International Taxation

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February 2016

CA. Hinesh Doshi & CA. Ronak Soni

Al Mansoori Specialized Engineering LLC vs. Asstt. Director of Income Tax [2016-TII-01-ITAT-DEL-INTL] dated 30th December, 2015

Facts of the case:

The assessee was hired to perform slick line services, provision of wire line and gas lift services by various entities.

The claim of the assessee was that the income recevied by them was taxable u/s. 44BB.

The said claim of the assessee was denied by the AO and the AO claimed that income was chargable under Section 115A along with Section 9 (1) (vii).

Thereafter, the assessee filed objection with the DRP, where it was held that Wireline and Slickline services was taxable as fees for Technical services where it relied on the past cases and the objection of the assessee was rejected and consequently the AO rejected the claim of the assessee.

Aggrieved assessee filed an appeal with Delhi ITAT.


Whether the income of the assessee arising from performance of associated drilling activity through the provisions of oil field equipment on hire along with operating personnel, used the exploration, prospecting or extraction of mineral oil were fees for technical services u/s. 9(1)(vii) and was chargable to tax on gross revenue u/s. 115(A)?


ITAT held that Sections 2(j) and 2(jj) of the Mines Act, 1952 and provisions of Oil Fields (Regulation and Development) Act, 1948 states that drilling operation for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Hence it was contemplated under a mining activity but the question was whether such payments made to the assessee were under Section 44BB or 44AD.

Also CBDT had accepted the above fact and issued a circular defining mining operation as services like imparting of training and carrying out operation for exploration of and extraction of oil and mineral gas and hence such agreement of the non-assessee would be chargeable to tax under Section 44BB.

With regards to Fees for Technical Services, the Tribunal held that the AO was not justified in holding that the income of the assessee arising were fees for technical services under Section 9(1)(vii) of the Act and was chargeable to tax under Section 115A of the act and not u/s. 44BB of the Act.

It was also pointed out that in the case relied on by the DRP was subject matter of adjudication before the High Court where it was held against the Revenue and in favour of assessee.

In the result, the appeal of the assessee is allowed.

Tiong Woon Project & Contracting (Pte) vs. AAR dated 30th November 2015

Facts of the Case:

Tiong Woon Project & Contracting (Pte) Limited, a Company in Singapore is engaged in the business of heavy lifting and erection and installation of heavy equipments for large projects at the project sites. It is carrying out its activities in many countries in Asia. The Applicant imported two cranes viz., CC8800 and CC2600 into India in November 2007.

In the application, it is stated, the applicant completed their installation project, which is covered by Article 5.3 of the Double Taxation Avoidance Agreement between India and Singapore.

The applicant claims that the income amounts to business profits, in terms of Article 7 of the India-Singapore Treaty. It is the claim of the applicant that they do not have any Permanent Establishment in India and since this installation project continued for a period of less than 183 days in India, it would not be taxable under Article 7 of the DTAA unless they have a PE in India.


Whether the income from the activities carried on by the applicant can be held as income taxable in India from execution of “Installation Project”, as per the provisions of Income-tax Act, 1961? If yes, how the total income of the applicant should be computed as per the Act?


In response, the department reiterated that since the project executed by the applicant in India for Brahmaputra continued only for 178 days in a fiscal year and as the duration of the project is less than 183 days in a fiscal year, Permanent Establishment of the applicant cannot be constituted in India as per the provisions of Article 5.3 of the India-Singapore DTAA. Hence, it is submitted that the business profits earned by way of the execution of the project is taxable only in the country where the applicant is a resident, as per Article 7.1 of India-Singapore DTAA.

In view of this positive response by the department, it is held that the income earned shall not be taxable in India and the application was disposed of.

ADIT vs. M/s AON Global Insurance Service Limited [TS-756-ITAT-2015(Mum)] dated 30th November, 2015

Facts of the Case:

Indian Company AON Global Insurance Service Limited is a joint venture between Global Insurance Services (Brokers) Pvt. Ltd. and AON Holding B.V. Rotterdam and it is an independent broker.

AO noticed that assessee was not deducting TDS on payment of reinsurance premium to the non-resident re-insurer (‘NRR’). Assessee had remitted money to reinsurers located in the countries with which India does not have any DTAA. AO thus held that assessee was liable to deduct TDS and charged interest as well.

On appeal, CIT(A) had held that the assessee functioned as an independent broker and that there was no business connection in India and that the NRR do not carry out any operation in India at all and the insurance business has been specifically excluded under the provision to Section 9(1)(i). Thus in absence of any operations being carried out by NRRs in India no income should be deemed to accrue or arise in India u/s 9(1)(i).

Aggrieved Revenue preferred an appeal before Mumbai ITAT.


Whether the assessee had to deduct TDS on Payment of reinsurance premium to the non-resident reinsurer (‘NRR’)?


Before ITAT Revenue argued that assessee was liable to deduct TDS as source of income and property (in the form of reinsured assets) were based in India; However CIT(A) had noted that assessee functioned as an independent broker and no operations were carried out by the NRRs in India.

ITAT Ruled that in absence of any operations being carried out by NRRs in India, no income should be deemed to accrue or arise in India u/s. 9(1)(i) which specifically excludes an independent broker from its ambit.

Thus it dismissed Revenue’s appeal & upholds CIT(A) order that assessee was not liable to withhold TDS u/ss. 192 to 195 on payment of reinsurance premium to the non-resident reinsurer (‘NRR’) from non-treaty countries.

ITAT thus ruled in assessee’s favour.

ITO vs. Santur Developers Pvt. Ltd. [TS-724-ITAT-2015] (Delhi-ITAT) dated 22nd December, 2015

Facts of the Case:

The assessee with regard to a piece of land (situated in India) entered into collaboration agreement with three joint owners of the land.

Assessee paid amount to a US resident (payee) without deducting tax on same. Subsequently following AAR ruling payee deposited the capital gain tax.

AO levied interest u/s. 201(1A) @ 1% on assessee by holding that assessee was obligated to deduct tax and in view of such failure was liable to pay interest on the same.

CIT(A) partly allowed assessee’s appeal and with regards to interest payment held that in view of Article 26 of India-USA DTAA, assessee cannot be burdened with the responsibility of deducting tax on payment for sale of immovable properties.

Aggrieved, Revenue preferred an appeal before Delhi ITAT.


Whether TDS, u/s. 195, is deductible on payment for sale of immovable properties?


Revenue argued before ITAT that as payee had already paid tax AO did not treat assessee in default but only levied interest u/s. 201(1A), which liability was on assessee as person responsible for deduction of tax u/s. 195.

Assessee cited Section 163 and argued that assessee was not liable to deduct tax as said provision fastens the tax liability of the non-resident owner on resident purchaser of capital asset. Assessee further relied on CIT(A) order to claim benefit of Article 26 of India-USA DTAA.

Article 26 is a non-discrimination clause which provides that taxation or any requirement which are more cumbersome than one contemplated under domestic laws cannot be imposed.

ITAT ruled that since there is no provision in the Income-tax Act, 1961, requiring a resident to deduct tax at source from sale proceeds of land payable to any other resident, therefore, in view of Article 26(4) the assessee could not be burdened with the requirement of TDS in case of payment to non-resident.

ITAT held that assessee was not obligated to deduct tax and subsequently there was no question of assessee being made liable to pay interest owing to said non-deduction.

Satyam Computer Services Ltd., In re [2015] 64 162 (AAR-New Delhi) Dated 1st december, 2015

Facts of the Case:

The applicant was an Indian company, whose American depository shares were listed at New York Stock Exchange.

For violation of provisions of US Securities a certain sum as Civil Monetary Penalty Exchange Act, was levied on the applicant by U.S. Court with direction that it would be taken as penalty paid to Government.

The applicant agreed to deposit the said sum.


Whether an amount levied as penalty by order of foreign Court and paid to foreign government would be liable to tax deduction at source under the provisions of the Income-tax Act, 1961?


It is known law that unless the payment made attracts the tax under the Income-tax Act, there would be no liability to deduct tax under section 195.

A penalty ordered by the foreign Court can never attract any tax nor would such a payment made by the applicant attract any tax liability.

It is, therefore, self evident that the payment being a penalty amount as ordered by the Court of competent jurisdiction for the same, can never attract any such tax liability.

Hence, the applicant would not be liable for tax deduction under section 195.