W.e.f. 1/6/1993 the Income Tax Act has inserted a provision under
which Non resident persons may approach the Authority of Advance Rulings located in
New Delhi for the determination of a question of law or fact in relation to a transaction
already undertaken or likely to be undertaken in future .The scope of this provision has
further been extended wef 1/10/98 to cover the residents with in any class or category as
notified by the Central Govt. These rulings are binding on the applicant who has sought it
in respect of the transaction in which it is delivered and also on the Income Tax Deptt.
with reference to that particular assessee and the transaction.
AAR Rulings
Ruling #1
1. A ruling from AAR
-New Delhi deciding the Tax treatment of the business profits arising from a PE
(Permanent Establishment) in India of a Singaporian company under the DTA
between India and Singapore
The facts of the case
are:
-A Singaporian company
carries out a contract of laying down the pipelines offshore India and onshore India.
-Duration of the Project
is 47 days (i.e. less than 183 days in India).
Matters to be decided
:
-Whether the Singaporian
company is deemed to have a place of business in India either under Para 2(f) or Para 3 of
Article 5 of DTA .
-And if the Singaporian
co. is deemed to have a place of business, whether the Business Profits are taxable in
India.
Decision:
Since the applicant co.
was only engaged in the burial of pipelines, therefore it could not be said that there was
any fixed place of Business in India thru which its business was carried out. Thus the
applicant co. could be said to have a PE in India only if the nature of its activities in
the designated field can be brought within the scope of cl. (f) or (j) of Para 2 or para 3
of Article 5 of the DTA.
From a perusal of the
scope of the work carried on by the applicant, it was clear that the applicant co. was
engaged mainly in an installation and assembly project which pertained to the burial of
pipelines in the seabed. Such activities are covered by para 3 of article 5 of DTA and not
by cl (f) or (j) of para2 of article 5 as claimed by the Deptt. But para 3 permits such
projects to be treated as PE only if the duration of the Project exceeds 183 days in any
fiscal year.which is not the case here. It followed that the applicant had no PE in India
within the meaning of Para 5 of the DTA and since article 7 of the DTA permits the
taxation in the hands of a resident of Singapore, only of the Profits attributable to a PE
in India, no part of the profits earned by the applicant co. from its activities under the
contract can be charged to Indian Income Tax even though such activities took place in
Indian territory and profits therefrom would have been chargeable to Tax in India but for
DTA.
For the above reasons
the revenue earned by the Singaporian co. are not taxable in India.as it had no PE in
India.
We quote relevant
extracts from the DTA between India and Singapore.
Article 5 :Permanent
Establishment
1.The term PE means a
fixed place of Business thru which the business of the enterprise is wholly or partially
carried on.
2.The term Permanent
Establishment includes:
(a)a place of managemant
(b)a branch
(c)an office
(d)a factory
(e)a workshop
(f)a mine , an oil or
gas well ,a quarry or any other place of extraction of natural resources
(g)a warehouse in
relation to a person providing storage facilities for others
(h)a farm ,plantation or
other places where agriculture ,forestry ,plantation or related activities are carried out
(i)premises used as a
place for soliciting the sales order
(j)an installation or
structure used for exploration or exploitation of natural resources but only if so used
for a period of more than 120 days in any fiscal year.
3. A building site or
construction ,installation or assembly project constitutes a PE only if it continues for a
period of more than 183 days in any fiscal year.
2. A ruling from AAR
-New Delhi deciding the Tax treatment of the withdrawls from IRA account (similar to
Provident Fund scheme in India ) representing the moneys accumulated from salaries earned
in the past years from services rendered in USA.
Ruling #2
The facts of the case
:
-The applicant an NRI
employee working in the USA is a member of IRA (Internal Revenue Arrangement) with
institution SIS, trustees of IRA in US.
-According to the IRS (
Taxation deptt.) code, the taxability of the interest and the capital gains are deferred
till the time of their withdrawls from the IRA a/c of the applicant.
-The applicant now
intends to settle down in India and he wants to invest part of his IRA proceeds in a Non
Resident-Non Repatriable -Rupee Deposit a/c (NR-NR-RD a/c) with an Indian bank in the name
of SIS (the US banking Inst.) in which all the future withdrawls from his IRA account
shall be deposited in the Indian rupees.
Matters to be
decided:
-Whether the amounts of
withdrawls by the applicant from his IRA a/c in US and deposited in the NR-NR-RD a/c in
India shall be taxable under the Indian Tax Act
-Whether interest
earning from the NR-NR-RD a/c shall be taxable from the prvious year in which he ceased to
be a Non resident.
Decisions:
Regarding Q.no.1 ,the
withdrawls from the IRA accounts are not taxable in India as it constitutes the income
from salary, intetrest and the capital gains earned from time to time by the applicant
from rendering the services in USA whatever the residential status may be.
