Post by Sapphire Capital on Oct 29, 2008 20:22:07 GMT 4
India: Ruling on taxability of dependent agent permanent establishment
The Bombay High Court (HC) in the case of SET Satellite (Singapore) v DDIT (2008-TIOL-414-HC-IT) recently examined the taxability of a foreign enterprise having a dependent agent permanent establishment (DAPE) in India. SET Satellite, the taxpayer in this case, was a company incorporated in Singapore which was engaged in the business of broadcasting and up-linking of television channels. SET India, a company incorporated in India marketed ad-space on behalf of the taxpayer, for a commission.
The contract regarding the 'sale of ad time' was executed between the taxpayer and its customers outside India on a principal to principal basis. The taxpayer was a tax resident of Singapore under article 4 of the double taxation avoidance agreement between India and Singapore (treaty) and was eligible for the treaty benefits.
SET India constituted a dependant agent (DA) of the taxpayer and the taxpayer also had a DAPE as per article 5(8) of the treaty. The issue before the HC was whether the activities of the DA could be regarded as activities of the DAPE of the taxpayer and if any income would be attributable to such activities.
The HC observed that SET India was remunerated on an arm's length basis and concluded by holding that the advertisement revenue received by the taxpayer was not taxable in India.
The HC reached the above conclusion for the following reasons: (i) The central board of direct taxes (CBDT) in India in its circular number: 23 of 1969, which is binding on the revenue, clearly sets out that where a non-resident's sales to the Indian customers are secured through the services of an agent in India, the assessment in India of the transaction will be limited to the amount of profit which is attributable to the agent's services; (ii) The principle that emerges from the decision of the Supreme Court of India in the case of Morgan Stanley & Co. (292 ITR 416) is that if a correct arm's length price is applied and an agent is compensated accordingly, then nothing further would be left to be taxed in the hands of the foreign enterprise.
Source: ITR / Ernst & Young
Rajendra Nayak (rajendra.nayak@in.ey.com) & Ganesh Pai (ganesh.pai@in.ey.com)
+91 80 2224 5646
The Bombay High Court (HC) in the case of SET Satellite (Singapore) v DDIT (2008-TIOL-414-HC-IT) recently examined the taxability of a foreign enterprise having a dependent agent permanent establishment (DAPE) in India. SET Satellite, the taxpayer in this case, was a company incorporated in Singapore which was engaged in the business of broadcasting and up-linking of television channels. SET India, a company incorporated in India marketed ad-space on behalf of the taxpayer, for a commission.
The contract regarding the 'sale of ad time' was executed between the taxpayer and its customers outside India on a principal to principal basis. The taxpayer was a tax resident of Singapore under article 4 of the double taxation avoidance agreement between India and Singapore (treaty) and was eligible for the treaty benefits.
SET India constituted a dependant agent (DA) of the taxpayer and the taxpayer also had a DAPE as per article 5(8) of the treaty. The issue before the HC was whether the activities of the DA could be regarded as activities of the DAPE of the taxpayer and if any income would be attributable to such activities.
The HC observed that SET India was remunerated on an arm's length basis and concluded by holding that the advertisement revenue received by the taxpayer was not taxable in India.
The HC reached the above conclusion for the following reasons: (i) The central board of direct taxes (CBDT) in India in its circular number: 23 of 1969, which is binding on the revenue, clearly sets out that where a non-resident's sales to the Indian customers are secured through the services of an agent in India, the assessment in India of the transaction will be limited to the amount of profit which is attributable to the agent's services; (ii) The principle that emerges from the decision of the Supreme Court of India in the case of Morgan Stanley & Co. (292 ITR 416) is that if a correct arm's length price is applied and an agent is compensated accordingly, then nothing further would be left to be taxed in the hands of the foreign enterprise.
Source: ITR / Ernst & Young
Rajendra Nayak (rajendra.nayak@in.ey.com) & Ganesh Pai (ganesh.pai@in.ey.com)
+91 80 2224 5646