Section 9

Section 9 — the law in short

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

• Hyatt International Southwest Asia Ltd v Addl DIT Supreme CourtHelps department
  We run an Indian hotel under a long management agreement but own no office here. Can the department say we have a permanent establishment?
  Yes, on facts like these. A twenty-year agreement under which the foreign company appointed and supervised the general manager, set human resource and procurement policy, controlled pricing and marketing, and operated the hotel's bank accounts, performed through its own staff working from the hotel, made the hotel premises a fixed place of business under Article 5(1) of the India-UAE treaty. Exclusive or designated space is not required; what is required is that the premises be at the enterprise's disposal and that its business be carried on through them.
• Sedco Forex International Inc v CIT Supreme CourtHelps department
  We are a non-resident drilling contractor taxed under section 44BB. Is the mobilisation fee for bringing the rig to India part of the taxable receipts?
  Yes, on these contracts. The Supreme Court held that a fixed mobilisation fee paid for moving a drilling unit to the Indian location falls within clause (a) of section 44BB(2), as an amount paid on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used in, the extraction of mineral oils in India. Clause (a) applies whether the amount is paid in or outside India. By the fiction in section 44BB the amount becomes income under section 5 and is treated as arising in India for section 9. The assessees' appeals were dismissed.
• ADIT v E-Funds IT Solution Inc Supreme CourtHelps taxpayer
  We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
  No, not by itself. The Revenue must prove that a fixed place in India was at the disposal of the foreign company and that the foreign company carried on its own business through it. Close association between parent and subsidiary, and the fact that the Indian company depends on the group for its work, do not answer that question, and the functions-assets-risks analysis borrowed from transfer pricing is not the test for whether a fixed place permanent establishment exists.
• 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.
• 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.
• Ishikawajima-Harima Heavy Industries Ltd v DIT Supreme CourtHelps taxpayerSuperseded by amendment
  Our turnkey contract has offshore supply and offshore services alongside Indian work. Is the whole contract taxable in India?
  No — a composite turnkey contract can be split. Profits on equipment supplied and paid for outside India, where title passes outside India, are outside the Indian charge, because the contract being signed in India is immaterial and there must be a sufficient territorial nexus. On offshore services the Court read s.9(1)(vii) as requiring the services to be both utilised in India and rendered in India; that second requirement has since been removed retrospectively by statute, so only the offshore supply holding survives on the domestic law side.
• CIT v Nokia Network OY High CourtHelps taxpayerValidity unconfirmed
  We supply telecom equipment with embedded software to Indian operators through our Indian subsidiary. Is the subsidiary our permanent establishment, and is the software royalty?
  No on both counts, on these facts. A wholly-owned Indian subsidiary is a separate legal entity that contracts in its own name, and without proof that a place was at the disposal of the foreign company it is not a fixed place permanent establishment; a liaison office doing advertising and similar work falls within the preparatory and auxiliary exclusion. Software supplied as an integral part of the equipment is part of the sale of goods and not a licence, so the consideration is not royalty, and offshore supply completed outside India produces no Indian income.
• Blackstone Capital Partners Singapore VI v ACIT High CourtHelps taxpayerUnder appeal
  I hold a valid TRC. Can the AO go behind it and reopen my assessment for lack of substance?
  No. A valid tax residency certificate is statutorily the only evidence required to be eligible for treaty benefit, and the Indian authorities cannot disregard a certificate issued by another State's tax authority. Since Article 13(4) of the India-Singapore treaty then protected the capital gains, no income chargeable to tax had escaped assessment and the s.148 notice was invalidated.
• GE Energy Parts Inc v CIT High CourtHelps department
  Our Indian group company only markets and supports. Can the department call it our dependent agent PE?
  Yes, on these facts. Where the personnel working out of the Indian premises do more than liaise — where they take part in technical and financial negotiation and in price negotiation with the customer — the Tribunal's finding of both a fixed place permanent establishment and a dependent agent permanent establishment stands. The Delhi High Court affirmed the Tribunal and dismissed the appeals.
• Sumana Bandyopadhyay v DDIT High CourtHelps taxpayer
  The AO taxed my foreign salary because it landed in my Indian NRE account. Can he do that if I am a non-resident?
  No. Salary that became due and accrued to a non-resident for services rendered outside India does not become chargeable on a receipt basis merely because the foreign employer paid it into an Indian NRE account. Income accrues where the services are rendered, not where the money is banked, and the High Court allowed the appeal and answered the question in the assessee's favour.
• Nortel Networks India International Inc v DIT High CourtHelps taxpayer
  The Assessing Officer says my Indian subsidiary is my alter ego, so the whole turnkey contract is taxable here. Does an alter-ego finding by itself make offshore supply income taxable in India?
  No. The Delhi High Court held that even if the assessee were treated as an alter ego of the group, no part of the consideration for equipment manufactured and delivered outside India was chargeable in India. Clause (a) of Explanation 1 to section 9(1)(i) embodies a principle of apportionment, so only income reasonably attributable to operations carried out in India is taxable, and the equipment passed to the buyer abroad on FCA terms. There was no material that the Indian entity habitually concluded contracts for the assessee or held stock for delivery on its behalf, so the dependent agent Explanations were not satisfied. The appeals were allowed.
• 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.
• 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.

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.