A.A.R. No. 840 of 2010 in the case of ABC International Inc. USA- Foreign corporates with subsidiaries in the country are not subject to payment of withholding tax for financial services like discounting of bills provided to their Indian arms. In a ruling, the Authority of Advanced Rulings (AAR) also held such companies are also not liable to pay income tax in case the firm is based in a country which has a Double Taxation Avoidance Agreement (DTAA) agreement with India.
Recently in the case of Lanka Hydraulic Institute Limited In AAR No. 874 of 2010 , the Authority for Advance Rulings (AAR) held that where the scope of work under a contract is primarily related to technology transfer by way of software along with ancillary services in the nature of field data collection/mathematical model studies, the consideration would constitute “Royalty” under Article 12 of the Double Taxation Avoidance Agreement with Sri Lanka (the tax treaty). The applicant had argued that since there was no specific Article in the tax treaty for taxation of Fees for Technical Services (“FTS”), the consideration would constitute business profits under Article 7 of the tax treaty, which would not be taxable in the absence of a Permanent Establishment (“PE”) in India. The AAR rejected this contention and ruled that the income would be taxed under Article 12 of the tax treaty as Royalty.
A tax tribunal has ruled that service tax will apply on the proposed GMR-led joint venture in Special Economic Zone to provide maintenance, repair and overhauling (MRO) facilities to domestic and foreign airlines. The ruling was given by the Authority of Advance Rulings (AAR) on an application filed by the MAS-GMR Aerospace Engineering Company, a joint venture of GMR, Hyderabad International Airport Limited, Hyderabad and Malaysian Aerospace Engineering, SDN-BHD, Malaysia.
Indian firms outsourcing routine work to their overseas subsidiaries would not have to deduct withholding tax on the payments made to them. In a landmark ruling, the Authority of Advance Ruling (AAR) ( A.A.R. No.883 of 2010 dated 16.05.2010 – Applicant R.R. Donnelley India Outsource Private Limited) held that firms are exempted from deducting the withholding tax on the payments made for services like transcription and data processing.
OHM Limited v. DIT (AAR No. 935 of 2010) – Foreign firms operating in the country will have to pay tax at the existing rate of 4.223 per cent on revenue earned under seismic data acquisition and processing contracts, says a tribunal. In a ruling, the Authority of Advanced Rulings (AAR) held that foreign firms would not enjoy any leeway even if their income falls under the label of royalties or is considered as fees for technical services.
AAR in the case Goodyear Tire and Rubber Company held that capital gains provisions are not attracted in case of transfer of shares without consideration. Further, the AAR held that the transfer pricing provisions in an international transaction can be applied only when income is chargeable to tax in India and since in the present case no income was chargeable to tax in India the question of applicability of Transfer Pricing provisions and withholding tax under Section 195 of the Income-tax Act, 1961 (the Act) does not arise.
We have a case where the equipment is purchased or taken on lease by the applicant. It is proposed to be granted on a lease for a short term (in fact, on behalf of the petitioner it is submitted that it was proposed to grant a lease for two years only). The lease amount or rent is to bear only a small proportion to the cost of the equipment.
VNU International B. V., AAR No. 871 of 2010, order dated 28 March 2011- Whether capital gains earned by the applicant on transfer of shares of the Indian company would be liable to tax in India as per the provisions of the Income-tax Act, 1961 („the Act‟) and the Tax Treaty between India and The Netherlands? If the capital gain is not taxable in India, whether the applicant is required to file any return of income under section 139 of the Act? Whether the transfer of shares by the applicant would attract transfer pricing provisions under sections 92 to 92F of the Act? Whether the purchasers were liable to withhold tax at source under section 195 of the Act and if so, on what amount should the tax have been deducted?
Authority for Advance Ruling (AAR) in the case of D.B.Zwirn Mauritius (AAR No. 879 of 2011) (Judgment date: 28 March 2011) dealt with the issue of taxability of capital gains on sale of shares by a Mauritian entity under the Income-tax Act, 1961 (the Act) or India-Mauritius tax treaty (the tax treaty). The AAR held that the applicant, holding tax residence certificate, was eligible for the tax treaty benefits. Accordingly, under Article 13(4) of the tax treaty the taxpayer is not liable to pay capital gains tax in India in respect of the transfer of shares held in an Indian company.
Authority for Advance Rulings has rendered an important ruling in the case of Transworld Garnet Company Ltd. dealing with the issue of whether or not the non-availability of the indexation benefit under the provisions Second proviso to section 48 of the Income-tax Act, 1961 to non-residents amounts to discrimination under the India-Canada Double Tax Avoidance Agreement . After considering the various provisions of the Act and Article 24 of the tax treaty, the AAR held that the denial of indexation benefits to the applicant does not amount to discriminatory treatment under the tax treaty.
