Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: articles on VAT and GST in India :: ACCOUNTING STANDARD :: form 3cd :: VAT RATES :: VAT Audit :: ACCOUNTING STANDARDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: Central Excise rule to resale the machines to a new company :: due date for vat payment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: list of goods taxed at 4% :: cpt :: TDS
News Headlines »
 CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building
 FinMin looks at cut in corporation tax
 Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg.
 India is moving towards a flawed GST
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers
 Finance ministry warns tax officials of action against GST protest

Taxing foreign arms and agents
June, 18th 2007
The tax treaties which India has signed with various countries invariably contain a provision that if a foreign enterprise has a permanent establishment (PE) in India, the profits attributable to the Indian PE will be liable to tax in India.
The term PE principally means a fixed place of business. The tax treaties also contain various provisions which create a deeming fiction whereby, even in cases where there is no fixed place of business, the enterprise is still deemed to have a PE.
For example, when a foreign enterprise operates through a dependent agent (and the dependent agent satisfies the tests laid down in the treaty), the foreign enterprise shall be deemed to have a PE in India.
In a recent case of Set Satellite (106 ITD 175), the Mumbai Tribunal discussed the issue of PE through dependent agent. In this case, the assessee was a foreign company having a dependent agent (DA) in India. It had remunerated the agent on an arms length basis for the services rendered by the agent.
As regards its tax liability in India, the assessee submitted that having remunerated the agent on an arms length basis and the agent having offered said payment for taxation, no further profits of the assessee could be taxed in India.
After lengthy arguments and considering a host of cases, the Honble Tribunal observed that the Dependent Agent Permanent Establishment (DAPE) and DA has to be treated as two distinct taxable units.
The former is a hypothetical establishment, taxability of which is on the basis of the revenues of the activities of the foreign company attributable to the PE. The second taxable unit is the DA itself, but taxability is only in respect of the remuneration of the DA.
The order of the Tribunal does take into account the contrary views of many learned authors including Phillip Baker, Prof Roy Rohtagi and Prof David R Davies. The order also considers the report of the International Fiscal Associations 2006 Congress at Amsterdam, which unambiguously shows that taxing the DA and DAPE separately would be against the law that exists today.
However, the Honble Tribunal has relied on an OECD report, which supports taxing of DA and DAPE separately. The Honble Tribunal has rejected the argument that OECD report is yet to be implemented and when implemented, changes will have to be made in the tax treaties. The Honble Tribunal has also taken note of the fact that two schools of thought exist on the subject.
Referring to the IFA report, it was observed: The above observations clearly show that there is a widely held school of thought, even amongst the tax advisors who tend to take liberal interpretations in favour of the taxpayers, and who easily outnumber and outweigh neutral members in bodies like IFA that there has to be profit attributed to the DAPE over and above the arms length fees paid to the DA.
There is absolutely no doubt that the order of the Honble Tribunal is thought provoking which can only be written after a very thorough study of the subject. The order in fact is like a brilliant research paper.

But, unfortunately, the judgement is not based on the law that exists today; It is a reflection of the Honble members personal opinion based on their thoughts on what the law should be. How can this case be decided against the assessee when, as per the Tribunal itself, two views are possible and in fact the majority is in favour of assessee?

H P Aggarwal

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions