Friday, August 2, 2013

Income of Indian branch computed on basis of commercial activities rendered by it to its foreign HO

For determining the total income of an Indian branch receipt arising on account of commercial services rendered by it to American head office to be considered

The Tribunal held as under:

1) Article 7(3) of the India-US DTAA is in two parts. The first part of the Article relates to the activity carried on by the branch office which is commercial in nature whereas the second part relates to the activities which are not commercial in nature and relates to specific services performed by the branch office;

2) The assessee contented that it was rendering services covered by second part and, hence, the income arising on account of such specific services couldn’t be considered for determining its total income;

3) The services performed by the branch office was on account of outsourcing of commercial activities by its head office and, therefore, income arising out of such services rendered would be taxable under article 7(3) of India-USA DTAA, whereas if some non-commercial activities were specifically assigned by the head office to its branch office, then income arising out of such activity would not be taxable;

4) The branch office was involved in the customer care and medical transcription services. Thus, it was very clear that the branch office was also rendering services of commercial nature which had been outsourced by the head office;

5) After going through the order of the CIT (A), it was quite obvious that the assessee was only carrying out the normal commercial activities of the head office, in USA, i.e., a part of medical transcription work and software development. The assessee hadn’t established the fact that the activities carried on by it were non-commercial and in the nature of specific services as per the instruction of the head office. There was no infirmity in the order of the CIT (A) in holding that the income earned by the assessee from the activities carried on by it was taxable in India - Wellinx Inc. v. ADIT (International taxation) [2013] 35 420 (Hyderabad - Trib.)

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