2016 (9) TMI 119 - AAR - Income Tax

Income taxable in India - nature of activities carried on by the Applicant, which is a Singapore based company and a non-resident - P.E. in India - Held that - The claim of the applicant more particularly is that out of three years, in only one year, there is more than 183 days of working. On this basis, the applicant wanted to know his tax liability for the years where it has not exceeded 183 days. The Department has filed its reply on dated 11.1.2016. In short, the Department contends that the applicant has a Permanent Establishment ( PE ) in India. It has taken a stand in the reply that the installation of project was carried out by the applicant for G.R. Engineering Private Limited at BPCL, Kochi, Kerala commencing on 16.2.2015 and expected to end on 31.01.2016 constitutes a Permanent Establishment of the applicant in India in terms of Article 5 paragraph 3 of India-Singapore Double Tax Avoidance Agreement (DTAA) and hence, the business profits attributable to the said PE are the applicant s income arising in India under Section 9(1)(i) of the Act and assessable as such in India in terms of Article 7 of the said DTAA for Assessment Years 2015-16 and 2016-17, which are the years where the applicant has not exceeded 183 days. The Department has also taken a stand that for the purpose of computing the business profits, Section 44BB of IT Act is applicable to the case of the applicant. Such business profits are taxable at the rate of 40%. The learned counsel Shri K. Meenatchi Sundaram has very fairly submitted that he has no dispute with the inferences drawn by the Department. In that view, there would be no point in unnecessarily admitting this matter and keeping it pending. We, therefore, proceed to give the ruling on the basis of the contentions raised by the parties. Both the questions are, therefore, answered in terms of the conclusions drawn by the Revenue in their response dated 11.1.2016. The application is disposed of.

Summary

Issues:
1. Taxability of income earned in India by a Singapore-based company from renting out cranes.
2. Computation of total income of the applicant as per the Income Tax Act, 1961.

Analysis:
1. The applicant, a tax resident of Singapore, engaged in renting/leasing heavy lifting cranes and providing erection and installation services in various Asian countries, posed two questions regarding the taxability of income earned in India. The applicant rented out a crane to a company in India for a specific period and location, providing details of the agreement and the consideration received. The applicant also highlighted pending applications related to similar activities in different locations in India, seeking clarification on tax liability for periods less than 183 days of operation.

2. The counsel for the applicant acknowledged the Department's contentions regarding the existence of a Permanent Establishment (PE) in India based on the installation project carried out in Kochi, Kerala. The Department argued that the business profits attributable to the PE are taxable in India under the Double Tax Avoidance Agreement (DTAA) between India and Singapore. Referring to Section 44BB of the Income Tax Act, the Department asserted that the business profits should be taxed at a rate of 40%. The counsel for the applicant agreed with the Department's inferences, leading to the ruling being based on the Department's response. Consequently, the questions raised by the applicant were answered in line with the Department's conclusions, resulting in the application being disposed of.

This judgment clarifies the tax implications for a Singapore-based company engaged in renting out cranes in India and provides insights into the computation of total income under the Income Tax Act, 1961. The ruling emphasizes the significance of Permanent Establishment in determining tax liability for foreign companies operating in India and underscores the application of relevant tax provisions and international agreements to ascertain taxable business profits.