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II. Direct Taxes Case Laws:
1. Commissioner
of Income Tax Vs. Trans Asian Shipping Services (P) Ltd., Civil Appeal
No. 5869 of 2016, Date of Judgment: 05.07.2016, Supreme Court of India
Whether
slot charter arrangements entered by the assessee in ships not owned by
it during the Assessment Years can be treated as 'operating ships'
within the meaning of Section 115VB of the Income Tax Act, 1961 where
only some slots are chartered and not the full ships are chartered?
Held: Yes
Brief Facts
The assessee was a qualifying company in terms of Section 115VC and
it owned one 'qualifying ship' while also having 'slot charter
arrangements' in other ships. The assessee filed returns computing its
shipping income under Chapter XIIG of the Act containing special
provisions for assessments relating to income of shipping companies. The
Assessing Officer was of the view that the income earned under slot
charter arrangement did not qualify for coverage to be given special
treatment in Chapter XIIG as this income was not generated by the
assessee from its own ship, i.e., it is neither from the ship owned by
the assessee nor from the entire ship chartered by the assessee. The
order of AO was upheld by the CIT(A). Also, the hon’ble ITAT accepted
the view taken by the AO holding that in order to avail the benefit of
the provisions of Chapter XIIG in relation to 'slot charter'
arrangements, it was necessary to show that the ships under 'slot
charter' were also 'qualifying ships' and a valid certificate for
determination of tonnage in terms of Sec. 115VX(1)(b) was to be
provided, in relation to each such ship.
However,
the Hon’ble Kerala High Court [IT Appeal Nos. 128 & 129 of 2012]
reported in 371 ITR 194 allowed the appeal of the assessee holding that
the income earned by the assessee under slot charter arrangement comes
under the definition of 'deemed tonnage tax' as per explanation to
Section 115VG(4) of the Act and, therefore, exclusion of this income
while assessing the same under the said special provisions was not
appropriate. The revenue filed an appeal against the decision of The
Hon’ble High court of Kerala.
Held:
The Hon’ble Supreme Court upheld the decision of Hon’ble High Court
observing that for the purpose of Chapter XIIG, a company would be
regarded as operating a ship 'if it operates any ship whether owned or
chartered by it and includes a case where even a part of the ship has
been chartered by it in an arrangement such as slot charter, space
charter or joint charter'. It is clear from the above that slot charter
is specifically included as an instance of a ship chartered by the
company. It was further observed that the requirement of producing a
certificate would not apply when entire ship is not chartered and the
arrangement pertains only to purchase of slots, slot charter and an
arrangement of sharing of break-bulk vessel.
Thus,
the income derived from slot charter arrangements of a tonnage tax
company is to be included while determining the tonnage income of a
tonnage tax company even if such operations are carried on in ships
which are not qualifying ships.
(Please click here for judgment)
2. Batlivala
& Karani Securities (India) (P.) Ltd. Vs. Dy. CIT, I.T.A. No. 1234
& 1235/Kol./2013, Date of Judgment: 08.07.2016, ITAT - Kolkata
Issue:
Where assessee, carrying on business of stock brokerage on behalf
of institutional clients, made payments to its foreign subsidiary
companies as reimbursement of expenses incurred by the subsidiaries to
promote the business of assessee is liable to deduct tax for such
payments as 'fee for technical services'?
Held: No
Brief Facts:
The assessee was a stockbroker company & carried on business of
brokerage on behalf of institutional clients. During the years under
consideration, the assessee had made payments to two of its wholly owned
subsidiaries, B&K (UK) & B&K (Singapore), for providing
marketing support services. The Assessing Officer took a view that all
the payments made to subsidiary companies amounted to fees for technical
services liable to be taxed in India and, thus, assessee was required
to deduct tax at source while making said payments. The Commissioner
(Appeals) upheld the order of Assessing Officer.
Held:
The Hon’ble ITAT observed that consideration paid for rendering of
managerial, technical or consultancy services would be covered under the
term 'fees for technical services' as per Article 12 of Singapore
Treaty and Article 13 of UK Treaty, only if such services make available
any technical knowledge, experience, know how, or processes. The nature
of services rendered by the subsidiaries to the assessee were in
respect of simple marketing services of introducing foreign
institutional investors to invest in capital markets in India so that
the assessee would improve its business in India. It was held that no
technical service is being made available to the assessee by its
subsidiaries and as a result, the payments made to subsidiaries would
not fall within the definition of fees for technical services as
admittedly no technical knowledge was made available to the assessee by
the subsidiaries.
It was
further observed that since the payment made by the assessee to its
subsidiaries is not fees for technical services, then the same would be
construed as only business income in the hands of the subsidiaries which
would get taxed in India only in the event of existence of permanent
establishment (PE) in India. The Assessing Officer had categorically
stated in more than one place in his order that the Singapore and UK
subsidiaries do not have any PE in India and thus the AO was directed to
delete the disallowance made u/s 40(a)(i) of the Income Tax Act, 1961
in respect of payments made to foreign subsidiaries.
(Please click here for judgment)
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