Section 195

Section 195 — the law in short

What the courts have decided on section 195, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• DIT (International Taxation) v Star Cruises (India) P Ltd Supreme CourtHelps taxpayer
  My client is the Indian agent of a foreign cruise ship that sails round trips out of Mumbai. The Assessing Officer says a cruise is entertainment and hospitality, not carriage of passengers, so s.44B does not apply and he wants the s.195 withholding worked out on 25% of the fare instead of 7.5%. Can he do that?
  It depends on the findings of fact, and on these facts he could not. The Supreme Court refused to confine 'carriage' in s.44B to movement from one port to a different port, and held that ancillary services provided on a voyage do not take the activity outside the section. The concurrent findings of the CIT(A), the Tribunal and the Bombay High Court that the non-resident ship owner was carrying passengers were left undisturbed, so the deduction under s.195 stood on the statutory presumptive rate of 7.5% of gross cruise fare receipts and not on the 25% the Assessing Officer had estimated. The Revenue's appeals were dismissed.
• AO v Nestle SA Supreme CourtHelps department
  My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
  No, on both counts. A notification under s.90(1) is a mandatory condition before any court, authority or tribunal can give effect to a treaty or to a protocol that alters the existing provisions of law, so an MFN clause does not import a later treaty's rate or scope by itself. And where the clause is triggered by India's treaty with a third state 'which is a member of the OECD', that state must have been an OECD member when it entered the treaty with India, not merely by the time the benefit is claimed.
• CIT v Reliance Telecom Ltd Supreme CourtHelps department
  The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?
  No, where the recall amounts to rehearing the appeal on merits. Section 254(2) is a rectification power limited to a mistake apparent from the record; a Tribunal that reconsiders its own conclusions is sitting in appeal over itself. The remedy against an order said to be wrong on merits is an appeal to the High Court.
• DIT v Mitsubishi Corporation Supreme CourtCuts both ways
  My Indian payer did not deduct tax at source and paid me gross. The Assessing Officer says I should have paid advance tax and has charged s.234B interest. Which years can he do that for?
  Only from financial year 2012-13 onwards. The Supreme Court held that for every assessment up to and including financial year 2011-12, s.209(1)(d) entitled the assessee to reduce, in computing its advance tax, the income-tax that WOULD BE deductible at source, even though it had in fact received the full amount without deduction — so no s.234B interest could be charged. The proviso to s.209(1)(d) inserted by the Finance Act 2012 with effect from 1 April 2012 reverses that, and from financial year 2012-13 the assessee cannot reduce tax that the payer failed to deduct.
• Engineering Analysis Centre of Excellence P Ltd v CIT Supreme CourtHelps taxpayer
  You pay a foreign supplier for software. Is that royalty, and must you deduct TDS?
  Not royalty. An end-user licence gives a limited right to use a copyrighted article, not an interest in the copyright, so the payment is not chargeable in India and no tax need be deducted under s.195.
• Formula One World Championship Ltd v CIT Supreme CourtHelps department
  We had access to an Indian venue for only a few days in the year. Can that be a permanent establishment?
  Yes. A place is at the disposal of an enterprise when the enterprise has the right to use it and control over it, and a fixed place permanent establishment needs stability, productivity and dependence rather than ownership or a long lease. The Buddh International Circuit was a fixed place through which Formula One World Championship Ltd carried on its commercial activity, so it had a permanent establishment in India.
• UOI v Tata Chemicals Ltd Supreme CourtHelps taxpayer
  I deducted tax under s.195 because the officer told me to, and the CIT(A) has now held it was not deductible. Do I get interest on the refund, or only the tax back?
  Yes, interest as well. The resident deductor is entitled not only to the refund of the tax deposited under s.195(2) but to have it refunded with interest from the date of payment of the tax. The Revenue was the appellant and its appeals were dismissed. The CBDT has since accepted the position by circular.
• Vodafone International Holdings BV v Union of India Supreme CourtHelps taxpayerValidity unconfirmed
  I am buying the shares of a foreign holding company from another non-resident, and that company's subsidiaries hold shares in an Indian company — must I withhold tax under section 195?
  No, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply.
• GE India Technology Centre P Ltd v CIT Supreme CourtHelps taxpayer
  Must you deduct tax on every payment to a non-resident, just to be safe?
  No. The obligation under s.195 arises only where the sum paid is chargeable to tax under the Act. Mere remittance to a non-resident does not attract it, and you need not apply under s.195(2) where nothing is chargeable.
• Kanchanganga Sea Foods Ltd v CIT Supreme CourtHelps departmentValidity unconfirmed
  I pay a non-resident in kind, not in cash. Do I still have to deduct tax at source under section 195?
  Yes. The Supreme Court held that charter fee discharged by handing a non-resident owner 85 per cent of the fish caught was a payment attracting section 195, and that the non-resident received it in India. Until the catch was apportioned it belonged wholly to the Indian charterer; the non-resident got control only when its share was handed over at Chennai after certification, valuation and customs clearance. That was the first receipt in the eye of law and it was in India, so the income was chargeable under section 5(2). The company was rightly treated as an assessee in default under section 201 for not deducting.
• Transmission Corporation of A.P. Ltd v CIT Supreme CourtHelps department
  I am paying a foreign supplier for equipment and its erection. Most of the payment is cost, not profit. Must I deduct tax at source under section 195 at all?
  Yes. The Supreme Court held that any other sum chargeable under the provisions of this Act in section 195(1) is not confined to pure income profits. A sum is within the section if it is chargeable to tax, and that includes a sum in which income is hidden or embedded, such as a trading receipt of which only a fraction is taxable. The deduction is tentative, subject to regular assessment, and the payer's and recipient's protection lies in applying under section 195(2) or (3) or section 197 for a determination of the chargeable proportion or a lower or nil deduction.
• Transmission Corporation of AP Ltd v CIT Supreme CourtHelps departmentValidity unconfirmed
  I am paying a foreign supplier for equipment and for erecting it, and only part of that is really his income - must I deduct tax under section 195 on the whole payment?
  Yes, unless you first get the chargeable proportion fixed. The Supreme Court held that any other sum chargeable under the provisions of this Act in section 195(1) is not limited to payments that are wholly pure income profits; it covers a gross trading receipt in which income is embedded. The payer's obligation is confined to the appropriate proportion of income chargeable, but that proportion is determined on an application under section 195(2), or by the recipient under section 195(3) or section 197. If no application is made, tax must be deducted on the sum paid. The assessee's appeals were dismissed with costs.
• Emil Webber v CIT Supreme CourtHelps department
  My Indian contract says my pay is free of Indian tax and the Indian company pays the tax for me. Is that tax itself taxable in my hands?
  Yes. The Supreme Court held that tax paid by an Indian company on an expatriate's salary, under an obligation to pay him free of Indian tax, is itself income of the expatriate. The definition in section 2(24) is inclusive and does not rob income of its natural meaning; anything properly described as income is taxable unless exempted. The payment was made for and on behalf of the assessee, was not gratuitous, and had an integral connection with the salary he received. Since he was not an employee of the company that paid, it fell under section 56 as income from other sources. The appeals were dismissed.
• Barendra Prasad Ray v ITO Supreme CourtHelps department
  A foreign professional worked on our matter in India but we neither briefed him nor paid him. Can we be treated as his agent and made liable for his tax?
  Yes, on these facts. The Supreme Court held that 'business connection' in section 9(1) is not confined to trade or manufacture and takes in a professional connection. Business means an activity carried on continuously and systematically by applying labour or skill to earn income, and professions are generally regarded as businesses. The connection between the Calcutta solicitors and the English barrister was real and intimate, not casual: he argued their case with their consent, alongside their Indian counsel, and could not have earned the fees without associating himself with them. The order treating them as his agent under section 163(1) stood.
• CIT (International Taxation) v Nidra Hospitality Gujarat Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The officer says I am in default under s.201 for not deducting under s.195 on payments abroad, although I have a Form 15CB from my chartered accountant for every remittance. Is that enough?
  On these facts, yes. The Gujarat High Court declined to admit the Revenue's appeal, holding that once the assessee had filed its TDS returns and submitted Form 15CB — the accountant's certificate on liability to deduct under Chapter XVII-B prescribed by Rule 37BB — for each remittance, and the Assessing Officer had not disputed those, the assessee could not be treated as an assessee in default under s.201. The Court also held that commission paid to travel agents and on hotel bookings made through websites and subsidiaries was not a sum covered by s.195.
• Sumit Pendharkar v CIT High CourtHelps taxpayer
  TDS was cut on the whole sale price of my flat and I missed the deadline to file. Can the Commissioner refuse to condone the delay?
  Not on these facts. The Gujarat High Court set aside a refusal to condone delay under s.119(2)(b) where a non-resident had tax deducted at source on the gross sale consideration although he had no tax liability at all, and where the Commissioner had passed an ex parte order ignoring a medical certificate explaining why the notice went unanswered. The matter was remanded with a direction to pass a fresh order condoning the delay.
• Danisco India P Ltd v Union of India High CourtHelps taxpayer
  My overseas vendor has no Indian PAN — must I withhold 20 per cent under section 206AA when the treaty caps the rate at 10 per cent?
  No. The Delhi High Court held on 5 February 2018 that section 206AA, as it stood, must be read down: where the payee operates from a territory whose government has a double taxation avoidance agreement with India, the rate of deduction is the rate the treaty dictates, not 20 per cent. The petitioner remitted fees for technical services to a Singapore company with no Indian PAN; Article 12 of the India-Singapore treaty caps the tax at 10 per cent. Following Azadi Bachao Andolan, the Court held the treaty takes primacy, and noted that Parliament had itself softened the provision by substituting section 206AA(7) with effect from 1 June 2016.
• CIT v Herbalife International India Pvt Ltd High CourtHelps taxpayer
  I paid administrative fees to my US group company without deducting TDS and the officer has disallowed the whole amount under section 40(a)(i). Can I use the treaty's non-discrimination article?
  Yes, for years before the 2005 amendment. The Delhi High Court held that section 40(a)(i), as it stood for assessment year 2001-02, disallowed a payment to a non-resident for failure to deduct tax while an identical payment to a resident carried no such consequence. That lack of parity in deductibility is discrimination under Article 26(3) of the India-US treaty. Section 90(2) makes the treaty prevail, and the Court rejected the argument that a comparison needs a matching provision in the treaty. The Rs.5.83 crore administrative fee was allowed and the Revenue's appeal dismissed.
• T. Rajkumar v Union of India High CourtHelps departmentValidity unconfirmed
  Can Parliament override a tax treaty by notifying the other country as a notified jurisdictional area, and is section 94A constitutionally valid?
  The Madras High Court upheld section 94A(1) and dismissed all nine writ petitions, holding that the challenge to its constitutional validity was without merit and that the notification of 1 November 2013 specifying Cyprus as a notified jurisdictional area was equally unassailable. The Court reasoned that where a treaty partner fails to provide information, it is that partner and not section 94A which dilutes section 90(1)(c), and that the phrase 'any country or territory' in section 94A(1) cannot be read as excluding countries with which India has a treaty.
• Serco BPO Pvt Ltd v Authority for Advance Rulings High CourtHelps taxpayer
  I bought shares of an Indian company from two Mauritius sellers holding valid tax residency certificates. Must I withhold tax on the price, and can the Authority refuse a ruling by calling the structure tax avoidance?
  No withholding was required. The Punjab and Haryana High Court quashed the Authority's order declining a ruling under section 245R and, rather than remand, decided the questions itself. It held the Mauritius sellers were residents of Mauritius on their certificates of residence, which the Revenue could not go behind, that 'liable to taxation' in Article 4 does not mean tax actually paid, and that under Article 13(4) of the India-Mauritius treaty gains on alienation of property other than that in paragraphs 1 to 3 — which includes shares, with no limitation by situs — are taxable only in Mauritius. No capital gains tax was payable and the purchaser was not liable to withhold under section 195.
• DIT (International Taxation) v. GE Packaged Power Inc. — filing a NIL return at reassessment does not make a non-resident liable to s.234B interest for a pre-2012 year High CourtHelps taxpayer
  My non-resident client filed a NIL return after a s.148 notice, the Assessing Officer found a permanent establishment and charged s.234B interest for years before 2012. Does the fact that he denied taxability defeat the s.209(1)(d) argument?
  The Delhi High Court held that it does not. For assessment years before the Finance Act, 2012 proviso, s.209(1)(d) allowed the non-resident to reduce his advance tax by the tax that was deductible at source from the remittances, whether or not it was actually deducted, so no advance tax was payable and no s.234B interest could be charged — and the Court held that this remained so 'even though they filed returns declaring NIL income at the stage of reassessment'. It read the earlier decision in DIT v. Alcatel Lucent USA Inc. as turning on that assessee's initial denial of permanent establishment status followed by its volte face admitting it, not on the mere filing of a NIL return.
• DIT v Copal Research Limited, Mauritius High CourtHelps taxpayerValidity unconfirmed
  Two non-residents sold shares of a foreign company that draws only part of its value from Indian assets. Does Explanation 5 to section 9(1)(i) make those gains taxable in India, and must the buyer withhold?
  No. The Delhi High Court dismissed the Revenue's writ petitions and upheld the Authority for Advance Rulings. Explanation 5 to section 9(1)(i) is a legal fiction confined to its purpose, and 'substantially' in it must be read as principally, mainly or at least a majority. Gains on the sale of shares of a company incorporated overseas which derives less than 50 per cent of its value from assets in India are not taxable under section 9(1)(i) read with Explanation 5. The Court also rejected the case that the structure was a device: the transactions had a commercial rationale, and the Mauritian companies were not shell companies whose corporate identity could be ignored.
• Centrica India Offshore P Ltd v CIT High CourtHelps departmentValidity unconfirmed
  We have people seconded to us from our overseas group companies, they work under our control, and we only reimburse their salary cost — do we still have to withhold tax under section 195?
  Yes. The Delhi High Court held on 25 April 2014 that the overseas group companies remained the real employers of the secondees, so what they supplied was the service of trained personnel, not a bare loan of staff. The payment was fees for technical services under Article 13 of the India-UK DTAA and, because the secondees passed their quality-control know-how on to the Indian staff, made-available services under Article 12 of the India-Canada DTAA. The overseas entities also had a service permanent establishment. Calling the payment a reimbursement, and charging no mark-up, made no difference. Section 195 applied and the writ petition was dismissed.
• Van Oord ACZ India P Ltd v CIT High CourtHelps taxpayerPartly overruled — read this first
  The remittance to my foreign parent bore no tax. Can s.40(a)(i) still hit me for non-deduction?
  No. Section 195(1) fastens the duty to deduct on a sum chargeable under the Act, so chargeability is a jurisdictional condition and not a question of quantum. Where the authorities have found in the non-resident's own assessment that no tax is payable, there is nothing to deduct and no disallowance can follow.
• Inno Real Private Limited and Inno Estates Private Limited v Deputy Commissioner of Income Tax ITATCuts both waysValidity unconfirmed
  My client was held to be an assessee in default for not deducting tax at thirty per cent on a remittance to a Cyprus company. Cyprus has since been removed from the notified list — does that help for a past year?
  The Chennai Tribunal set aside the orders and remitted both cases for de novo consideration in the light of CBDT Circular No. 15 of 2017 dated 21 April 2017, which clarifies that Notification No. 86/2013 notifying Cyprus was rescinded with effect from the date of its issue, thereby removing Cyprus as a notified jurisdictional area with retrospective effect from 1 November 2013. The Commissioner (Appeals) had held that the rescinding notifications of 14 and 16 December 2016 carried no retrospective effect and had sustained the section 201(1) demands; the circular, which post-dated his order, answered that.
• Nagarjuna Fertilizers and Chemicals Ltd v ADIT (International Taxation)-II, Hyderabad ITATHelps taxpayerValidity unconfirmed
  My non-resident payees had no PAN and the treaty rate is ten per cent. The officer says s.206AA has a non obstante clause and overrides everything, so twenty per cent it is. Is there a Special Bench on this?
  There is, and it is against the department. The Hyderabad Special Bench held that s.206AA will not have an overriding effect over all other provisions of the Act, and that treaty provisions, to the extent more beneficial, override s.206AA by virtue of s.90(2). It answered the question referred to it in the negative and in favour of the assessee, and held that the deductor could not be required to deduct at the higher of the s.206AA rates on payments to non-residents having taxable income in India despite their failure to furnish PANs.
• ITO v Right Florists P Ltd ITATHelps taxpayer
  I pay Google Ireland and Yahoo for online search advertising. Must I deduct tax at source, or will the expense be disallowed?
  No tax was deductible, so no disallowance. The Kolkata Tribunal held that payments for online search advertising to Google Ireland and Yahoo USA were not taxable in India. Neither had a permanent establishment here, and a website by itself is not a PE. The service is fully automated with no human intervention, so it is not fees for technical services under section 9(1)(vii) or under the India-Ireland treaty; and under the India-USA treaty nothing was made available. With no primary liability on the recipient there was no withholding obligation under section 195 and no disallowance under section 40(a)(i).
• Herbalife International India (P) Ltd v ACIT ITATCuts both waysValidity unconfirmed
  I did not withhold tax on an administrative fee paid to my US parent. Can the Assessing Officer disallow the whole expense under section 40(a)(i) when a payment to an Indian party would not be disallowed?
  No, where the India-USA treaty applies. The Delhi Tribunal held that Article 26(3) of that treaty forbids exactly this discrimination: a disbursement to a resident of the other State must be deductible on the same conditions as a payment to a resident. As section 40(a)(i) then stood, non-deduction of tax led to disallowance only for payments to non-residents, so an Indian payer would prefer a resident supplier. Article 26(3) neutralises that, and by section 90(2) the more beneficial treaty provision prevails. The Tribunal therefore held section 40(a)(i) could not be invoked, even assuming the sum was chargeable in India, and left the chargeability question open.
• Raymond Ltd v DCIT ITATCuts both ways
  We paid a UK merchant bank commission for managing our GDR issue. Does 'fees for technical services' in the treaty catch it, so that we had to deduct tax under section 195?
  No, on the Tribunal's reading of the treaty. The Mumbai Tribunal held that Article 13.4(c) of the India-UK treaty is not satisfied by merely rendering technical or consultancy services. The services must also make available technical knowledge, experience, skill, know-how or processes, meaning the recipient must be able to apply them himself afterwards without going back to the provider. The lead manager's work on the GDR issue left Raymond with nothing of that kind once the issue closed. The Tribunal also rejected the argument that the managers had bought the GDRs and resold them, and held that the UK treaty applied.
• KnoWerX Education (India) P Ltd v DIT Advance RulingHelps taxpayer
  We collect examination fees in India for two American professional bodies and send the money on. Is that taxable here, and must we deduct tax before we remit?
  No. The Authority ruled that the examination fees collected for APICS and AST&L and remitted to them were not taxable in India, that the income was business income in nature, and that the applicant need neither deduct tax nor pay any. The fees were received in India by the applicant on the American bodies' behalf, so section 5(2)(a) was in play; but both bodies were residents of the United States for the agreement notwithstanding their exemption under section 501(c)(6) of the Internal Revenue Code, and the applicant was not their permanent establishment. With no permanent establishment, article 7 left the profits taxable only in the United States, and section 195 had nothing to bite on.
• In re Airports Authority of India (Raytheon contracts) Advance RulingCuts both waysSuperseded by amendment
  We send faulty equipment abroad for repair by a US supplier and separately pay it to maintain the software. Do we deduct tax on either, and at what rate?
  It depends on which contract. The Authority ruled that the payment to Raytheon for hardware repair support was not taxable in India and that the applicant was not required to deduct tax on it: the repairs were done outside India, delivery was taken outside India and Raytheon had no permanent establishment here, so article 7 left those business profits to the United States. The software maintenance contract went the other way. The deputation of an engineer created no permanent establishment, but the payments were fees for included services under article 12, the applicant having a conditional right to use the software rather than an outright purchase. Tax was to be withheld at 10 per cent apart from surcharge.
• In re Vanenburg Group B.V. Advance RulingHelps taxpayerValidity unconfirmed
  Our Dutch company is moving its Indian subsidiary's shares to another group company in the Netherlands. If the gain is exempt under the treaty, do we still have to withhold, file a return and do a transfer pricing study?
  No, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg.
• In re Cargo Community Network Pte. Ltd. Advance RulingHelps departmentValidity unconfirmed
  Indian cargo agents pay our Singapore company a subscription for a password to use our air-cargo booking portal, which sits on our servers in Singapore. Is that taxable in India?
  Yes. The Authority ruled that the payments made by Indian subscribers to Cargo Community Network Pte. Ltd. for a password to access and use its Ezycargo portal, hosted on servers in Singapore, were taxable in India and subject to deduction of tax at source. The portal and the server together were held to be integrated commercial-cum-scientific equipment which the Indian agents used in India, so the subscription was royalty under article 12(3)(b) of the India-Singapore agreement. The training and help-desk support supplied through the applicant's Chennai liaison office were fees for technical services under article 12(4), being ancillary to the enjoyment of the equipment. The ruling binds only that applicant.
• In re A.T. and S. India P. Ltd Advance RulingHelps department
  Our Austrian parent seconds its technical staff to us and we repay it exactly what their salaries cost. The staff work under our control. Must we withhold tax under section 195 on that repayment?
  Yes. The Authority ruled that the payments A.T. and S. India made to AT&S Austria under a secondment agreement, described as reimbursement of the salary cost of seconded personnel, were subject to withholding under section 195. AT&S Austria remained the real employer: it could recall and replace the personnel, they would return to it after the assignment, and the Indian company could not exceed the salaries it fixed. The payments were consideration for the provision of services of technical or other personnel and so were fees for technical services within Explanation 2 to section 9(1)(vii) and article 12(4) of the India-Austria agreement. The ruling binds only that applicant.
• In re ABC Ltd Advance RulingHelps taxpayerSuperseded by amendment
  My Swiss company is assigning its rights under an Indian supply agreement to a new Indian subsidiary and the deed is signed in Switzerland. Is the assignment fee taxable in India?
  No. The Authority ruled that the consideration for assigning the turbocharger development and supply agreement did not accrue or arise in India. The assignment was a transaction distinct from the work under the supply agreement itself; the applicant had no business connection in India in respect of it; the deed was executed in Switzerland on 23 February 2006 and the consideration was payable outside India. Nor was the receipt royalty: none of the clauses of Explanation 2 to section 9(1)(vi) was attracted, because the agreements concerned the supply of a product and transferred no patent, know-how or technical information. The second question did not survive, and with nothing chargeable, section 195 did not apply.
• 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 taxpayerValidity unconfirmed
  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.
• In re Airports Authority of India (feasibility study) Advance RulingHelps taxpayer
  A US firm did a feasibility study for us, but it is paid directly out of a US government grant, not by us. Is the fee taxable in India, and must we deduct tax?
  No. The Authority ruled that the payments to Innovative Solutions International Inc of Virginia were not taxable in India, either under the Act or under the agreement with the United States. The study for the applicant's communication, navigation and surveillance and air traffic management project was prepared in the United States; the firm had no office or establishment in India and its work here was confined to some meetings with the applicant's officials and coordination with local vendors. Decisively, the money was payable only by the US Trade and Development Agency out of its grant of US$450,600, and the firm had no remedy against the applicant if the Agency did not pay.
• In re Danfoss Industries P Ltd Advance RulingHelps department
  We pay our Singapore group company a share of its regional costs for market research and management advice. If there is no profit in it, must we still deduct tax under section 195?
  Yes. The Authority ruled that the payments to Danfoss Singapore would be subject to withholding under section 195. It accepted the common ground that section 195 applies only where the amount is income of the payee and not a mere reimbursement of cost, but held that these payments were not reimbursements. The fee was worked out by an allocation key based on each group company's budgeted turnover, weighted for growth rate and market maturity, so there was no direct nexus between what Danfoss Singapore actually spent in serving the applicant and what the applicant paid. Even if the total matched the cost, that would be a quid pro quo for the service fees and not a reimbursement of expenses.
• In re Ind Telesoft (P) Ltd Advance RulingHelps taxpayerSuperseded by amendment
  We pay commission and a retainer to agents in France, Canada and the USA who find export orders for our software. None of them sets foot in India. Do we deduct tax?
  No, as the law stood. The Authority ruled that no tax was deductible at source under section 195 on the commission and retainer fees payable to the three non-resident agents. All three operated outside India and had no office or operations here; the applicant earned its foreign exchange by exporting software, and after the receipts came into India the agents were paid their fees and commission abroad. The Commissioner himself relied on the Board's Circular No. 23 of 23 July 1969, under which no part of the income would arise in India where the non-resident agency operated outside the country, and on Circular No. 786 of 7 February 2000. The Authority adopted that reasoning and ruled accordingly.
• In re Flakt (India) Ltd Advance RulingHelps department
  We have credited royalty and management fees to our Swedish and Swiss group companies in our books but remitted nothing. Do we have to deduct tax now, or only when we pay?
  Yes, now. The Authority ruled that section 195(1) is triggered when the amounts are credited to the non-resident's account in the payer's books, not only when they are remitted. The subsection operates at the time of credit of the income to the account of the payee or at the time of payment, whichever is earlier, and whether the money has actually gone out is irrelevant to the duty. It also held that the royalties and management service fees were taxable in India under the Act, article 12 of the Swedish and Swiss agreements permitting India to tax them according to its own laws, and that requiring deduction on credit does not defeat or render the agreement otiose.
• Pro-Quip Corporation v CIT Advance RulingHelps taxpayer
  We bought engineering drawings and designs outright from a US company for our plant. The buyer withheld tax treating it as royalty. Was that right?
  No. The Authority ruled that the amount Pro-Quip Corporation received from Linde Process Technologies India Ltd for the sale of engineering drawings and designs was not taxable in India. The purchase order transferred ownership in the drawings outright, with no reservation of rights, no contingency and no continuing service obligation. That is a sale of property, not consideration for the use of or the right to use property, so article 12 of the India-US convention on royalties and fees for included services was not attracted. Any services attached to the sale fell within the exclusion in article 12(5). The applicant could claim a refund of the tax deducted, with interest. The ruling binds only Pro-Quip.
• In re P. No. 30 of 1999 Advance RulingHelps departmentSuperseded by amendment
  Our Indian company pays its US group parent for time on the group's mainframe computers and for use of the group data network. Is that royalty taxable in India?
  Yes. The Authority ruled that the charges paid by the Indian company to its US group company for access to and use of the group's mainframe computers and consolidated data network were taxable in India, and fell within article 12(3)(a) of the India-US convention rather than article 12(3)(b). The Indian company was billed by reference to CPU utilisation time, email usage, bandwidth and network management. The Authority held the payment was for the use of a secret process - the embedded, customised, encrypted software through which the data was processed - and so was royalty on the first limb, not a payment for equipment. The ruling binds only that applicant.
• Hyder Consulting Ltd v CIT Advance RulingCuts both waysValidity unconfirmed
  The State government paying our consultancy fee is deducting tax at 42.85 per cent when the India-UK treaty caps technical fees at 15 per cent, and it - not we - has already gone to the Assessing Officer under s.195(2). Can we still get an advance ruling on the rate?
  Yes on maintainability, and yes on the rate. The Authority held the application maintainable because the s.195(2) reference had been made by the Government of Orissa as payer, not by the applicant, so nothing was pending in the applicant's own case within clause (a) of the proviso to s.245R(2). On the substance it held the receipts were fees for technical services and that deduction was to be made at 15 per cent of the gross amount under article 13 of the India-UK agreement, not at the 42.85 per cent the Income-tax Officer (TDS) had arrived at. It refused to rule on whether the sums routed through the applicant to its Indian sub-consultant were its income at all - that was a question of fact for the Assessing Officer. The ruling binds only Hyder Consulting.
• Von Der Mark v CIT Advance RulingCuts both waysValidity unconfirmed
  I am a German engineer on the board of an Indian company and I also consult for it from Germany. The department says everything the company pays me is directors' fees taxable in India. Is it?
  It depends, and the ruling splits the payments. The Authority held that the consultancy fees paid by Pennwalt India Ltd to a German engineering consultant for services rendered entirely from Germany were professional services within article 14 of the India-Germany agreement and taxable only in Germany, because he had no fixed base in India and his stay here was 13, 13 and 25 days in the three relevant years. It rejected the department's case that his directorship was itself a fixed base, and that his fees were salary under s.15. But the fee for attending board meetings and any similar payments fall under article 16, are taxable in India, and tax is deductible at source on them. The ruling binds only the applicant.
• Horizontal Drilling International SA v CIT Advance RulingHelps taxpayer
  Our French company drilled a pipeline crossing under a river in India for a public sector customer. The whole job took three months. Can the Revenue tax the contract price as fees for technical services even though we have no permanent establishment?
  No. The Authority ruled that Horizontal Drilling International SA was not liable to Indian tax on the proceeds of its contract with GAIL. The job - laying gas pipeline under the Yamuna by horizontal drilling - ran about three months, well short of the six months that article 5(3) of the India-France agreement requires before a construction or installation project becomes a permanent establishment. Without a permanent establishment article 7 gave India nothing. The Authority refused to let the Revenue reach the same money through article 13 instead, holding that the price of executing a project is not consideration for services rendered while executing it. The ruling binds only that applicant.
• TVM Ltd v CIT Advance RulingHelps taxpayerSuperseded by amendment
  My Mauritius company sells advertising airtime on a channel beamed into India, and an Indian associate canvasses the advertisers and collects the money for us. Does that associate give us a permanent establishment here?
  No. The Authority ruled that TVM Ltd, a Mauritius company, had no permanent establishment in India, so its business profits from Indian advertising could not be taxed here. TVI, the Indian company soliciting the advertisements, was not an agent of independent status because it worked exclusively for TVM; but it was not a dependent-agent permanent establishment either, because under the solicitation agreement it had no authority to conclude contracts and final acceptance rested with TVM. The profits were deemed to accrue under section 9, but article 7 of the India-Mauritius treaty kept them outside the Indian net. The ruling binds only TVM.
• 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.
• Decta v CIT Advance RulingHelps taxpayerValidity unconfirmed
  We are a UK development body. Indian companies pay us a share of the cost of export-promotion projects we run for them, and we make nothing on it. Is that a fee for technical services taxable in India?
  No. The Authority ruled that the contributions DECTA received from Indian companies were not income chargeable to tax in its hands at all, and so were not fees for technical services under section 9(1)(vii) or article 13(4) of the India-UK agreement. DECTA ran export promotion and technical assistance projects for Indian companies under a bilateral UK-India development programme. The projects were paid for by the UK Overseas Development Administration; the Indian companies put in roughly a quarter of project cost into a common account. The Authority treated that as a pooling of project expenses, not a price for services. The third question did not arise. The ruling binds only DECTA.
• Tekniskil (Sendirian) Berhard v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Malaysian company that recruits skilled workers abroad and supplies them to a Korean contractor working offshore India. We are paid outside India and we supervise nothing. Are we taxable here?
  No. The Authority ruled that Tekniskil, a Malaysian manpower company, was not taxable in India on sums received abroad and had no permanent establishment here. It supplied about a hundred skilled workers to Hyundai Heavy Industries for offshore installation work at Bombay High. It recruited them outside India, bore their mobilisation and personal costs, and handed them over; HHI directed and supervised them on its own barges. Supplying labour was a business activity, so article 7 of the India-Malaysia agreement applied, and with no fixed place at Tekniskil's disposal there was nothing for the profits to attach to. The ruling binds only Tekniskil.
• 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 — s.194E with s.115BBA: withholding on payments to a non-resident sportsman, sports association or entertainer CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  We are paying a foreign player, a foreign federation and a foreign performer for an event in India. Who is caught by s.194E, at what rate, and does the treaty stop the deduction?
  Section 194E as printed on the live departmental page requires the payer to deduct twenty per cent where any income referred to in s.115BBA is payable to a non-resident sportsman (including an athlete) who is not a citizen of India, to an entertainer who is not a citizen of India, or to a non-resident sports association or institution — at credit or payment, whichever is earlier. The section is entirely parasitic on s.115BBA: if the income is not income referred to in that section, there is no s.194E duty at all, which is how payments to umpires and match referees were held to fall outside it.
• Statutory position — s.209(1)(d) and its proviso: credit against advance tax for tax deductible but not actually deducted CBDT Circulars & InstructionsCuts both ways
  My client is a payee whose income should have suffered TDS but the payer deducted nothing. Can he still reduce his advance tax by that tax when computing his liability, and does it matter which year it is?
  It depends entirely on which side of 1 April 2012 the financial year falls. Clause (d) of s.209(1) reduces the income-tax computed under clause (a), (b) or (c) by 'the amount of income-tax which would be deductible or collectible at source during the said financial year' on income taken into account in the computation — words wide enough to cover tax that was deductible but never deducted; but the proviso inserted in clause (d) by s.83 of the Finance Act, 2012 removes that reduction where 'the person responsible for deducting tax has paid or credited such income without deduction of tax', so from the financial year 2012-13 onwards a payee who was in fact paid gross cannot use the deductible-but-not-deducted amount to wipe out his advance tax.
• Statutory position — section 94A: the consequences of dealing with a person located in a notified jurisdictional area, and whether any area is notified today CBDT Circulars & InstructionsCuts both ways
  My client is remitting money to a company in a low-tax jurisdiction. Does section 94A apply, and is any country actually notified as a notified jurisdictional area at the moment?
  Section 94A lets the Central Government notify a country or territory as a notified jurisdictional area having regard to the lack of effective exchange of information, and once notified the consequences are severe and automatic: all parties to a transaction with a person located there are deemed associated enterprises, the transaction is deemed an international transaction so the entire transfer-pricing machinery applies, deductions are barred unless prescribed authorisations and documents are furnished, unexplained receipts from such a person are deemed to be income, and withholding is at the highest of the rate in force, the rate in the relevant provision and thirty per cent. The only notification under section 94A(1) that could be located was Notification No. 86/2013 notifying Cyprus, and it was rescinded by Notification No. 114/2016 with retrospective effect from 1 November 2013. No subsisting notification was found and no departmental list of notified jurisdictional areas could be opened, so nothing here certifies that no jurisdiction is notified today — section 94A should be neither treated as live against a jurisdiction nor written off as a dead letter without checking the current list.
• Statutory position — s.194D: insurance commission, the threshold, and why the section states no rate CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  The insurer deducted tax on my agency commission even though it was under twenty thousand rupees for the year. What is the s.194D threshold, and which year does my case fall in?
  Section 194D obliges any person paying a resident income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business — including business relating to the continuance, renewal or revival of policies of insurance — to deduct at the rates in force, at credit or payment, whichever is earlier. The second proviso stops deduction where the amount of such income, or the aggregate of the amounts credited or paid or LIKELY to be credited or paid during the financial year to the payee, does not exceed twenty thousand rupees on the departmental page stamped Year 2026; the pages stamped Year 2020 and Year 2023 print fifteen thousand rupees, and the pages stamped Year 2012 and Year 2014 print twenty thousand rupees, substituted for five thousand by the Finance Act, 2010 with effect from 1 July 2010.
• Concentrix Services Netherlands B.V. and Optum Global Solutions International B.V. v ITO (TDS) — OVERRULED High CourtHelps taxpayerOverruled
  My Dutch parent has a s.197 certificate application pending and wants dividend withholding at 5 per cent under the most favoured nation clause in the Protocol. There is a Delhi High Court judgment in its favour. Can I still rely on it?
  No. This Delhi High Court judgment held that the Protocol forms an integral part of the India-Netherlands Convention so that 'no separate notification is required' for the most favoured nation clause to operate, and directed withholding at 5 per cent by importing the rate from India's later treaties with Slovenia, Lithuania and Colombia. That reasoning was reversed by the Supreme Court in Assessing Officer Circle (International Taxation) v. Nestle SA on 19 October 2023, which held that a notification under s.90(1) is a necessary and mandatory condition before a court, authority or tribunal can give effect to a Protocol that alters the existing provisions of law. The entry is carried so that the reader can identify the authority and stop relying on it.
• DIT (International Taxation) v. Alcatel Lucent USA Inc. — the 'volte face' ground for charging s.234B interest on a non-resident, and its reversal by the Supreme Court High CourtHelps departmentOverruled
  The Assessing Officer is relying on the Delhi High Court's Alcatel Lucent judgment to charge my non-resident client s.234B interest because it first denied a permanent establishment and then accepted the assessment. Is that judgment still good?
  It is not. The Delhi High Court did hold, on 7 November 2013, that where a non-resident first denies that it has a permanent establishment and then accepts its tax liability at the first appellate stage, it must take responsibility for its volte face and cannot shift the blame for non-deduction to the Indian payers, so s.234B interest was payable; it answered the question of law in favour of the Revenue and allowed the appeals. But the assessees' special leave petitions were entertained, and in the Supreme Court's judgment of 17 September 2021 in the Mitsubishi Corporation batch the Court, having set out the Alcatel Lucent history at paragraph 23, recorded at paragraph 25: 'Accordingly, these Civil Appeals are allowed.'

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.