Online 15 CB in Delhi

1. TDS to be deducted on payment by a firm to its non-resident working partner
2. Commission paid to overseas Agents:
3. Commission earned by NR would not be taxable in India under Domestic law if all services rendered by NR outside India (i.e. NR do not have any business connection in India as per Sec 9(1)(i)) and income is not received in India. If it is taxable under Domestic Law, we need to claim the benefit of DTAA in which it is not taxable.
4. Clearing and Forwarding (C& F) Charges paid Non-resident: In the case of ACIT v Leaap International (P.) Ltd. 15 taxmann.com 251, Honorable Chennai Tribunal held that payment made to foreign companies partly towards freight charges for moving the goods and partly for transportation for clearing/forwarding at the foreign ports and the remittances were for services rendered outside India and the companies to whom payments were made did not have any branches or PE in India; and the payments were made in accordance with the RBI's circular as also the CBDT Circular No. 10/2002 dated 9-10-2002 and, therefore, the payments were not liable for deduction of tax under section 195.
5. Loan Arranger Fees: Arranging of a loan cannot be equated with lending of managerial or consultancy services at all because Arranger did not provide any advisory or counselling services. The Arranger was not involved in providing control, guidance or administration of the credit facility nor it was involved in day-to-day functioning of the assessee in overseeing the utilisation or administration of the credit facility. It was not in charge of entire or part of the transaction of arranging services, hence, it cannot be termed as managerial or consultancy services within the meaning of Fee for Technical Services prescribed u/s 9(1)(vii). Hence, Fee paid to non-resident for arranging loan is neither interest nor 'FTS' and not liable to TDS in India.
6. Reimbursement of expenses: If the main expenditure is not chargeable to tax in India, then reimbursement of expenses will also be not chargeable to tax. Similarly, if the main expenditure is chargeable to tax in India then the reimbursement of expenses shall also be chargeable.

Royalty/ FTS income is taxable in India if service is used/ utilized in India. Place of rendering service not relevant

Section 9(i)(vi)/(vii) of the Act deem royalty/FTS to accrue or arise in India where it is:

• Payable by the Government
• Payable by resident unless it is payable in respect of any right, property or information used or services utilized:
  • for the purpose of or in the business or profession carried on by such resident outside India or
  • for the purpose of making or earning any income from any source outside India
• Payable by non-resident only if it is payable in respect of any right, property or information used or services utilized:
  • for the purpose of or in the business or profession carried on by such non-resident in India or
  • for the purposes of making or earning any income from any source in India.

Illustrative examples of payments in the nature of “Royalty” (in specified circumstances)

Some of the DTAAs which India has entered into (US, UK, Canada, Australia, Finland, Singapore, etc.) provide for a restrictive definition of the term “FTS”/“FIS”.

As held in Infrasoft’s case by Delhi HC: What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. It is accordingly held that what has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income. Thus, the same shall come under the purview of royalty when payment is made for copyright or right to use copyright of software. Accordingly off-shelf saleable Software which are sale in CD/DVD/ pen drive NOT A royalty.

However, in India, a person has to be eligible to claim the beneficial provisions of such DTAA. As per section 90(4) of the Act, a person would be eligible to claim the beneficial provisions of the DTAA if he has obtained a Tax Residency Certificate from the government of the country of which he is a resident.