Section 245Q

Section 245Q — the law in short

What the courts have decided on section 245Q, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Linde AG, Linde Engineering Division v DDIT High CourtHelps taxpayerValidity unconfirmed
  Two foreign companies bid jointly for a turnkey contract and signed one contract with the customer. The department says they are an AOP. Are they?
  Not merely because they presented a common face to the customer. An association of persons requires a common enterprise managed through some degree of joint participation; mere co-operation in serving one's own business objective is not enough, even where the business interests are common. Where the members' scopes of work are separate, each manages its own deliverables, and neither costs nor risks are shared, there is no AOP.
• 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 Morgan Stanley and Co. Inc. Advance RulingCuts both waysPartly overruled — read this first
  Our Indian subsidiary does back-office work for us and we pay it cost plus a mark-up, and we send some of our own people over. Is the subsidiary our permanent establishment, and can the Revenue attribute anything more to us once the subsidiary has been paid an arm's length price?
  It depends on which limb. The Authority ruled that Morgan Stanley Advantage Services was not a fixed-place permanent establishment of Morgan Stanley & Co. Inc., because the US company did not carry on its business through MSAS's premises, and not an agency permanent establishment, because MSAS could not conclude contracts, held no stock and secured no orders. But it would be a service permanent establishment under article 5(2)(l) if employees were sent to India for more than 90 days, whether for stewardship or on deputation. On attribution, once MSAS was remunerated at arm's length no further income could be attributed to the permanent establishment. The ruling binds only that applicant.
• In re General Electric Pension Trust Advance RulingHelps departmentSuperseded by amendment
  We are a US pension trust, exempt from tax at home, investing a small part of our fund in Indian securities. Can we claim the India-US treaty, and are our gains business income?
  No on the treaty, and yes on business income - the trust lost. The Authority ruled that the profits arising to General Electric Pension Trust from the sale of its portfolio investments in India would be treated as its business income, given the continuous purchases and sales through Indian brokers. It then held that the trust was a resident of the United States for treaty purposes only so far as its income was subject to tax there; being tax-exempt, it was not a resident of a contracting State and could not claim the convention. The business income was therefore taxable in India under the Act. The ruling binds only that applicant.
• Vance Robert Heffern v CIT Advance RulingHelps taxpayerSuperseded by amendment
  Our US employer has seconded a telecom manager to India and is bearing his Indian tax. He has no formal technical qualification and cannot produce his certificates. Can he still be a technician for the s.10(5B) exemption?
  Yes, on the law as it then stood. The Authority ruled that Vance Robert Heffern, seconded by ALLTEL Information Services International Holding Inc. to its group company in India as a telecom manager, qualified as a technician under s.10(5B), and that the taxes borne by his employer were exempt for forty-eight months from his arrival in India. Neither his inability to produce educational certificates nor the absence of technical education was a disqualification, because specialised knowledge may be obtained either by education or by special experience; his fourteen years in the ALLTEL group and the work he was doing in India fell within the notified field of information technology. Section 10(5B) has since been deleted from the Act.
• 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.
• 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.
• Steffen Robertson and Kirsten v CIT Advance RulingHelps departmentSuperseded by amendment
  Part of our consultancy work for an Indian client is done in our own office abroad, and the contract puts every Indian tax on the client. Is the offshore part of the fee still taxable in India - and can we even ask the Authority when the tax is not ours to bear?
  Yes to both. The Authority held that the whole of the US $ 203,090 payable by TISCO to a South African engineering consultancy - the part for work done at Johannesburg, the part for work done in India, and the part described as daily allowances and travelling costs - was deemed to accrue or arise in India under s.9(1)(vi) and s.9(1)(vii), because the statutory test is where the services are utilised, not where they are rendered. TISCO had to deduct at 55 per cent for payments in financial year 1996-97 and 48 per cent for 1997-98, or at 30 per cent if both conditions in s.115A(1)(b) were shown to be met. The Authority also held the application maintainable despite a clause making TISCO bear all Indian taxes, because the non-resident still carries its own advance-tax and return obligations. The ruling binds only SRK.
• Brown and Root Inc v CIT Advance RulingHelps taxpayer
  Our US company laid a submarine pipeline offshore India as a subcontractor. The work took 39 days. Does that give us a permanent establishment under the India-US treaty?
  No. The Authority ruled that Brown and Root Inc, a US company, had no permanent establishment in India and so the revenue from its subcontract with Hyundai Heavy Industries was not taxable here. The work - installing a 12-inch submarine gas pipeline between offshore platforms using the vessels Subtec 1 and Captain BO - ran 39 days, from 30 November 1996 to 7 January 1997. Article 5(2)(k) of the India-US convention makes a construction or installation project or supervisory activity a permanent establishment only where it continues more than 120 days in any twelve months. Falling short of that, article 7 was not attracted. The ruling binds only that 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.
• DLJMB Mauritius Investment Company v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Mauritius company set up to channel US money into Indian securities. Are we entitled to the India-Mauritius treaty on our dividends, interest and capital gains?
  Yes, in substance. The Authority ruled that DLJMB Mauritius Investment Company was resident in Mauritius within the meaning of article 4 of the India-Mauritius agreement and entitled to the benefits flowing from it, notwithstanding that it had been placed in Mauritius partly for regulatory convenience and partly for the treaty. Capital gains on the transfer of securities, long-term and short-term, were not taxable in India by force of article 13. Income from units of mutual funds fell to the residuary article and was not taxable in India. Interest on approved debt instruments was exempt only so far as Indian law provided. Two questions were withdrawn or not pressed.
• 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.
• Arthur E. Newell v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I am a foreign technician deputed to India by my overseas employer, who pays my Indian tax. The Indian factory slits, perforates and spools imported film. Am I a technician in manufacturing operations, and does it matter that my employer is foreign?
  Yes on both. The Authority ruled that Mr Newell, a production operations manager employed by Kodak Limited in the United Kingdom and deputed to the Goa factory of Kodak India Limited, was a technician within the Explanation to s.10(5B) and entitled to the exemption. Slitting, perforating, notching and spooling imported jumbo rolls of film into 35mm cassettes and motion picture film was held to be manufacture, because what emerged was a different commercial commodity even though the original article remained identifiable. On the second point, the Authority read s.10(5B) as placing no restriction on who the employer is: a technician employed in a business in India qualifies whether the employer is Indian or foreign. The ruling binds only Mr Newell.
• 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.
• Educational Institute of American Hotel and Motel Association v CIT Advance RulingHelps taxpayerSuperseded by amendment
  A foreign non-profit runs hospitality courses in India through a branch and charges licence fees and course fees to Indian institutes. Is that income exempt as an educational institution, and does a surplus destroy the exemption?
  Yes, on the law as it then stood. The Authority ruled that the Educational Institute of American Hotel and Motel Association, a US non-profit working in India under a memorandum of understanding with the National Council of Hotel Management and Catering Technology, was entitled to exemption under s.10(22) on income from conducting courses and certification programmes, providing educational and training materials, conducting seminars and workshops, and training in-house faculty. Its objects barred any distribution of earnings to members or directors even on dissolution, and the activities under its licence agreements and memoranda were purely educational or ancillary to education. Because the first question was answered in the applicant's favour, the question on s.11 became academic. Section 10(22) has since been omitted from the Act.
• Monte Harris v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I have become resident in India by the time I want an advance ruling, and I have filed my return in the meantime because the due date came round. Can the Authority still hear my application?
  Yes, on both objections. The Authority held that residential status for Chapter XIX-B is tested by the financial year immediately preceding the year in which the application is made, so an American software manager who had become resident in 1994-95 was still a non-resident applicant when he applied on 31 March 1995. It also held that the bar in clause (a) of the proviso to s.245R(2) bites only where the question was already pending on the date of the application, so a return filed afterwards does not defeat it. On the merits it ruled that he was a technician in information technology within the notified field and entitled to exemption under s.10(5B). The ruling binds only Monte Harris.
• Jagtar Singh Purewal v CIT Advance RulingHelps taxpayerSuperseded by amendment
  My tenant has paid me a lump sum of back rent after a long-delayed rent revision. Is that taxable as house property income in the year I receive it?
  No - on the law as it stood in 1994, and only then. The Authority ruled that Jagtar Singh Purewal, a non-resident with a one-sixth share in a Jalandhar building let to Madras Rubber Factory Ltd, was not liable to tax on his Rs. 1,05,083 share of arrears of rent for periods up to 31 March 1992, received on 6 July 1992. Income from house property computed under s.23 cannot exceed the actual rent for the previous year in question, and the Act as it then stood made no provision for taxing the excess referable to earlier years. Nor could the sum be taxed as income from other sources, on the principle in Nalinikant Ambalal Mody. Parliament has since reversed the outcome by enacting a specific charge on arrears of rent.

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.