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TMI Blog2008 (4) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Applicant Mr. Ravindra Kumar Tulsyan, Director RULING (By Mr. A. Sinha ) M/s KnoWerX Education (India) Private Limited, states in its application that it is engaged in promoting professional examinations/certification programmes of foreign institutes, societies, professional bodies, etc., of international repute, which do not have any establishment of their own in India. In the course of this activity, the applicant has signed an agreement with the American Production and Inventory Control Society, Inc. (APICS) which is a non-profit making body, and offers three certification programmes, namely, CPIM, CIRM and CSCP. The applicant is in the process of signing another agreement with the American Society of Transportation and Logistics Inc. (AST L) which is also a non-profit making body and offers its own certification programme known as CTL programme. The applicant intends to sign similar agreements in future with other foreign entities. Apart from this, the applicant carries on other activities as well, such as, corporate training, open public training, management consultancy, publishing and trading in educational material, etc. So far as promotion of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vail tax benefits under the DTAA. The income by way of examination fees would be taxable in India as per the provisions of the domestic law. This income will be in the nature of business income which would accrue or arise in India. As such, tax shall be liable to be deducted at source under section 195(1) of the Act. 5. During the course of hearing, the applicant filed an affidavit stating some additional facts in relation to its business activities, which had not been specifically mentioned in the application, especially more details about the procedure adopted for receiving applications and sending fees to the US entities. The applicant also filed some more documents with regard to the liability of APICS and AST L to pay tax under the US law. 6. Along with the application, the applicant has filed the agreement dated 9.2.2007 which it has entered into with APICS. The recital to the said agreement, inter alia, states that the parties are desirous of entering into a business relationship to promote certification examinations, promote, re-sell, re-print and distribute the licensed products of APICS and exchange information with APICS. A copy of the detailed ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant company, has further clarified about these activities in the course of hearing. Interested individuals fill up forms, giving their personal particulars, specifying the examination they want to take, fee details, etc., and deposit such forms along with applicable fees with the applicant. The applicant forwards these to APICS. One to two weeks before the examination date, APICS sends examination confirmation notices to the applicant who couriers them to the candidates. APICS has entered into separate agreements for the purpose of holding examinations with management institutes, like Thakur Institute of Management and Research, Mumbai, Indian Institute of Science, Bangalore, Loyola Institute of Business Administration, Chennai, etc. The examination papers are sent by APICS to the above named institutes. After the examination is over, those institutes send question papers along with answer sheets direct to APICS. The score reports then come to the applicant for distribution to the candidates. 8. The applicant has also filed a copy of the draft agreement which it is negotiating with AST L. According to this, AST L would grant exclusive right for three years to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t conveys a clear and distinct meaning. The expressions, 'accrue' and 'arise', though these do not mean exactly the same thing, but have been used in the Act to denote the same idea in contradistinction to the word 'receive'. The expressions, 'accrue' or 'arise' do not mean actual receipt of income, but indicate a stage anterior to the point of time when the income has become receivable. They indicate that the assessee has acquired the right to receive the income, though it may be received by him later. On the other hand, income is said to be received when it reaches the assessee (see CIT v. Ahmedbhai Umarbhai Co.1, CIT v. Ashokbhai Chimanbhai2 and Seth Pushalal Mansinghka (P.) Ltd. v. CIT3). It is nobody's case here that income accrues or arises or is deemed to accrue or arise in India. The facts of the case are clear in this regard. The income in the form of examination fees is received in India by the applicant and remitted to the non-resident entity abroad. The said income is undisputedly business income. There is no controversy about the nature of this income. 10. It is further seen that clause (a) of sub-section(2) of section 5 of the Act not only includes income rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om candidates, assisting APICS in selecting suitable places for conducting examinations, etc. Thus there cannot be any doubt that the applicant receives income in India on behalf of the APICS as their agent. Similar will be the position in respect of AST L. 11. Looked purely from the perspective of sections 4 and 5 of the Act, the examination fees collected on behalf of APICS and AST L would be taxable under the Act. But there is an agreement with USA on avoidance of double taxation. We have to also see the impact of this agreement on the tax liability of APICS and AST L. 12. This takes us to the DTAA between Government of the United States of America and the Government of Republic of India. The applicant stated in the application that APICS and AST L were non-profit making professional organizations and had been determined by the Internal Revenue Service (IRS), Department of Treasury, USA as 'tax exempt organizations'. The applicant also annexed a photocopy of a letter from the IRS and print-outs from the website, namely, www.freeERSIA.com in support of its claim. The Commissioner in his comments took the stand that since APICS and AST L were tax exempt organizations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status of APICS and AST L under the DTAA, the applicant filed some additional documents to clarify this point. These include determination letters of the IRS in respect of APICS and AST L respectively. The applicant also filed written submissions on the point. It emerged during the subsequent arguments that both APICS and AST L are corporations incorporated in USA. As such, these are not 'transparent entities' and are liable to pay federal income-tax in USA. But these have been exempted from payment of tax under section 501 (c) (6) under the Internal Revenue Code (IRC), by virtue of their belonging to certain specified categories indicated in the above provision. Such an exemption is permissible under paragraph 2 of article 1 of the DTAA. This makes it clear that APICS and AST L are tax residents of USA and the provision of the DTAA would be attracted in this case. 13. Having realized this, the learned counsel for the Revenue advanced two new pleas. He first contended that the applicant constituted business connection in India for APICS. Since APICS earned examination fees through this business connection, the same would be chargeable to tax in India in terms of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l resources, but only if so used for a period of more than 120 days in any twelve-month period ; (k) a building site or construction, installation or assem bly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period ; (l) the furnishing of services, other than included serv ices as defined in article 12 (royalties and fees for included services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period ; or (ii) the services are performed within that State for a related enterprise [within the meaning of paragraph 1 of Article 9 (associated enterprises)]. 3. Notwithstanding the preceding provisions of this article, the term "permanent establishment" shall be deemed not to include any one or more of the following : (a) the use of facilities solely for the purpose of stor age, display ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph. x x x x x" Permanent establishment has been defined in paragraph 1 of article 5 to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on. Paragraph 2 specifies certain types of permanent establishments. Paragraph 3 clarifies what shall not constitute permanent establishment. We are not concerned here with paragraphs 2 and 3 as the applicant is not a part of APICS or AST L. Paragraph 4 and 5 are relevant for our consideration. These deal with what is known as agency permanent establishments. According to these provisions, where an enterprise of a state carries on business in another state through an agent, the agent will constitute permanent establishment of the enterprise depending on the fact whether it is a dependent agent or an independent agent and some other factors. As per paragraph 4, if the agent does not have independent status and habitually concludes contract or maintains stock of goods and merchandise and delivers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The applicant appears to carry on the work of examination promoter in the ordinary course of its business. The applicant is not subject to any control of APICS with regard to the manner in which it shall carry out its activities with regard to promotion of the certificate examination. We are thus of the view that in terms of paragraph 5 of article 5 the applicant cannot be deemed to be a permanent establishment of APICS and /or AST L in India. 16. So far as deduction of tax at source is concerned, we may first refer to the provisions of section 4 and the general scheme of Chapter XVII, before coming to section 195. Sub-section (1) of section 4 is the charging provision. Sub-section (2) of this section says that in respect of income chargeable under sub-section (1), income-tax shall be deducted at source or paid in advance. Coming to Chapter XVII, it deals with collection and recovery of tax. Section 190 states that notwithstanding regular assessment later, tax on such income shall be payable by deduction at source or by advance payment. Various sections of Chapter XVII deal with deduction of tax at source in relation to different types of income. We are presently c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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