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Foreign Remittance: Taxability: Case Law Analysis 2015: Series 3

Income Tax - Direct Tax Code - DTC - By: - CA Rohit Gupta - Dated:- 18-4-2015 - International Tax Update 1. Reimbursement of Technical Expenses to Head office: Bureau Veritas-Indian Division vs. ADIT 2015 (4) TMI 578 - ITAT MUMBAI: The Assessee was a French company which operated in India through its Indian Division. Assessing Officer had observed that 'the head office expenditure allocated to the Indian division was in the nature of technical and administrative expenses'. According to A .....

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ax treaty are confined to payment for such services 'as make available' technical knowledge, skill, experience, etc. In instant case, payment in question was in nature of reimbursement of technical expenses to head office and not on account of any specific technical services having been 'made available' and, therefore, said amount could not be brought to tax in hands of assessee under article 13 of Indo-French Tax Treaty. Also, said amount could not also be taxed in hands of asse .....

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expenses to HO in the hands of Indian PE for non-deduction of TDS u/s 40(a)(ia) b) Taxability of Foreign Company for income in India: Taxability of Income of Non-resident Company In Respect Of Income earned from Indian branch office. 1.1(b): The tribunal has rightly observed that assessee was not required to deduct tax at source from the impugned payment, consequently no disallowance could be made of the said amount of fee for technical services paid by the assessee to its Head Office, therefore .....

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taxation. 1.1(e): DTAA requires that Indian PE should be treated as separate entity for the purpose of computation of income and hence payments by the Indian PE to its foreign head office is also required to be deducted for the purpose of computation of Income of Indian PE and determining its tax liability. Also, it allows under Article 7(3)(b) the deduction for amounts towards reimbursement of actual expenses by PE to head office. However, In Income Tax Act, Indian PE and foreign head office a .....

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any S.A. 2015 (3) TMI 148 - ITAT MUMBAI: Assessee, a Switzerland based company, was engaged in business of operation of ships in international waters. Assessee filed its return claiming refund of tax liability on freight earnings contending that profits arising out of operation of shipping activities was not taxable in India - Assessing Officer held that profits earned by assessee from operations of ships in international traffic was taxable in accordance with provisions of section 44B. HELD, It .....

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gement has brought the taxability of shipping Income under Article 22 Other Income as there is no specific article dealing with shipping profits under India -Swiss DTAA. Also, the income was not considered as business profits under Article 7 as the said article specifically excludes income from operation of ships in International traffic. 2.1(a) Also, It should be noted that normally DTAAs with other countries require income from operation of ships in international traffic be taxed in the state .....

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profits after 1.4.2015 in respect of Swiss based companies as POEM at any time will make swiss company an Indian Resident and hence taxable in respect of other income in India. (For detailed discussion refer article Place of Effective Management (POEM) in India Corporate Taxation: Analysis & Safeguards) 3. Purchase of Technical Know-How not royalty: ITO vs. Heubach Colour (P.) Ltd. 2015 (4) TMI 579 - ITAT AHMEDABAD: Assessee-company was in business of manufacturing and sale of colour pigment .....

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f section 195 were not applicable. 3.1) Comment: Judgement has rightly held the payment as not royalty on the basis of judgement by Delhi high court in Asia Satellite Communications Ltd. 2011 (1) TMI 47 - DELHI HIGH COURT wherein it was held that The Term 'royalty' appearing in Explanation 2 to sub-clause (vi) of section 9(1) of the Act. Sub-clause (i) deals with the transfer of all or any rights (including the granting of a licence) in respect of a patent, etc. Thus, what this sub-claus .....

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e rights in rem, being good against the entire world and not merely against a specific person and such rights are indeterminate in duration and residuary in character. the definition of term 'royalty' in respect of the copyright, literary, artistic or scientific work, patent, invention, process, etc. does not extend to the outright purchase of the right to use an asset, In case of royalty, the ownership on the property or right remains with owner and the transferee is permitted to use th .....

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r US $ 28,940,000. The CSA provided for the ownership rights in the Flag Cable System with all the rights and obligations in he capacity sold i.e., VSNL can transfer, assign or sell the capacity. It also lays down the concept of standby maintenance, payments, obligations, management decisions etc. The entire procedure for ownership of capacity in the cable system and all other terms and conditions has been contained in a separate agreement titled as Construction and Maintenance Agreement (CandMA .....

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