Western India Regional Council of
The Institute of Chartered Accountants of India

(Setup by an Act of Parliament)

June 28, 2019

CA. Hinesh Doshi, CA. Ronak Soni

Elsevier Information Systems GmbH vs. Dy. Commissioner of IT (IT), Circle-2(2)(1) [TS-215-ITAT-2019 (Mum] dated 15th April, 2019 Facts

The assessee company, a tax resident of Germany, maintains an online database pertaining to chemical information. It earned subscription fees from customers worldwide including India by providing access to the database.

The assessee filed return of income declaring Nil income on the contention that subscription fees received from various customers in India was neither in the nature of royalty or FTS and in absence of PE, was not taxable in India.

AO made addition considering the subscription fees received by the assessee in nature of FTS/royalty under the provisions of tax treaty.

Aggrieved, the asssessee appealed before Mumbai ITAT.

Issue

Whether subscription fees received for online database access is considered as FTS or Royalty under Article 12 of India-Germany DTAA?

Held

ITAT noted that the assessee has created a database relating to data collated from various chemical journals and articles, which were stored in a structured and user friendly manner for the customers/users on a subscription basis, without conferring any exclusive or transferable rights to the customer/user.

ITAT also noted that assessee has retained the exclusive right and ownership over intellectual property related to the product.

ITAT held that the payment is for use of copyrighted article rather than for ‘use of’ or ‘right to use’ of copyright of literary, artistic or scientific work to its subscribers.

Relying on AAR ruling in case of Dun and Brad Street Espana, S.A. and Ahmedabad ITAT ruling in case of Cadila Healthcare Ltd and Welspun Corporation Ltd, ITAT held that subscription fees received by the assesse for providing publicly available information cannot be treated as royalty.

Relying on SC ruling in case of Bharati Cellular Ltd and A.P. Moller Maersk A.S, ITAT further held that the assessee has neither employed any technical/skilled person to provide any managerial or technical service nor is there any direct interaction between the customer/user of the database and the employees of the assessee so as to constitute the payment as FTS under Article 12 of DTAA.

ITAT thus ruled in favour of the assessee.

Linklaters vs. Dy. Director of Income Tax (IT), Circle-3(2) [TS-210-ITAT-2019 (MUM)] dated 16th April, 2019 Facts

The assessee company, a UK based law firm, was appointed as legal advisor for some of the projects in India and received fees from the clients in India towards legal consultancy services.

The assessee filed return of income declaring Nil income on the contention that in absence of PE, the fees received by it from Indian clients was not chargeable to tax in India.

AO made addition observing that employees/other personnel of the assessee have rendered services in India for more than 90 days during the period constituting service PE in India under the provisions of tax treaty.

Aggrieved, the assessee appealed before Mumbai ITAT.

Issue

Whether the multiple counting of employees in a single day to be considered for construing service PE threshold?

Held

ITAT ruled that the assessee had no PE in India under Article 5(2)(k) of India-UK DTAA.

ITAT noted that as per tax treaty if the employees or other personnel have stayed in India for a period exceeding 90 days in any 12 month period, it will constitute service PE in India.

ITAT further noted that multiple counting of employees in a single day was to be excluded while computing PE threshold.

ITAT explained that the stay of employees in India on a particular day was to be taken cumulatively and not independently.

ITAT thus held that if the multiple counting of employees on a single day was avoided and the vacation period of one of the employees was to be excluded, the aggregate period of stay of assessee’s employees in India during the 12 months period was less than 90 days threshold and thus did not constitute service PE.

ITAT thus ruled in the favour of the assessee.

Commissioner of Income Tax (IT)-2 vs. M/s Indusind Bank Ltd [TS -223-HC-2019(Bom)] dated 22nd April 2019 Facts

The assessee, a scheduled bank, issued Global Depository Receipts (GDR’s) through different agencies for expansion of its business activities and for its need of capital.

The assessee engaged UAE based Amas Bank as global coordinator and lead manager and paid agreed sum of money. The assessee had deposited TDS on gross up basis on the due date.

Revenue contended that the payments for technical services were subject to deduction of tax u/s. 195 of the IT Act.

The assessee argued that foreign payee had no tax obligation in India and therefore question of deduction of TDS does not arise.

AO and CIT (A) ruled in favour of the Revenue.

Further, the assesse filed an appeal before Tribunal. The Tribunal reversed decisions of the revenue authorities and allowed the assessee’s appeal.

Aggrieved, CIT (A) filed an appeal before the High Court.

Issue

Whether the assessee was liable to deduct TDS u/s. 195 from the fees paid to Amas Bank towards services in relation to the issuance of GDRs?

Held

HC upheld ITAT order and ruled that the payment made the assessee towards services in relation to GDR issue is not FTS under explanation 2 to Sec. 9(1) (vii) and TDS deduction was not applicable.

HC further upheld ITAT conclusion that the services rendered by Amas Bank were purely of a commercial nature and bore the character of income arising to it wholly outside India.

Further, HC held that such services were neither rendered in India not utilized in India and therefore, it did not partake the character of FTS.

Further HC explained that explanations u/s. 9(1)(vii) merely seek to delink the concept of income deemed to have accrued or arisen in India from the requirement of : i) The non-resident having a residence or place of business or business connection in India and ii) The non-resident having rendered services in India.

HC further remarked that the question of non-resident having rendered services in India is quite different from such services having been consumed by the assessee in India.

As a result, the appeals were dismissed and ruled in favour of the assessee.

Deepak Kumar Todi vs. Dy. Director of Income Tax (IT), Circle-(1)(1) [TS -220-ITAT-2019(Kol)] dated 16th April 2019 Facts

The assessee, being a non-resident individual, made foreign inward remittance on account of salary in his NRE A/c. for services rendered in Nigeria. He filed his return of income claiming the remittance amount as exempt.

AO contended that the foreign inward remittance was taxable on receipt basis under section 5 (2) (a) read with section 15(a) of the Act even though service rendered outside India.

Further, the assessee filed an appeal before CIT (A) who confirmed the order of the Assessing officer.

Aggrieved, the assessee filed an appeal before Tribunal.

Issue

Whether salary received by non–resident individual for services rendered outside India and remitted to NRE A/c in India is taxable in India?

Held

There was no DTAA between India and Nigeria in the year under question and therefore provisions of the Income Tax Act would be attracted in case of the assessee.

ITAT relied on Calcutta High Court ruling in Utanka Roy wherein it was held that the salary income for services rendered outside India has to be considered as income accrued and received out of India and is not taxable in India.

ITAT thus held that, foreign inward remittance on account of salary, for services rendered in Nigeria is not taxable in India on receipt basis.

ITAT rejected Revenue’s stand that there was double non-taxation and further noted that the employer had already deducted TDS from the salary and bonus in Nigeria which was also credited to the said Government account. As a result, the appeal was allowed in favour of the assessee.

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