Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
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) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: articles on VAT and GST in India :: Central Excise rule to resale the machines to a new company :: TDS :: VAT Audit :: ACCOUNTING STANDARDS :: empanelment :: list of goods taxed at 4% :: form 3cd :: cpt :: ACCOUNTING STANDARD :: ARTICLES ON INPUT TAX CREDIT IN VAT :: due date for vat payment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: TAX RATES - GOODS TAXABLE @ 4%
« From the Courts »
 Commissioner Of Income Tax, Delhi Vs. M/s. Maruti Udyog Ltd
 Pr. Commissioner Of Income Tax - 6 Vs. M/s. Mohan Export India Private Limited
 Principal Commissioner Of Income Tax-7 Vs. Oriental International Co. Pvt. Ltd.
 Pr. Commissioner Of Income Tax-2 Vs. British Motor Car Co.(1934) Ltd
  Vidyadayani Shiksha Samiti vs. CIT (ITAT Delhi)
 Halcrow Consulting India Pvt. Ltd vs. DCIT (ITAT Delhi)
 ACIT vs. TRN Energy Pvt. Ltd (ITAT Delhi)
 Aditya Chemicals Ltd vs. ITO (ITAT Delhi)
 Gayatri Aggarwal Vs. Income Tax Commissioner & Ors.
 Paradigm Geophysical Pvt. Ltd. Vs. Commissioner Of Income Tax (International Taxation)-3, New Delhi
 Download Companies (Amendment) Act, 2017

Issues of cross-border dry leases and royalty
June, 16th 2008

Surging economic growth has resulted in substantial growth in Indias shipping and aviation industry. The last few years have seen the mushrooming of a number of low-cost airlines and the large domestic airline companies expanding their fleets. But this growth in the aviation industry is plagued with issues such as rising cost of fuel, airport congestion, scarcity of experienced pilots, etc. Compounding these problems was the withdrawal of income tax exemption granted on lease rentals paid on aircraft leased from foreign companies, subsequent to 31 March 2007.

Of late, the issue of taxability and withholding tax has gained greater relevance, in light of an increasing number of leasing of aircraft taken on on a dry lease basis (only the aircraft is provided, without insurance, crew, maintenance, etc.) and ships on bareboat basis, that is, without a professional master or crew.

The Income-tax (I-T) Act lays down different sources of income that are deemed to accrue or arise to a foreign company in India, such as income in the nature of fees for technical services, royalties, etc. So, would lease rentals paid for aircraft or for hiring ships constitute royalties?

Royalties has been defined in the Act to inter alia include consideration payable towards use or right to use industrial, commercial or scientific (ICS) equipment. The I-T Appellate Tribunal in the case of West Asia Maritime Ltd vs ITO (111 ITD 155) and Poompuhar Shipping Corp. Ltd vs ITO (109 ITD 226) has held that ships are equipment. So lease rentals paid by a resident to a non-resident should be subject to tax in India at 10.5575%, and where the tax liability of the foreign company is borne by the Indian payer, the tax would need to be grossed up, resulting in an effective tax rate of 11.8037%.

Tax treaties executed by India with some countries inter alia define royalties to include payments for the use of or right to use ICS equipment. Hence, in the case of such tax treaties, lease rentals payable for dry lease of aircraft/bareboat charter of ships should be subject to tax to India.

But tax treaties with countries such as Sweden, Israel, the Netherlands, Greece and Belgium do not consider payments for the use of or right to use ICS equipment as royalties. Further, the treaty executed with Ireland excludes aircraft from the definition of royalties. Accordingly, in case of such treaties, payments for the use of or right to ICS equipment should not be considered as royalties.

The tax department has sought to examine whether, in situations where dry leases are clearly not royalties, the lease rentals can be taxed as business income.

A key requirement for taxation of business profits is the constitution of a permanent establishment (PE) in India. The existence of a PE of the lessor in India would largely depend on the activity it carries out.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Achievements

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