Section 115A

Section 115A — the law in short

What the courts have decided on section 115A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• DIT v A.P. Moller Maersk A/S Supreme CourtHelps taxpayerNo later treatment found
  Our Indian agents pay the foreign principal a pro-rata share of the cost of its global booking and communication system — is that fees for technical services taxable in India?
  No. The Supreme Court held that the payments the Indian agents made to a Danish shipping line for using its Maersk Net system were reimbursement of a proportionate share of cost, not fees for technical services. The system was an integral part of the shipping business and was a common facility available to all agents worldwide, not a service catering to any agent's special needs. Once the character of a payment is reimbursement of expenses, it cannot be income chargeable to tax; and since freight income was exempt under the India-Denmark treaty shipping article, the expenses of earning it could not be split off. The Revenue's appeals were dismissed.
• Oil & Natural Gas Corporation Ltd v CIT Supreme CourtHelps taxpayer
  The Assessing Officer says our contract with ONGC is really technical services, so 44BB is out and 44D applies. How is that decided?
  By the pith and substance of the contract, not by picking out its ancillary parts. If the dominant purpose of the agreement is prospecting for, or extraction or production of, mineral oils, the payment is assessable under s.44BB and not as fees for technical services under s.44D read with Explanation 2 to s.9(1)(vii).
• Paradigm Geophysical Pty Ltd v CIT (International Taxation)-3 High CourtCuts both waysNo later treatment found
  For AY 2012-13 the officer moved us out of s.44BB into s.44DA. Does the Finance Act 2010 proviso really do that?
  Yes. From 1 April 2011, income falling within the scope of s.44DA(1) is excluded from s.44BB, and if a non-resident's income is royalty or fees for technical services it is taxable under s.44DA or s.115A. But the exclusion only bites if the receipt really is royalty or FTS, and services for a mining or like project are carved out of the FTS definition in Explanation 2 to s.9(1)(vii) altogether.
• eBay International AG v ADIT ITATHelps taxpayer
  We charge Indian sellers a fee for listing on our overseas marketplace. Is that fees for technical services, and do our Indian support companies make us taxable here?
  No on both, and note how the second answer is reached. Providing a platform on which others transact is not the rendering of managerial, technical or consultancy services, so the user fees are not fees for technical services. On the treaty the Tribunal accepted that the Indian group companies, working exclusively for the Swiss company, were dependent agents - the assessee lost that limb - but held that a dependent agent becomes a permanent establishment only if it performs one of the functions listed in Article 5(5), and marketing and collection work is not among them. They were not a place of management either. Without a permanent establishment the business profits article keeps the income out of the Indian charge.
• In re Timken India Ltd Advance RulingHelps departmentSuperseded by amendment
  Our US parent charges us only its actual cost for services it performs in America, with no mark-up. Must we still withhold tax under section 195?
  Yes. The Authority ruled against the applicant on every live question. Timken India paid its US parent USD 756,728.26 under an agreement of 2 August 2000 for management, system development, engineering and manufacturing services performed wholly in the United States, the compensation being confined to actual cost with no mark-up. The Authority held the sum was not a reimbursement of costs; that it was taxable as fees for technical services under article 12 of the India-US convention though the services were rendered abroad; that the absence of a profit element was irrelevant; and that no net-basis option could be read into section 44D. Withholding was required.
• In re Dun and Bradstreet Espana S.A. Advance RulingHelps taxpayerNo later treatment found
  We buy standardised business information reports from a Spanish company and resell them here. Do we have to withhold tax on what we pay, as royalty or technical fees?
  No. The Authority ruled that the payments made by Dun and Bradstreet Information Services India for electronic purchases of business information reports from its Spanish associate were the Spanish company's business profits within article 7 of the India-Spain agreement; that the Spanish company had no permanent establishment in India under article 5; that it was therefore not taxable in India on those profits; and that the Indian company was not required to withhold tax under section 195. Buying a finished report was likened to buying a book, not to acquiring intellectual property or a service. Three of the seven questions were not pressed. The ruling binds only that applicant.
• Dr Rajnikant R. Bhatt v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I work in Abu Dhabi but my family, my home and most of my assets are in India. Can I still be treated as a UAE resident under the treaty and get the concessional rates on my Indian dividends, interest and capital gains?
  Yes, on these facts. The Authority worked article 4 of the India-UAE agreement in order and found the applicant, a radiologist employed at a government hospital in Abu Dhabi, resident of both States under article 4(1), with a permanent home available in both, and a centre of vital interests that could not be determined because his personal ties were in India and his economic interests were in Abu Dhabi. That took the case to the habitual abode test, which pointed to Abu Dhabi, so he was treated as a resident of the UAE. Dividends from Indian companies, and income from Unit Trust of India units and s.10(23D) mutual funds, were taxable at 15 per cent under article 10; interest at 12.5 per cent under article 11; and capital gains on shares, debentures, units and like securities were exempt in India under article 13. The ruling binds only Dr Bhatt.
• Ericsson Telephone Corporation India AB v CIT Advance RulingCuts both waysSuperseded by amendment
  Indian operators are about to deduct 55 per cent from what they pay my Swedish company for installing a GSM network. Can they deduct on my thin net margin instead?
  No, not on the margin, though the rate came down. The Authority ruled that the Indian companies should not withhold at 55 per cent but at 30 per cent, the rate applicable to such payments under the Finance Act 1995. It refused the applicant's case that only its net profit from local operations, said to be not more than 10 per cent of receipts, could be taxed. The receipts being fees for technical services and the agreements having been made after 31 March 1976, section 44D(b) barred any deduction for expenditure or allowance, and the entire gross receipts fell to be taxed at 30 per cent under section 115A. The net profit question was left open.
• In re Advance Ruling P. No. 13 of 1995 Advance RulingCuts both waysSuperseded by amendment
  Our French engineering group will build a turnkey plant in India, with some work done here and a great deal done abroad. Can India tax the work done abroad, and are the payments royalties, technical fees or business profits?
  Mostly against the applicant. The Authority ruled that the French company's Indian project headquarters and site office together were a permanent establishment; that the payments under the seven agreements were royalties and fees for technical services within articles 13.3 and 13.4 of the India-France agreement; and that the outside activities were effectively connected with that permanent establishment, so the receipts fell to be taxed under article 7 read with article 13.6 as business profits. Only profits referable to operations carried out in India were taxable. Payments to head office for licensed technology and subcontracted services were not deductible reimbursements. The ruling binds only that applicant.
• Statutory position — section 44DA: royalty and fees for technical services effectively connected with a permanent establishment, and the second proviso that shuts section 44BB out from 1 April 2011 CBDT Circulars & InstructionsCuts both ways
  Our foreign company earns fees for technical services from an Indian oil company and we have a permanent establishment here. We have always returned the income at 10 per cent under section 44BB. The Assessing Officer says section 44DA applies instead. When did that change, and what does section 44DA require us to do?
  It changed with the Finance Act 2010, with effect from 1 April 2011, which inserted a second proviso to s.44DA(1) reading "Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section." Section 44DA(1) applies where royalty or fees for technical services are received from Government or an Indian concern under an agreement made after 31 March 2003, the non-resident or foreign company carries on business in India through a permanent establishment or performs professional services from a fixed place of profession, and the right, property or contract in respect of which the royalty or fees are paid is effectively connected with that permanent establishment or fixed place; the income is then computed under "Profits and gains of business or profession" in accordance with the provisions of the Act — that is, on a net basis — and s.44DA(2) requires books under s.44AA, an audit by an accountant within the meaning of the Explanation below s.288(2), and the audit report furnished along with the return.
• EPCOS Electronic Components SA v UOI High CourtHelps taxpayerOverruled
  My return was accepted as filed and no demand was raised. Is a s.264 revision still open to me?
  Yes. An intimation under s.143(1) that simply accepts the return is still an order capable of revision, and 'prejudicial to the interest of the assessee' does not mean 'raised a demand'. The prejudice was that the assessee had paid more than the applicable treaty provisions required, even though the tax computed in the intimation was unchanged.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.