In a recent ruling’ , the Delhi Income-tax Appellate Tribunal in the case of McDonald’s (India) Pvt Ltd v. ACIT [ITA No. 3890 (Del) of 2004], has held, on evaluation of available facts, that the old provision of section 92 of the Income-tax Act, 1961 does not apply in case of advertisement expenditure incurred by the resident assessee on behalf of other resident entity.
No requirement to approach the Tax Officer for nil withholding certificate under section 195(2) where the non-resident is not liable to tax and further no disallowance can be made under section 40(a)(i) of the Income-tax Act, 1961 In a recent decision, the Chennai Bench of the Income-tax Appellate Tribunal in the case of VA Tech Wabag Ltd. v. ACIT [2010-TII-109-ITAT-MAD-INTL] held that in a case where the payment for services was not taxable in India under the provisions of a Double Tax Avoidance Agreement (“the tax treaty”), there was no requirement for applying to the tax officer for a nil withholding certificate under section 195(2) of the Income-tax Act, 1961 (“the Act”). It was also held that as section 195 of the Act was not applicable, the amount paid for services could not be disallowed under section 40(a)(i) of the Act.
When the assessee is prevented from deducting tax u/s 195, the question of his not performing the obligation under law does not arise and thus he cannot be held a defaulter. The assessee cannot be held to be an assessee in default in terms of section 201 and 201(1A) of the Act. This is a case of impossibility of performance and the assessee is released from the obligation and hence the assessee is not an assessee in default.
Recently, the Authority of Advanced Ruling (AAR) in the case of Joint Accreditation System of Australia and New Zealand [2010-TII-28-ARA-INTL] dated 6 August 2010 held that issuance of accreditation certificate does not result in ‘making available’ skills, technical knowledge etc. possessed by the applicant and accordingly does not result in rendering technical services as per Article 12(3)(g) (Please see note-1) of India-Australia Tax Treaty (tax treaty).
Recently, the Delhi bench of the Income-tax Appellate Tribunal in the case of M/s Panasonic India Pvt Ltd Vs. Income Tax Office, has upheld the aggregation of transactions where the Functions, Assets &; Risks underlying those transactions are similar. The Tribunal also concluded that reimbursement of advertisement expenses received by a Distributor from its Associated Enterprise (AE) must be treated as operating income for computing profitability of the taxpayer under the Transactional Net Margin Method (TNMM) method.
Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ACIT v. Monitor India Pvt. Ltd [2010-TII-138-ITAT-MUM-INTL] (Judgment date – 8 October 2010, Assessment Year 1999-2000).held that the taxpayer is under no obligation to approach the Assessing Officer and is entitled to remit monies abroad without deduction of tax at source if it is of the opinion that the remittance was wholly exempt from Indian taxes.
Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Rolls Royce Industrial Power Ltd. v. ACIT [2010-TII-139-ITAT-DEL-INTL] (Judgement date 5 October 2010 Assessment Years 1998-99 to 2004-05) held that consideration paid to a foreign company for performance of a works contract of operating and maintaining a power plant cannot be considered as Fees for Technical Services (FTS) both under the Income-tax Act, 1961 (the Act) as well as under India-UK tax treaty (tax treaty). Further, the Tribunal held that the taxing of a foreign company i.e. the taxpayer in a manner which is more burdensome vis-a-vis an Indian company doing identical business in India would lead to discrimination. Accordingly the taxpayer is entitled to protection of Article 26 of the tax treaty and should not be subjected to tax on gross basis, but on net basis. The Tribunal also held that for a correct and harmonious interpretation disallowance under section 44D of the Act would not apply wherever Article 7 of the tax treaty is being applied.
Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ADIT v. Solid Works Corporation [2010-TII-130-ITAT-MUM-INTL] Judgment date 1 April 2010, Assessment Year 2005-06) held that payment received by the taxpayer for sale of shrink wrapped software is not in the nature of royalty within the meaning of Article 12(3) of the India-USA tax treaty (tax treaty).
Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Technip Italy Spa v. ACIT (2010-TII-133-ITAT-DEL-INTL) after applying the decision of the Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 (SC) held that the income from offshore supply of equipment on a Cost Insurance Freight (CIF) basis under a composite contract is not taxable in India.
Deduction u/s.10B cannot be disallowed on ground of excess profits when the international transactions are held to be at arm’s length. The Chennai Bench of Income Tax Appellate Tribunal in the case of M/s Tweezerman India Private Limited Vs ACIT [2010-TII-45-ITAT-MAD-TP] has held that deduction of eligible profits under Section 10B cannot be disallowed on ground of excess profits where the international transactions have been held to be at arm’s length by the Transfer Pricing Officer.
