in determining the ALP for reimbursement of expenses to AEs for an earlier tax year.

ITA No. 5272/Mum/2007. Judgment delivered on May 16, 2012

Metal One Corporation vs Deputy Director of Income-tax – Delhi Tax Tribunal

Taxpayer, a Japanese tax resident, is into metal business and a member of Mitsubishi Corporation group. Taxpayer opened a liaison office (LO) in India with an approval from the Reserve Bank of India (RBI). Taxpayer claimed that the LO had carried out only preparatory and auxiliary activities in India and does not constitute PE in India under India-Japan DTAA and reported 'nil' income.

Tax Officer held that the LO was engaged in undertaking revenue generating activities and its activities could not be treated as preparatory and auxiliary services. Tax Officer concluded that the taxpayer was engaged in locating potential buyers, negotiating and selling the goods in the market. Tax Officer's conclusion was upheld by the dispute resolution panel (DRP).

Taxpayer contended a presumption must be made that the LO was carrying out only preparatory and auxiliary activities as RBI had not found any violation of the conditions imposed on the LO. Tax Tribunal held that the Tax Officer had not taken any step to bring on record any information indicating the alleged nature of LO's activities. Tax Tribunal further held that the Tax Officer had failed to substantiate that LO's activities were beyond RBI's mandate even if selective information was submitted by the taxpayer. Tax Tribunal relied upon a Delhi High Court judgment UAE Exchange Centre Ltd. vs Union of India [(2009) 223 CTR 250] which held that LO could not be taken to be a PE unless its activities exceeded the purview of activities permitted by RBI or the Income-tax department was able to produce any concrete material which contradicted the facts presented by the taxpayer. The said ruling was also relied upon by AAR while passing a ruling in the matter of K. T. Corporation, Korea [AAR No. 791/2008].

Tax Tribunal further relied upon a co-ordinate bench's judgment in Sofema SA [I.T.A. No.3900/Del/2002] which is also affirmed by the jurisdictional High Court and the Supreme Court of India. The said judgment held that LO could not be considered as PE in the absence of any evidence relating to commercial activities conducted by LO. Relying upon the above rulings, the Tribunal held that there must be evidence on record that the taxpayer has carried on business activities from the LO. In absence of such evidence, LO will not constitute a PE in India.

ITA No. 5377/Del/2011. Judgment delivered on May 11, 2012

Published June 8, 2012

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
Vaish Associates Advocates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
Vaish Associates Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions