DTAA art 14 — the law in short
What the courts have decided on section DTAA art 14, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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In re Morgan Stanley and Co. International Limited
Advance RulingHelps taxpayerSuperseded by amendment
We are a UK company registered as an FII, trading index and stock futures and options on Indian exchanges through brokers and custodians. Is that income taxable in India?
No. The Authority ruled that the income derived by Morgan Stanley and Co. International Limited, a UK resident, from trading in exchange-traded derivative instruments in India would not be taxable in India under the India-UK agreement. It held first that income from derivative trading is business income and not capital gains, derivative contracts being excluded from the definition of capital asset. Business profits are taxable in India only through a permanent establishment, and the brokers, custodians and bankers the applicant used were independent agents acting for many clients in the ordinary course of their business, so no permanent establishment arose under article 5. The ruling binds only that applicant.
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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.
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.