Tax

  • Amount to be disallowed from payments to Non-Residents on which tax is deductible u/s 195

    February 14 2015

    On what amount TDS u/s 195 is required to be deducted while making payments to non-residents? Whether on gross amount or on net amount i.e. only on the income element ? In case where TDS has not been deducted what amount should be taken as base by the Income Tax officers for treating the assessee as being in default??? 

    The CBDT earlier directed AOs u/s 119 that in a case where the assessee fails to deduct TDS u/s 195, the Income Tax officer cannot treat the whole sum remitted to the non-resident as being chargeable to tax but he has to determine the appropriate proportion of the sum chargeable to tax as mentioned in s. 195(1) for treating the assessee as being in default u/s 201. Such appropriate proportion of the sum would depend on the facts & circumstances of each case i.e. nature of remittance, income component therein etc..

    Further to the above, disallowance regarding "other sum chargeble" under section 40(i)(a) is triggered when the deductor i.e. resident payee fails to withhold tax as per provisions of Section 195 of the Act. Akin to the chargebility and withholding of taxes on the whole amount or proportionate amount, concerns have been raised on the amount to be disallowed in such a situation.

    The CBDT has vide circular No. 3/2015 dated 12th February, 2015 has clarified that "the appropriate portion of the sum which is chargeable to tax under the Act shall form the Basis of such disallowance and shall be the same as determined by Assessing Officer jurisdiction for the purpose of Section 195(1).

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  • Shadows over the meaning of the word “substantially” w.r.t Indirect Share Transfers lifted???

    August 21 2014

    As part of the group restructuring policies & commercial deliberations, share transfers do take place between holding entities of foreign companies. As a result of which, the share holding of the Indian subsidiary of the foreign holding company is also indirectly transferred to a new foreign entity. In effect the transactions results into share transfer between two non-resident entities whereby simultaneously shareholding in the Indian entity also gets transferred. This reminds of one of the most discussed & debated deal between Hutch & Vodafone, where the Supreme Court of India held that the Indirect transfer of shares in Indian entity is not taxable in India.  Pursuant to which, the Indian Income Tax Act  was amended so as to levy income tax on capital gains as a result of transfer of a capital asset being any share or interest in a company outside India,  if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.[insertion of explanation 5 to section 9(1)(i)]

    It is in this background there was no clarity on the interpretation of the word substantially as it can be a subjective term and there is no concrete number to decide the substantiation of the transaction.

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  • Can Supervisory Activities/work constitute a Permanent Establishment (PE) of the Multinational Enterprise ??

    July 2 2014

    n a large construction/assembly project awarded to an Indian arm of foreign parent, it is common practice that the technicians of the foreign parent visit the host country on a frequent basis to supervise the overall work and provide the necessary technical guidance to the management/employees of the Indian arm.

    Another set of transaction could be that a large construction/ assembly project is awarded to an Indian entity, however for better technical qualities, foreign companies expert in this filed, send their technicians to supervise the overall project work.

    Whether such Supervisory Services by foreign companies to Indian entities could result in a Supervisory PE of the foreign company and liable to higher rate of taxation in India ???

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  • Secondment of Employees could Result in Permanent Establishment (PE) – Delhi High Court

    May 7 2014

    Seconded employees typically work under the direction, control and supervision of the Indian affiliate during their secondment. The foreign company pays the salary of the seconded employees abroad (i) to continue the social security contribution and (ii) for convenience purposes. The said salary paid is then recovered from the Indian affiliate on a cost-to-cost basis.

    Indian revenue authorities are closely monitoring these kinds of arrangements for possible Permanent Establishment (PE) exposure and for taxing the recharge of salary as Fees for Technical Services/Fees for Included Services (FTS/FIS).

    Recently, the Delhi High Court (Delhi HC), in respect of the writ petition filed in the case of Centrica India Offshore Private Limited (Indian Entity), had to decide i)whether the reimbursement of salary cost paid by Indian Entity to the overseas entities is taxable in India; if yes, ii)whether withholding of tax thereon was required u/s 195 of the Income-tax Act (the Act). A further issue raised was whether employees deputed to India created Service PE of a foreign company in India or not.

     

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  • High court not impressed by AAR’s “look at” approach – sets aside AAR’s order on Taxability of an Engineering Procurement & Construction

    April 26 2014

  • TDS u/s 195 on payments to Non-Residents on what amount??

    March 8 2014

    On what amount TDS u/s 195 is required to be deducted while making payments to non-residents? Whether on gross amount or on net amount i.e. only on the income element ? In case where TDS has not been deducted what amount should be taken as base by the Income Tax officers for treating the assessee as being in default??? 

    The CBDT has issued Instruction No. 02/2014 dated 26.02.2014 in which it has referred to the judgements of the Supreme Court in Transmission Corp of A. P. 299 ITR 587 and GE India Technology Pvt. Ltd 327 ITR 456 on the issue of deduction of tax at source u/s 195 while making payments to non-residents.

    The CBDT has directed AOs u/s 119 that in a case where the assessee fails to deduct TDS u/s 195, the Income Tax officer cannot treat the whole sum remitted to the non-resident as being chargeable to tax but he has to determine the appropriate proportion of the sum chargeable to tax as mentioned in s. 195(1) for treating the assessee as being in default u/s 201. Such appropriate proportion of the sum would depend on the facts & circumstances of each case i.e. nature of remittance, income component therein etc..

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