Landmark Cases on International Taxation and DTAA

The case establishes principles for attributing income to a business connection or a Permanent Establishment (PE), particularly concerning the actions of an agent or dependent agent.

Managerial services under Section 9(2) require the adoption and carrying out of an organization's overall policies, not merely the procurement of machinery.

Income received as sales commission does not fall under the definition of Fees for Technical Services (FTS) if it is not in the nature of managerial, technical, or consultancy services.

The exclusion provided under Explanation (ix) to Section 153B of the Income Tax Act applies only when a reference for exchange of information has been made as per Sections 90/90A of the Act. If such a request is not made in terms of a Double Taxation Avoidance Agreement (DTAA), the assessment may be barred by limitation.

A distributor is not a dependent agent permanent establishment (DAPE) of a foreign company if the distribution agreement, invoices, and DTAA provisions do not establish the distributor's authority to conclude contracts on behalf of the foreign company. Distribution fees paid are therefore not liable for TDS under section 195.

Where an assessee claims treaty benefits under Article 13(4) of the India-Mauritius DTAA, exempting capital gains from Indian taxation, brought forward short-term and long-term capital losses cannot be set off against such exempt gains, nor can they be carried forward to subsequent years.

Receipts from slot chartering are considered shipping income eligible for beneficial provisions of a tax treaty, as slot hire agreements are directly or indirectly connected and an integral part of the enterprise's business of operating ships.

Where an issue regarding the levy of surcharge and a tax treaty has been decided in favour of the assessee, consequential grounds of appeal do not require separate adjudication.

An assessee not engaged in gainful employment outside India is not considered resident in India if their physical presence abroad is not for specific purposes like tourism, medical treatment, or studies.

Payments for technical or consultancy services are considered 'fees for included services' and are taxable in India under the DTAA if they involve the transfer of technical knowledge, skill, or process, or the development or transfer of technical plans or designs. However, payments for general management, financial, legal, or public relations services do not qualify.

Reliance on Gracemac v. DIT (42 SOT 550) is incorrect if that decision has already been held to be not good law by the ITAT.

Commission charged by commission agents outside India is not taxable in India.

The dictionary meaning of "technical" includes "professional" services, but not all professional services qualify as technical services; professionalism and expertise are essential.

The Non-Discrimination clause in tax treaties, such as the India-US and India-Japan treaties, prevents disallowance of expenses paid to associated enterprises where the clause is pari materia, even if the Assessing Officer initially disallowed a portion.

If a tax treaty does not have a specific clause for fees for technical services (FTS), then such income should be treated as business income. This business income can be taxed in India only if there is a permanent establishment (PE) in India and the income is attributable to the activities of that PE.

Commission paid to non-resident agency companies for services that do not involve making technical or managerial expertise available is considered business profit and not fees for technical services. Such commission is not chargeable to tax in India if the services are rendered abroad.

The Kolkata ITAT determined that the Supreme Court rulings in Tata Tea and Godrej & Boyce do not present contradictory principles regarding Section 115-O and Section 14A, holding that dividend income, though taxed under Section 115-O, is not part of the shareholder's total income under Section 10(33), but this does not absolve the taxpayer from disallowances under Section 14A.

Payments made to a head office or overseas branches are not taxable if they are considered payments to self. This principle applies to recurring issues regarding the taxability of such payments.

Payments for market study updation, including supply-demand analysis and price forecasts, are not considered fees for technical services (FTS) under a DTAA if they do not involve the transfer of technology. This means such payments may not be taxable in India, and no TDS is deductible.

Payment for the transfer of technical know-how, particularly when it involves guidance, information, or consultancy for manufacturing and selling a product, can be considered royalty if it grants a right to use rather than an outright sale of technology. Restrictions on assignment and termination clauses in the agreement are relevant factors in this determination.

Payments for training services are not taxable as fees for technical services (FTS) if the training merely provides inputs for employees to perform their work efficiently and does not make technical knowledge available to the recipient.

Consultancy services are not considered technical services if they do not make available technical knowledge, experience, or skill that the recipient can use independently. This applies even under Double Taxation Avoidance Agreements (DTAAs) that restrict such services to those making available technical knowledge.

Receipts from the supply of software that are integrally connected to the supply of hardware cannot be taxed as royalty under the Income Tax Act.

Income received as subscription fees is not royalty if the provider does not render technical services or make technical knowledge available. The department must satisfy the 'twin test' of rendering services and making technical knowledge available simultaneously.

Payments made to a non-resident for services not constituting royalty or fees for technical services are not taxable in India, and therefore, tax is not deductible at source on such payments.

The right to reproduce computer software is distinct from the right to use it; reproduction constitutes parting with copyright, while non-exclusive use does not.

Royalty does not include payments for broadcasting rights where the licensee does not possess a modification right and only has reproduction rights for broadcasting. This applies when there is no specific definition of copyright in the relevant Act.

Interest paid by Indian branches of a bank to its head office or overseas branches is chargeable to tax in India, as supported by the tax treaty between India and the UK.

Foreign taxes not eligible for double taxation relief may be allowed as a deduction under Section 37(1) of the Income Tax Act, 1961, if the tax credit has not been granted for those taxes.

Payments for seconded employees are not taxable as fees for technical services if they are merely reimbursement of actual salary costs.

The admissibility of information received from foreign authorities, such as the French authorities, can be a key issue in assessment proceedings.

The concept of revenue neutrality cannot be applied if related entities conduct their businesses independently and have no access to each other.

Export commission paid to a non-resident is not taxable in India as royalty or fees for technical services if the non-resident did not impart technical/commercial knowledge or skill or render managerial/technical/consultancy services, and the services were rendered outside India.

Profits from the offshore supply of equipment do not accrue in India. A permanent establishment (PE) for installation and commissioning arises only after the supply of equipment.

A dependent agent can create a permanent establishment (PE) in India, and profits attributable to that PE can be taxed in India.

Decisions that did not consider Section 2(9) of the Insurance Act, 1938, prior to its 2014 amendment, had no occasion to decide the applicability of that section to reinsurance premiums paid to non-residents.

Income from fees for technical services earned by non-resident entities with a Permanent Establishment (PE) in India, where such income is effectively connected with the PE and the entity is engaged in the oil and gas sector, is taxable only under Section 44BB of the Income Tax Act.

For a place to constitute a Permanent Establishment (PE), it must be at the 'disposal' of the enterprise, and the business must be carried on through that place.

Income from business deemed to accrue or arise in India under Section 9(1)(i) Explanation 1 must be limited to the part reasonably attributable to operations carried out within India. Amounts received outside India for activities conducted entirely outside India are not taxable in India.

Income directly derived by an assessee from the operation of aircraft in international traffic is not disputed by the Assessing Officer.

Payments for technical services are taxable as fees for technical services (FTS) if the services are rendered for the business in India and are technical in nature, made available to the assessee whenever requisitioned. Tax treaties with a 'make available' clause may exempt payments for software AMC if no technical knowledge, skill, or know-how is made available.

Consideration for the use or right to use industrial, commercial, or scientific equipment is included in the definition of royalty under Double Taxation Avoidance Agreements (DTAAs).

The term 'effectively connected' in Article 12(5) of the India-Japan DTAA means 'really connected', focusing on the substance of the connection rather than its form. This interpretation has been affirmed by the Delhi High Court and the Supreme Court.

Income earned by an Indian company from its branch offices outside India is taxable in India, even if services were rendered outside India, when it falls under Section 9 of the Income-tax Act, 1961, read with the relevant Double Taxation Avoidance Agreement (DTAA).

The case is distinguished when the assessee has explained the contents of a base note and clarified their residency status and taxability in India, unlike in the cited case where the assessee, a non-resident, failed to explain the contents of a base note related to a foreign bank deposit.

Distribution or subscription revenue received by a non-resident is not taxable in India if there is no Permanent Establishment (PE) in India, as such income is considered business income.

This case holds that the applicability of a Double Taxation Avoidance Agreement (DTAA) to a transaction should be decided in accordance with the provisions of the DTAA itself, even if the domestic law's meaning of a term has been amended.

Reimbursement of salary and related costs for seconded employees does not constitute Fees for Technical Services (FTS) if the services are not 'made available' to the Indian company.

The High Court determines that the issue before it relates to international taxation.