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2008 (10) TMI 3 - AAR - Income TaxApplicant, Golf In Dubai, (GID), registered in United Arab Emirates(UAE), organized Golf tournaments in India - Whether GID could be deemed to have a Permanent Establishment in India in terms of Article 5 of DTAA Held, no - hence, in the absence of a PE, applicant s business income i.e. (1) sponsorship income (2) income from sale of merchandise at the venue & over the internet (3) nominal management fee from sponsors would not be liable to tax in India, in terms of Article 7of India-UAE DTAA
Issues Involved:
1. Whether Golf in Dubai (GID) could be deemed to have a Permanent Establishment (PE) in India under Article 5 of the Double Tax Avoidance Agreement (DTAA) between India and UAE. 2. Whether Eagleton The Golf Resort, Bangalore, and/or the Delhi Golf Club could be deemed to be an agency PE of GID in India. 3. Taxability of income generated by GID from the Golf tournaments in Delhi and Bangalore under Article 7 of the India-UAE DTAA. 4. Taxability of GID's income under any other provision of the India-UAE DTAA if GID does not have a PE in India. Analysis: 1. Permanent Establishment (PE) in India: - Applicant's Argument: GID does not have a PE in India as per Article 5(1) and 5(2)(i) of the DTAA. The business of organizing tournaments lasted only for 6-7 days, lacking the requisite degree of permanence. There is no fixed place of business, and GID's employees did not stay in India for more than nine months within any twelve-month period. Third-party vendors were independent contractors, not dependent agents. - Revenue's Argument: GID has a PE in India under Article 5(1) as the Golf courses used for tournaments are fixed places of business. The regularity of organizing tournaments annually indicates a pattern of continuity. Even short-term use of a fixed place can constitute a PE if the nature of the business is such. - Ruling: The Authority concluded that GID does not have a PE in India. The Golf courses were used for a short duration without regularity or continuity. The business activity occurred at the place of business but did not support the business activity on a regular basis. The absence of a firm stipulation for future events in the agreements further negates the existence of a PE. 2. Agency PE: - Applicant's Argument: Third-party vendors, including ParGolf, were independent contractors acting in their ordinary course of business and did not have the authority to conclude contracts on behalf of GID. - Revenue's Argument: ParGolf provided services for organizing the events and could be regarded as an agent of GID. The total stay of GID's employees in India aggregates to nine months or more, indicating a Service PE. - Ruling: The Authority ruled that there is no Agency PE as the third-party contractors were independent entities not acting wholly or almost wholly on behalf of GID. ParGolf and other vendors did not have the authority to conclude contracts for GID. 3. Taxability of Income under Article 7: - Applicant's Argument: In the absence of a PE, business receipts cannot be taxed in India under Article 7 of the DTAA. Sponsorship fees and management fees do not qualify as Royalty Income or Fees for Technical Services (FTS) under the DTAA. - Revenue's Argument: If a PE exists, the receipts from sponsorship and management fees are taxable as business income under Article 7. - Ruling: Since GID does not have a PE in India, the business income from organizing the Golf tournaments is not taxable in India under Article 7 of the DTAA. 4. Taxability under Other Provisions of the DTAA: - Applicant's Argument: The receipts cannot be taxed as Royalty or FTS under the DTAA. Article 22 (Other Income) of the DTAA does not apply. - Revenue's Argument: Initially contended that the receipts could be characterized as Royalty income but later conceded. - Ruling: The Authority ruled that the income is not taxable under any other provision of the DTAA, including Article 22. Conclusion: The Authority ruled that GID does not have a PE in India under Article 5 of the DTAA. Consequently, the receipts earned by GID from the Golf tournaments in Delhi and Bangalore are not liable to tax in India under Article 7 or any other provision of the DTAA.
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