1998 (1) TMI 519 - AAR - Income Tax

Summary

Issues Involved:
1. Whether any business profits or income accrues or arises in India in the hands of the applicant out of advertising revenue received/receivable from its agent(s) in India.
2. Whether such advertising revenues remitted out of India by the agent(s) of the applicant is subject to deduction of tax at source u/s 195 or any other provision of the Income-tax Act, 1961.

Summary:

Issue 1: Accrual of Business Profits or Income in India
The applicant, a UAE-based partnership, contended that its dealings in India through BCL do not constitute a "business connection" within the meaning of section 9 of the Income-tax Act, 1961, and that it has no permanent establishment in India as per Article 5 of the Double Taxation Avoidance Agreement (DTAA) between India and UAE. Therefore, no business profits are taxable in India. The Department argued that the applicant has a business connection in India, and BCL constitutes a permanent establishment, making the income taxable under Article 7 of the DTAA.

Issue 2: Deduction of Tax at Source u/s 195
The Authority examined whether BCL, acting as an agent for the applicant, could be considered a permanent establishment. It was determined that BCL is an agent of independent status as per paragraph 5 of Article 5 of the DTAA, and thus, the applicant does not have a permanent establishment in India. Consequently, the advertising revenues remitted by BCL to the applicant are not subject to tax deduction at source u/s 195.

Ruling:
1. It is unnecessary to answer question No. 1 in view of the ruling on the second question.
2. No. The advertising revenues received by the applicant in India are not taxable in the hands of the applicant in view of Article 7 read with Article 5 of the DTAA. Therefore, there is no obligation to deduct tax at source from the remittances made to the applicant by BCL.