Showing posts with label TDS. Show all posts
Showing posts with label TDS. Show all posts

Monday, July 16, 2012

TDS refundable not shown/claimed in return of income Merely because assessee h

 
TDS refundable not shown/claimed in return of income

Merely because assessee has not claimed refund in return form itself, it cannot be said that assessee is not entitled to refund.

- Vide Indglonal Investment & Finance Ltd. v. Income Tax Officer (2012) 43 (I) ITCL 529 (Del-HC)

Friday, July 13, 2012

TDS: AO in place of payment has no jurisdiction if assessee assessed outside

 
Indian Newspaper Society vs. ITO (TDS) (Bombay High Court)

TDS: AO in place of payment has no jurisdiction if assessee assessed outside

The assessee, based & assessed in Delhi, was allotted land by MMRDA at Bandra Kurla Complex, Mumbai, on lease for 80 years. The lease premium of Rs.88.52 crores was paid without deduction of tax at source. The ITO (TDS) Mumbai passed an order u/s 201 in which he held that the assessee had defaulted in not deducting TDS u/s 194-I on the lease premium. The assessee filed a Writ Petition to challenge the jurisdiction of the ITO (TDS) Mumbai. HELD upholding the plea:

The assessee was assessed at New Delhi. Its PAN & TAN were allotted by the AO at New Delhi. All returns including the TDS returns were filed at New Delhi. Accordingly, there was complete absence of jurisdiction on the part of the AO at Mumbai to proceed against the assessee.

Related Judgements
ITO vs. Indian Oil Corporation (ITAT Delhi) To decide whether a contract is one for transportation or for hiring, the crucial thing is to see who is doing the transportation work. If the assessee takes the trucks and does the work of transportation himself, it would amount to hiring. However, if the services of the carrier…
Mittal Court Premises Co-op Society vs. ITO (Bombay High Court) Though the judgement in Mittal Court Premises Co-op Society vs. ITO is reported in 320 ITR 414, the said last paragraph has been omitted to be printed therein Sind Co-op Housing Society vs. ITO (Bombay High Court) A Co-op housing society is a mutual association and even transfer fees received from transferee members is exempt on the ground of mutuality because the fee can be appropriated only if the transferee is admitted to membership. If the transferee is not admitted, the moneys will have to be…

Saturday, June 30, 2012

TDS CREDIT TO PERCOLATE DOWN TO LEGAL HEIRS, PARENTS

 
TDS CREDIT TO PERCOLATE DOWN TO LEGAL HEIRS, PARENTS Recently, the Central Board of Direct Taxes amended the rule for grant of Tax Deducted at Source (TDS) to a person in whose hands the income is assessable when paid to another person. Until now, the credit of TDS was given to the deductee, based on the deductor's TDS-related information. And, the information in the returns filed with respect to TDS credit. The amendment has been applicable from November 1. If tax is deducted at source on all or a part of the income assessable in the hands of the non-deductee, the credit of the TDS (complete or partial, as the case may be) shall be given only to him/her. However, the deductee (in whose name the tax is deducted) needs to file a declaration with the deductor (employer), which is filed in case the tax liability is nil. This is filed before the deductor furnishes the TDS information. And, the deductor is supposed to report the source in the name of the non-deductee and issue a pertinent certificate.

APPLICABILITY: Tax experts say a taxpayer till now got the credit even when (s)he is dead. Now on, the legal heir of a deceased will be granted the TDS, says Sharad Shah, partner, tax advisory services, Haribhakti & Co. "As the legal heir, he/she is entitled to the grant of TDS when the person in whose hand the income was assessable has passed away. There was clarity required on such cases," he adds. Explains Amitabh Singh, tax partner at Ernst & Young: If one is putting money in the name of a minor, the TDS deducted used to be credited in the minor's name. "But, this amendment will allow the person (guardian or parent) who is putting the money in the minor's name or in whose hand the income is assessable, to get the TDS credit in place of the minor." Alike case was if the asset of a Hindu Undivided Family (HUF) was held in the name of an adult member, but the income is assessable in the hands of the HUF. Similarly, there was no rule on the method of grant of credit in case of corporate reorganisations (amalgamation, demerger), where the income of one company will be assessable in the hands of the other. Also, in cases where the asset was held by trustees of a trust but income was assessable in the hands of the beneficiary of such trusts, tax experts.

EXCEPTIONS: Till now, the credit was to a non-deductee only under specific circumstances. Like clubbing of incomes, incomes from association of persons or trusts assessable in the hands of the member or trustees or joint ownership of assets. Here too, the deductee was suppose to file a declaration for nil tax liability.

DECLARATION FOR NIL TAX: Currently, the rule which provides for the form, manner and periodicity (quarterly) for deductors to provide withholding tax statements does not specify the need to furnish information pertaining to cases where tax is not deducted based on the declarations. Henceforth, the rule will provide that the deductor furnishes particulars of the amount paid or credited on which tax was not deducted due to the nil tax liability declaration. – www.business-standard.com

Wednesday, October 12, 2011

TDS u/s 192

(2010) 34 (II) ITCL 546 (Bang `A'-Trib)

TRO v. Sagar Apollo Hospital

ORDER

All these appeals pertain to same assessee on similar point of TDS under section 192, so these are being disposed of by a common order for the sake of convenience and brevity.

2. The facts of the case are that the assessee, a hospital in the name and style of M/s Sagar Apollo Hospitals, and is a division of the Trust M/s Mahatma Gandhi Vidya Peetha Trust. The TDS wing of the Income-tax department conducted verification on 21-8-2007 in the hospital to check the compliance with the TDS provisions. The hospital paid professional charges to various categories of doctors like duty doctors, visiting consultants and consultant doctors on retainership basis. For all the category of doctors tax has been deducted at source regularly as per the provisions of sec.194J applicable to professional payments and duly paid to the credit of the central government. However, the assessing officer while completing the assessment under section 201(1) held that there exists employee - employer relationship between the duty doctor and the assessee and hence the provisions of sec.192 should have been applied while deducting the tax at source from the doctor's payments. The assessing officer observed that as per the provisions of sec.17 of the Income Tax Act, salary is defined as ;

(1) Salary includes

(i) Wages

(ii) Any annuity or pension

(iii) Any gratuity

3. The assessing officer concluded that for few of the doctors under the category of duty doctors, tax should have been deducted at source as per the provisions of sec.192 which is applicable to salary payments. Accordingly, the assessing officer has made demands of Rs.131,398/- Rs.496,113/- and Rs.4,70,253/- being the shortfall in the tax deducted at source by the hospital. Further, levied interest of Rs.85,127/- Rs.247,474/- & Rs.1,83,705/- under section 201(1A) for the assessment years 2003-04, 2004-05 & 2005-06 respectively. The same was deleted by the Commissioner (Appeals), which has been opposed before us by the revenue. On the other hand, learned AR supported the order of the Commissioner (Appeals) on the issue.

4. After going through the rival submissions and material on record, we find that the question before us is whether the doctors are paid professional fees or salary by the assessee hospital. The question whether it is a contract of service or contract for services. This issue can be decided from the nature and extent of control to establish the relationship of employer and employee. The nature of relationship varies from business to business and it is difficult to define with precise nature of control required to establish the relationship of employer and employee. There are set of procedure and rules. Depending on case to case basis the doctors have to decide how to treat patient. Hence, there is no employer employee relationship. The doctors are discharging only professional services as and when the patients require particular specialized treatment. Taking over all view of the situation, the Commissioner (Appeals) was justified in holding that there exists no employer-employee relationship between duty doctors and assessee. The action of the assessing officer in treating only 20 doctors out of 288 doctors as employees and demanding TDS under section 192 was not based on cogent reasoning. The assessee has rightly treated the payments made to duty doctors as professional fees and deducted tax under section 194J which is upheld. Similar issues arise in other two appeals as well. Facts being same, so following the same reasoning, the order of Commissioner (Appeals) in al cases are upheld.

5. In the result, all these appeals filed by the revenue are dismissed.
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Tuesday, October 4, 2011

TDS u/s 194C is deductible on payment of hire charges by a transporter to a

TDS u/s 194C is deductible on payment of hire charges by a transporter to another transporter for carrying passengers from one place to another

Income-tax : Payments made by assessee-transporter to other vehicle owners in consideration of their providing vehicles with drivers to assessee for carrying passengers of its hirer from one place to another is deemed as `work' within meaning of section 194C and therefore, assessee was liable to deduct TDS therefrom under the provisions of section 194C [Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contracts, payments to] - [2011] 10 taxmann.com 143 (Ahd. - ITAT)

Thursday, September 22, 2011

ITR (TRIB) Volume 11 : Part 5 Issue dated : 26-09-2011, SUBJECT INDEX

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 11 : Part 5 (Issue dated : 26-09-2011)
SUBJECT INDEX TO CASES REPORTED IN THIS PART

->> Charitable purposes --Registration--Society running educational institutions--No proof that funds applied for non-charitable or religious purposes--Direction to grant to retrospective registration--Income-tax Act, 1961, s. 12AA-- Karandhai Tamil Sangam v. CIT (Chennai) . . . 430

->> Charitable trust --Registration--Denial of registration as activities confined to one religion--Finding that activities not only religious but also charitable--Assessee to be given status of religious and charitable trust--Income-tax Act, 1961, s. 12A-- Kasyapa Veda Research Foundation v. CIT (Cochin) . . . 468

->> Company --Computation of profits under section 115JB--Provision for bad debts--Amount to be added to book profits--Income-tax Act, 1961, s. 115JB-- Magnum Power Generation Ltd. v . Deputy CIT (Delhi) . . . 493

->> Income from house property --Business income--Income from property or business income--Assessee constructing residential units and dealing in them--Amount received on lease of some units--Not from business--Income from property--Income-tax Act, 1961, ss. 22, 28-- Roma Builders P. Ltd. v. Joint CIT (Mumbai) . . . 503

->> Income from undisclosed sources --Survey in premises of assessee--Defects in books of account--No nexus between un-accounted profit earned and investment made in properties outside books of account--Set off allowed--Amounts to reducing additional income declared by assessee--Set off not justified--Income-tax Act, 1961-- V. R. Textiles v. Joint CIT (Ahmedabad) . . . 476

->> Income-tax survey --Accounting--Rejection of books of account--Defects in books of account--Entire undisclosed sales cannot be treated as profit of assessee--Commissioner (Appeals) applying gross profit rate--Proper--Income-tax Act, 1961, s. 145-- V. R. Textiles v. Joint CIT (Ahmedabad) . . . 476

->> Industrial undertaking --Generation and supply of power--Amount received from sale of scrap and writing back of credit balances--No finding whether credit balances related to business and whether scrap was generated by industrial undertaking--Matter remanded--Income-tax Act, 1961, s. 80-IA-- Magnum Power Generation Ltd. v. Deputy CIT (Delhi) . . . 493

->> ----Generation and supply of power--Special deduction under section 80-IA--Agreement for supply of power--Agreement providing that if power not required compensation charges to be paid--Amount received for deemed generation of power--Entitled to special deduction under section 80-IA--Income-tax Act, 1961, s. 80-IA-- Magnum Power Generation Ltd. v. Deputy CIT (Delhi) . . . 493

->> Non-resident --Advance tax--Interest--Not payable where entire income liable to deduction of tax at source--Income-tax Act, 1961, ss. 195, 234B-- Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) (Delhi) . . . 513

->> ----Taxability in India--Turnkey project in India--Permanent establishment--Project office in Mumbai involved in activities of project from commencement--Contract indivisible--No material to show project office concerned only with activities outside India--Mode of accounting of expenses of project office not decisive--Mumbai office constituted permanent establishment--Ad hoc attribution of percentage of income to permanent establishment not permissible--Matter remanded for determination on basis of material --Income-tax Act, 1961, s. 144C--Double Taxation Avoidance Agreement between India and Korea, art. 5-- Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) (Delhi) . . . 513

->> Penalty --Concealment of income--Discrepancy in accounts--Amount surrendered because auditors raided and books of account could not be produced--Explanation of assessee reasonable--Penalty cannot be levied--Income-tax Act, 1961, s. 271(1)(c)-- ITO v. Dr. V . Muralikrishnan (Chennai) . . . 443

->> Perquisites --Employees stock option--Equity warrant certificates--Not by themselves securities but merely granting option to obtain shares--Date of exercise of option is date of acquisition of shares not date of certificate--Warrrant issued in February 1999 and assessee exercising option in April 1999--Perquisites arise and taxable in financial year 1999-2000 relevant to assessment year 2000-01--Income-tax Act, 1961, s. 17(2)(iiia) -- Deputy CIT v. Vijay Gopal Jindal (Delhi) . . . 451

->> Reassessment --Notice--Notice after four years--Validity--No failure to disclose material facts necessary for assessment--Returns accompanied by audited accounts--Special deduction under section 80HHC allowed after considering material on record--Reassessment proceedings after four years to reduce special deduction--Barred by limitation--Income-tax Act, 1961, ss. 80HHC, 147, 148-- Deputy CIT v. Purolator India Ltd. (Delhi) . . . 434


SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

->> Double Taxation Avoidance Agreement between India and Korea :

art. 5 --Non-resident--Taxability in India--Turnkey project in India--Permanent establishment--Project office in Mumbai involved in activities of project from commencement--Contract indivisible--No material to show project office concerned only with activities outside India--Mode of accounting of expenses of project office not decisive--Mumbai office constituted permanent establishment--Ad hoc attribution of percentage of income to permanent establishment not permissible--Matter remanded for determination on basis of material-- Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) (Delhi) . . . 513
Income-tax Act, 1961 :
->> S. 12A --Charitable trust--Registration--Denial of registration as activities confined to one religion--Finding that activities not only religious but also charitable--Assessee to be given status of religious and charitable trust-- Kasyapa Veda Research Foundation v. CIT (Cochin) . . . 468

->> S. 12AA --Charitable purposes--Registration--Society running educational institutions--No proof that funds applied for non-charitable or religious purposes--Direction to grant to retrospective registration-- Karandhai Tamil Sangam v. CIT (Chennai) . . . 430

->> S. 17(2)(iiia) --Perquisites--Employees stock option--Equity warrant certificates--Not by themselves securities but merely granting option to obtain shares--Date of exercise of option is date of acquisition of shares not date of certificate--Warrrant issued in February 1999 and assessee exercising option in April 1999--Perquisites arise and taxable in financial year 1999-2000 relevant to assessment year 2000-01-- Deputy CIT v. Vijay Gopal Jindal (Delhi) . . . 451

->> S. 22 --Income from house property--Business income--Income from property or business income--Assessee constructing residential units and dealing in them--Amount received on lease of some units--Not from business--Income from property-- Roma Builders P. Ltd. v. Joint CIT (Mumbai) . . . 503

->> S. 28 --Income from house property--Business income--Income from property or business income--Assessee constructing residential units and dealing in them--Amount received on lease of some units--Not from business--Income from property-- Roma Builders P. Ltd. v. Joint CIT (Mumbai) . . . 503

->> S. 80-IA --Industrial undertaking--Generation and supply of power--Amount received from sale of scrap and writing back of credit balances--No finding whether credit balances related to business and whether scrap was generated by industrial undertaking--Matter remanded-- Magnum Power Generation Ltd. v. Deputy CIT (Delhi) . . . 493

->> ----Industrial undertaking--Generation and supply of power--Special deduction under section 80-IA--Agreement for supply of power--Agreement providing that if power not required compensation charges to be paid--Amount received for deemed generation of power--Entitled to special deduction under section 80-IA-- Magnum Power Generation Ltd. v. Deputy CIT (Delhi) . . . 493

->> S. 80HHC --Reassessment--Notice--Notice after four years--Validity--No failure to disclose material facts necessary for assessment--Returns accompanied by audited accounts--Special deduction under section 80HHC allowed after considering material on record--Reassessment proceedings after four years to reduce special deduction--Barred by limitation-- Deputy CIT v. Purolator India Ltd. (Delhi) . . . 434

->> S. 115JB --Company--Computation of profits under section 115JB--Provision for bad debts--Amount to be added to book profits-- Magnum Power Generation Ltd. v. Deputy CIT (Delhi) . . . 493

->> S. 144C --Non-resident--Taxability in India--Turnkey project in India--Permanent establishment--Project office in Mumbai involved in activities of project from commencement--Contract indivisible--No material to show project office concerned only with activities outside India--Mode of accounting of expenses of project office not decisive--Mumbai office constituted permanent establishment--Ad hoc attribution of percentage of income to permanent establishment not permissible--Matter remanded for determination on basis of material-- Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) (Delhi) . . . 513

->> S. 145 --Income-tax survey--Accounting--Rejection of books of account--Defects in books of account--Entire undisclosed sales cannot be treated as profit of assessee--Commissioner (Appeals) applying gross profit rate--Proper-- V. R. Textiles v. Joint CIT (Ahmedabad) . . . 476

->> S. 147 --Reassessment--Notice--Notice after four years--Validity--No failure to disclose material facts necessary for assessment--Returns accompanied by audited accounts--Special deduction under section 80HHC allowed after considering material on record--Reassessment proceedings after four years to reduce special deduction--Barred by limitation-- Deputy CIT v. Purolator India Ltd. (Delhi) . . . 434

->> S. 148 --Reassessment--Notice--Notice after four years--Validity--No failure to disclose material facts necessary for assessment--Returns accompanied by audited accounts--Special deduction under section 80HHC allowed after considering material on record--Reassessment proceedings after four years to reduce special deduction--Barred by limitation-- Deputy CIT v. Purolator India Ltd. (Delhi) . . . 434

->> S. 195 --Non-resident--Advance tax--Interest--Not payable where entire income liable to deduction of tax at source-- Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) (Delhi) . . . 513

->> S. 234B --Non-resident--Advance tax--Interest--Not payable where entire income liable to deduction of tax at source-- Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) (Delhi) . . . 513

->> S. 271(1)(c) --Penalty--Concealment of income--Discrepancy in accounts--Amount surrendered because auditors raided and books of account could not be produced--Explanation of assessee reasonable--Penalty cannot be levied-- ITO v. Dr. V. Muralikrishnan (Chennai) . . . 443


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Friday, July 22, 2011

HC (KOL) : TDS, Sale by franchise, discount liable for TDS.

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Whether when property in SIM cards even after transfer to franchisee remains with telecom Co and franchisee has no free choice to sell them at own price, discount offered is liable to TDS as commission - YES: HC

THE issue before the High Court is - Whether when the property in the SIM Cards even after transfer to the franchisee remains with the assessee and the franchisee has no free choice to sell them at its own price, the relationship between the assessee and the franchisee is principal to agent and the assessee is liable to deduct tax on discount offered. And the High Court says YES.

Facts of the case

Assessee is engaged in the business of providing cellular mobile telephone services through its distributors by selling to them `SIM Card' and pre-paid card at a rate below the market price on such Simcard and the same are sold by the distributors/franchise to the retailers by whom the same are ultimately sold to the customers. AO observed that assessee had paid commission on SIM card to some Franchisees and deducted TDS on commission and deposited the same from April 2002 to July 2002, later on assessee discontinued such TDS treating such payment not as commission but discount which was outside the ambit of TDS u/s 194H – these franchisees and the assessee maintained principal and agent relationship as per their agreement and any payment made to such franchisee was liable for TDS under Section 194H - further observed that these franchisees were only collecting information for the assessee and therefore, these franchisees were only agents of the assessee for which they were getting fixed percentage of commission in the name of discount in such sale from the assessee – thus, AO treated the assessee a defaulter for not deducting TDS and had accordingly computed the quantum of such undeducted Tax u/s 201(1) and interest chargeable thereon u/s 201(1A) - CIT(A) allowed the appeal of the assessee stating that there was no principal and agent relationship between the assessee and its distributors, and their business activities and entities were independent – ITAT reversed the decision of the CIT(A) and restored the decision of the AO.

After hearing both the parties, the High Court held that,

++ on reading of the relevant and salient clauses of the agreement between assessee and the franchise the following features are found (i) Property in the SIM card, pre paid coupons even after transfer and delivery to franchisee remains with the assessee, (ii) the franchisee really act as a facilitator and/or instrumentality of providing services by the assessee to the ultimate subscriber, (iii) the franchisee has no free choice to sell it and everything is being regulated and guided by the assessee, (iv) the rate at which the franchisee will sell to retailers and that at which is realized by the assessee to the franchisee, is also regulated and fixed by the appellant-assessee. From these it emerges though nomenclature has been used franchisee the agreement is essentially that of the principal and agent;

++ explanation (1) of section 194H provides inclusive definition of commission or brokerage and the same may be received or receivable indirectly also by person acting on behalf of another person or service rendered. In usual business transaction commission is paid by the principal to agent after services is rendered. But by aforesaid explanation commission which is receivable in future is within its sweep. In the present case after selling all the Simcards and Prepaid Coupons to the retailers the franchisee is to make payment of sale proceeds to the assessee after deducting a discount per Simcard. Thus this receipt of discount is in real sense commission paid to the franchisees. Hence all the trappings of liability as agent, of the franchisee towards assessee subsists;

++ there has been indirect payment by the assessee to the franchisee of the commission and the same is attractable u/s 194H. The decision of the Tribunal is affirmed. AO is further directed to examine whether all the franchisees whose TDS has not been deducted by the assessee has already been assessed entire tax payable is recovered in regular basis or not. If it is not by this time then this action will be taken, and if it is already realised and recovered then the principal amount of taxes to the extent of deductable at source shall not be recovered from this assessee however, interest payable under the law has to be levied.
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Wednesday, July 13, 2011

There is no obligation on part of a foreign bank's Indian branch to deduct

There is no obligation on part of a foreign bank's Indian branch to deduct tax at source while making interest remittance to its head office abroad

Income-tax : Section 195 - Deduction of tax at source - Payment to Non-resident : In making payment of interest by an Indian branch of a foreign bank to its head office abroad, no tax has to be deducted by it under section 195(1).

l By virtue of the Indo-Netherlands convention, the head office of the foreign bank is not liable to pay any tax under the Income-tax Act; therefore, there was and still is no obligation on the part of the foreign bank's said branch to deduct tax while making interest remittance to its head office or any other foreign branch

l Therefore, there is no scope for any argument that for the purpose of computation of expenditure the branch and the head office are to be taken as separate entities but for the purpose of payment of tax to be deducted at source on interest payment, it is to be taken as one bank and no deduction is to be made as sought to be made by the foreign bank. - [2011] 10 taxmann.com 89 (Cal.)

Tuesday, July 12, 2011

Transfer of shares by a foreign company to its wholly owned Indian subsidiary no

Transfer of shares by a foreign company to its wholly owned Indian subsidiary not taxable in India

Praxair Pacific Limited (PPL ), a company incorporated in Mauritius, proposes to transfer its 74% equity stake in Jindal Praxair Oxygen Company Private Limited (JPOCPL) to its wholly owned subsidiary in India, Praxair India Private Limited (Praxair India). The consideration for the proposed transfer is stated to be determined on the basis of cost, unless a higher consideration is required under the pricing guidelines prescribed by the Reserve Bank of India as applicable for transfer of shares.
Issues before the AAR

» Whether the investment held by PPL in equity shares of JPOCPL would be considered as "capital asset" under section 2(14) of the Income-tax Act, 1961 ("ITA")?
» Whether transfer of JPOCPL from PPL to its wholly owned subsidiary Praxair India would be liable to tax in India in view of the exemption under section 47(iv) of the ITA?
Exemption under section 47(iv) of the ITA is available if the capital asset is transferred by a holding company to its wholly owned Indian subsidiary.

» Whether PPL would be entitled to the benefits of the India – Mauritius Tax Treaty ("Treaty") and whether the gain arising to PPL would be liable to tax in India having regard to the provisions of Article 13 of the Treaty?
» Whether the gains arising to PPL from the sale of equity shares of JPOCPL would be taxable in India in the absence of Permanent Establishment ("PE") of PPL in India in light of the provisions of Article 7 read with Article 5 of the Treaty?
» Whether PPL would be liable to Minimum Alternate tax under the ITA?
» Where the gains arising to PPL on account of the proposed transfer is not taxable in India under the Act or the Treaty, whether Praxair India, the transferee company, is required to withhold tax in accordance with the provisions of section 195 of the ITA?
» If the gains are not taxable in India, whether PPL is required to file any return of income of income under section 139 of the ITA? This question was not pressed by PPL.
» Whether the proposed transfer of equity shares by PPL to Praxair India attracts the transfer pricing provisions of section 92 to 92F of the ITA?
Contention of the applicant

» The shares held by PPL in JPOCPL are not held as stock-in-trade but represent investments and thus should be classified as a capital asset.
» As PPL proposes to transfer its equity shareholding in JPOCPL to Praxair India, its wholly owned subsidiary in India, the provisions of section 47(iv) of the ITA are fulfilled. Gains, if any, on the transfer of equity shares in JPOCPL would not be taxable in India.
» PPL would not be liable to tax book profits or Minimum Alternate tax under the ITA as the provisions of section 11 5JB would be applicable only to domestic companies and not to foreign companies.
» The gains from the proposed transfer of shares in JPOCPL by the Applicant would not be taxable in India as capital gains or business income in the light of the treaty.
» In case the proposed gains are not considered as capital gains but as business income, such business income will not be taxable in India since PPL does not have a PE in India.
Observations / Rulings of the AAR

» The shares in JPOCPL have been held as "Non-current assets – investment in subsidiaries" since 1995 and were never a subject matter of any transaction till date. As the shares were not held as stock in trade, the nature of the investment in these shares is held to be a "capital asset" as defined in section 2(14) of the ITA.
» As PPL proposes to transfer its equity share holding in JPOCPL to Praxair India which is its wholly owned subsidiary in India, the conditions under section 47(iv) of the ITA are fulfilled and hence the gains if any arising on transfer would not be taxable in India.
» As PPL is tax resident of Mauritius and has been issued Tax Residency Certificate by the Mauritius Revenue Authority, it would not be subjected to tax in India on the capital gains arising from the proposed transaction in India under the Treaty.
» The annual accounts of the applicant cannot be prepared in accordance with Schedule VI of the Companies Act 1956. The provision under the ITA relating to Book Profits Tax is not designed to be applicable to a foreign company which has no presence or PE in India. The AAR relied on its ruling in the case of Timken USA (AAR 836 of 2009) where it was held that under the Companies Act 1956 only such foreign companies who have established a place of business within India are required to make out a Balance Sheet and Profit and Loss account as required under the said Act.
» Sections 11 5JB of the ITA is not attracted in the case of PPL.
» The transfer pricing provisions of section 92 to 92F of the ITA would not be attracted in the absence of liability to pay tax on the capital gain.

Conclusion:-Gains from the transfer of shares by a Mauritius company to its wholly owned subsidiary in India would not be taxable in India either under the ITA. The AAR has also reiterated the benefit of the India- Mauritius tax treaty would be available to PPL as it had adequate tax residency certificate issued by the Mauritius Revenue Authority. Further, the gains from such transfer would not be subject to Minimum Alternate Tax as the provisions under the ITA governing such tax do not apply to a foreign company that has no presence or PE in India

Source: M/s. Praxair Pacific Limited (A.A.R. No. 855/2009 dated 23 July 2010)
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Thursday, June 16, 2011

Section 194H is not applicable where agreements between assessee-manufactur

Section 194H is not applicable where agreements between assessee-manufacturer and distributors was on principal to principal basis - [2011] 10 taxmann.com 115 (Delhi).
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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on various dates and time fixed. Instead of sending it on one day it is spread on various dates. 
regards. R R Makwana
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