Landmark Cases on International Taxation and DTAA

Taxability of commission under a Double Taxation Avoidance Agreement (DTAA) is a prerequisite for casting liability on an assessee to deduct Tax Deducted at Source (TDS) under section 195.

The 'make available' clause in a tax treaty is not considered res integra and has been interpreted to mean that technical services are only taxable as fees for technical services (FTS) if the technology itself is transmitted, not merely managerial or consultancy services that do not transmit technology.

Software maintenance fees, consultancy services fees, and training services fees cannot be classified as "Fees for Technical services" under clause 5 of Article 12 of a tax treaty. Such charges are considered incidental to software maintenance fees.

The principles for determining the profits attributable to a Permanent Establishment (PE) are not the same as those for the head office (GE), and the 'arm's length' fiction does not extend to computing the head office's profit.

Fees paid to a non-resident for technical or consultancy services are not considered Fees for Technical Services (FTS) if the services do not involve the transfer of technical knowledge, skill, or know-how to the assessee.

Income derived from technical handling services provided by an airline operating aircraft is covered under Article 8(2) of the tax treaty, when read in conjunction with Articles 8(1) and 8(4), and is not necessarily excluded from treaty benefits.

Income from ground or engineering services provided to other airlines is not considered part of transportation of goods and persons under Article 8 of a Double Taxation Avoidance Agreement (DTAA). Such income is not covered by the treaty's provisions related to international transportation.

Payments made for bandwidth and last mile charges do not constitute fees for technical services under Section 9(1)(vii) or Section 194J of the Income Tax Act.

Payments made for training services, specifically for teaching English to engineers or for explaining product features and usage, do not constitute fees for technical services (FTS) under the Income Tax Act.

Interest paid by an Indian branch of a bank to its head office or overseas branches is chargeable to tax in India, even when tax treaty provisions and the assessee's contentions are considered.

A non-domestic company's Permanent Establishment (PE) in India cannot be taxed at a rate higher than that applicable to a domestic company carrying out the same activities, even considering retrospective amendments to tax treaties.

Payments made by an assessee to a non-resident for training its personnel or customers to explain product features and impart usage instructions do not constitute Fees for Technical Services (FTS).

The case is cited to support the proposition that certain types of payments for the use of copyrighted articles or software may fall under the ambit of royalty income taxable in India under Section 9(1)(vi) of the Income Tax Act, 1961, and the 'make available' clause is relevant in determining the nature of such income in international taxation.

Fees for technical services are taxable in India under Section 9(1)(vii) of the Income Tax Act only if the services made available technical knowledge, expertise, skill, know-how, or processes to the recipient in India. Off-shore services that do not make such technical knowledge available to the Indian entity do not constitute taxable fees for technical services.

Payments for services do not constitute fees for technical or managerial services or royalties under Article 12(3) of the India-Australia DTAA, nor do they fall under 'make available' clauses, if the services do not transfer technical knowledge, skills, or experience to the recipient. Such payments are generally considered business support services and not taxable as fees for technical services.

Furnishing Form 67 before the due date for filing the return of income under section 139(1) is mandatory for claiming Foreign Tax Credit (FTC).

Reimbursements or cost allocations without any mark-up or profit element are not taxable as income. Receipts for internet bandwidth charges may not be treated as royalty income if no equipment is provided.

An assessee's income earned from providing access to a database does not constitute income taxable in India if the assessee does not share its experience, technique, or methodology related to evolving the database.

A business connection in India is established if there is a real and intimate relation between the non-resident's trading activities outside India and the activities in India, where such relation contributes to the earning of income and shows an element of continuity.

Income is taxable in India if it accrues in India, irrespective of whether it contains a profit element. Taxability of royalty or fees for technical services (FTS) is determined based on their arising in India and payment to a resident of a contracting state under a DTAA.

The case is cited as authority on issues related to international taxation, specifically concerning airlines and their tax liabilities.

The case is cited for legal propositions, but the specific holding regarding Twinstar Holdings Ltd. v. DCIT is not explicitly detailed in the provided text. The cited passage focuses on the arguments presented by the revenue.

Income from services is not to be treated as Fees for Technical Services (FTS) if it does not fall within the definition of FTS under relevant Double Taxation Avoidance Agreements (DTAAs), and thus, deduction under section 40(a)(ia) is not warranted. If an applicant's case falls under a more beneficial provision, it is futile to interpret it under another provision of a treaty or the Income-tax Act.

Routine repairs, including assembly, disassembly, inspection, and evaluation, are distinct from technical services and do not attract the provisions of section 9(1)(vii) of the Income Tax Act. Payments for such routine repairs may not constitute fees for technical services (FTS).

Income received as sales commission does not qualify as Fees for Technical Services (FTS) under the Act if it is not in the nature of managerial or technical services. Payments of brokerage to non-resident brokers for non-technical services constitute business income of the payee and are not taxable in India. Such payments do not attract Section 9 read with Section 195.

If part of services are rendered in India, it establishes territorial nexus, making the entire services taxable in India, not just the portion performed locally.

Commission earned by a non-resident foreign payee for services rendered outside India in connection with procuring export orders is not deemed to be income arising in India.

For fees to be taxable as 'fees for technical services' under section 9(1)(vii), both the rendering and utilisation of services must occur in India. This twin condition, as interpreted by the Supreme Court in Ishikawajma Harima, remains applicable.

Income arising from international air transportation is not taxable in India if it is covered by Article 8(4) of the relevant Tax Treaty.

Payments for the use of or the right to use copyright constitute 'royalty' under Section 9(1)(vi) and Article 12(3) of the India-USA DTAA.

Commission paid to a non-resident agent for services rendered and utilized outside India, with no permanent establishment or business connection in India, is not taxable in India, and therefore, cannot be disallowed under section 40(a)(i) even after the withdrawal of CBDT Circular No. 23 of 1969.

The expenditure incurred in running an office in India should be judged based on the economic level of the country to which the office belongs, not from the perspective of the assessing country, unless it is camouflaged to cover trading activities as liaison activities.

This court's prior decision in Commissioner of Income Tax, International Taxation v. ZTE Corporation dictates the outcome of subsequent appeals concerning similar issues.

A taxpayer does not have a Fixed Place Permanent Establishment (PE) in India if its operations and activities are undertaken outside India, meaning income earned from such activities cannot be taxed in India under Article 7 of the India-France Double Taxation Avoidance Agreement (DTAA). The onus is on the Department to prove the existence of a PE.

Income of a non-resident is deemed to accrue or arise in India if it falls under clauses (v), (vi), or (vii) of section 9(1), irrespective of whether the non-resident has a place of business or connection in India or has rendered services in India, due to the retrospective amendment of Section 9 by the Finance Act, 2010.

Provisions of a Double Taxation Avoidance Agreement (DTAA) override Section 206AA of the Income Tax Act, 1961, where the DTAA provides for a more favourable tax rate, particularly concerning non-residents without a PAN.

The revenue contends that roaming services involve the transfer of rights to use a process, making payments for such services taxable under Section 9(1)(vii) of the Income Tax Act.

The transfer of title of goods, particularly when stated as FOB (Free On Board), is a significant factor in determining the transfer of ownership and associated risks and responsibilities between parties in international transactions.

Reimbursement of costs for administrative services is not considered technical, managerial, or consultancy in nature and is not taxable in India if no technical knowledge is made available.

When multiple provisions of Article 5 of a Double Taxation Avoidance Agreement (DTAA) might apply to determine a Permanent Establishment (PE), the specific provision concerning a 'Service PE' (Article 5(3)) related to construction, installation, or assembly projects exceeding 183 days takes precedence.

Interest on an income-tax refund is taxable as business income under Article 7 of the India-UK Double Taxation Avoidance Treaty (DTAA) if the assessee has a permanent establishment (PE) in India. This is because such interest is effectively connected with the PE.

A remotely operated vessel used for inspecting and repairing submarine pipelines does not constitute a permanent establishment (PE) because a moving vessel is not a fixed place of business. The primary test for a fixed place of business is whether the premises are 'at the disposal' of the enterprise, not merely accessible.

The "make available" condition is satisfied when services are rendered to a non-resident, allowing for taxation of the non-resident's income in India.

When interpreting expressions or clauses in tax treaties that are taken from the OECD Model Convention, the normal presumption is that they carry the meaning understood in international tax language developed by organizations like the OECD, unless a contrary intention is clearly expressed.

Surcharge and education cess are chargeable on income-tax leviable under a Double Taxation Avoidance Agreement (DTAA) in addition to the income-tax, as per the rates specified in the DTAA. This applies even when assessing income under a DTAA.

Payments made for the use or resale of computer software are not royalty payments for the use of copyright, and therefore, no TDS is required under Section 195. Amendments to the definition of royalty under the Act do not affect the taxability of payments to non-residents governed by a DTAA.

The High Court's decision in M/s. Wipro Ltd. v. DCIT is cited to support the exclusion of telecommunication and insurance charges from export turnover for the purpose of calculating deductions under Section 10AA of the Income Tax Act.

Payments that are purely reimbursements of expenses without any profit element are not chargeable to tax.

For fees for technical services to be taxable in India, the services must be coupled with a transfer of expertise, and mere furnishing of services is insufficient. This applies even if the services are rendered outside India, especially if the income is classified as business income under a DTAA.

Subscription fees for accessing a database are not royalty income under Section 9(1)(vi) if the customer does not acquire copyright in the data but merely a right to access it.