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TMI Blog2012 (8) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... ub contracting charges will not be liable for deduction of tax at source u/s 195 as there is no income chargeable to tax in India. - A.A.R. No. 1065 of 2011 - - - Dated:- 27-8-2012 - Justice P.K. Balasubramanyan, J. RULING 1. The applicant is an Indian company incorporated under the Companies Act, 1956. It is engaged in the business of development and export of computer software and related services. It has customers across the world. The applicant undertakes the work of software development and related services for its clients across the world. The work would be either onsite work or offshore work. 2. The applicant has clients in Australia. In the year 1999, it set up a branch office in Australia. Since the applicant felt that it would be more profitable to have a local presence in Australia, the applicant acquired 100% equity of an Australian company. The Expert Information Services Pty. Ltd. The transaction was completed effective from 2.1.2004. That acquired company was re-named Infosys Technologies (Australia) Pty. Ltd. That overseas subsidiary of the applicant is now engaged in the business of development of computer software and related services. 3. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law applicable, payments to overseas subsidiary towards sub contracting charges is liable for deduction of tax at source under section 195 of the Income Tax Act, 1961, and if so, the quantum of payment on which tax is required to be deducted at source? 7. Whether on the facts and in the circumstances of the case and law applicable, reimbursement of expenses by the applicant to overseas subsidiary is liable for deduction of tax at source under section 195? 5. At the hearing under section 245R(4) of the Act, the learned Senior Counsel for the applicant submitted that the applicant does not seek a ruling on question no. 5 formulated and that, that question was not being pressed. In the light of this, it is not necessary for this Authority to rule on this question. It is open to the Revenue to deal with that question as and when it arises. 6. According to the applicant, the amount payable to Infosys Australia may qualify as fees for technical services. Infosys Australia is not performing any services in India. The source of income of Infosys Australia is Australia, the place where the services are performed. Under Article 7.1 of the DTAC between India and Australia, this in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a 100% subsidiary of Infosys India. They are independent entities in the eye of law. Unless, it is postulated that the applicant is a permanent establishment of Infosys Australia, the income at the hands of Infosys Australia, a non-resident, for the work done by it, cannot be taxed in India. The work in Australia is no doubt secured by the applicant and the income from it is its income. But, what the applicant pays to Infosys Australia for getting the work done in Australia, can only be deemed as its expenditure, as pointed out by the representative of the Revenue. But that does not make that payment taxable at the hands of Infosys Australia by the authorities under the Act. As far as Infosys Australia is concerned, the income is earned by it for the work done in Australia, no doubt, based on a contract given to it by the applicant for a work the applicant has undertaken to perform in Australia, but that does by itself lead us to the conclusion that the income earned by Infosys Australia is chargeable to tax under the Act. 9. Can it be said that the entire income earned by Infosys Australia is earned in Australia. The payer is in India. The orders are secured by the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernatively, it is pleaded that even if the source of income is found to be India, in terms of the Explanation to section 9(1)(i)(a) of the Act, only such part of the income as is attributable to India can be taxed in India. Since Infosys Australia has no Permanent Establishment in India. Article 7 of the DTAC is not attracted. By referring to the decision of the Supreme Court in Canborandum Co. v. CIT (108 ITR 335), it is pointed out that in order to rope in the income of a non-resident under the deeming provision in section 9(1) of the Act, it must be shown by the Revenue that some of the operations were carried out in India. 12. The Revenue has sought to meet these contentions by pointing out that in those days of developed information technology, physical presence of the employees of Infosys Australia in India is not necessary. The contract with the customer is between the applicant and the customer. The contract with the customer is between the applicant and the customer. The contract is not with Infosys Australia. This is a case where the Indian parent and the Australia subsidiary are working on the same project. The work done by Infosys Australia is only part of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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