To facilitate foreign investment into the country a number of steps have been taken by Government of India in the past. Setting up an Authority for Advance Rulings (Central Excise, Customs & Service Tax) to give binding rulings, in advance, on Central Excise, Customs and Service Tax matters pertaining to an investment venture in India is one such measure. The legal provisions of Advance Rulings were introduced through the Finance Acts of 1998, 1999 and 2003.
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Capital gain on buy-back of shares is taxable under Section 46A of the Act in the hands foreign company – S. 46A, which provides that in the case of a buyback, the difference between the consideration and the cost of acquisition shall be deemed to be capital gains is a special provision and prevails s. 45. S. 47 overrides s. 45 but not s. 46A. There is no reason to enquire whether s. 46A is a charging section or not. The result is that even if the exemption in s. 47(iv) is held applicable, it does not override s. 46A and the applicant is subject to capital gains.
AAR held that the payment for mobilization and de-mobilization is related to use of equipment for undertaking installation work and taxable as royalty under Article 12(3)(b) of the India-Singapore tax treaty (tax treaty). Further as installation is ancillary and subsidiary to the use of equipment or enjoyment of the right for such use, the payment for installation is taxable as Fees for Technical Services (FTS) under Article 1 2(4)(a) of the tax treaty. The AAR also held that the applicant has provided services or facilities in connection with the exploration, exploitation or extraction of mineral oils for more than 183 days during the Financial Year (FY). Therefore, the applicant has a Permanent Establishment (PE) in India under Article 5(5) of the tax treaty and covered by Section 44BB of the Income-tax Act, 1961 (the Act).
It is the applicant’s contention that the agents have rendered services abroad and would be entitled to receive commission abroad for the services rendered to foreign clients of the applicant. As the services are rendered outside India, and the payment is receivable by the agents abroad no income would arise under the provisions of section 5(2)(b) read with section 9(1) of the Act. Section 5(2)(b) deals with the scope of total income whereby the income of a non-resident includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise in India during such previous year.
The payments under the IT agreement were not in the nature of reimbursement as the preamble stated that the French company had the capacity and resources to provide and co-ordinate IT services. There was nothing on record from which it could be inferred that the transaction was in the nature of reimbursement. For providing services under both, the wide area network as well as the messaging system, some hardware was to be utilised.
The applicant approached this Authority with the present application seeking an Advance Ruling on a plea that all the agreements relating to this transaction were negotiated and concluded outside India. It takes the stand, that the loan having been guaranteed by EKN, the interest paid under the transaction is not liable to charge to tax in India under the Income-tax Act in view of Article 11.3 of the Double Taxation Avoidance Convention between India and Sweden. While allowing the application under section 245R(2) of the Act, this Authority framed the following questions for the ruling:
We had occasion to consider the ruling in Dassault, the ruling in P.No.30 of 1999 in re.(AAR/821/2009) of this Authority, the other relevant rulings and the ruling in Millenium, in our recent ruling in Citrix Systems Asia Pacific Pty. Ltd. (AAR/822 of 2009). Therein we have held that there cannot be a user of software over which exists a copyright without a use of the copyright therein. The payment for such use can only be royalty. We have also held that what is paid by a seller on behalf of the customer and what is paid by the customer direct, both partake the character of royalty. In the light of that Ruling, it does not appear to be necessary to further reason out the issue. We adopt the reasons given by us in the Citrix Ruling to find that what is paid by the reseller to the applicant and what is paid for updates and maintenance are royalty and not business income.
In Re- Red Hat India Private Limited- Date of filing of the return is the relevant date to consider the applicability of the proviso to section 245R(2) of the Act, and that the filing of the return of income generates questions including the ones raised before this Authority, the jurisdiction to give a ruling in the present application has to be held to be barred. We are, therefore, constrained to reject the application as being barred by clause (i) of the proviso to section 245R(2) of the Act.
The Advance rulings can be sought on any question of law or fact specified in the application in relation to a transaction which has been undertaken, or is proposed to be undertaken, by the non¬resident applicant. Even a resident applicant may seek rulings regarding tax liability of a non¬resident in relation to a transaction with the resident applicant. In case of a public sector undertaking advance rulings may be sought on an issue of fact or law relating to computation of total income, pending before an Income-tax Authority or the Appellate Tribunal.
In our order in AAR No.1009 of 2010 (SEPCO III Electric Power Corporation), we had taken the view that if the applicant before this Authority had already filed a return of income involving the amount arising out of the identical transaction on which a question for our ruling is raised by filing an application under section 245Q(1) of the Income-tax Act, the application before the Authority for Advance Rulings will be barred by the clause (i) of the proviso to section 245R(2) of the Act and the application will have to be rejected. On an application made by the applicant therein before this Authority to review or reconsider the correctness of that view, after considering the relevant aspects pointed out, this Authority again reiterated its view. The correctness of this view so taken is again sought to be canvassed in this Application and the other Applications heard along with it containing similar fact situation.
In re Citrix Systems Asia Pacific Pty. Ltd.(AAR) – We find from the decision of the Karnataka High Court in CIT v. M/s. Samsung Electronics Co. Ltd (ITA No. 2808 of 2005) and connected cases that that High Court has held that in that case, the argument that it would be only a sale of copy of the copyright software could not be accepted.
