Professional Firms can have a ‘service PE’. The words “indirectly attributable to the PE” encompass the “force of attraction” principle and even services rendered offshore for Indian projects are assessable in India
The assessee, engaged in the business of manufacture and export of diamonds and jewellery, claimed that having regard to the nature of the product, none of the transfer pricing methods were applicable for benchmarking the international transactions with associated enterprises. The TPO rejected the argument on the ground that the Transactional Net Margin Method (TNMM) was applicable and made an adjustment by comparing the enterprise level operating margins.
The assessee, a Singaporean company with a PE in India, obtained rights from the Global Cricket Council, Singapore, for telecast of cricket matches in India. The AO took the view that the payment for the said rights constituted “royalty” in the hands of GCC u/s 9(1)(vi) & Article 12(7) of the India-Singapore DTAA and that it had arisen in India on the ground thatthe payer had a PE in India and there was a direct nexus between collection of advertisement revenue in India and payment for the rights.
The Tribunal was correct in holding that consideration paid by the assessee to certain American Company for providing technicians to train assessee’s personnel in manufacturing, testing, inspection and quality control of its products and to impart know-how and technical data and suggest improvements thereto, did not fall under section 35AB, but was entitled to total relief under section 37(1)
In a recent decision Special Bench (SB) of the Mumbai Income Tax Appellate Tribunal in the case of Datacraft India Ltd. (Taxpayer) [ITA No.7462 & 754/ Mum/ 2007]on the issue of whether routers and switches can be classified as computer entitled to depreciation at 60% or have to be classified as general plant and machinery entitled to depreciation at 25%, under the provisions of the Indian Tax Laws (ITL) held that the definition of computer should not be restricted to the central processing unit (CPU) of computer
CIT vs. Kalpataru Colours and Chemicals (Bombay High Court)- S. 28 (iiid) provides that “any profit on the transfer” of the DEPB shall be business profits. Under Explanation (baa) to s. 80HHC, 90% of “the sum referred to in s. 28(iiid)” has to be reduced from the business profits. Under the third Proviso to s. 80HHC (3), in the case of an assessee having an export turnover exceeding Rs. 10 crores, the profits referred to in s. 80HHC (3) can be increased by 90% of “the sum referred to in s. 28 (iiid)” only if two conditions are satisfied.
The assessee, a fishing company, obtained two fishing vessels on charter from a foreign company based in Hong-Kong. The charter fee of $ 600,000 was payable from the earning from the sale of fish and for that purpose 85% of the gross earnings from the sale of fish was to be paid to the foreign company. The trawlers were delivered to the assessee at Chennai Port.
The assessee credited its P&L A/c with an amount of Rs. 149.77 crores being the profit on sale of assets to its wholly owned subsidiary. As the said profits were not chargeable to tax u/s 47(iv), the assessee took the view that the same had also to be reduced from the “book profits” u/s 115JB. The Special Bench had to consider whether exempt income could be excluded from the computation of “book profits” u/s 115JB. HELD deciding against the assessee:
Whether the liability has been deferred or not has to be considered not from the simplistic point of the term ‘defer’ but in context of the incentive scheme for deferral, as is evident from the circular issued by Central Board of Direct Taxes. The subject matter of Circular no.496 dated 25th September, 1987 is Sales Tax Deferral Scheme and applicability of provisions of section 43B of the Act.
Depending on the facts, the activity of storage and supply of goods in India by a foreign enterprise may need examination to determine impact of the above ruling. For the purpose of the computation of the profit, a PE should be regarded as separate and distinct enterprise wholly independent of the non-resident foreign company.
