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2012 (8) TMI 741 - AAR - Income TaxIndia and Saudi Arabia DTAC - Construction and Maintenance Agreement - assessee made the payments to Saudi Telecom Limited ('STC') under the terms of the EIG Capacity Transfer Agreement, towards acquisition of the EIG capacity - Held that:- The right to use in this case to access the particular segment of a larger system to use the capacity of the system powered by the equipments of the whole system and under paragraph 3 of Article 12 of the DTAC, consideration paid for use of or the right to use a design or model plan, commercial or scientific equipment would be royalty - if the consideration is royalty it is taxable in the country of the prayer according to the laws of the State of the payer. Here, that would be according to the laws of India, thus the ruling on question No.1 is that the payment made by the applicant to STC under the EIG Capacity Transfer Agreement towards acquisition of EIG capacity is chargeable to tax in India as royalty in terms of paragraph 2 of Article 12 of the DTAC between India and Saudi Arabia. As the payment by the applicant would suffer withholding tax under section 195, since the applicant is a resident, the payee is a non-resident and the payment is chargeable to tax in India under the Act. Treatment for Payment of annual operations and maintenance charges - Held that:- As it appears that this is a share of the annual operations and maintenance charges incurred for maintaining the entire system it cannot be treated as fees for technical services and can be treated as the share of costs for maintenance incurred for the right to use the system acquired by the applicant - in favour of assessee.
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