2006 (8) TMI 121 - AAR - Income Tax

Receipt arising to the applicant from the proposed assignment of the turbo charger development and supply agreement dated August 6 2004 in accordance with the assignment deeds would not be taxable in India further the assignee of the IDS agreement is not required to withhold any tax u/s 195 while making remittance to the applicant - plea of the applicant that there was absence of profit element and that payments represented the reimbursement of actual expenditure was rejected

Summary

Issues Involved:
1. Taxability of the receipt from the proposed assignment of the Turbocharger Development and Supply Agreements.
2. Extent and year(s) of taxability if the receipt is taxable in India.
3. Requirement of withholding tax under section 195 of the Income-tax Act, 1961 by the assignee.

Detailed Analysis:

1. Taxability of the Receipt from the Proposed Assignment:
The applicant, a Swiss company, sought a ruling on whether the receipt from assigning the Turbocharger Development and Supply Agreements (TDS) would be taxable in India under the Income-tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland. The Commissioner contended that the payments made by the Indian subsidiary to the applicant would be taxable as they include elements of taxable profits. The applicant argued that the assignment and the receipt of consideration would occur outside India, and thus, no income would be deemed to accrue or arise in India under section 9(1) of the Act. The ruling concluded that the applicant has no business connection in India, and the income from the assignment executed outside India is not taxable in India under section 9(1)(i) of the Act.

2. Extent and Year(s) of Taxability:
Since the ruling determined that the receipt from the proposed assignment is not taxable in India, the question of the extent and year(s) of taxability does not arise.

3. Requirement of Withholding Tax under Section 195:
The applicant questioned whether the assignee would be required to withhold tax under section 195 of the Act while making remittance to the applicant if the receipt is not taxable in India. The ruling stated that since the receipt is not chargeable to tax under the Act, section 195 does not apply. The ruling referenced the Supreme Court's decision in Transmission Corporation of AP Limited, noting that withholding tax is not required when the income is not chargeable under the Act.

Conclusion:
1. The receipt from the proposed assignment of the Turbocharger Development and Supply Agreements is not taxable in India under the Income-tax Act, 1961.
2. The question of the extent and year(s) of taxability does not arise as the receipt is not taxable.
3. The assignee is not required to withhold any tax under section 195 of the Act while making remittance to the applicant.