Landmark Cases on International Taxation and DTAA

Gains from the indirect transfer of shares in a foreign company holding Indian shares are not taxable in India under the relevant tax treaty, which is considered a self-contained code to be interpreted plainly. Creating corporate structures or special purpose vehicles for investment to secure tax benefits is a legitimate business activity.

The phrase 'may be taxed' in a Double Taxation Avoidance Agreement (DTAA) signifies a prohibition, preventing Indian tax authorities from taxing income that a foreign country is permitted to tax under the DTAA. This interpretation means the Indian government loses its taxing power over such income.

A 'business connection' for a non-resident requires continuity of activity or operations and a real, intimate relation between the non-resident's business outside India and its activities in India, rather than merely isolated or stray transactions.

Payments for services are not taxable as fees for technical services (FTS) under a Double Taxation Avoidance Agreement (DTAA) if the services do not 'make available' any technical knowledge, know-how, or expertise to the recipient in India.

Income is chargeable to tax in India only to the extent it is reasonably attributable to operations carried out in India, especially when the amounts paid to associated enterprises are at arm's length.

The Karnataka High Court considered income from the transfer of carbon credits in CIT v. Subhash Kabil Power Corporation Ltd., referencing prior decisions and the subsequent enactment of Section 115BBG.

The Delhi Tribunal, in citing Boston Consulting Group, examines the taxability of fees for services, particularly concerning whether such fees constitute 'fees for technical services' under Indian domestic law or are covered by a tax treaty. The decision likely clarifies the application of treaty provisions over domestic law for certain service fees when determining the taxability of a foreign enterprise in India.

Export commission earned by a foreign commission agent is not taxable in India and is not in the nature of technical or managerial services, even if the Assessing Officer tries to invoke definitions of technical services.

An agent is considered independent for the purposes of Article 5(5) of the India-Mauritius treaty if the agent works for more than one principal, regardless of whether the principal has only one agent in India. The focus is on the agent's independence, not the principal's exclusive use of an agent.

The applicability of a tax treaty can determine the levy of surcharge on income. When a tax treaty is decided in favour of the assessee, related grounds of appeal concerning surcharge may not require separate adjudication.

The 'use or right to use' of an asset, which is a condition for royalty income, is satisfied when possession and control are given to the hirer for their beneficial use, even if the owner retains ultimate ownership.

Payments made for interconnect usage charges to foreign telecom operators are not considered 'royalty' under Section 9(1)(vi) of the Income-tax Act, 1961, nor are they subject to tax withholding under Section 195 of the Act.

The Supreme Court decision in CBDT v. Oberoi Hotels India (P.) Ltd. is not applicable to cases concerning the denial of approval under Section 80-O of the Act when services were provided to a non-resident, as the facts and context of that decision are different.

A dependent agent permanent establishment (DAPE) is considered tax neutral, meaning its existence does not inherently lead to taxability for the assessee.

Royalty income does not arise if the payer merely receives a service without control or possession of the equipment used to provide that service. The right to use equipment implies the payee has control and can employ the equipment for their own purposes.

If the income attributable to a Permanent Establishment (PE) in India is less than the remuneration paid to a dependent agent, the assessment is extinguished and no further computation of income is required.

Consideration received for the distribution of television channels does not qualify as Royalty under tax treaties.

Fees paid for technical services can be taxed as business income if there is no material to show that the payment is unrelated to the assessee's business.

The requirement to file Form 67 by the due date for claiming foreign tax credit is directory, not mandatory, if filed before the completion of assessment proceedings.

Managerial services require both planning and execution; mere execution of directions from another party does not qualify as managerial services.

Profits of non-residents from occasional shipping business are subject to a special levy and recovery of tax under Section 172 of the Income Tax Act. A time charter party is considered a letting of the ship when control over its working and navigation is transferred.

Fees for technical services (FTS) under Section 9(1)(vii) are not taxable if they are not 'technical' in nature or rendered in India. Services are not necessarily FTS if they are managerial and provided to an associated enterprise.

Participation in an international airline technical pool, involving reciprocal rendering and availing of services, can be considered a basis for tax liability under a Double Taxation Avoidance Agreement (DTAA).

A foreign company engaged in the reinsurance business is not considered to have a fixed permanent establishment or an agency permanent establishment in India through its Indian subsidiary, provided specific conditions under Article 5 of the relevant Double Taxation Avoidance Agreement are not met.

The intention of the parties is a crucial element in determining the situs where property passes to the buyer, which in turn is relevant for taxation.

Payment of sales commission to a non-resident who operates outside India does not attract tax if the payment is remitted abroad directly. Merely making an entry in the assessee's books does not imply receipt of payment in India, thus disallowance under Section 40(a)(i) is not warranted.

Commission paid to foreign agents for procurement of export orders or for collecting payments on behalf of the assessee cannot be treated as technical or managerial services rendered by non-residents.

The Delhi High Court's decision in Perfetti Van Melle Holding B.V. v. Authority of Advance Ruling (2014) 52 taxmann.com 161 (Delhi) overruled a prior AAR ruling concerning the 'make available' clause in tax treaties. This High Court decision is cited for its interpretation of treaty provisions, particularly regarding the scope of services considered taxable.

Payment for transponder facility does not constitute royalty if it is not for a secret process and does not make technical knowledge available under a DTAA.

Double Taxation Avoidance Agreements (DTAA) override the provisions of the Income Tax Act to the extent they are more beneficial to a taxpayer, as per Section 90(2) of the Act.

For royalty payments to be taxable under Article 12.3(a) of the Indo-US DTAA, both the formula and the process must be secret, not just one or the other.

A Double Taxation Avoidance Agreement (DTAA) allocating taxation rights to one country for income from immovable property situated within its territory implicitly excludes the other country from taxing the same income, thereby upholding the object of avoiding double taxation.

Dividend income derived by an Indian resident from a foreign company is not liable to be taxed in India if the applicable Double Taxation Avoidance Agreement (DTAA) provides for such exemption.

Payments for advice on management, financial, or legal services, offered on a factual basis without transferring technical know-how, are not taxable in India as fees for technical services.

Income from computer software embedded in hardware is not taxable in India, and thus, no tax is liable to be deducted at source under Section 195 of the Act. The real nature of a transaction should be assessed by reading the agreement as a whole.

For income to be characterized as 'fees for included services', the Revenue must prove that the assessee provided technical or consultancy services that involved making available technical knowledge, experience, skill, know-how, or processes. Access to a database alone does not meet this 'make available' condition.

Surcharge and education cess levied on income taxable at special rates are to be deleted, as the tax treaty provisions have been decided in favour of the assessee. The case is authority for the proposition that such levies can be challenged and deleted based on treaty benefits.

State tax paid in a foreign country is not allowable as a deduction when computing total world income. Foreign tax credit can be claimed only as per the prescribed procedure, not as an expenditure.

A jurisdictional ITAT ruling in favour of the taxpayer, later upheld by the Karnataka High Court, is considered persuasive in similar cases, including those referred to a Special Bench of the ITAT.

Income is received for tax purposes at the place where the recipient first controls it. For non-resident reinsurers, this control over insurance premiums is often gained when apportioned by Indian insurers under regulations.

A CBDT notification issued under section 90(3) of the Income-tax Act is clarificatory in nature and effective from April 1, 2004, the date section 90(3) was introduced.

Fees for technical services are taxable only when the recipient can independently provide the same services without the service provider's assistance, after the services are rendered. Managerial or consultancy services that do not involve or transmit technology are not taxable as fees for technical services.

The employer-employee relationship for determining the nature of services during a secondment period is significant. Previous employment with another entity is irrelevant for establishing the employer-employee relationship during the secondment.

A High Court decision is binding on lower authorities. The issue of whether supply of drawings and designs, linked to plant and equipment sales, constitutes 'Business Profits' rather than 'Fees for Technical Services' under Section 9(1)(vii) and DTAA provisions should be considered in light of such precedent.

The 'make available' clause in a copyright licence agreement may not result in royalty income being deemed to accrue or arise in India if the copyright is used outside India. This is subject to the applicability of Double Taxation Avoidance Agreements (DTAAs).

Payments for roaming services are considered 'royalty' when they involve the transfer of rights to use a 'process' due to highly technical compliance and sharing of technical information for network access and monitoring.

Performing the job of grading diamonds in a laboratory and issuing a grading certificate does not constitute the transfer of technical skill, knowledge, or commercial experience to the customer. Such activities do not amount to the provision of technical services under Section 9(1)(vi) or Article 12 of a DTAA.

Receipts in the nature of Fees for Technical Services (FTS) are taxable as FTS under section 44DA of the Income Tax Act, especially when the assessee has a Permanent Establishment (PE) in India. The income is determined on a gross basis at a specified rate, such as 25%.

A Computer Reservation System (CRS) installed at the premises of Indian subscribers can constitute a Permanent Establishment (PE) in India, and a portion of income from Indian operations may be taxable in India, potentially exhausted by commission paid to Indian distributors.

A notification issued under section 90(3) may supersede a Double Taxation Avoidance Agreement (DTAA) between India and another country, depending on its effective date. The taxability of income from immovable property under a DTAA, read with a relevant notification, is a key issue.