“non-resident taxation”
The decision most relied on for non-resident taxation is Ishikawajima Harima Heavy Industries Ltd. v. DIT (288 ITR 408), cited in 394 judgments on BharatTax.
Leading authorities on non-resident taxation
Income from offshore supply of goods and services is not taxable in India if the entire transaction, including transfer of ownership and payments, occurs outside India.
The Supreme Court lays down principles for deducting tax at source (TDS) under Section 195 on payments to non-residents, including aspects of income deemed taxable in India and the application of Double Taxation Avoidance Agreements (DTAAs) under Section 90.
Income derived by a non-resident for services related to mineral oil operations, falling under the presumptive taxation regime of Section 44BB, cannot simultaneously be treated as fees for technical services under Section 9(1)(vii). The specific presumptive provisions override the general FTS definition, particularly when DTAA applies.
Payments received by a non-resident for advertising, publicity, and sales promotion services, where the use of trademarks and trade names is incidental, do not qualify as 'royalty' or 'fees for technical services' under Section 9(1)(vii) of the Income Tax Act or the India-USA DTAA.
Managerial services are not considered 'fees for included services' under Article 13(4) of the India-UK Double Taxation Avoidance Agreement, thus payments for such services are not taxable as FTS under the treaty.
A non-resident entity's activities in India are assessed for Permanent Establishment (PE) under Double Taxation Avoidance Agreements, considering types like fixed place, construction, and agency PE, and the applicability of presumptive taxation under sections such as 44BBB.
The case establishes that in the modern virtual world, an entity's virtual presence, rather than just physical presence, is key to determining its operational extent, especially when equipment is placed at customer premises. This principle guides the characterization of payments to non-residents, often as royalty, attracting withholding tax under Section 195, considering statutory explanations for deemed accrual of income.
Indian courts should follow Double Taxation Avoidance Agreements (DTAAs) when interpreting similar terms in the Income Tax Act. The case establishes the principle of DTAA primacy over domestic law for such interpretations.
