Landmark Cases on International Taxation and DTAA

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.

Payments for subscription to business information reports or databases do not constitute royalty for the use of or right to use a copyright, especially when the material is copyrighted but the copyright itself is not used. Therefore, withholding tax under Section 195 is not exigible on such payments.

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 Permanent Establishment (PE) may exist where a Computer Reservation System (CRS) is partially located at the subscriber's premises, especially if the taxpayer placed the computers or established the connectivity.

A notification issued by the CBDT under Section 90(3) of the Income-tax Act does not have a superseding effect over a Double Taxation Avoidance Agreement (DTAA) entered into between India and another country. The taxability of income from immovable property under Article 6 of the India-UAE DTAA, read with CBDT Notification No. 91 dated 28.08.2008, is examined in this context.

For technical services to be taxed under a tax treaty's "make available" clause, not only must the services be technical, but they must also result in the technology being made available to the recipient.

A tax treaty is to be interpreted as a whole, meaning its provisions must be construed in harmony with each other, not in isolation.

Where the expenses paid to a related entity were allowed as a deduction in computing the income of the taxpayer, the income attributable to a Permanent Establishment (PE) in India, if less than the remuneration paid, should be calculated accordingly, following Article 7 of the Double Taxation Avoidance Agreement (DTAA).

Transponder fees are taxable in India as royalty income. The ITAT decision in Viacom 18 Media Pvt Ltd. (2015) 153 ITD 384 (Mum.) has been cited to support this conclusion.

The consideration received for the sale of drawings and designs is not taxable in India if it does not accrue or arise in India, particularly in the absence of a Permanent Establishment (PE) in India, even when considering Double Taxation Avoidance Agreements (DTAA).

Payments for drawings and documents separate from a supply contract are considered fees for technical services if those drawings are not linked to the supply contract.

Payment for licensing computer software is not royalty if it is for a copyrighted article and not the copyright itself, especially when the definition of royalty under a DTAA is more restrictive than under the Income Tax Act.

The Department bears the onus to prove the existence of a Permanent Establishment (PE).

Payments made to non-residents for canvassing sales orders outside India are not 'fees for technical services' and thus not taxable in India. The Madras High Court relied on earlier judgements to reach this conclusion.

Fees paid for securing export orders or for procurement of machinery are not fees for technical or managerial services under section 9(1)(vii) of the Income-tax Act.

The Special Bench decision in ACIT vs. Clough Engineering Ltd. interprets treaty provisions and the expression 'in connection with PE' for taxability. It is not applicable when income is offered under domestic provisions and not disputed.

Reimbursement of salary of expatriates does not constitute 'Fee for Technical Service' (FTS) when it clearly reflects an employer-employee relationship, distinguishing it from situations involving manpower recruitment and supply services.

Branches of a company in foreign countries such as UAE and Qatar do not attract tax liability in India when they form a Permanent Establishment (PE), provided that the relevant tax treaties are applied. This principle has been upheld by the Supreme Court.

Profits arising from the sale of sub-assemblies and intermediary services should not be attributed to a Permanent Establishment (PE) at an ad-hoc rate if the facts of the appellant's case are different from those in Rolls Royce PLC. Attributing profits to a PE requires careful consideration of the specific transactions and activities.

Interest earned from the tax department is to be assessed in accordance with the Double Taxation Avoidance Agreement (DTAA).

The principle of non-discrimination requires that residents and non-residents receive the same treatment under the Income Tax Act and Double Taxation Avoidance Agreements (DTAA).

In cases where two possible legal interpretations exist, the interpretation that favors the assessee should be adopted.

A supply contract, including hardware and software, is considered a single transaction and payments for services rendered by experts are part of the sale consideration, not separate royalty payments.

The language used in tax treaties and model conventions should be interpreted as 'international tax language,' drawing meaning from sources like the OECD Commentary, akin to contemporanea expositio.

Payments made for services that are utilized for earning income from outside India, where the customers are foreign-based companies, are not taxable in India as Fees for Technical Services, particularly when excluded by Section 9(1)(vii)(b) of the Income-tax Act.

Subscription fees paid for online access to a database, such as 'scifinder', are not considered royalty if the use does not involve the exploitation of copyright. Such payments are also not classified as fees for technical services if they do not meet the 'make available' clause requirement.

Project-specific drawings, layouts, plans, and designs are not considered fees for technical services (FTS) if the technology is not made available to the recipient for their commercial use as an owner.

The decision in CIT v. Shah Originals is distinguished where a gain arises from foreign exchange fluctuation during an export transaction, and such gains are considered for Section 10A purposes. The case was specifically rendered in the context of Section 80HHC deductions, not Section 10A.

The use of software installed in India that grants access to a taxpayer's mainframe located outside India does not constitute a Permanent Establishment (PE) in India.

A clarificatory amendment to Section 9(1)(vi) of the Income Tax Act does not change the existing law and is retrospective in nature.

Interest received by an Indian branch from its head office is not taxable as it represents profit from oneself, and expenditure incurred by the head office for the branch is not deductible from the branch's income.

Payments for software as a product are treated as purchases, not royalties for the use or right to use software. This distinction is important for determining tax implications under Double Taxation Avoidance Agreements.

Income is not taxable in India if it arises from a business carried on outside India or is earned from a source outside India. The payment to a non-resident service provider with no business activity in India is not taxable in India.

A fixed place of business (PE) is not established if the 'disposal test' for determining a permanent establishment is not met. The reliance on services, even if administrative or technical support, does not automatically create a PE if the ultimate disposal or control test is not satisfied.

The mere supply of skilled labour to work in a country does not, by itself, give rise to a Permanent Establishment (PE) for the company supplying that labour. A PE requires a more substantial connection, typically involving a fixed place of business at the disposal of the enterprise.

Royalty paid on export sales is not taxable in India if the source of the royalty is from sales outside India, even if paid by a resident.

Where services may fall into the category of consultancy services, their taxability in the context of technical, managerial, and consultancy services can be examined, especially when such services may overlap.

A copyrighted article does not fall within the purview of 'Royalty' under the wording of a tax treaty. Amendments cannot be read into the treaty to change this interpretation.

Different components of a contract cannot be read in isolation when determining tax liability.

The onus is on the revenue to prove the existence of a Permanent Establishment (PE) in India.

Even if a buyer retains the right to examine and repudiate goods after property has passed upon handover of documents (as in a c.i.f. contract), this right does not negate that the property in the goods has passed.

Payment for software is not considered a payment for copyright per se, and therefore is not covered by the scope of payment for copyright.

Income received towards sales commission does not qualify as fees for technical services (FTS) under the Act if it is not in the nature of managerial, technical, or consultancy services.

Disallowance under Section 40(a)(i) for payments to a US resident is not permissible if it imposes harsher conditions than those applicable to payments made to an Indian resident, due to the non-discrimination clause in the India-US Double Taxation Avoidance Agreement (DTAA).

Management services involve the act of managing by direction, regulation, or superintendence, essentially controlling, directing, or administering a business.

Cases cited in support of a contention, including Dy. DIT (International Taxation) v. B4U International, suggest the matter at hand involves principles of international taxation or associated litigation.