Landmark Cases on International Taxation and DTAA

Goodwill is considered an 'asset' under Explanation 3 to Section 2(22)(e) and thus falls under the category of 'any other business or commercial right of similar nature'.

The time limit for filing Form 67 to claim foreign tax credit is directory, not mandatory. If no negative consequences are contemplated for non-adherence, the provision is considered directory.

Payments for services rendered by technically qualified persons are not necessarily 'fees for technical services' under Explanation 2 to Section 9(1)(vii) if the services do not make available technical knowledge, plans, or designs to the user.

Payments for access to databases containing collated information from journals and articles are not treated as royalty payments. This is because such access does not involve the use or right to use copyrighted material in the sense contemplated by royalty provisions.

Section 51 of the SEZ Act, 2005, and its definitions of 'service' override the term 'service' as it accrues in Section 10AA of the Income Tax Act, 1961, especially when read in conjunction with relevant government instructions.

The OECD Commentary and US technical explanation cannot be referred to when considering the scope of Article 8, paragraph 2 of the India-USA Tax Treaty.

An Indian subsidiary created as a legal facade for taxation purposes, not genuinely engaged in onshore contracts, does not make income earned in India taxable.

When calculating the number of days an individual stays in India to determine their residency status, the date of arrival in India should be excluded. This principle is based on the interpretation of 'from' and 'to' in date calculations and is supported by Section 9 of the General Clauses Act.

Tax authorities must 'look at' a contract, examining the parties' intention based on its express terms, rather than dissecting it or giving it an artificial construction.

Income earned by an Indian company from its permanent establishment in Oman is not taxable in India if the India-Oman Double Taxation Avoidance Agreement (DTAA) permits taxation only in Oman, even if the DTAA uses the expression "may be taxed".

Payments for interconnect usage charges are not taxable as 'royalty' if they do not involve human intervention and are fully automatic. Such charges are not to be termed as technical services.

Taxability of payments under a Double Taxation Avoidance Agreement (DTAA) depends on whether the term 'paid' is used, indicating taxation on a payment basis rather than on an accrual basis. If the DTAA specifies 'paid', tax liability arises only upon actual receipt of the sum.

The definition of royalty under the Income Tax Act is wider than the definition of royalty under a Double Taxation Avoidance Agreement (DTAA).

A case is factually distinguishable if the 'made available' specifications and procedures enabled the assessee to render services independently to its customers.

Foreign commission paid to non-residents is not taxable in India, thus no TDS liability arises on such payments.

The amendment of the Income Tax Act cannot unilaterally alter the definition of Royalty under a Double Taxation Avoidance Agreement (DTAA) if the treaty itself has not been amended.

The case is authority for the proposition that where a tax treaty provides for a more beneficial treatment than the Income Tax Act, the treaty provisions will prevail, provided certain conditions under section 90(2) are met.

Section 44BBB of the Act cannot be applied to income from offshore supplies if the supplies were made outside India without the involvement of a Permanent Establishment in India. Treaty provisions may also preclude such taxation.

The date of arrival in India should be excluded when calculating the number of days an assessee has stayed in India for the purpose of determining residency under Section 6(1) of the Income Tax Act.

A permanent establishment (PE) exists in India if an enterprise has a fixed place of business and carries on its business through that place, fulfilling both the location and functional criteria as outlined in OECD principles.

When income arises from services rendered in India, it is taxable in India, irrespective of the place of performance, if such services are rendered in connection with the business or profession carried on in India. The enduring benefit test, though relevant, is not the sole determinant of whether payments for services constitute business income.

Interest paid by an Indian branch to its Head Office is taxable in India as income accruing or arising in India, even if the branch is a Permanent Establishment (PE), especially after the insertion of an explanation to Section 9(1)(v) of the Income Tax Act.

Payments received from Indian customers cannot be taxed in India under section 9(1)(vi) of the Act if they are not characterized as royalty under the relevant Double Taxation Avoidance Agreement (DTAA). Amendments to the Act cannot be incorporated when construing the scope of 'royalty' in a DTAA.

Payments for sponsorship rights, such as title sponsorship or being an "Official Partner" of an event, are not considered royalty income for the use of trademarks or brand names under Section 9(1)(vi). Consequently, withholding tax obligations under Section 195 may not apply to such payments.

Income paid or credited to an employee's account in India is taxable in India, even if the employment involved foreign assignments or service providers.

Payments for the use or right to use computer software are considered royalty income if the amendment to Section 9(1)(vi) by Explanation 4 of the Finance Act 2012, which applies retrospectively, is read into the Double Taxation Avoidance Agreement (DTAA).

Payments for the acquisition of a copyrighted article, such as software, do not constitute royalty under the Income-tax Act or Double Taxation Avoidance Agreements. The distinction between a copyright right and a copyrighted article is significant, with the former being taxable as royalty and the latter not.

Payments for computer software do not constitute royalty under Section 9(1)(vi) or Article 12 of a DTAA if the licensee cannot commercially exploit the licensed product, despite restrictions on intellectual property.

Where an assessee transfers funds from an NRE account abroad to an NRE account in India through banking channels, the onus to explain the source of funds under Section 69 is discharged, making such remittances not taxable under Section 5(2)(b).

The transfer of distribution rights, which includes the right to broadcast and telecast, constitutes a transfer of copyright. This income derived from such rights, including commission from advertisements, is taxable.

The Tribunal's decision in Allianz SE v. ADIT (2012) 51 SOT 399 (Pune) was considered and, in some instances, relied upon in subsequent cases regarding the classification of payments as 'business profits' rather than 'royalty'. However, it was also noted that this decision was not always followed, with other courts distinguishing it or holding payments as royalty.

A permanent establishment (PE) is constituted if a non-resident enterprise's dependent agent habitually exercises authority to conclude contracts in the name of the enterprise in India, even if the contracts are not signed in India.

Intra-group services, which are not in the nature of shareholder or stewardship activities, are to be treated as such based on supporting email correspondence and OECD Guidelines, and CIT(A)'s order on this issue is upheld.

Where e-products or online databases are provided via subscription, it does not constitute a transfer of copyright, therefore payments received are not taxable as royalty.

Even if a Permanent Establishment (PE) exists in India, no further profit can be attributed to a foreign enterprise once the arm's length principle has been satisfied.

For fees for technical services to be taxable in India under section 9(1)(vii), it must be demonstrated that technology, know-how, or services were made available to the Indian assessee.

Pre-sales activities, such as procuring orders, identifying buyers, negotiating prices, and requesting orders be placed with the foreign headquarters, are not auxiliary in nature and can lead to the establishment of a permanent establishment (PE) in India.

Profits derived from operating aircraft in international traffic are covered under Article 8(1) of the Tax Treaty, and income from ancillary services like baggage screening and technical support provided to other airlines at an international airport is not connected to such operations for treaty purposes.

Fees for computer software and technical services are taxable as fees for technical services under the Income Tax Act and are not royalties, unless the software is embedded with an enduring benefit and is integral to the business.

Receipts for offshore designing and engineering services are not taxable in India if there is no permanent establishment (PE) in India. A payer withholding tax does not automatically make the receipts taxable in India.

A circular issued by the CBDT is binding on the Assessing Officer but not on the assessee, Tribunal, or other appellate authorities. Such a circular cannot override the Act or a judicial decision.

A company is considered a resident of India only when its control and management are "wholly" situated in India. If any part of the control and management is located outside India, the company cannot be deemed a resident.

Where an assessee claims exemption for capital gains under a DTAA, capital losses are also exempt and can be segregated from capital gains for the purpose of claiming benefits under the DTAA or the Act, whichever is more beneficial. Assessees are justified in carrying forward brought forward losses when claiming DTAA exemptions on capital gains.

Income earned by non-residents for services rendered outside India is not deemed to accrue or arise in India. Commission earned by a foreign agent for services rendered to an Indian exporter outside India is not taxable in India, and therefore, no TDS is required.

Services are not considered 'made available' if they only familiarize employees with operations and business models, as the service recipient must be enabled to apply the technology or knowledge themselves.

A treaty provision, even if not explicitly mentioned in Section 90(4) of the Income Tax Act, cannot be construed as a limitation on the treaty's superiority over domestic law; it can only be applied in a manner beneficial to the assessee.

The application of Article 15 versus Articles 5 and 7 of the India-UK DTAA depends on whether professional services are rendered by an individual or an enterprise, respectively. Article 15 applies to services rendered by an individual, while Articles 5 and 7 apply to services rendered by an enterprise.

Commission paid to a non-resident agent outside India for services rendered outside India is not chargeable to tax in India as the conditions specified in section 9(1)(i) of the Income Tax Act, 1961, are not attracted.

Payments for online advertisement space are not royalty income and are not taxable in India if the non-resident has no Permanent Establishment (PE) in India.