2015 (12) TMI 840 - AAR - Income Tax

Taxability of income - Whether activities carried on by the Applicant, which is a Singapore based company and a non-resident as per provisions of section 6(3) the Applicant can be held to have earned any income taxable in India from its activities of execution of Installation Project ? - Held that - Since the project executed by the applicant in India for Brahmaputra continued only for 178 days in a fiscal year and as the duration of the project is less than 183 days in a fiscal year, Permanent Establishment of the applicant cannot be constituted in India for the FY 2012-13 as per the provisions of Article 5.3 of the India-Singapore DTAA. Hence, the business profits accruing or arising to the applicant by way of the execution of the project under reference is taxable only in the country where the applicant is a resident, as per Article 7.1 of India-Singapore DTAA. In view of this positive above response by the department, it is held that the income earned shall not be taxable in India. On this basis, the application is directed to be disposed of.

Summary

Issues: Taxability of income earned by a Singapore-based company from installation projects in India under the Income Tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.

Analysis:
1. The applicant, a Singapore-based company engaged in heavy lifting and installation projects, imported cranes into India in 2007. The Advance Ruling Authority addressed questions regarding the taxability of income earned from installation projects in India. The key issue was whether the applicant, being a non-resident as per the Income Tax Act, could be held liable for income tax in India for its activities in executing installation projects.

2. The applicant relied on the earlier ruling in AAR No. 975 of 2010 and claimed that their income from the installation project should be considered as business profits under Article 7 of the India-Singapore DTAA. They contended that since the project lasted less than 183 days in India and they had no Permanent Establishment (PE) in India, the income should not be taxable in India under the DTAA.

3. The department, in their response, acknowledged that the project duration was less than 183 days and that no Permanent Establishment was constituted in India. They argued that the business profits should be taxable only in the country where the applicant is a resident, as per Article 7.1 of the India-Singapore DTAA. Based on this, the department concluded that the income earned by the applicant from the project in question should not be taxable in India.

4. Consequently, the Advance Ruling Authority held that the income earned by the applicant from the installation project in India shall not be taxable in India. The positive response from the department regarding the non-taxability of the income led to the disposal of the application in favor of the applicant. The ruling provided clarity on the tax treatment of income earned by a non-resident company from projects executed in India under the provisions of the Income Tax Act, 1961 and the India-Singapore DTAA.