AAR in Production Resource Group - SC in FOWC followed

PE under Article 5(1) – degree of permanence relative to the nature and requirement of business carried on - Need not be forever

Even before the discussion on the 2017 decision of Supreme Court on FOWC could die, the AAR in Production Resource Group [ 1330/2012 dated 8 Nov 2017] had occasion to deal with a similar issue involving a Belgian Applicant that rendered turnkey services of providing technical equipment and services for CWG events. Observing that the Applicant was allocated exclusive office under the lock and key of the Applicant and onsite space by the Owner, the Authority found that even a limited presence for 114 days was sufficient to constitute PE under Article 5(1) as ‘the establishment need not be enduring or permanent in the sense that it should be in its control forever in order to constitute a PE and that the length of time has to be necessarily tied to the nature and requirements of the business under consideration.’ The Authority found that all ingredients of Article 5(1) were satisfied - place of business, power of disposition, permanence of location, business activity and business connection it cumulatively and collectively resulted in a PE.

The AAR rejected the alternate plea of the Department that the payment was also one of ‘Royalty’.

Comment and Analysis:

According to both Commentaries, the word ‘permanent’ does not connote in the literal sense of everlasting/forever/eternal in nature or without interruption. Article 5(1) does not make any reference to minimum period and the duration of a basic rule PE under Art 5(1) need not be in years but may be of months only as ruled in P.No. 24 of 1996 [ Nilesh Modi]. These, coupled with the Supreme Court decision in FOWC, appears to have led the Authority to rule in favour of PE. In this connection, one needs to recall the Authority’s negative finding of PE in the FOWC case, which subsequently was overturned by the Delhi High Court. The Supreme Court affirmed the existence of PE under Art 5(1) in the said case. Comment on SC on FOWC is available in this Blog.

Comments

The ITAT’s All-Things-Considered Approach [2020] 118 Taxmann.com 209

The ITAT’s All-Things-Considered Approach Background This case has all the trappings of a thriller you would find in a Hitchcock movie. From misdeclaration of residential status and address, the discovery of undisclosed foreign assets of huge sums and the sudden vanishing of these amounts, the order of the ITAT, Mumbai makes for a riveting read. That the entire story of alleged evasion revolved around an 86-year old lady makes the issue even more intriguing. It all started with the Income Tax department receiving certain information from Switzerland in Oct 2014 pursuant to treaty provisions. The information was that Renu T. Tharani (Appellant) had a bank account in HSBC Private Bank, Geneva which showed a peak balance of USD 40 M in the FY 2005-06. For that year, the Appellant had returned a paltry sum of Rs. 170,800 as Income in her returns. It was the department’s contention that this ba...

Volkswagen Finance – An unusual interpretation of Business Connection

May 23, 2020 [2020] 116 taxmann.com 685 (Article) The Mumbai Tribunal in Volkswagen Finance P Ltd. v. ITO [2020] 115 taxmann.com 386 recently decided on the taxability of income earned by a Non Resident whose entire operations were carried on outside India. The decision was path breaking as the Tribunal did not follow the existing jurisprudence on the subject and deemed the payment made to the Non Resident u/s 9(1)( i ) based on the amorphous nature of the term 'business connection'. The case: Volkswagen Finance Private Ltd. ('VW' in short) was part of the Volkswagen group of companies engaged in manufacture and sale of automobiles. VW organized a lavish event in UAE, to launch the group's new AUDI 8L specifically for potential Indian customers. VW flew in a number of Indian customers to UAE and also roped in Celebrity Star and Oscar award winner, Jonathan Cage of US to stage an appearance in the event. It was a mega event organized outside India where Cag...

FII Taxation - A Roller Coaster Ride [ Taxsutra, 28 Aug 2014]

Among the litany of amendments in the direct tax section in the recent Finance Act, 2014, there is one piece of amendment that has perhaps not received the attention it deserves. The amendment to Sec 2(14) of the Income Tax Act has redefined the term 'Capital Assets' by bringing in all kinds of securities dealt with by Foreign Institutional Investors (FIIs) under the banner of 'Capital Assets'. The implication of this is that after 1st April 2014, securities held by FIIs - even if they have been dealt as stock in trade - shall be considered as Capital Asset and not as Stock in Trade. Is that one more amendment with 'malice'? Read on to find how the differing interpretation of various Judicial Forums on FII investment left no option to the law makers but to bring about this amendment. What are FIIs: Currently there are more than 1450 FIIs registered with SEBI and with garguantuan funds avaiable at their disposal, the...

TaxandTrade

Search This Blog