Section 9(1)(vi)

Section 9(1)(vi) — the law in short

What the courts have decided on section 9(1)(vi), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• 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.
• GE Capital US Holdings Inc v DCIT High CourtHelps taxpayerValidity unconfirmed
  The officer refused immunity under s.270AA saying the penalty was for misreporting. Must he show which clause of s.270A(9) applies?
  Yes. The Delhi High Court held that once the assessee complies with clauses (a) and (b) of s.270AA(1) - paying the tax and interest and not appealing - the officer must reach a firm conclusion that the case falls in the category of misreporting, because that alone warrants rejection of the immunity application. Here neither the assessment orders nor the show cause notices contained any finding answering any of the six clauses of s.270A(9); the notices alleged 'under-reporting/misreporting' in the alternative and invoked both s.270A(2) and s.270A(9), which made them vague. The Court quashed both the rejection orders and the show cause notices. It also held that a legal position taken on the strength of a binding High Court decision, later vindicated by the Supreme Court, is not misreporting.
• Godaddy.Com LLC v ACIT High CourtHelps taxpayer
  We pay a foreign registrar to register our domain names. Is that royalty, and must we withhold?
  No, it is not royalty. A registrar has no proprietorship rights in the domain name it registers for a customer, so it cannot confer or transfer a right to use that name — and without a right to use there is nothing to characterise as royalty under s.9(1)(vi) or Article 12(3)(a) of the India-US treaty. The Delhi High Court allowed the assessee's appeal, reversing the Tribunal, which had held the receipts were royalty because a domain name is an intangible similar to a trademark.
• Paradigm Geophysical Pty Ltd v CIT (International Taxation)-3 High CourtCuts both waysValidity unconfirmed
  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.
• DIT v New Skies Satellite BV High CourtHelps taxpayer
  I pay a foreign satellite operator for transponder capacity — has the 2012 amendment to section 9(1)(vi) turned that into royalty under the treaty as well?
  No. The Delhi High Court held on 8 February 2016 that the Explanations inserted in section 9(1)(vi) by the Finance Act 2012 cannot change the meaning of "royalty" in a double taxation avoidance agreement. A treaty is concluded between two sovereign states and can be altered only by them; a unilateral amendment of domestic law, however clearly it expresses the government's discomfort, does not rewrite Article 12. So the interpretation in Asia Satellite Communications — that payments for data transmission through transponder capacity are not royalty, the process referred to being a secret process — continues to govern years before the 2012 amendment and every case involving a treaty. The Revenue's appeals were dismissed.
• DIT v Ericsson AB High CourtHelps taxpayerValidity unconfirmed
  We import telecom equipment that comes with embedded software, and the department wants to tax the software portion as royalty — is that right?
  No. The Delhi High Court dismissed the Revenue's appeals on 23 December 2011, holding the consideration for the supply was not royalty. Property in the goods and the risk both passed outside India, so no taxable event occurred here, and the fact that the contract was signed in India was irrelevant. Hardware and software supplied as one piece of equipment could not be split for section 9(1)(vi). Since the payment was not royalty, the Explanation below section 9 inserted by the Finance Act 2010 had no application at all. Interest under section 234B was also deleted, tax being deductible at source on the income chargeable in India.
• Asia Satellite Telecommunications Co Ltd v DIT High CourtHelps taxpayerValidity unconfirmed
  We pay a foreign satellite operator for transponder capacity, and the satellite is nowhere near India — is that payment royalty taxable in India?
  No, on the reasoning of this judgment. The Delhi High Court held on 31 January 2011 that a customer buying transponder capacity uses neither equipment nor a process belonging to the satellite operator. A transponder cannot function apart from the satellite — it depends on the satellite's power, antennae, positioning, temperature control and tracking — so it is not equipment capable of being handed over, and control never leaves the operator. The labels lease, lessor and rental in the agreement are not determinative; the substance is that the customer is given access to bandwidth while the operator performs the process. There was accordingly no use of a process by the TV channels.
• DIT v Sheraton International Inc High CourtHelps taxpayerValidity unconfirmed
  My foreign company runs worldwide advertising, publicity and reservations for Indian hotels using my brand. Is my fee royalty or fees for included services, or is it business profits?
  Business profits, and not taxable here for want of a permanent establishment. The Delhi High Court dismissed the Revenue's appeals and upheld the Tribunal. The main service was advertisement, publicity and sales promotion for the hotels worldwide; the use of the trademark, trade name and stylised S mark, the reservation interface and the loyalty programmes were all incidental to that integrated business arrangement, not separate services. So the fee was neither royalty under section 9(1)(vi) with Explanation 2 nor fees for technical services under section 9(1)(vii) with Explanation 2, nor taxable under Article 12 of the India-USA treaty. With no permanent establishment, Article 7 kept it out of the Indian net.
• Sky High Appeal XLIII Leasing v ACIT ITATHelps taxpayer
  Can the officer apply the PPT to my India-Ireland treaty claim just because both countries signed the MLI?
  No, on this Tribunal's view. The India-Ireland treaty is a covered tax agreement under the MLI, but the Tribunal held that no MLI provision — including the PPT — can be given effect in India without a separate notification under s.90(1), and none had been issued. The treaty benefits on aircraft lease rentals were allowed, the Tribunal also holding the lessors had no permanent establishment in India and that Article 8 covers the rental of aircraft in international traffic.
• Samsung R&D Institute India Bangalore P Ltd v JCIT ITATHelps taxpayer
  My foreign group companies ship me handsets, network equipment and other test gear free of cost so that I can test the software I write for them, and I send it back or scrap it when the testing is done. The AO has added the value under s.28(iv) as a benefit arising from my business. Can he?
  No, on these facts. The Bangalore Bench deleted an addition of Rs 7,37,33,056 under s.28(iv) on equipment supplied free of cost by the assessee's associated enterprises for testing software the assessee had developed for them. Two things carried it: the equipment was either returned or destroyed after testing, so nothing irretrievable or of enduring nature was made available to the assessee, and the price for the software development services had already been settled under a Mutual Agreement Procedure resolution between the competent authorities of India and Korea, in which the cost of indirect benefits should have been embedded - so if there were a nexus at all it belongs in a transfer pricing adjustment and not in a second addition under s.28(iv). The same order also deleted a s.40(a)(i) disallowance of depreciation on capitalised software, following the coordinate bench in the assessee's own case. Note what the order does not do: it decides nothing under s.194R.
• ACIT v SDV International Logistics Ltd ITATHelps taxpayerValidity unconfirmed
  My employees claim HRA and home loan interest together. Must I treat that as a double benefit?
  No, not on these facts. The point was ground 2 of a composite order under s.201 and s.271C. The first appellate authority had held the exemption and the interest deduction to be two independent provisions, each with its own conditions, and the Tribunal upheld that because the department could not controvert it, so the short deduction and the consequential penalty both fell away. The employees concerned had let out the houses they owned and were living in rented premises, with the whole of the interest set against rental income and the exemption claimed on the rent they actually paid.
• 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).
• 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 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.
• 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.
• 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.

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.