TaxTMI 
TaxTMI 
2010 (10) TMI 852
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....consent of the learned counsel for the parties, we have heard the matter finally at this stage itself. 5. The aforesaid question of law has to be answered in the following factual background. 6. The appellant is a private limited company incorporated under the Companies Act, 1956 on 24th March, 2000 as a fully owned subsidiary of National Dairy Development Board (NDDB). NDDB is a body corporate formed under the National Dairy Development Act, 1987 and having its head office at Anand. The main objective of the appellant company was to take over specific assets and liabilities and the running business of the units of NDDB, namely, Mother Dairy and Fruit and Vegetable Project, Delhi and Mumbai with effect from April, 2000 pursuant to an agreement entered into between NDDB and the appellant company. During the instant assessment year the appellant company was engaged in the business of (i) procuring, processing and distribution of milk, (ii) production and sale of ice cream, (iii) production and sale of other milk products like dahi, lassi, butter etc. and (iv) processing/manufacturing and sale of fruits and vegetables products, frozen fruits and vegetables under th....
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....India in accordance with provisions of section 40(a)(iii) of the Act read with section 5(2) and section 9(1)(iii) as contended by the assessee co., in the preceding para. Reliance placed by the assessee on explanation 1 to section 5(2) is quite relevant here as the said income has neither been received in India nor can be said to be accrued or arisen in India. The AR has further clarified that such income is liable to be taxed as per tax laws of Netherlands. As such, it is clear to me that since the payment involved is not chargeable to tax in India under the head 'Salaries', there was no need for the assessee company to have deducted tax. The explanation 1 to section 5(2) has further clarified this issue in favour of the assessee when it says, "Income accruing or arisen outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India." Accordingly, I am convinced that the disallowance of Rs.19,29,632 made by the AO on this count is inappropriate and the same is hereby deleted." 11. It is the Department which felt aggrieved by the a....
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....anifest error in law in reversing the order of the CIT (A). The admitted facts are that the salaries were paid in foreign currency to the employees who are in foreign country i.e. in Netherlands and even these employees are non-residents. It is also admitted at the Bar that the salary paid to these employees were exigible to tax in Netherlands and accordingly, they had paid tax as per the Income-Tax laws of that country. The question is as to whether the salary paid to them was to be taxed in India as well? Answer has to be in the negative having regard to the provisions of Double Taxation Avoidance Agreement between India and Netherlands. Clauses (1) and (2) of Article 15 of the DTAA between India and Netherlands clearly provide accurate answer and these are reproduced below:- "1. Subject to the provisions of Articles 16,18,19,20 and 21, salaries, wages and other similar remuneration derived by a resident of one of the States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other State. If the employment is so exercised, such remuneration as is derived there from may be taxed in that other State. 2. Notwi....
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....y section 5 of the Act. This provision reads as under:- "5. SCOPE OF TOTAL INCOME. ...(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) Is received or is deemed to be received in India in such year by or on behalf of such person; or (b) Accrues or arises or is deemed to accrue or arise to him in India during such year..." 16. To cover the case under this provision it is necessary for the department to establish that the employees to whom the said salaries were paid have received their income, either on actual or deemed basis in India or the income in question accrues or arises in India either on actual basis or deemed basis. The non-residents who never worked in India, never received salary from permanent establishment; were non-residents and were paid their remuneration in foreign exchange in a foreign country, would not be required to pay any tax in India as provision of section 5 would not apply. This conclusion would be clear from the reading of section 9(1)(ii) of the Act which enumerates the income deeme....