The Bangalore tribunal has confirmed the inclusion of imputing interest on inter-company receivables as part of the transfer pricing assessment scrutiny and held that the arm’s length principle is equally applicable to interest on receivables under the India transfer pricing regulations.
Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the held that mere provision of a dredger on dry lease for carrying out dredging activity in India does not result in the taxpayer having a Permanent Establishment (PE) as per the India-Netherlands tax treaty (tax treaty). Further, the Tribunal relied on OECD commentary which states that to form a PE, there should be existence of fixed place of business i.e. it must be establish a distinct place with certain degree of permanence. It usually means that persons who in one way or another are dependent on the enterprise, conduct the business of the enterprise in the state in which the place is situated.
Mumbai bench of the Income-tax Appellate Tribunal held that the income from supply of information relating to various markets should be taxed as business profits under Article 7(3) of the India-Singapore tax treaty (tax treaty) and accordingly the expenses incurred for earning the income should be allowed as a deduction. Further, the Tribunal upheld the view that when the taxpayer chooses to be covered by provisions of an applicable tax treaty, the tax department cannot thrust provisions of the Income-tax Act, 1961 (‘the Act’) on the taxpayer unless those are more beneficial to the taxpayer.
The department filed an appeal in the High Court and claimed that as the Tribunal’s order was received on a particular date, the appeal was on time. However, the assessee obtained information from the Tribunal under the Right to Information Act and pointed out that the order was served on an earlier date and that the appeal was belated. HELD taking a serious view of the matter and summoning the Revenue Secretary and Chairman CBDT.
The ITAT held that the relationship of the Taxpayers with their Indian subsidiary to whom the Taxpayers had sub contracted/ assigned provision of software development and call center services, resulted in a permanent establishment (PE) of the Taxpayers in India under the India-USA Double Taxation Avoidance Agreement (DTAA). The ITAT held that a PE was constituted on account of activities of the subsidiary which effectively resulted in the Taxpayers carrying on their business in India. The ITAT, subject to some adjustments, broadly upheld the approach adopted by the Indian Tax Authority of attributing profits to the PE by allocating the global profits based on a proportion of Indian assets to global assets. The ITAT also held that the conclusions reached in a Mutual Agreement Procedure (MAP) for a particular financial year could form the basis for the Tax Authority to reach a conclusion for other years, if there are no differences in facts for the years.
The ITAT held that the taxes paid on profits, whether on presumptive basis or on the basis of actual profits earned, represent application of income and are not allowed as deduction in computation of taxable profits. In terms of applicable provisions of the Indian Tax Laws (ITL), read with the applicable tax treaty, such taxes qualify for tax credit relief so as to avoid double taxation.
Assistant Commissioner of Income tax v. Srj Peety Steels (P) Ltd. (ITAT Pune) – When noting incriminating was found in the course of search relating to any of the assessment years, the assessments for such years could not be disturbed; further, consumption of the electricity for the manufacture of mild steel ingots / billets depends on various factors and the AO did not attempt to establish a direct nexus between production and electricity consumed and therefore no addition was called for.
The AAR held that the ‘source of income’ for hire charges of a vessel is to be determined having regard to the place where the agreement for hire was executed and the place where the vessel was delivered/situated at the time of entering into the agreement. In the present case, since at the time of renewal of the agreements the vessels were situated in India, the hire charges pertaining to that period are taxable in India.
The Tribunal while upholding the order of the CIT(A) and after relying on the decision of the AAR in the case of Brown and Root Inc. held that since an installation project was not carried on for more than six months, as per Article 5(2)(k) of the tax treaty the taxpayer did not create PE in India.
Mumbai bench of the Income-tax Appellate Tribunal held that the supply of software does not amount to any transfer of copyright but only transfer of copyrighted article. Further, payment received for sale of copyrighted article does not amount to income from royalty within the meaning of the India-Israel tax treaty. Further, the Tribunal held that payment received from sale of software copy does not amount to income from royalty under the tax treaty.
