Advance Rulings

  1. S.4 : Charge of income-tax – Income derived by a trade, professional or similar association from specific services performed for its members – Non-Resident – Mutuality – Liaison office of Non-Resident non profit organisation for the benefit of members in the absence of profit motive and surplus if any was ploughed back into the organisation again to be utilised for same objects – Income cannot be asssseed as business income – Receipts from non-members only 2.05% and also isolated incident which has not affected the dominant object of the applicant – Membership fee and contribution from members is also not liable to tax in India – Once principle of mutuality is applied, the question of a permanent establishment did not arise – Receipt or income cannot be taxed applying the principle of mutuality [S.28(iii)]

    AAR held that liaison office of non-resident non profit organisation for the benefit of members in the absence of profit motive and surplus if any was ploughed back into the organisation again to be utilised for same objects therefore the income cannot be asssseed as business income. Receipts from non-members only 2.05% and also isolated incident which has not affected the dominant object of the applicant. Membership fee and contribution from members is also not liable to tax in India under the provisions of Income-tax Act or the DTAA. Once principle of mutuality is applied, the question of a permanent establishment did not arise. Where the principle of mutuality operates and the profits cannot be distributed, but only be utilised for the benefit of members and confined to the objects of the organisation, the receipts or income cannot be taxed.

    International Zinc Association In re (2018) 404 ITR 766/167 DTR 81 (AAR)

  2. S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Front-end fee payable by a customer in India, for appraisal of loan application carried out outside India, under financing arrangement with applicant is not taxable as income from ‘interest’ and said fee is also not taxable as fee for technical services (FTS) under as they do not pass ‘make available’ test –Not liable to deduct tax at source – DTAA India-France [S.195, Arts. 12, 13]

    AAR held that front-end fee payable by a customer in India, for appraisal of loan application carried out outside India, under financing arrangement with applicant is not taxable as income from ‘interest’ and said fee is also not taxable as fee for technical services (FTS) under as they do not pass ‘make available’ test.

    Societe De Promotion Et De Participation Pour La Cooperation Economique, In re (2018) 256 Taxman 129 (AAR)

  3. S.9(1)(i) : Income deemed to accrue or arise in India – Permanent establishment – Main business and revenue earning activities of assessee carried on in and from Saudi Arabia, and monitored by Saudi Arabian Ministry – Services carried on by Indian Company in nature of support services only and not constituting main business of Non-Resident – Non-Resident retaining with itself authority to finalise marketing strategies and terms of contracts directly with customers – Indian Company cannot be held to be a Permanent Establishment of Non-Resident – DTAA-India – Kingdom of Saudi Arabia [Arts. 5, 12 ]

    AAR held that main business and revenue earning activities of assessee carried on in and from Saudi Arabia, and monitored by Saudi Arabian Ministry. Services carried on by Indian Company in nature of support services only and not constituting main business of Non-Resident. Non-Resident retaining with itself authority to finalise marketing strategies and terms of contracts directly with customers. Indian Company cannot be held to be a Permanent Establishment of Non-Resident. Considering the contract the AAR held that performance of service the Indian Company could not be termed as agent of the applicant, as this was done on its own behalf as per the role assigned to it. AAR also held that the applicant had given an undertaking in the question itself that the Indian company would be compensated on arm’s length basis in accordance with the Indian transfer pricing laws and legislation.

    Saudi Arabian Oil Company, In Re (2018) 405 ITR 83 (AAR)

  4. S.9(1)(1) : Income deemed to accrue or arise in India – Permanent Establishment – Payment received by the applicant from the Indian hotel owner for provision of global reservation services (“CRS”) would be chargeable to tax in India under S.9(1)(1) read with Articles 5 and 7 of the India – Luxemburg DTAA as business income and is attributable to the applicant’s permanent establishment in India. Duty of Authority to look at all aspects of questions set forth to enable it to pronounce ruling on substance of questions posed. Giving ruling on stream of income without regard to other business operations and streams of income leaving other provisions open for regular assessment –DTAA-India – Luxembourg [Arts. 5, 7 12, R.12 ]

    AAR held that payment received by the applicant from the Indian hotel owner for provision of global reservation services (“CRS”) would be chargeable to tax in India under S.9(1)(1) read with Articles 5 and 7 of the India -Luxemburg DTAA as business income and is attributable to the applicant’s permanent establishment in India. In view of this the question whether these payments would be characterised as “royalty” or fees for technical services “becomes wholly academic and is therefore, not considered necessary to be answered. AAR also held that duty of authority to look at all aspects of questions set forth to enable it to pronounce ruling on substance of questions posed. Giving ruling on stream of income without regard to other business operations and streams of income leaving other provisions open for regular assessment.

    Frs Hotel Group (LUX) S.A.R.L., In Re 2018] 404 ITR 676 (AAR)

  5. S.28(va) : Business income – Non-Resident – Non-compete fee – Negative covenant for three years only and not permanently – Receipts is taxable as business income but not taxable in India in absence of any permanent establishment of Non-Resident in India – There was no transfer of any capital asset hence not liable to capital gains tax – DTAA – India-United Kingdom [Ss.45 2(47) Art. 7(1)]

    AAR held that the receipts arising out of a negative covenant not to carry on a business were taxable as business income under section 28(va). S.28(va) of the Act nowhere provides that the recipient of non-compete fee must already be carrying on business which he has agreed not to carry on further. The section applies to any person who has received or is entitled to receive a sum in consideration for agreeing not to carry out any activity in relation to any business and is not restricted to only that business which he was already carrying on. Whether the receiver of the non-compete fee was carrying on any business or whether he was carrying on the same business or a different business than that of the payer of the non-compete fee or the transferor of shares, etc., was totally irrelevant while considering taxability under section 28(va)(a). AAR also held that in the absence of any permanent establishment of the applicant in India, such business income would not be taxable in India by virtue of Article 7 of the DTAA. There was no transfer of any capital asset hence not liable to capital gains tax.

    HM Publishers Holdings Ltd., In Re (2018) 405 ITR 441 (AAR)

  6. S.44BB : Mineral Oils – Computation – Consideration received under contract is not fees for technical fees or royalty – Consideration received was held to be taxable as business income – DTAA – India-United Arab Emirates – Duration of operation of less than 120 days is not material. [Ss. 9(1) (vi), 9(1)(vii) Arts. 5(1), 12]

    AAR held that; consideration received under contract is not fees for technical services or royalty. Consideration received was held to be taxable as business income. Duration of operation of less than 120 days is not material. The income arising from the permanent establishment shall be subject to tax in India as business income of the applicant. That the income derived by the applicant from its permanent establishment would be computed in accordance with the provisions of S. 44BB of the Act. (AAR No. 1295 of 2012 dt. 28-3-2018)

    Seabird Exploration FzLlc, In Re (2018) 403 ITR 82/302 CTR 19 (AAR)

  7. S.195 : Deduction at source –Non-Resident – Fees for technical services – Royalty – Building platform comprising secure servers equipped with proprietary software which pulled content from customer’s web server and replicated it for faster, more reliable delivery – End-users accessing customer’s website through platform – Amount received by the assessee is not royalty – Assessee did not have any permanent establishment in India. Accordingly not liable to deduct tax at source – DTAA India -USA of [ S.9(1)(vi), 9(1)(vii), Arts. 5, 12(3), (4)]

    AAR held that the solutions provided by the applicant were neither specialised nor exclusive and did not cater to individual requirements of the customer. The solutions were offered by the applicant through its platform and they remained the same for all customers who availed of the applicant’s facility, irrespective of the business or website content. The solutions provided by the applicant without human intervention could not be treated as provision of technical services. The payments received by the applicant from the Indian company for content delivery solutions were outside the scope of “fees for technical services” within the meaning of Explanation 2 to section 9(1)(vii) of the Act. AAR also held that the payment received cannot be assessed as royalty. As the assessee did not have any permanent establishment in India . Accordingly not liable to deduct tax at source .

    Akamai Technologies Inc., In Re. (2018) 404 ITR 495 (AAR)

  8. S.245N : Advance ruling – Transaction includes also proposed transaction –Maintainability of application cannot be raised at the time of hearing of application – Duty of the authority to look into all aspects of questions posed for its consideration, proceedings on the presumption that one part of agreement has no bearing on other is held to be not tenable [Ss. 245S(1), 245R]

    AAR held that, the very purpose of setting up the Authority for Advance Rulings is to give a ruling in advance to remove uncertainty in the mind of an applicant and eliminate the possibility of dispute regarding the tax issues surrounding a proposed or intended transaction, even before the transaction or a dispute occurs. When the provisions of S.245N(a)(i) of the Income-tax Act, 1961 are read with S. 245S(1) it becomes clear that not only a “transaction” but also a “proposed transaction” on which ruling has been sought would get covered. Maintainability of application cannot be raised at the time of hearing of application. Duty of the authority to look in to all aspects of questions posed for its consideration, proceedings on the presumption that one part of agreement has no bearing on other is held to be not tenable.

    Saudi Arabian Oil Company, In Re (2018) 405 ITR 83 (AAR)

  9. S.245R : Advance rulings – Capital gains – Application for advance ruling could not be rejected merely because it involved computation of capital gains as computation of capital gains is embedded in concept of valuation and question pertained to legal admissibility of transaction and not of any valuation – DTAA-India-Mauritius [Art. 13(4)]

Department has raised the objection regarding the maintainability of the application filed by assessee taking a view that question raised involved valuation and determination of fair market value of property and hence application was barred under clause (ii) of proviso to section 245R(2). AAR held that application for advance ruling could not be rejected merely because it involved computation of capital gains as computation of capital gains is embedded in concept of valuation and question pertained to legal admissibility of transaction and not of any valuation

Worldwide Wickets In re (2018) 254 Taxman 222 (AAR)

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