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Foreign Remittance TDS u/s 195: Case Law Analysis: Series 2

Income Tax - Direct Tax Code - DTC - By: - CA Rohit Gupta - Dated:- 31-3-2015 Last Replied Date:- 30-12-1899 - International Tax Update: India Foreign Remittance: Taxability: Case Law Analysis 2015: Series 2 Some of the important case laws published in India during the year 2015 pertaining to TDS u/s 195 and/or taxability of foreign companies/non-resident entities in respect of source of income in India. Discussion and analysis pertain to relevance of judgement in future proceedings, subsequent .....

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ission of news and the other for transmission of news photos. It provided daily reports of international events of interest which occurred in the various fields such as politics, sports, economic. AFP exercises a great degree of control and strictly regulates its news-content supplied by it to Indian news agencies and most of its information is proprietary-in-nature and copyrighted inasmuch as access to archived data, distribution rights, commercial rights, credit to AFP alongwith copyright symb .....

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photographs or news without any split, and categories were interlinked, it should be construed as composite service possessing 'modicum of creativity' and copyright subsisted in news reports and photographs distributed/circulated by assessee. Payment to assessee would qualify as 'royalties' within meaning ascribed under paragraph 3 of Article 13 of DTAA between India and France. 1.1) Comment: The judgement has dealt with in detail the treatment of news item and photos as copyrigh .....

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cle and not a copyright. The tribunal itself has suggested that the news stories provided by AFP are a work of art having a distinct feature and innate quality. Also, the tribunal has rightly pointed out that news agencies in India cannot alter the images or photographs as uploaded in the assessee's website except minor fading effect and resizing. Thus, what AFP is providing is a copyrighted article for use of Indian news agencies and not a copyright. Payment for any work which can be copyri .....

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t can be considered as business profits as subscription money and not as royalty. 1.1.c) Royalty or professional services: Judgement has pointed out that news stories has unique and innate quality and can be considered as original literary works and hence copyright subsists in such works and royalty shall be applicable. Then, whether news stories reported by journalists/correspondents shall also be subject to treatment as royalty where the name of news correspondent is also mentioned in the news .....

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ied by it cannot be altered by the Indian news agencies or other distributors and any change in the news reports can only be carried out by AFP itself; (b) the volume of news-stories supplied to each individual user is strictly regulated inasmuch as news-stories above a certain figure per day would cost more and depends upon the package obtained by a user. Also, news-reporting for special events such as Commonwealth Games, Olympics are carried out for special rates instead of ordinary/ regular r .....

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ified to put the entire receipts of AFP as royalty income. As indicated in Section 80QQB, 15% of copyright literary work is taken as allowable royalty receipts under income tax act. 1.1.e) To Conclude, Income from Sale of any work which can be copyrighted cannot be characterised as royalty income. In the extreme case, only a portion of such receipts which pertain to brand value of seller/author may be treated as royalty income. Though the judgement is a detailed one and has deeply analysed copyr .....

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D, Assessee was not able to demonstrate that person or agency whom it paid amount was one that was described in the first part of sub-section (1) of Section 195 and thereby it was not under obligation to pay tax at all - Further, separate components of sale of machinery on one hand and installation of machinery on other hand being not mentioned in returns filed by assessee, Severality of two components could not be accepted. Hence, assessee was under obligation to effect deduction of tax at sour .....

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on thereof in the premises of the factory/plant in the year 1994-95. A sum of US $ 1,00,000/- was paid as consideration. TDS provisions come into play only where the sum is chargeable to income tax act. Though, under section 194C where the payment is made to a resident contractor for works carried out, TDS is deductible@ 2%. However, where works are carried out by non-resident contractor, TDS is deductible u/s 195 at appropriate rate, provided the amount is chargeable to income tax act. In the i .....

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en payee should be resident which is also not clarified. Tax cannot be imposed merely because assessee is not able to demonstrate that it is exempt from tax. 3. Timing of Taxability of Income: (New Holland Tractors (India) (P.) Ltd. vs. CIT 2014 (9) TMI 891 - DELHI HIGH COURT): Where assessee, a subsidiary of UK based company, transferred its design engineering technology relating to manufacture of a particular brand of tractor to another Indian company for a period of three years, in view of fa .....

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ar. This would not make the payment or deposit an advance. Neither was the payment inchoate nor made subject to final decision on appropriation. There was no stipulation to return or refund. A payment would be an advance or deposit if the said amount was repayable or the person receiving the deposit as advance had to perform and render services post deposit in future 4. Reimbursement of Expenses: (AMD Research and Development Center India (P.) Ltd. vs. DCIT 2014 (11) TMI 44 - ITAT HYDERABAD) HEL .....

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ially benefitted from the services rendered by Soctronics India Private Limited(Indian contractor) by retaining the proprietary rights of any of the inventions, and contract work products resulting from the provision of service by Soctronics. Thus it was not the case of reimbursement of actual expense on cost basis simplicitor without any element of profit as claimed by the assessee. 4.1) Comment: Facts of the case being unique, it does not impact the current jurisprudence with reference to non- .....

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T MUMBAI). The assessee company was engaged in the business of printing and publishing of newspapers, such as, Times of India, Economic Times, Nav Bharat Times etc. The assessee needed a sophisticated plant and machinery (commonly known as 'mail room equipment') that could collate various pages of the newspaper, which assisted in printing, picking and stacking them and packed the news papers for timely delivery within the shortest time to its readers. Assessee, purchased mail room equipm .....

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on that payments in regard to installation and commissioning of the mail room equipment and training of the assessee's employees made by assessee were liable to withholding tax as FTS. HELD, since consideration paid by assessee to Swiss company for installation/commissioning of complex 'mail room equipment' which involved proper alignment/positioning of various units and components to ensure optimum functioning, said activity would qualify as 'assembly' as defined under Expla .....

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y between India and Swiss Confederation in article 12(4) defines 'Fees for Technical Services', as including the services rendered by FA, towards installation and commissioning and training, article 12(5) provides that services covered under article 14 of the Treaty will not qualify for 'Fees for Technical Services'. Article 14 of the Treaty, though, overrides article 12(4) while defining the term 'Professional Services', includes independent activities of engineers. Such .....

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s of interest: 5.1.a) Consideration for services linked with sale of property: The tribunal held that, in the contract for supply, it has been laid down that the warranty can be claimed by the assessee only if the mailroom equipment were installed and put into operation by Vendor Certified Personnel. In other words, the equipment could be installed by anybody, with the only requirement, that the person who installs the equipment, should be certified by the vendor, as qualified to install the sam .....

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rately as 'Fees for Technical Services', cannot be accepted - The argument raised by the assessee was rightly rejected by tribunal. However, the argument even if accepted would not have helped the case as the India-Swiss DTAA does not exclude services that are essentially linked with sale of property unlike other DTAAs with countries like Australia which provides that Fees for technical services does not include payment for services that are ancillary and subsidiary, and inextricably and .....

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hence it is not restricted to individuals as was held in Maharashtra State Electricity Board v. Dy. CIT [2009] 90 ITD 793 (Mum.). Other DTAAs where the judgement can be used to argue that Article 14-Independent personal services is applicable to non-individuals as well include: Austria, Bangladesh, Belarus, Brazil, China, Cyprus, Czech Republic, Hungary, Indonesia, Ireland, Israel, Italy, Jordon, Kazakhstan, Kenya, Libya, Malaysia, Mauritius, etc etc. 5.1.c) Installation can be Assembly: Anothe .....

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ect undertaken by the recipient . It is an excellent argument raised by the counsel for the assessee and should be used as ready reference in future as well. 6. Payment for hiring is not royalty: (CIT vs. Van Oord ACZ Equipment BV 2014 (11) TMI 605 - MADRAS HIGH COURT): Amount received by assessee-foreign company for hiring out dredgers to its Indian company would not be taxable in India as royalty, as Article 12 of India - Netherland DTAA does not include said payment within its ambit. 6.1) Com .....

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t that capital gain was not taxable in vendor's hands due to availability of deduction under section 54, he was not required to deduct tax at source while making payment of sales consideration. 7.1) Comment: The case is covered by the decision of the Hon'ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. v. CIT 2010 (9) TMI 7 - SUPREME COURT OF INDIA 18 r.w. instruction No.2/2014 dated 26.02.2014 issued by the Board wherein it was held that the TDS in the payments require .....

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certificate/report of the calibration to the Assessee and certificate/report does not contain the process of how the testing or calibration was carried out by the payee. 8.1) Comment: Make Available Clause- the condition precedent for invoking the make available clause is that the services should enable the person acquiring the services to apply technology contained therein. Unless there is a transfer of technology involved in technical services the make available clause is not satisfied. ITO v .....

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be said to be imparting of information by the person who possesses such information. 8.1.b) Joint Accreditation System of Australia In re: 2010 (8) TMI 9 - AUTHORITY FOR ADVANCE RULINGS: there is no transfer of any skills or technical knowledge or experience, or process or know-how to the CABs on account of grant of accreditation to those entities. The skills, expertise or know-how possessed by the applicant for the grant of accreditation certificate cannot be said to have been made available to .....

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sidents involves making assessment surveillance for the purpose of ISO Certification. This service cannot fall within the ambit of fees for technical services as defined in Article 13(4) of the Indo-UK Treaty. 9. Interest from Indian Branch: Credit Agricole Corporate and Investment Bank vs. ACIT 2014 (12) TMI 558 - ITAT MUMBAI Interest paid by Indian branch to its head office/ overseas branches not taxable in India on principles of mutuality 9.1) Comment: However, the above judgement shall not h .....

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d Travel (P.) Ltd. vs. DCIT 2015 (2) TMI 983 - ITAT DELHI: The assessee was engaged in the business of organizing tours and travel arrangements for foreign tourists coming to India. In order to promote its business in foreign countries the assessee had appointed agents in various countries to market its services and in lieu thereof, representation charges/retainership fee and commission was paid to them. HELD, Retainership charges paid by assessee to overseas non-resident agents to promote its b .....

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