AAR Ruling: The amount received on account of assignment of rights, title, interest, obligations and duties in connection with the supply of products is not taxable in India in the absence of a Permanent Establishment and therefore, tax is not required to be withheld under section 195 of the Income tax Act while making remittance outside India [Laird Technologies India Pvt. Ltd. (AAR No. 793/ 2008)(2010-TIOL-06-ARA-IT)].
Facts:
Laird Technologies (P) Ltd. (applicant), an Indian company, which was a group company of Laird Plc, U.K. The applicant’s holding Company is Laird Technologies, Singapore. The applicant was Laird Plc’s first manufacturing facility in India, which was located within the Nokia Special Economic zone at Sriperumbedur near Chennai. The applicant was, inter alia, engaged in the business of designing and manufacturing antenna and battery packs for the mobile phone industry. It had business dealings with leading electronic manufacturers in India such as Nokia, Sony Ericsson.
Laird Technologies Inc, USA with its headquarters in St.Louis (Laird USA), a unit of the Laird Group Plc, England, was a globally known designer and manufacturer of Antennae, EMI, data communications etc. Laird USA has manufacturing plants and technical support operations in the US and various other countries. Laird USA was a ‘tax resident’ of USA .
Laird USA had negotiated an arrangement with Nokia to manufacture and supply products to Nokia Corporation globally. On 25 June 2003 a Product Purchase Agreement (PPA) was executed by and between Nokia Corporation, Finland, and its affiliates on the one part and the Laird USA and its affiliates on the other part. The PPA, inter alia, covers the supply of products in relation to Nokia’s manufacturing requirements in India. In order to assign its rights and obligations under the PPA in connection with the supplies of its products to Nokia India Pvt. Ltd. (Nokia India) for a period of 5 years in favour of the applicant, Laird USA entered into an Assignment Agreement (Agreement) with the applicant on 17 December 2007. Under the Agreement, Laird USA irrevocably 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. As per the agreement, the applicant would act in an independent status and supply the products to Nokia India at its own risk and obligations. The consideration of USD 5.3 million payable by the applicant to Laird USA shall be paid within 30 days of from the invoice date outside India.
Issues raised before the Authority for Advance Rulings (AAR):
