DTAA art 13

DTAA art 13 — the law in short

What the courts have decided on section DTAA art 13, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Linklaters LLP v ACIT (International Taxation), Mumbai ITATHelps taxpayerNo later treatment found
  The Assessing Officer has taxed my client, a UK limited liability partnership, under the Independent Personal Services Article of the treaty because its partners are professionals. Can that Article apply to a firm at all?
  No, on this Tribunal's view. The Mumbai Tribunal held that Article 15 of the India-United Kingdom DTAA deals only with the taxability of independent personal services or independent activity of a similar character and not with a partnership firm, and that the assessee, not being an individual, was outside it. On the same order the Tribunal also held, following its own decisions in the assessee's earlier years, that the remuneration received for providing legal services was not fees for technical services and that the treaty overrode the Act.
• In re Vanenburg Group B.V. Advance RulingHelps taxpayerNo later treatment found
  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 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.
• In re Dun and Bradstreet Espana S.A. Advance RulingHelps taxpayerNo later treatment found
  We buy standardised business information reports from a Spanish company and resell them here. Do we have to withhold tax on what we pay, as royalty or technical fees?
  No. The Authority ruled that the payments made by Dun and Bradstreet Information Services India for electronic purchases of business information reports from its Spanish associate were the Spanish company's business profits within article 7 of the India-Spain agreement; that the Spanish company had no permanent establishment in India under article 5; that it was therefore not taxable in India on those profits; and that the Indian company was not required to withhold tax under section 195. Buying a finished report was likened to buying a book, not to acquiring intellectual property or a service. Three of the seven questions were not pressed. The ruling binds only that applicant.
• In re Fidelity Advisor Series VIII Advance RulingHelps taxpayerSuperseded by amendment
  Our US fund buys and sells Indian shares through local brokers and a custodian bank. Are our gains business profits or capital gains, and does the custodian give us a permanent establishment?
  Business profits, and no permanent establishment - so the fund won. The Authority ruled that the gains arising to Fidelity Advisor Series VIII from sales of its portfolio investments in India were its business profits covered by article 7 of the India-US convention, the shares and securities being held as business assets. It further ruled that the fund had no permanent establishment in India under article 5: it had no branch, office, employee or dependent agent here, and Standard Chartered Bank, its domestic custodian, was an independent agent within paragraph 5 of article 5. Without a permanent establishment the fund was not taxable in India under the convention. The ruling binds only that applicant.
• In re Cyril Eugene Pereira Advance RulingHelps departmentSuperseded by amendment
  I live and work in the UAE, where individuals pay no income tax. Can I claim the India-UAE treaty on my Indian dividends, interest and capital gains?
  No, on the Authority's 1999 view. It ruled that the applicant, permanently resident in Abu Dhabi, could not be treated as a resident of the UAE under article 4 of the India-UAE agreement, because article 4(1) requires liability to tax in that State and the UAE imposes no income tax on individuals. It followed that he could not claim the reduced rates on dividends and interest under articles 10(2)(b) and 11(2)(b), and that the capital gains protection in article 13(3) was unavailable, so the gains remained taxable in India under domestic law. The reasoning has not survived; the ruling bound only the applicant.
• Hyder Consulting Ltd v CIT Advance RulingCuts both waysNo later treatment found
  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.
• 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.
• Dr Rajnikant R. Bhatt v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I work in Abu Dhabi but my family, my home and most of my assets are in India. Can I still be treated as a UAE resident under the treaty and get the concessional rates on my Indian dividends, interest and capital gains?
  Yes, on these facts. The Authority worked article 4 of the India-UAE agreement in order and found the applicant, a radiologist employed at a government hospital in Abu Dhabi, resident of both States under article 4(1), with a permanent home available in both, and a centre of vital interests that could not be determined because his personal ties were in India and his economic interests were in Abu Dhabi. That took the case to the habitual abode test, which pointed to Abu Dhabi, so he was treated as a resident of the UAE. Dividends from Indian companies, and income from Unit Trust of India units and s.10(23D) mutual funds, were taxable at 15 per cent under article 10; interest at 12.5 per cent under article 11; and capital gains on shares, debentures, units and like securities were exempt in India under article 13. The ruling binds only Dr Bhatt.
• Ericsson Telephone Corporation India AB v CIT Advance RulingCuts both waysSuperseded by amendment
  Indian operators are about to deduct 55 per cent from what they pay my Swedish company for installing a GSM network. Can they deduct on my thin net margin instead?
  No, not on the margin, though the rate came down. The Authority ruled that the Indian companies should not withhold at 55 per cent but at 30 per cent, the rate applicable to such payments under the Finance Act 1995. It refused the applicant's case that only its net profit from local operations, said to be not more than 10 per cent of receipts, could be taxed. The receipts being fees for technical services and the agreements having been made after 31 March 1976, section 44D(b) barred any deduction for expenditure or allowance, and the entire gross receipts fell to be taxed at 30 per cent under section 115A. The net profit question was left open.
• Decta v CIT Advance RulingHelps taxpayerNo later treatment found
  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.
• In re Advance Ruling No. P-9 of 1995 Advance RulingHelps departmentSuperseded by amendment
  Two Mauritius companies my UK parent set up hold shares in an Indian bank. Can we get the India-Mauritius treaty rate on the dividends and exemption on the eventual share gains?
  No, and the Authority refused to rule at all. It accepted that the two Mauritius companies were residents of Mauritius under article 4, their effective management being there and not in India, so that on the face of the treaty article 13(4) would leave gains on the shares taxable only in Mauritius. But it then rejected both applications under clause (c) of the proviso to section 245R(2), holding the arrangement prima facie designed for the avoidance of income-tax: newly formed Mauritius subsidiaries wholly owned by a British bank served no purpose the bank could not serve by investing directly. The rejection binds only those applicants.
• 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.
• In re Mohsinally Alimohammed Rafik Advance RulingHelps taxpayerSuperseded by amendment
  I am an Indian citizen who has lived in Dubai for years and I hold Indian shares and debentures. Can I claim the India-UAE treaty on my dividends, interest and capital gains?
  Yes. The Authority ruled that the applicant, a non-resident who had lived in Dubai for seventeen years, was a resident of the UAE for the India-UAE agreement. Article 4(1) asks whether a person is liable to tax under a State's laws because of a nexus with it, not whether tax is in fact collected; and on the tie-breaker his permanent home, his closer personal and economic relations and his habitual abode were all in Dubai. Gains on his Indian movable property were therefore taxable only in the UAE under article 13(3), dividends capped at 15 per cent under article 10 and interest at 12.5 per cent under article 11. When the assets were acquired made no difference.
• Foster's Australia Ltd v CIT Advance RulingCuts both waysOverruled
  We sold our global beer brand and the Indian trade marks went with it. Is any part of the price taxable in India, and can the split be made on our own valuation?
  It depends, and the Authority split it. It ruled that the trade marks and the Foster's brand intellectual property were capital assets situated in India when they were transferred in 2006, so that income was deemed to accrue here under section 9(1)(i), article 13(6) of the India-Australia agreement leaving domestic law untouched. The brewing intellectual property was different: the manuals had reverted to the applicant in Australia and were handed over there, so it was not situated in India. On the second question the Authority refused to work from the applicant's own valuation, holding that the entire consideration for the Indian assets is gross income and leaving the assessing officer to apportion.

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.