Some important ruling of the authority

1 Robert W. Smith: [1995-212 ITR 275]
2 Application No. P-21 OF 1995 [1999-237 ITR 428]
3 Arthur Newell: [1997-223 ITR 776]
4 Monte Harris: [1996-218 ITR 413]
5 Application No. A.A.R. 203 of 1994 [1999-240 ITR 518]
6 Jagtar Singh Purewal [1995-213 ITR 512]
7 A Trust Company, USA of 1994 (unreported)
8 Application No. P-13 of 1995 [1998-228 ITR 4871]
9 Ericsson Telephone Corporation India AB : [1997-224 ITR 203]
10 Application No. P-9 of 1995 [1996-220 ITR 377]
11 Application No. P-10 of 1996: [1997-224 ITR 473]
12 Application No. P-12 of 1995 [1997-228 ITR 61]
13 A Courier Company, USA (unreported)
14 Educational Institute of American Hotel & Motel Association: [1996-219 ITR 183]
15 Application No. P-8 of 1995 [1997-223 ITR 416]
16 Application No. P 11 of 1995 [1997-228-ITR-55]
17 Application No. P-24 of 1995 [1999-237-ITR-7981]
18 TVM Ltd. Mauritius [1999-237-ITR-230]
19 Application No. P-30 of 1997 [1999-238-ITR-296]
20 Mr. Dieter Eberhard Gustan Von Der Mark, Germany: [1999-235-ITR-698]
21 Application No. P-15 of 1997 [235-ITR-565]
22 Mr Cyril E Pereira, UAE [239 ITR 650]
23 Application No. P-16 of 1998 [236 ITR 103]
24 M/s Van Oord ACZ, BY, the Netherlands (Unreported)
25 XYZ, Equity Funds, Mauritius (Unreported)


1. Robert W. Smith: [1995-212 ITR 275]:

The main question for consideration before the Authority was as to whether   the   applicant  was   a  'technician'   within   the meaning of section 10(5B) of the Act. It was held, on the facts  of the  case,  that  the   applicant had  specialised knowledge and experience in the field of construction and commissioning of chewing gum plants and that he was employed in India in a capacity in which such specialised knowledge and experience were actually utilised It was further held that the business of WIPL was being carried on in India even though the actual stage of manufacture and sale of confectionery had not started by that time.

Accordingly, the applicant was held to be entitled to the exemption granted under section 10(5B).

2.  Application No. P-21 OF 1995 [1999-237 ITR 428]:

The applicant was held not entitled to exemption under section   10(5B)   because   he   did   not   have   any   actua experience   connected   with   manufacturing/production operations. His experience related mainly to explaining the   qualities   of  the   products   to   the   customers   and implementation of after sales service procedures and methods an was not concerned with manufacturing operations. Since the manufacture of the products had not yet commenced at that time, experience in after sale service was of no relevance.

3. Arthur Newell: [1997-223 ITR 776]:

In this case in which the applicant has sought relief under section 10(5B), two important legal issues were decided by the Authority. First, the Authority clarified the meaning and scope of the expression 'manufacturing operations'. The employer company used to import huge rolls of cinematographic films, cut them into smaller rolls, perforate them on the sides, notch identifying marks and then pack them in appropriate forms in boxes or spools. After reviewing the nature of the operations and the relevant case law, the Authority held that the operations carried out in the Indian factory were covered under the term 'manufacturing operations'. It was clarified that 'manufacturing process' is not restricted only to cases where the identity of the original article gets completely lost or destroyed by the process employed. There can be a manufacturing process, so long as the resultant article has a different and separate commercial identity, notwithstanding that the original article is still identifiable and existent. The second question was whether an employee of a foreign employer was entitled to the benefits of section 10(5B). The clause grants exemption to a foreign technician "in the employment of a Government of India, a local authority in India, any corporation set up in India under its laws, an institution or body established in India for carrying on scientific research or in any business carried on in India". On the facts, benefits under section 10(5B) were held to be allowable to the applicant as he was "employed in a business carried on in India". The fact that the employer of the applicant was a foreigner was held to be of no relevance for the exemption under this section.

4. Monte Harris: [1996-218 ITR 413]:

The main issue Decided in this case pertained to the maintainability of the Application. The applicant, a citizen of United States of America, came into employment in India w.e.f. 1st April, ;1994. He was non-resident as per the provisions of the Act for financial year 1993-94 and for earlier years. However, ^, tie became resident for financial year 1994-95. Thus, he was a 'resident' in the financial year in which he filed his application before the Authority on 31st of March, 1995. While section 245N stipulates that only a non-resident can make an application under chapter XIX-B, it does not say in specific terms that he should be a non-resident as on the date of the application. Moreover, a person can be a resident or non-resident with reference to a financial year and not with reference to a particular date. After due consideration, it was held that for the purposes of determining the maintainability of an application, residential status of the applicant in the financial year immediately proceeding the financial year in which the application is made, should be looked into.

The second important issue decided was as to whether the question raised could be treated as 'already pending in the applicant's case before any Income-tax Authority' if the applicant files his return of income after filing the application before the Authority. This question was answered in the negative. It was held that it would appear more correct and practical to construe the embargo as applicable to cases where, while the issue is already pending before the income-tax authorities, the Appellate Tribunal or any court, the applicant also seeks recourse tinder section 245Q. The words 'already pending' should, therefore, be interpreted to mean: 'already pending as on the date of application' and not with reference to any future date.

5. Application No. A.A.R. 203 of 1994 [1999-240 ITR 518]:

The question raised was whether the amalgamation of a foreign company (A) with another foreign company (B) of which 'A' was a 100% subsidiary would attract any tax under the head 'Capital Gains' qua the shares of an Indian company held by it. After referring in detail to the relevant provisions of capital gains tax in Canada, it was held by the Authority that though the provisions of DTAA between India and that country authorize India to tax the company (A) on capital gains arising on the alienation of the Indian company's shares held by it, no tax on any capital gains could be charged in the present case in view of the exemption conferred by section 47(via) of the Act unless it is found, as and when the transaction is put through or thereafter, that such gains are assessed to income-tax in that country either on the ground that the proposed transaction per se attracts the tax or on the ground that the proposed transaction is one of a series of transactions or on any other ground whatsoever.

6. Jagtar Singh Purewal [1995-213 ITR 512]:

The applicant, resident and carrying on business at Glasgow, owned one sixth share in a property at Jullunder. The building in question had been let out to a company since 1978 at a particular rent. Later on, after negotiations, the rent was raised retrospectively w.e.f. 1.8.1983. The question was whether the applicant was liable to Income-tax on the arrears of rent received by him on 6.7.1992 in the assessment year 1993-94. The question was answered in the negative because section 22 of the Income-tax Act provides that income from house property has to be computed on the basis of the annual value of the property which meant the rent at which the property could reasonably be let from year to year. The Act does not provide for the assessment of the excess received in respect of earlier years as income from house property for the assessment year 1993-94. It could not also be taxed under the head 'other income' in view of the principle laid down fey the Supreme Court of India in the case of Nalinikant Ambalal Modi Vs. Narayan Row [1966-61 ITR 429].

[Note-vide Finance Act 2000 Section 25B inserted to enable taxation of arrear to advance rent]

Another question was also decided by the Authority in this case. It was held that the applicant's act of filing a return of income including the amount of arrears in his return did not preclude him from approaching the Authority for a ruling because in this case the return had already been processed and there was no pending dispute between the applicant and the Income-tax Department.

7. A Trust Company, USA of 1994 (unreported):

A US company working as custodian of the Staff Retirement Plan (SRP) of an Organisation of the UNO posed the question as to whether it would get the benefit of the United Nations (Privileges & Immunities) Act. Later on, it was claimed that the Organisation had not authorised the applicant company to file the application and it was requested that the application, being not duly authorised, should be rejected as invalid. After due consideration of facts, it was decided that the company was competent to make the application on behalf of the Organisation and the request for the withdrawal of the application, being after the statutory period of 30 days, was not allowed. On merits, however, it was held that the income arising to the Organisation on the investment of funds of its SRP was not liable to tax under the Income-tax Act.

8. Application No. P-13 of 1995 [1998-228 ITR 4871:

A number of points came up for consideration in this case. I  A French company was expecting to be granted a contract for the installation of a grassroots refinery and setting up of a petro-chemical complex by an industrial house of India. The applicant company was to provide complete project services on single point responsibility basis starting from technology transfer to the commissioning of the plant. The work to be done by the applicant was expected to be covered by seven different agreements and some of the services under these agreements were to be performed outside India. It was held:

  1. The Project Head Office and Project Site Office of the applicant would together constitute the applicant's 'Permanent Establishment' (PE) for the purposes of taxation of the income from the contract;

  2. The payments made by the Industrial House to the applicant under the various agreements will be in the nature of 'royalties' and/or Tees for technical services' within the meaning of Article 13(3) and 13(4) of DTAA and that the royalties and fees for technical services in relation to the activities conducted outside India were effectively connected with the PE of the applicant in India;

  3. The applicant company could be considered as the 'beneficial owner' in terms of Article  13(6) of the DTAA of the royalties and technical fees received by it from the said industrial house;

  4. In determining the business profits of the PE of the applicant, all expenses shall be allowed in accordance with, and subject to the limitations laid down in, the Indian Income-tax Act;

  5. Payments made by the PE to the head office of the applicant   were   not   're-imbursements'   within   the meaning of Article  7(3)(b) of the DTAA and were, therefore, not deductible while computing the profits of the PE in India.

  6. The Head Office of the applicant was not liable to withhold taxes under the Income-tax Act of India in respect of payments made by it to foreign suppliers of goods, services and technologies. Even though tax should be  deducted on such payments in view of section 9(l)(vi) and (vii) of the I.T. Act, the applicant was entitled to relief because of para (7) of Article 13 of the DTAA according to which royalties and technical services cannot be deemed to arise in India if such royalties etc. are not borne by the PE of the applicant.
    As the provisions of DTAA should prevail over the provisions of the Act, the applicant was held not liable for deduction of tax.

  7. If the contract agreements under reference did not have the approval under section 115A of the Act, the profits of the PE in India will have to be computed as 'Profits & Gains of Business' and brought to tax at the rates applicable to the total income of a foreign company. If, however, these were got approved under section  115A,  such profits  would be  computed  as above but would be charged to tax at 30% on the amount of royalties and fees for technical services included therein and,  at the  rate  applicable to  a foreign company, on the balance thereof, if any;

  8. In either of the above events, the provisions of section 44D and 115A would not be applicable in respect of that  part  of the  receipts  of the   applicant  which represent payments in consideration of services under the agreements which relate to construction, assemblyor like project.

  9. The payments made under the agreements will be taxable under Article 7 read with Article 13(6) of the DTAA and keeping in view the provisions of Articles 7.1 and 7.2 of the DTAA read with Para 3 of the Protocol, only the profits of the applicant attributable to the operations carries out by its PE in India would be liable to tax.

9. Ericsson Telephone Corporation India AB : [1997-224 ITR 203]:

The applicant, a Swedish company, entered into contract with three Indian companies for introduction of the cellular system of telecommunication in India. For this purpose, it also opened branch offices in India. The Indian companies proposed to withhold tax at the rate of 55% on the payments made by them to the applicant. The applicant, however, claimed that the payments had to be computed in the same manner as business profits by virtue of Article 7 of the DTAA and that as the applicant did not expect its net profits on the contracts in question to be more than 10% of the total gross receipts from the Indian companies, the tax deduction should not have exceeded 5.5% of the total gross payments i.e. 55% of the 10%. Held :

  1. The application was not liable to be rejected in limini on the ground that the question of tax deduction at source was pending before the I.T. Authorities in the cases of one of the three companies with whom the applicant had entered into contract as the question was not so pending in the case of the applicant.
  2. The payments in question were 'fees for technical services' and their computation had to be made under Article 7 of the DTAA. On construction of Article 7(3) of the DTAA read with section 44D of the Act the entire gross amount of fees would be liable to tax at the rate of 55%. However, in view of the special relief provided under section 115A of the Act, tax was held to be chargeable at the rate of 30% and not at the rate of 55%.
  3. On the question whether the tax deduction at the rate mentioned would amount to discrimination or not, the answer could be furnished only after the assessment and not at the tax deduction stage.

10. Application No. P-9 of 1995  [1996-220 ITR 377]:

Two investment companies, which were limited liability companies incorporated in Mauritius invested in an Indian banking  company  to  the  extend  of 10%  of the  total subscribed and paid up capital of the bank.  Both the companies, which had a common address, wanted to know whether   the   dividends   received   by   them   would   bechargeable to Indian Income-tax at the rate of 5% as provided under Article 10(2)(a) of the DTAA with Mauritius and whether capital gains would be exempt in view of the provisions of Article  13. The Authority rejected the applications under clause (c) of the second proviso to
section  245R  of the  Act  on   the   ground   that   the question  raised  therein  related  to  a  transaction which was designed, prima facie, for the avoidance of  tax.   The  Authority  reached  this   conclusion  after considering the facts and sequence of events in the case.

11. Application No. P-10 of 1996: [1997-224 ITR 473]:

In this case many important questions of law and facts were decided by the Authority:

(1) The first issue related to the maintainability of application. A non-resident investment company, which was a beneficiary of an Indian contributory trust, sought an advance ruling as to mode of assessment of the trust namely whether the trust would be taxed at maximum marginal rate under section 164 of the Act or would be assessed in respect of the proportionate share of income of the beneficiaries as per the provision of section 161 of the Act. The application was held to be maintainable as the assessment on the trust would only be in a representative capacity.

Regarding the mode of assessment of the Indian trust, of which the applicant company was a beneficiary, it was held that section 161 and not section 164(4) of the Act came into operation because the trust deed set out expressly the manner in which the beneficiaries are to be ascertained and also the share to which each of them would be entitled without ambiguity. Accordingly, it was held that the income earned by the trust by way of dividends, interest and capital gains would be dividends, interest and capital gains in the hands of the applicant and will be charged at the rates prescribed therefor in Articles 10, 11, 13 and 22 of the DTAA.

(2)  An investment management company a resident in Mauritius was to receive management fee or "carried" interest from a resident managed company in India. It was held tht the Indian company was not required to withhold tax in respect of these items so long as no permanent establishment was set up by the Mauritius company in India.

(3) It is in the public interest that the rulings of the Authority be published particularly where they deal with general questions of far-reaching importance. However, while publishing such rulings, confidential particulars,   the   disclosure   of which   may  not  be desirable or may harmful to the applicant, may be withheld.

12. Application No. P-12 of 1995 [1997-228 ITR 61] :

In this case, the taxability of withdrawals from the individual retirements arrangement (IRA) of an NRI was discussed. The applicant had entered into an IRA with a foreign banking institution. Contributions made to the IRA were tax deferred i.e. they were tax deductible at the time of contribution but liable to tax at the time of withdrawal. As the applicant planned to shift to India, he intended to invest part of his IRA funds in a non-resident non-repatriable rupee deposit (NR-NR-RD) scheme. It was held that no Indian Income-tax would be payable on withdrawals from NR-NR-RD account as such withdrawals do not at all constitute income in his hands. Withdrawals which represent income accrued on the investments subsequent to the applicant's arrival in India, would not be taxable so long as his status is that of a RNOR. However, the interest on the applicant's investments, in India, of funds withdrawn from his IRA investments from time to time in a NR-NR-RD account, would be taxable in the hands of the applicant once he ceases to be non-resident in India. The Authority declined to answer a question regarding the applicant's liability under the Gift Tax Act, 1958 as the Authority has been constituted under the Income-tax Act, 1961 and has no jurisdiction to give advance rulings on questions relating to other taxes.

13. A Courier Company, USA (unreported): 

An American courier company, which had entered into a service agreement with an Indian courier company, under which the Indian company would provide services required by the applicant company in its transportation of small packages in India and, likewise, the American company would provide similar services to the Indian company outside India. The parties were governed by DTAA which over-rides the provisions of the Act. It was held that business profits of a resident of USA will be taxable in India only if it had a PE in India. In this regard, it was seen that on the facts stated by the applicant, it had no place of management, branch or office in India. It was true that the way-bills issued in India by the Indian company for the transport of consignments abroad bore the name of the American company and the American company acted in India through the Indian company as its agent. However, the Indian company was held to be an agent of independent status through which the American company was carrying on business in India as it was found: (a) that the activities of the Indian company were not devoted wholly or almost wholly to the American company. It had its own business activities apart from those carried on with the help of the American company and (b) the American company had no shares in the Indian company, had no control over the management of Indian company and the two had no common employees. In this case, a preliminary objection that the application was not maintainable in view of clause (a) to the proviso to section 245R(2) of the Act was also over-ruled because in the present case, this issue had been raised before the income-tax authorities not by the applicant but by the Indian company on the question of tax deductibility at source.

14. Educational Institute of American Hotel & Motel Association: [1996-219 ITR 183]: This case concerned the exemption, under section 10(22) of the Act, available to an educational institution. The applicant, a non-resident, a wholly owned subsidiary of the American Hotel and Motel Association and enjoying tax exempt status in USA, claimed exemption under that clause in respect of its activities in conducting various courses and certification programmes in hospitality management and operations, providing educational and training materials, conducting seminars, workshops and other programmes and providing training, course materials and instructional resources to the in-house faculty of various institutions. It was held that the purpose of making profits was not the real purpose of the applicant. Its articles of association clearly provided tht its net earnings should not inure to the benefit of any member or director or to any other individual and that, even in the even of dissolution, no member, trustee, officer of the applicant or any private individual should be entitled to a share in its corporate .assets. Accordingly, the applicant was held entitled to the -exemption under section 10(22) of the Act.

15. Application No. P-8 of 1995 [1997-223 ITR 416]:

Applicant is a Swiss company trading in goods and j commodities and has no office or place of business in India. It proposes to set up an Indian subsidiary company which shall provide consultancy to the applicant. Indian subsidiary to provide information on global tenders floated in India and secretarial assistance in responding to tenders, its follow up and signing of contracts, raising of invoices etc. The applicant has sought rulings on—whether there was a business connection of applicant in India, thereby entailing tax liability in India on the deemed incomes as per provisions of sec. 911 (i) of IT Act. It is held that subsidiary was a PE as there was an intimate and coutinuous relationship which constitutes business connection for the purpose of section 9(l)(i) and because of Article 5(2)(i) read with article 5(5), 5(6) of DTAA. Question of income deemed to accrue or arise in India would depend upon actual working therefore, hypothetical ruling not possible.

16. Application No. P 11 of 1995 [1997-228-ITR-55]:

The AAR has reiterated the well-known Doctrine that DTAA overrides general provisions of Income-tax Act.

Applicant is a company incorporated in Singapore. It is awarded sub-contract work of ONGC relating to construction, burial of pipelines off shore. The work is completed in 46 days. Oil well is not owned and operated by Singapore company. It is held that the activities of applicant company are covered by Article 5(3) of DTAA and since project did not continue for more than 183 days in a fiscal year, the profits were not taxable in India under article 7 of DTAA.

17. Application No. P-24 of 1995 [1999-237-ITR-7981]:

Applicants were two companies incorporated and resident in the Netherland. ONGC gave a contract of "Trunk Pipe line project" to a Korean company which in turn gave sub­contracts to the applicants. Thus the two applicants are sub-contractors for the work relating to laying of pipe lines under the sea. The job includes performing various physical activities relating to pipeline constructed for extraction, production transportation of mineral oil from oil fields located off shore India and also to mobilize a vessel equipped with diving plant and other equipments to take remedial construction work. 1st applicant completed the project in 68 days and 2nd applicant in 27 days. The applicants sought the rulings whether income derived by the applicants, for their contract work in India would be taxable in India. It is held that income under the contracts arises in India as they directly relate to the activities carried out in India but taxability of income is governed by article 4, 5, 7 of DTAA between India and Netherland. Contracts carried out by the two Dutch applicant companies in India from part of their regular business activities and hence would constitute business income which is liable to tax in India only when activities carried out through a 'Permanent Establishment' in India. Expression TE' does not talk of an everlasting or eternal place of business. Place of business covers both premises and other tangible assets used by the business. Ships in territorial water constitute place of business. Similarly, 'Fixed place' envisages possibility of locating, identifying or pointing out to a definite place from which business is carried on. No requirement that place of business should be stationary and not moving. The other requirement of permanency is that the place of business should have been utilised for a reasonable amount of time. In the present case since the contracts were not executed in less than 183 days, the applicants do not have a PE in India, therefore, income derived from execution of sub-contracts is not liable to tax in India.

18. TVM Ltd. Mauritius [1999-237-ITR-230]:

Applicant TVM Ltd, a Mauritius company. Applicant TVM and idian company (TVI) have some shareholders or group of are holders, directors are however, different and it is plaimed that management of TVI is entirely independent |0f that of TVM. TVM is engaged in business of development, Uale and distribution of television programmes called oftware. TVI has such programmes under the logo 'Home TVI would permit TVM to use such logo and : programmes to be telecasted through a transponder taken :,on lease. This transponder is attached to the satellite with a broadcasting coverage in 68 countries. The revenue of the TV Broadcasters are from advertisement and selling air-time. TVM proposes to enter into solicitation agreement for such sales of air-time with TVI where under TVI would procure orders and pass on to TVM. TVI would also be responsible for remitting the revenue so collected to TVM. TVI is entitled to commission only. TVM, the applicant non resident has raised before this authority, the question relating to taxability in India of the business profit earned by it from sale of air-time and whether TVI, the agent could be construed as a PE of applicant in India. It is held by AAR that though the business profits earned by TVM, the applicant through TVI, are profits deemed to accrue or arise in India under sec 9 of IT Act, however the same is not taxable in India by virtue of Article 7 of DTAA. Mauritian company, TVM, would be entitled to benefit of article 7 of DTAA only if it is established that it is liable to pay tax in Mauritius. TVI, the Indian company would not be considered to be a PE of TVM if it were shown that only TVM had power to conclude agreements for sale of air-time.

In this ruling comprehensive discussions had been made about PE, dependent or independent agent and business connection.

19. Application No. P-30 of 1997 [1999-238-ITR-296]:

Applicant, a company formed and incorporated in USA is engaged in providing International Credit Cards, Traveller's cheque and other travel related services. It is maintaining a central processing unit (centralized computer) in USA to keep track of the expenses incurred on travellers' cheques. It has also a consolidated Data Network in Hong Kong for basic operations. It allows customers to have access to and to use its CPU at USA against payment. Transactions done by travellers in India reported to and processed by CPU/CDN by India companies for which Indian company are charged. The payments by Indian companies is for use of software developed and protected by applicant so it is not in the nature of business income but is income by way of royalty for use of design or model, plan, secret formula or process. This receipt is liable to tax in India as 'Royalty' under article 12(3)(a) of DTAA between India & USA.

20. Mr. Dieter Eberhard Gustan Von Der Mark, Germany: [1999-235-ITR-698]:

Applicant  citizen  and permanent resident of Germany and is non-resident. He is qualified and experienced as Engineering Consultant and was Vice President   of  a   German   company with which M/s Pennwalt India Limited, an Indian company had a technical  collaboration.   The  applicant joined  Board  of Directors of the Indian company on 15.12.95. The applicant entered into an agreement with the Indian company in November,  1996 for rendering technical and marketing services, services to be rendered from Germany. There was no relationship of employer-employee between the applicant and the Indian company so as to attract section 15 of the IT Act. The applicant sought a ruling on question whether professional fee receivable by the applicant are taxable in India in view of Article 14 of DTAA between India and Germany and whether M/s Pennwalt India Limited is required to deduct tax at source u/s 195 of the IT Act at the time of remittance of the said professional fee. Held that the "Professional fee" expression under Article 14 of the DTAA is wide enough to include service rendered by applicant as Engineer. The stay of applicant in India is less than 120 days in a year and the applicant is not having any PE in India hence amount received for rendering professional service is not taxable in India. Also, fee paid to applicant as Director of Company is assessable in India under Article 16 of the DTAA.

21. Application No. P-15 of 1997 [235-ITR-565]:

In this case, taxability of gains arising out of exercising 'stock option' to an employee have been considered. Applicant is a company incorporated in USA. It sets up a fully owned subsidiary  company   in  India.   Stock  option   given  to employees of Indian company by its parent,  applicant company. It is held that gains by exercise of such stock option  constituted  salary  and  the  parent  company  is required   to   deduct   income-tax   at   source   on   amount payable to employees of Indian company.

22. Mr Cyril E Pereira, UAE  [239 ITR 650]:

The applicant, an individual, not a resident in India but residing permanently in UAE since 1977, is owning two flats in Mumbai and also having income arising out of investments in shares and debentures from Indian companies, interest income from FCNR and NRNR accounts in the Indian banks. He is earning annual salary in UAE. The applicants claims relief under Double Taxation Avoidance Agreement (DTAA) between India and UAE to claim his status as non-resident under Article 4 of DTAA and taxability of income in India at a lower rate and non-taxability of capital gains in India.

The Authority held that the condition precedent for granting relief under DTAA is the existence of tax liability in both the countries. Since individual is not taxable in UAE, he cannot take advantage of the Treaty to claim tax concessions under DTAA in India. Central Government has power to enter into Agreement with other countries for double taxation relief but it has no power to reduce tax imposed by the legislation. The provisions of relief to an individual in the Treaty with UAE may be for future agreements and therefore, these provisions are not ultra virus of section 90 of Income-tax Act. It is further held that advance ruling does not create a precedent because it is only applicable in the case of the applicant, thought it may have persuasive value.

23. Application No. P-16 of 1998 [236 ITR 103]:

A non-resident banking company incorporated in France carrying out business activities of banking in India has applied for a ruling that whether the applicant is liable to pay income-tax on its business income earned in India at the same rate as that applicable to domestic baulking company. Thus ruling is sought on the doctrine of "non-discrimination with a non-resident" in accordance with the Article 26 of DTAA. Accordance to the Finance Act, different tax rates are applicable for a domestic and a non-domestic company. The Authority has given the ruling that the distinctions drawn by the Finance Act between domestic and non-domestic company are based on the various parameters and activities. The activities of the Indian and French bank are not identical as nationalised Indian banks are required to promote certain social and economic objectives of the State whereas no such liability exist for a French bank. Another distinction is the basis of distribution of dividends in India. The dividends distributed in India by domestic company lead to fresh accrual of income resulting in further levy of tax whereas no such happening is there in respect of a non-domestic company. It is further held that Article 26 of DTAA speaks generally of taxation and it has nothing to do with rates of tax. Article 26 does not use the phraseology "the tax so charges" as against article 8, 9, 11, 12 and 13 which deals with rate of tax. Further, there is no conflict between the provisions of Income-tax Act and Article 26. Income-tax Act does not provide the rate at which tax is leviable and the rates are given in the Annual Finance Act Section 90(2) of the Income Tax Act does not say that the agreement will override the Finance Act. The provisions given in the relevant Finance Act are quite clear and a non-domestic company need to pay tax at the rates specified in the Finance Act.

24. M/s Van Oord ACZ, BY, the Netherlands (Unreported):

The applicant, a company incorporated in Netherlands is incorporated in the business of dredging and marine contracts. A joint venture agreement was entered into between the applicant and Hindustan Company Ltd; for obtaining a marine contract from Chennai Post Trust, India. According to this agreement each party shall bear its own loss and retain of profits and there is nothing which would be deemed to give rise to a partnership between the parties. Thus it was claimed that the association (joint venture) was not incorporated to earn profit but to coordinate for the completion of the contract. The project comprises number of construction contracts. The applicant opened a temporary project office in India to execute its part of the work and made its own arrangement for the execution of the work independent from that of HCC. The applicant has applied for advance ruling on the question whether the joint venture would constitute an Association of Persons (AOP) under Income-tax Act and whether it is liable to pay tax on its share of business income arising out of the work assigned to it. The Authority held that the applicant and HCC cannot be treated as an AOP for the purpose of levy of income-tax and the applicant will be liable to be taxed as a separate and independent entity. In respect of other remaining questions the Authority took the view that Section 44BBB and the ruling in the case of NV Jan De Nul (236 ITR 489) would be applicable.

25. XYZ, Equity Funds, Mauritius (Unreported):

The applicant, XYZ is a Equity Funds LLC, incorporated in Mauritius. It is acting as a Collective Investment Vehicle like a mutual fund and using an Investment Manager, another Mauritius based company for mobilising investments from different investors. The Investment Manager identifies investments opportunities based on non-binding advise from an Investment Advisor for the purpose of investing into various portfolio investments in India. The purpose of setting up the fund was to legally avoid various restrictions imposed by the RBI and FIPB on venture capital entities. The applicant has made three investments in the form of pure equity investments and one in the form of fully convertible bond and therefore would be entitled to the income in the form of dividend, interests and capital gains. Besides the applicant may also receive some premium on redemption of fully convertible bonds. There are also provisions for making investments in countries other than in India. It had appointed an Indian company as its custodian to whom rights and liabilities have been specified. The applicant has made the application for seeking advance ruling on 16 questions, the important question being whether the applicant is entitled to claim exemption of income from capital gains under Article 13 of DTAA and whether the activities of the Investment Advisor, custodian would not constitute in permanent establishment of the applicant in India and lastly whether in the absence of any PE, the applicant is not liable to pay tax on its business income under Article 7 of the DTAA. The Authority held that in the facts and circumstances of the case, the applicant is entitled to claim advantage of DTAA; proceeds of sale of share in India would amount to business receipts and not capital gains; the activities of Investment Advisor and custodian cannot be treated to constitute a PE of the applicant in India; interests receive by the applicant would be taxable in accordance with the Article 11 of the Treaty. There are many other important findings from the Authority on the taxability of "difference fee" charged by the applicant from other portfolio companies to deter them from shopping around and chargeabilty of front-end fees received on discretionary basis from portfolio companies. The Authority further held that the applicant is required to file the income tax return even if it is entitled to exemption and deductions under the DTAA between India and Mauritius.


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