1. Clause 4 of the Finance Bill, 2010.

1.1 Provisions of Clause 4

Clause 4 of the Finance Bill, 2010 seeks to substitute existing Explanation after Section 9(2) with a new Explanation as under:

“4. In section 9 of the Income-tax Act, for the Explanation occurring after sub-section (2), the following Explanation shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 1976, namely:—

“Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,—

(i) the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.”.

1.2 Notes on Clause 4

The Note on Clause 4 of Notes on Clauses reads as under:

“Clause 4 of the Bill seeks to amend section 9 of the Income-tax Act relating to income deemed to accrue or arise in India.

The existing provisions contained in the Explanation occurring after sub-section (2) of the aforesaid section provide that, for the removal of doubts, for the purposes of the said section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not, the non-resident has a residence or place of business or business connection in India. It is proposed to substitute the said Explanation so as to provide that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,–

(i) the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.

This amendment will take effect, retrospectively, from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-1978 and subsequent years.”

1.3 Background – Memorandum Explaining purport of Clause 4

The Memorandum explains the background of the proposed amendment as under:

“Income deemed to accrue or arise in India to a non-resident

Section 9 provides for situations where income is deemed to accrue or arise in India.

Vide Finance Act, 1976, a source rule was provided in section 9 through insertion of clauses (v), (vi) and (vii) in sub-section (1) for income by way of interest, royalty or fees for technical services respectively. It was provided, inter alia, that in case of payments as mentioned under these clauses, income would be deemed to accrue or arise in India to the non-resident under the circumstances specified therein.

The intention of introducing the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India. The source rule, therefore, means that the situs of the rendering of services is not relevant. It is the situs of the payer and the situs of the utilization of services which will determine the taxability of such services in India.

This was the settled position of law till 2007. However, the Hon’ble Supreme Court, in the case of Ishikawajima-Harima Heavy Industries Ltd., vs. DIT (2007)[288 ITR 408], held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. This interpretation was not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India. Therefore, to remove doubts regarding the source rule, an Explanation was inserted below sub-section (2) of section 9 with retrospective effect from 1st June, 1976 vide Finance Act, 2007. The Explanation sought to clarify that where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1) of section 9, such income shall be included in the total income of the non-resident, regardless of whether the non-resident has a residence or place of business or business connection in India. However, the Karnataka High Court, in a recent judgement in the case of Jindal Thermal Power Company Ltd. vs. DCIT (TDS), has held that the Explanation, in its present form, does not do away with the requirement of rendering of services in India for any income to be deemed to accrue or arise to a non-resident under section 9. It has been held that on a plain reading of the Explanation, the criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in its judgement in the case of Ishikawajima-Harima Heavy Industries Ltd. (supra) remains untouched and unaffected by the Explanation.

In order to remove any doubt about the legislative intent of the aforesaid source rule, it is proposed to substitute the existing Explanation with a new Explanation to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not,
(a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India.

This amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the Assessment year 1977-78 and subsequent years.”

2. Supreme Court’s decision in Ishikawajima – Harima Heavy Industries Ltd. vs. Director of Income-tax [2007] 158 Taxman 259 (SC)/[2007] 288 ITR 408 (SC)

Since the Memorandum refers to this case, let us examine in some detail, as to what was held by the Supreme Court. The Supreme Court held as under:

“The provisions of section 42 of the Income-tax Act, 1922 provide that only such part of income as is attributable to the operations carried out in India would be taxable in India. [Para 25]

Territorial nexus doctrine, thus, plays an important part in assessment of tax. Tax is levied on one transaction where the operations which may give rise to income may take place partly in one territory and partly in another. The question which would fall for consideration is as to whether the income that arises out of the said transaction would be required to be proportioned to each of the territories or not. [Para 26]

Income arising out of operation in more than one jurisdiction would have territorial nexus with each of the jurisdictions on actual basis. If that be so, it may not be correct to contend that the entire income ‘accrues or arises’ in each of the jurisdictions. The Authority has proceeded on the basis that supplies in question had taken place offshore. It, however, has rendered its opinion on the premise that offshore supplies or offshore services were intimately connected with the turnkey project. [Para 27]

For attracting the taxing statute there has to be some activities through permanent establishment. If income arises without any activity of the permanent establishment, even under the DTAA the taxation liability in respect of overseas services would not arise in India. Section 9 spells out the extent to which the income of non-resident would be liable to tax in India. Section 9 has a direct territorial nexus. Relief under a Double Taxation Treaty having regard to the provisions contained in section 90(2) would arise only in the event a taxable income of the assessee arises in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. Thus, if appellant has income that accrued in India and is liable to tax because in its State all residents are entitled to relief from such double taxation payable in terms of Double Taxation Treaty. However, so far as accrual of income in India is concerned, taxability must be read in terms of section 4(2) read with section 9, whereupon the question of seeking assessment of such income in India on the basis of Double Taxation Treaty would arise. [Para 67]

Reading the provision of section 9(1)(vii) (c) in its plain sense, it can be seen that it requires two conditions which have to be satisfied. The services which are the source of the income, that is sought to be taxed, have to be rendered in India, as well as utilized in India, to be taxable in India. In the instant case, both these conditions are not satisfied simultaneously, excluding that income from the ambit of taxation in India. Thus, for a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be a part of a business or profession carried on by such person in India. The appellant in the instant case have provided services to persons resident in India, and though the same have been used in India, the same have not been rendered in India. [Para 71]

Section 9(1)(vii) whereupon reliance has been placed by the revenue, must be read with section 5, which takes within its purview the territorial nexus on the basis whereof tax is required to be levied, namely (a) resident; and (b) receipt or accrual of income. [Para 72]

Global income of a resident although is subjected to tax, global income of a non-resident may not be. The answer to the question would depend upon the nature of the contract and the provisions of DTAA. [Para 73]

What is relevant is receipt or accrual of income, as would be evident from a plain reading of section 5(2). The legal fiction created although in a given case may be held to be of wide import, yet it is trite that the terms of a contract are required to be construed having regard to the international covenants and conventions. In a case of the instant nature, interpretation with reference to the nexus to tax territories would also assume significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An Endeavour should, thus, be made to construe the taxability of a non-resident in respect of income derived by it. Having regard to the internationally accepted principle and DTAA, it may not be possible to give an extended meaning to the words ‘income deemed to accrue or arise in India’ as expressed in section 9. Section 9 incorporates various heads of income on which tax is sought to be levied by the Republic of India. Whatever is payable by a resident to a non-resident by way of fees for technical services, thus, would not always come within the purview of section 9(1)(vii). It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. Whereas a resident would come within the purview of section 9(1)(vii), a non-resident would not, as services of a non-resident to a resident which are utilized in India may not have much relevance in determining whether the income of the non-resident accrues or arises in India. It must have a direct live link with the services rendered in India. When such a link is established, the same may again be subjected to any relief under DTAA. A distinction may also be made between rendition of services and utilization thereof. [Para 74]

The provisions of section 9(1)(vii) are plain and capable of being given a meaning. There, therefore, may not be any reason not to give full effect thereto. However, even in relation to such income, the provisions of Article 7 would be applicable, as services rendered outside India would have nothing to do with permanent establishment in India. Thus, if any services have been rendered by the head office of appellant outside India, only because they were connected with permanent establishment, principle of apportionment shall apply. [Para 76] “

(Emphasis supplied)

3. Karnataka High Court’s Decision in Jindal Thermal Power Co. Ltd. vs. Deputy Commissioner of Income-tax (TDS), Bangalore [2009] 182 Taxman 252 (Kar.)/(2010) 321 ITR 0031(Kar.)

Let us now also examine in some detail the decision of the Karnataka High Court in the case of Jindal Thermal Power Co. Ltd., referred to in the Memorandum explaining Provisions of Clause 4 of the Finance Bill, 2010.

The Karnataka High Court considered the aforesaid Supreme Court’s decision while considering the import of Explanation inserted after Section 9(2) and held as under:

“In this case, the Counsel for assessee relied upon the decision of the Bombay High Court in Clifford Chance vs. Dy. CIT [2009] 176 Taxman 458 to contend that the ratio of Supreme Court in Ishikawajma Harima Heavy Industries Ltd.’s case (supra) regarding twin criteria of rendering of service in India and its utilisation in India has not been done away with by the incorporation of Explanation to section 9(2). The Explanation makes it clear that the tax liability is subject to the provisions of section 9(1)(vii)(c). Thus the twin requisites laid down by the Supreme Court in Ishikawajma Harima Heavy Industries Ltd.’s case (supra) still holds the field. The memorandum explaining the provisions although declares that the Explanation is incorporated to overcome the decision of the Supreme Court. However, the Counsel submitted that the objects and reasons stated are only external aids to be used only when the text of the law is ambiguous. In the instant case it is argued that the Explanation incorporated does not offer any ambiguity to seek the assistance of external aids. The plain reading of the provision makes it unequivocal that position of tax liability clarified in the Explanation is subject to the provisions of section 9(1)(vii)(c).”

“The Explanation incorporated in section 9(2) declares that ‘where the income is deemed to accrue or arise in India under clauses (v), (vi), (vii) of sub-section (1), such income shall be included in the total income of the non-resident; whether or not the resident has a residence or place of business or business connection in India.’ The plain reading of the said provision suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilisation of the service in India laid down by the Supreme Court in Ishikawajma Harima Heavy Industries Ltd.’s case (supra) to attract tax liability under section 9(1)(vii) remains untouched and unaffected by the Explanation to section 9(2).

When the purport of the Explanation to section 9(2) is plain in its meaning, it is unnecessary and impermissible to refer to the Memorandum explaining the Finance Bill, 2007. Therefore, it is explicit from the reading of section 9(1)(vii)(c) and Explanation to section 9(2) that the ratio laid down by the Supreme Court in Ishikawajma Harima Heavy Industries Ltd.’s case (supra) still holds the field.”

(Emphasis supplied.)

4. Does the amendment adversely impact all payments for Fees for Technical Services rendered by Non-Residents?

In the following three types of cases, payment of Fees for Technical Services rendered by Non-Residents may still not be taxable in India, subject to fulfilment of other applicable conditions.

i) Payment for FTS covered by concept of “Make Available”.

ii) Payment for FTS where relevant Treaty does not contain FTS Clause.

iii) Payments covered by Exclusions provided under provisions of Section 9(1)(vii)(b) of the Income –Tax Act.

These three items are explained in some detail below:

4.1 Concept of Make Available

Many Indian Tax Treaties limit the scope of fees for technical services which are taxable in India by application of the concept of “Make Available” discussed below:

The expression ‘make available’ used in the Article in the Tax Treaties relating to “Fees for Technical Services” (FTS) has far reaching significance since it limits the scope of technical and consultancy services in the context of FTS.

India has negotiated and entered into tax treaties with various countries where the concept of ‘make available’ under the FTS clause is used. India’s tax treaties with Australia, Canada, Cyprus, Finland, Malta, Netherlands, Portuguese Republic, Singapore, UK and USA contain the concept of ‘make available’ under the FTS clause. Further, the concept is also applicable indirectly due to existence of Most Favored Nation (MFN) clause in the protocol to the tax treaties with Belgium, France, Israel, Hungary, Kazakastan, Spain, Switzerland and Sweden.

It is interesting to note that India-Australia tax treaty does not have separate FTS clause but in the definition of Royalty which includes FTS, has provided for make available concept. An analysis of the countries having the concept of make available directly or indirectly in their tax treaties with India reveals that almost all of these countries are developed nations and they have successfully negotiated with India the restricted scope of the definition of FTS as almost all of them are technology exporting countries.

In view of the above, while deciding about taxability of any payment for FTS, the reader would be well advised to examine the relevant article and the protocol of the tax treaty to decide whether the concept of make available is applicable to payment of FTS in question and accordingly whether such a payment would be not liable to tax in the source country. He would also be well advised to closely examine the relevant judicial decision to determine the applicability of the concept of ‘make available’ to payment of FTS in question.

4.2 Judicial Interpretation of the Concept of “Make Available”

Let us examine, in some detail, some leading decisions amplifying the concept of “Make Available” in the context of Taxation of Fees for Technical Services:

4.2.1 In Raymond Ltd. vs. Deputy CIT [2003] 86 ITD 791 (Mum.), the assessee made an issue of Global Depository Receipts (GDRs) to investors outside India, and it paid, inter alia, commission to the managers to the GDR issue, who were residents outside India, for rendering a variety of services outside India for the successful completion of the GDR issue. The question before the Tribunal, among others, was whether the commission paid for such services rendered outside India could be taxed in India as “fees for technical services” in the light of the provisions of section 9(1)(vii) of the Act read with article 13(4) of the DTAA with the UK. It is noteworthy that the terminology used in article 13(4)(c) of the DTAA with the UK is the same as that used in article 12(4)(b) of the DTAA with the USA. Although in this case the Tribunal was concerned with the interpretation of article 13(4)(c) of the DTAA between India and the UK, the Tribunal made a reference to the identically worded article 12(4)(b) of the DTAA between India and the USA, took into consideration the interpretation and the illustrations given in the Memorandum of Understanding appended to the said DTAA, and observed that the same can be used as an aid to the construction of the DTAA with the UK because they deal with the same subject (namely, fees for technical services). The Tribunal also observed that merely because these treaties are with different countries does not mean that different meanings are to be assigned to the same words, especially when both have been entered into by the same country on one side, namely, India; that it is difficult to postulate that the same country (India) would have intended to give different types of treatment to identically defined services rendered by entrepreneurs from different countries. On the facts of the case, the Tribunal held that the commission paid by the assessee for the various services rendered by the non-resident manager to the GDR issue did not fall within the definition of “fees for technical services” given in Article 13(4) of the DTAA between India and the UK because no technical knowledge, experience, skill, know-how or process, etc. was “made available” to the assessee by the managers to the GDR issue. After referring to the grammatical purpose of the word “which” used in article 13(4)(c) of the DTAA with the UK, the Tribunal gave its interpretation of the expression “make available” in the following clear-cut words (paragraphs 92 and 93) :

“92. We hold that the word ‘which’ occurring in the article after the word ‘services’ and before the words ‘make available’ not only describes or defines more clearly the antecedent noun (‘services’) but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the ‘rendering of services’ is envisaged which will remain at the disposal of the person utilising the services. The fruits of the service should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc.

93. In the present case, . . . after the services of the managers . . . came to an end, the assessee-company is left with no technical knowledge, experience, skill, etc. and still continues to manufacture cement, suitings, etc. as in the past.” (emphasis supplied)

The Tribunal also noted the language employed in the definition of “fees for technical services” in article 12(4)(b) of the DTAA between India and Singapore to the effect “if such services . . . make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein”, and opined that these words, though not found in the DTAAs with the UK and the USA, merely make explicit what is embedded in the words “make available” appearing in the DTAAs with the UK and the USA.

4.2.2 In the decision in CESC Ltd. vs. Deputy CIT [2005] 275 ITR (AT) 15 (Kol) (TM) this interpretation of the concept of “make available” used in article 13(4)(c) of the DTAA between India and the UK got the stamp of judicial approval. In this case, a UK company acted as a technical advisor to certain financial institutions in India and the assessee, CESC, paid some fees to the UK company for the services rendered in respect of the technical appraisal of the assessee’s power project. One of the questions before the Tribunal was whether the fees paid to the UK company fell within the sweep of the expression “fees for technical services” as understood in article 13(4)(c) of the DTAA between India and the UK. As noted earlier also, the terminology used for defining the expression “fees for technical services” in the DTAA between India and the UK is the same as that used in, among many others, the DTAA between India and the USA. The Tribunal held that the fees paid by the assessee to the UK company did not fall within the expression “fees for technical services” as it did not result in making available to the assessee any technical knowledge, skill, etc. The Tribunal made a reference to article 12 of the DTAA between India and the USA and to the Memorandum of Understanding appended thereto, discussed above, as also to the Protocol attached thereto wherein it is stated, inter alia, that the Memorandum of Understanding with regard to the interpretation of article 12 (Royalties and fees for included services) also represents the views of the Government of India, and observed that under article 12(4)(b) of the DTAA between India and the USA, which is pari materia with article 13(4)(c) of the DTAA with the UK, technology would be considered made available when the person acquiring the services is enabled to apply the technology; that the mere fact that the provision of services may require technical input to the person providing the services does not per se mean that technical knowledge, skill, etc. are made available to the person purchasing the services. Since in this case the role of the engineers providing the services was of mere reviewing and opining rather than designing and directing the project, the Tribunal held that no technical knowledge, etc. was made available to the assessee and therefore the fees paid to the UK company did not fall within the scope of “fees for technical services” under article 13(4)(c) of the DTAA with the UK. It is pertinent to note that the Tribunal made certain observations at page 25, which, in effect, mean that the interpretation adopted by the Tribunal of the term “fees for technical services” with reference to the DTAA between India and the UK, particularly of the concept of “make available”, relying upon the definition and interpretation of the term “fees for included services” used in the DTAA with the USA, should apply to several subsequent DTAAs India has entered into using the same phraseology, including specifically the DTAA between India and the UK.

4.2.3 In Dy. CIT vs. Boston Consulting Group Pte. Ltd. [2005] 94 ITD 31 (Mum.) reiterates similar views. In this case, the non-resident company, a resident of Singapore, was in the business of “strategy consulting”. One of the issues before the Tribunal was whether the fees paid for such services fell within the term “fees for technical services” under article 12(4)(b) of the DTAA between India and Singapore where more or less the same language is employed as in the DTAA with the USA, the UK, etc. Noting the above-referred decision in Raymond Ltd. vs. Deputy CIT (supra), the language of article 12 of the DTAA with the USA, the Memorandum of Understanding appended to the said DTAA and the illustrations given therein, the concept of “make available”, etc., discussed above, the Tribunal concluded that the fees paid for such strategy consulting do not fall within the scope of “fees for technical services” used in article 12(4)(b) of the DTAA with Singapore. However, interestingly, it seems that the Tribunal has given an altogether different dimension to this issue by making a very broad observation at page 57 that so far as the DTAA with the USA is concerned, consultancy services which are not technical in nature cannot be treated as fees for included services. Though not clear, perhaps this view is influenced by a more general or profound statement made in the Memorandum of Understanding appended to the DTAA between India and the USA, under the paragraph titled “Paragraph 4 (in general)”, regarding the interpretation of the term “fees for included services” given in article 12(4)(b) of the said DTAA, which statement runs as follows :

“Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services.”

So far, there are more than 45 Judicial Decisions on the subject of “Make Available”. The concept of ‘make available’ is still continuously subject to judicial scrutiny under various different circumstances and in respect of various different kinds of services. In some case there are conflicting / differing views and in some cases the concept has not been considered/applied while examining the taxability of the payment of FIS/FTS. As the law is not yet settled, continuous and ongoing monitoring and study of various judicial pronouncements would be necessary for the proper understanding and practical application of the concept in practice. It may be noted that this concept does not exist in the OECD Model.

We may draw the attention of the readers to the series of 5 Articles on this topic in the Bombay Chartered Accountant Journal (November, 2009 to March, 2010). The reader would be well advised to peruse the same.

4.3 Following is the list of Indian Treaties where the concept of “Make Available is used or indirectly made applicable through Protocol:

1) Australia
2) Canada
3) Cyprus
4) Finland
5) Malta
6) Netherlands
7) Portuguese Republic
8) Singapore
9) UK
10) USA
11) Belgium
12) France
13) Hungary
14) Israel
15) Kazakstan
16) Spain
17) Sweden
18) Swiss

Confederation

4.4 Impact of absence of FTS Clause in Indian Tax Treaties:

In the following Indian Tax Treaties, there is no article dealing with taxation of fees for Technical Services:

1) Greece
2) Bangladesh
3) Brazil
4) Indonesia
5) Libya
6) Mauritius
7) Myanmar
8) Nepal
9) Philippines
10) Saudi Arabia
11) Sri Lanka
12) Syria
13) Tajkistan
14) Thailand
15) United Arab
16) United Arab

Republic Emirates

Wherever, the Article on Fees for Technical Services is absent in a Tax Treaty, such a payment is classifiable as “Business Profit” under Article 7 of the relevant Tax Treaty and if the payee does not have a Permanent Establishment in India in terms of Article 5 of the Tax Treaty, the same will not be liable to tax in India. The view is supported by the following judicial decisions:

i) Tekniskil (Sendirian) Berhad vs. CIT (1996) 222 ITR 551 (AAR);

ii) Siemens Aktiengesellschaft vs. ITO (1987) 22 ITD 87 (Mum.);

iii) GUJ Jaeger GmbH vs. ITO (1991) 37 ITD 64 (Mum.);

iv) Christiani & Nielsen Copenhagan vs. First ITO (1991) 39 ITD 355 (Mum.).

4.5 Exclusions provided under provisions of Section 9(1)(vii)(b) of the Income-tax Act:

One also has to keep in mind exclusion provided in Section 9(1)(vii)(b) as under:

“(vii) income by way of fees for technical services payable by—

(a) ……

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) …….

(Emphasis supplied.)

Thus, the assessee also needs to examine whether such Technical Services have been utilized (a) in a business or profession carried out by the assessee outside India or (b) for the purposes of making or earning any income from any source outside India. If the answer is in the affirmative, then also such Fees for Technical Services payable to a Non-Resident would not be taxable in India.

5. Conclusion

While concluding, we would like to draw the attention of the readers to the underlined observations of the Supreme Court in the case of Ishikawajima-Harima (Supra) in Para 2 above. We wonder whether the proposed amendment is sufficient to provide the territorial nexus enunciated in the aforesaid decision and override the said decision of the Supreme Court. This amendment could lead to litigation. Further, the amendment is not clear as regards its applicability on income by way of interest or royalty earned by a non-resident outside India, where there is no nexus between such interest and royalty and the Indian state.

It should be noted that India is emerging as a major service provider. If other countries also amend their Tax Laws on similar lines, various services provided by Indians to Non-residents from India may also become exposed to taxation in Foreign Countries.

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