Landmark Cases on International Taxation and DTAA

Receipts from offshore designing and other services are not taxable in India if there is no permanent establishment (PE) in India. The continuous rendering of services to customers in India does not automatically imply the existence of a PE.

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.

Reimbursement to sister concerns for payment of salaries to employees deputed to the assessee on an actual basis is not liable to tax in India and therefore not subject to TDS.

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.

A fiscally transparent entity, even if not specifically envisaged by the treaty at the time of its execution, can avail Double Taxation Avoidance Agreement (DTAA) benefits if its entire income is taxed in its country of residence.

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.

Income from the sale of online advertisement space, such as through the AdWords program, is taxable as royalty under the Income Tax Act and relevant Double Taxation Avoidance Agreements (DTAAs) if it involves the use of intellectual property rights.

Commissions charged by commission agents outside India are not taxable in India and cannot be treated as fees for technical services (FTS) under the Act.

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).

Income deemed to accrue or arise in India under Section 9(1)(vi) of the Income-tax Act, 1961, can include royalties from copyrighted articles, even if the consideration is for the 'right to use' such articles and the payment is for technical services.

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.

A non-resident cannot be taxed in India if its income is derived from the provision of access to a database without sharing proprietary technology, as this does not constitute a dependent agent permanent establishment or create a taxable presence in India.

The case concerns the taxability of payments for computer software and whether they constitute fees for technical services or royalties, and their relation to a permanent establishment under a tax treaty.

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.

Profits derived directly by an assessee from the operation of aircraft in international traffic are taxable in India.

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 non-resident foreign payees for services rendered outside India in connection with procuring export orders is not income deemed to arise 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 from international air transport is not taxable in India if it is covered under Article 8(4) of the applicable 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.

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.

Transfer of title is determined by the intention of contracting parties as evidenced by the terms of the agreement, such as FOB shipping terms, and not solely by the allocation of risk and responsibility.

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.