Course launched by USA University in India isn't its business activity as it is registered as NPO

Facts:

a) The Regents of the University of California (‘UCLA’) entered into an agreement with Northwest Universal Education Private Ltd (‘NUEP’) to launch a Management Program in India which would train the senior executives of the companies.

b) It agreed to send its professors for training the senior executives working in India in respect of management techniques.

c) The applicant raised following questions:

- Whether program fee received by the Applicant is chargeable to tax in India as ‘fees for included services’ under Article 12 of the India-US DTAA?

- Whether the activities undertaken by it in India, viz., teaching would constitute its PE in India in terms of Article 5 of the India-US DTAA?

The Authority held as under:

1) Since the nature of the activity by the applicant in that case was educational activity, it could not amount to fees for included services particularly because of the provision of Article 12(5)(C).

Income from distribution of “Ten Sports” channel to cable operators couldn’t be held as ‘royalty’

Facts:

a) The assessee was engaged in business of telecasting “Ten Sports”. Its revenue arose from advertisement and distribution of sports channel in India. A distribution agreement was entered into by the assessee with ‘Taj India’ for distribution of pay channel to various cable operators and ultimately to consumers in India.

b) The AO made following observations:

The income from distribution of sports channel by assessee is taxable as royalty.

Transponder fee paid to US based company for rendering services in connection with telecasting of “Ten Sports” was taxable as royalty.

c) The CIT(A) reversed the order of AO. The aggrieved-revenue filed the instant appeal. The Tribunal held as under:

Income arising to ‘Western Union’ from money transfer services isn’t taxable in India

‘Western Union’ isn’t liable to pay any tax in India for transferring money to India for their American clients even if it appoints agents in India to provide those services and setS-up a liaison office to interact with such agents.

Facts

a)    Western Union Financial Services Inc. (‘Western Union’), incorporated in USA, was engaged in the business of rendering money transfer services.

b)    In order to provide said services to citizens of the USA desirous of remitting money to India, Western Union had set-up a liaison office (LO) in India. It appointed agents in India and provided them software (Voyager) to access its mainframes in the USA. The agents were paid commission on completion of money transfer transactions.

c)    Western Union filed its return declaring ‘nil’ income by contending that it was not liable to pay any tax in India on income arising from money transfer services as it didn’t have any permanent establishment (PE) in India.

d)    The Assessing Officer was of the view that income arising to the Western Union from money transfer services was taxable in India both under the Income-tax Act (‘the Act’) and the India-USA DTAA.

e)    CIT(A) set aside the order of the AO. Aggrieved by the order of the CIT(A), revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under-

1)   Though Western Union had business connection in India in terms of section 9 of the Income-tax Act, yet it did not have a PE in India under India-USA DTAA. It made following observations on different categories of PEs:

·         Fixed Place PE

It was held that Western Union could not be said to have fixed place PE in India as it did not have its own outlet in India and it was carrying on its business through agents appointed in India.

·         Liaison office as PE

It was held that LO could not be considered as Western Union’s PE in India as it carried out activities which were of a preparatory or auxiliary character. It had not carried on any trading activity for the assessee in India. It had only a small number of executives and a support staff. The LO had also filed status reports to the RBI listing out the activities which it actually carried out during the years. None of the activities could be described as anything other than of preparatory or auxiliary character. Therefore, the LO could not be considered to be the PE of the Western Union in India.

·         Software as PE

It was held that the software was the property of the Western Union and it had not parted with its copyright therein in favour of the agents. The agents had only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the said purpose from the premises of the agents could not lead to the decision that the premises-cum-software would be the PE of the assessee in India. As per article 5 of India-USA DTAA, an installation might amount to a PE, provided it is used for the exploration of natural resources. Therefore, even if the software was to be considered as an installation, since it was not used for exploration or exploitation of natural resources, it could not per se be treated as a PE.

·         Dependent Agent PE

It was held that agents appointed by Western Union were acting in the ordinary course of their business and their activities were not devoted wholly or almost wholly to the Western Union. Further, commissions were paid to them at arm’s length price. Therefore, the agents were independent agents under Article 5.5 of the India-USA DTAA.

2)    Hence, in the absence of any PE in India the profits of the Western Union, if any, attributable to the Indian operations could not be taxed In India- Deputy DIT v. Western Union Financial Services Inc. [2015] 64 taxmann.com 230 (Delhi - Trib.)

‘Ready to use’ rig isn’t an Installation PE as per India-USA DTAA; HC denies interpreting term ‘used’ as per I-T Act

When 'rig' was lying 'ready for use', it could not be considered as 'used' for purpose of Article 5  of India-USA DTAA. The Tribunal had rightly concluded that the word 'used' as specified in said DTAA clarifies usage of an installation or structure for exploration of natural resources and if it was so used for a period of 120 days in 12 months, only then it can be considered as PE in India.

Facts:

a)  The assessee operated the rigs for its clients in India. Those rigs remained unused during the period specified by assessee due to maintenance and repair.

b)  The Assessing Officer (‘AO’) was of the view that India-USA DTAA (‘Agreement’), specified the word "used" without furnishing meaning to the said word and, accordingly, its meaning thereof to be culled out from the Income-tax Act, 1961 (‘I-T Act’), which includes term 'ready for use'.

c)  He further held that as the rig was lying ready for use and, as such, the rig having been used for more than 120 days during the relevant assessment year, the assessee had a permanent establishment (‘PE’) in India.

d)  The CIT(A) accepted the said decision and the Tribunal had reversed the findings of AO and the CIT(A).

The High Court held as under:

1)  The term 'PE' includes an installation or structure used for exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve calendar month period;

2)  Thus, the Tribunal was of the view that the word ‘used’ had been explained in the Agreement and, thus, there was no scope to refer to the I-T Act.

3)  The Tribunal had rightly concluded that the word 'used' as specified in said DTAA clarifies usage of an installation or structure for exploration of natural resources and if it was so used for a period of 120 days in 12 months, only then it can be considered as PE in India;

4)  There was no infirmity in the order of Tribunal and he had rightly reversed the findings of the AO as well as the CIT(A). – DIT(International Taxation) v. R & B Falcon Offshore Ltd. [2014] 44 taxmann.com 400 (Uttarakhand)