Recently, the Authority for Advance Rulings (AAR) in the case of Laird Technologies India Pvt. Ltd. [2010-TIOL-06-ARA-IT] has held that the fees received by the USA company for assigning contractual rights to the applicant for supply of products in India is taxable as business profits and in the absence of a Permanent Establishment (PE) such consideration is not taxable in India under the India- USA tax treaty (the tax treaty). Accordingly, tax is not required to be deducted under section 195 of the Income Tax Act, 1961 (the Act) while making remittance outside India.
Facts of the case
- The applicant is a group company of a UK based company. It is engaged in the business of designing and manufacturing of antenna and battery packs for the mobile phone industry.
- Laird Technologies Inc, a USA company (Laird USA) is a globally known designer and manufacturer of antennae, EMI, data communications, etc. The Laird USA entered into a Product Purchase Agreement (PPA) with Nokia Corporation globally, including India to supply products in relation to Nokia’s manufacturing requirements in India.
- In connection with the supply of products to Nokia India Pvt Ltd (Nokia India), the Laird USA entered into an Assignment Agreement (the Agreement) with the applicant for a period of five years for a lump sum consideration. Under the Agreement, the Laird USA assigned all its beneficial rights, title, interest, obligations and duties in connection with supply to Nokia India under the PPA in favour of the applicant.
Issues before the AAR
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