Section 115A of the Income Tax Act
The decision most relied on for Section 115A is DIT v. Infrasoft Ltd. (39 Taxmann.com 88), cited in 269 of the 417 judgments on BharatTax that turn on this section.
Leading authorities on Section 115A
Payments for the use of copyrighted software, without the transfer of any rights in the underlying copyright itself, do not constitute 'royalty' under the Income-tax Act or tax treaties. Such payments are often treated as business income, taxable only if a permanent establishment exists.
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.
A 'business connection' for non-residents requires a real and intimate relation between their trading activities outside India and activities within India, contributing directly or indirectly to their earnings. The Supreme Court assigned a wide meaning to this term.
For services to qualify as 'Fees for Technical Services' or 'Fees for Included Services' under Double Taxation Avoidance Agreements (DTAAs), they must 'make available' technical knowledge, experience, skill, or processes to the recipient, enabling them to apply such expertise independently.
The Mumbai Tribunal has held that the term 'process' in relation to royalty under Section 9(1)(vi) of the Income Tax Act is not defined and must be considered within the contemplation of the term, potentially impacting its application under DTAAs. This decision distinguished itself from the facts of other cases, including those involving broadcasting and advertising airtime.
For computing presumptive income under Section 44BB, gross receipts do not include service tax reimbursements received from a client (like ONGC) if such amounts are not payments for services or plant/machinery directly used in the prospecting, extraction, or production of mineral oils.
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.
Interest income received by a foreign bank's Head Office or Overseas Branch is not taxable in India where Article 12 of the Double Taxation Avoidance Agreement applies, clarifying the scope of taxability for such entities under DTAAs.
For transfer pricing purposes, distinct international transactions, such as royalty payments and manufacturing, should be benchmarked separately rather than aggregated. The selection of comparables must be based on a thorough Functions, Assets, and Risks (FAR) analysis, and loss-making entities are not automatically excluded if they satisfy other comparability criteria.
An Indian agent providing marketing services, without the authority to conclude contracts on behalf of a foreign company, does not constitute a Dependent Agent Permanent Establishment (DAPE) for the foreign company in India under DTAA provisions.
