Presentation on International Tax Case Laws

Presentation by: CA Hiral Sejpal

Partner

D C Sejpal & Co

CIT vs Grup Ism Pvt Ltd – Delhi High Court

Assessee (Grup Ism Pvt Ltd)

M/s Marble Arts & Crafts LLC, UAE

CGS International, UAE

Remittance for Soliciting project management & architectural work.

Remittances for acting as an agent in dealing with various authorities & dealing with invoices

CIT vs Grup Ism Pvt Ltd – Delhi High Court

• Substantial question of Law included in the Case

• Did the ITAT fall into error in holding that the payment incurred was not technical service?

Section 9

• Did the ITAT fall into error in holding that Article 14 of the DTA Treaty applied to the UAE concerns in the circumstances of the case?

Article 14 of DTAA

Judgement

• Consultancy services would mean something akin to advisory services. This court has discussed the meaning of Consultancy services in DIT vs Panalfa Autoelektrik & has noted that consultancy has been defined as the work of consultant or a department of consultants. Subsequent to the decision in Panalfa Autoelektrik, the aforesaid definitions were also adverted to by the Supreme Court in GVK Industries.

• Also technical services are services requiring expertise in technology. Technical & Consultancy services are to some extent overlapping. Hence, such services cannot be included in consultancy services as well as technical services.

• Thus, the remittances would not come within the scope of ‘fees for technical services’ as per Section 9(1)(vii). Held in favour of assessee.

Judgement

• As per section 40(a)(i) any interest, royalty or fees for technical services shall not be deducted in computing the income if tax has not been deducted. Since the service is not a technical service, this section will not be applicable.

• Since there is no specific Article governing the aforesaid payment (alleged technical services by the revenue authorities), the remittances to them could be considered either under Article 14 or Article 22 of DTAA. In either cases, the taxing rights being vested with the UAE.

DIT-II v. B4U International Holdings Ltd – Bombay High Court

Advertisers

Affiliates of Assessee – B4U

Assessee (Mauritius Based

Co)

Remittances to Assessee through it’s Affiliates for time slots received

Engaged in telecasting of TV Channels

DIT-II v. B4U International Holdings Ltd – Bombay High Court

• Substantial question of Law included in the Case a) Whether ITAT was correct in holding the decision that B4U cannot be

treated as dependent agent of assessee?

b) Whether ITAT was correct in holding that agent being remunerated at arm's length no further profits is attributable despite agent being dependent ?

c) Whether the ITAT is correct in holding that assessee need not deduct tax u/s 195 and subsequently there can be no disallowance u/s 40(a)(i) despite the fact that the transponder charges being a consideration for "process"?

d) Whether the ITAT is correct in holding that the amount in question is not liable to tax in India and consequently the question of TDS u/s 195 does not arise despite the transfer of telecast right being a consideration for Royalty as clarified in Explanation (4) and (5) to section 9 of the Act ?

Judgement

• There is no finding in the Tribunal’s Order which can raise any substantial question of law.

• The applicability of the Hon’ble Supreme Court’s decision in the case of Morgan Stanley & Co in respect of the alternative argument of the assesseee was put forth by the Department’s counsel, since no transfer pricing had been carried out. However, held that Tribunal had rightly dealt with the 15% taken to be the basis for the computation of the arm's length price referring to the Revenue Circular 742. Nothing contrary to the same have been brought on record by the Revenue before the Commissioner. Hus, the principle laid down by the Apex would apply.

Judgement

• The High Court also clarifies that based on whether the payments made could be brought within the meaning of the word "process" and within the explanation can be raised and are kept open for being considered in an appropriate case. Keeping them open and in such manner, it is held that none of the questions projected and proposed are substantial questions of law.

• Held in favour of Assessee.

DIT vs LUFTHANSA CARGO INDIA – DELHI HIGH COURT

Assessee (Lufthansa Cargo

India)

UK Resident

US Resident

German Resident

Payments were made to non-residents on account of overhaul, repairs of aircraft, engines or other components in the workshop abroad.

The assessee was engaged in wet leasing of aircrafts to foreign companies.

DIT vs LUFTHANSA CARGO INDIA – DELHI HIGH COURT

• Substantial question of Law included in the Case a) Whether the ITAT is right in holding that payments made by the assessee

to the non- residents are not fee for technical services within the meaning of Section 9(1)(vii) of the Income Tax Act, 1961 so as to oblige the assessee to deduct tax at source u/s 195 of the Act from such payments?

b) Whether the ITAT was right in holding that payments made by the assessee fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax at source?

Judgement

• The assessee used sophisticated technical experience and skills of the personnel of the Technik in the process of repairs and overhaul carried out on the aircraft clearly showed that the services were technical in nature. The exclusive nature of these services cannot but lead to the inference that they are technical services within the meaning of Section 9(1)(vii) of the Act. The ITAT's findings on this point are, therefore, erroneous. This question is accordingly answered in favour of the Revenue.

• In the present case, the ITAT held that the overwhelming or predominant nature of the assessee's activity was to wet-lease the aircraft to LCAG, a foreign company. The operations were abroad, and the expenses towards maintenance and repairs payments were for the purpose of earning abroad. In these circumstances, the ITAT’s factual findings cannot be faulted. The question of law is answered in favour of the assessee.

Serco BPO (P.) Ltd. v. Authority for Advance Rulings, New Delhi – High Court of Punjab &

Haryana

Assessee (Serco BPO Pvt Ltd)

Blackstone - Mauritius Based

Co

Barclay -Mauritius Based

Co

Remittances for shares purchased of an Indian Co held by these foreign Companies

Serco BPO (P.) Ltd. v. Authority for Advance Rulings, New Delhi – High Court of Punjab &

Haryana

• Substantial question of Law included in the Case a) Whether, the capital gains arising in the hands of Mauritius based Co. on

account of the sale of shares is not chargeable to tax having regard Article 13(4) of the India Mauritius DTAA read with Section 90(2) of the Act?

b) Whether, the Appellant is not required to withhold tax under Section 195 of the Act while making payment of sale consideration to Sellers?

Judgement

• The Companies are a resident in Mauritius – Tax residence Certificate and also liable to tax in Mauritius, therefore benefits of DTAA available.

• Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of article 13 shall be taxable only in that State. Capital gains arising from the sale of the shares can only be brought to tax in Mauritius.

• Consequently, assessee was not required to deduct tax at source while making payment of sale consideration of shares to seller companies as per Section 9 read with Article 13. Held in favour of assessee.

• Also, applied the Supreme Court decision in the case of Azadi Bachao

Wipro Ltd. v. Deputy Commissioner of Income-tax – Karnataka High Court

Wipro Ltd (Assessee)

USA Government

Permanent Establishment in

USA

Taxes Paid on income

Export of computer software & other Services

Assessee claims tax relief for taxes paid to USA Govt.

Wipro Ltd. v. Deputy Commissioner of Income-tax – Karnataka High Court

• Substantial question of Law included in the Case a) Whether the Tribunal was right in holding that credit for income tax paid

in a country outside India in relation to income eligible for deduction under section 10A would not be available under section 90(1)(a)?

Judgement

• It was held that merely because exemption has been granted in respect of the taxability of particular source of income, it cannot be formulated that the entity is not liable to tax. Therefore, the case falls under Section 90(1)(a)(ii)

Judgement

• Article 25 makes it clear that if a resident Indian derives income, which may be taxed in USA, India shall allow as a deduction from the tax on the income of the resident, amount equal to the tax paid in USA, whether directly or by deduction.

• If prior to the amendment in Section 90, there was no thorough provision granting the said benefit as the said benefit was conferred on the assessee under DTAs, the assessee was entitled to the said benefit as DTAs over-ride the provisions of Income Tax Act.

• The said claim cannot be rejected on the ground that the same is not made in the return filed under Section 139 (1) and on the ground that no revised return is filed under Section 139(5) of the Act.

• Held in favour of Assessee.