TaxTMI 
TaxTMI 
1998 (1) TMI 519
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....ld be the amount on which the tax would be deducted at source?" The relevant facts having a bearing on the questions on which the advance ruling is required, lie within a short compass. As stated, the applicant is a partnership firm with three partners, all residents of the UAE. The head office and residence of the partnership company is in Dubai in the UAE. The applicant is engaged in the business of publishing, printing and distributing newspapers, magazines or other publications ; in particular, it publishes a daily English language newspaper called Gulf News. Naturally, the applicant sells advertising space to clients in the UAE as well as in other countries for publication in the Gulf News and associated publications. In order to solicit orders for advertisement, the applicant has entered into agency agreements with advertisement representatives in several countries such as India, Pakistan, United Kingdom, Philippines and Japan. So far as India is concerned, an agreement was entered into by the applicant with Bennett Coleman and Company Limited (hereinafter called BCL) under which BCL was appointed as sole advertisement representative for the applicant in the Republic....
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....l the issue relating to the issue of tax deduction at source therefrom is decided, the applicant has been constrained to move this application seeking the ruling of this Authority on the questions set out above. The case of the applicant is very simple. The tax liability of the applicant under the Indian Income-tax Act is governed by the terms of the Double Taxation Avoidance Agreement between India and the United Arab Emirates (DTAA), article 5 of which reads as follows (see [1994] 205 ITR (St.) 52 ) : "Article 5 Permanent establishment 1. For the purposes of this Agreement, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term 'permanent establishment' includes especially : (a) a place of management ; (b) a branch ; (c) an office ; . . . . 4. Notwithstanding the provisions of paragraphs 1 and 2, where a person-other than an agent of independent status to whom paragraph 5 applies-is acting on behalf of an enterprise and has, and habitually exercises in a Contracting State, an authority to conclude contracts ....
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....TAA, the income arising to the applicant through BCL will be liable to tax as business profits under article 7 of the DTAA. The relevant portion of article 7 is in the following terms (see [1994] 205 ITR (St.) 54 ) : "Article 7 Business profits 1. The profits of an enterprise of a Contracting State shall be taxable only in that state unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment . . . ." When the matter was first heard by the Authority on October 1, 1997, its attention was drawn to the terms of paragraph 4 of article 5 of the agreement and it was contended that as advertisements were canvassed by BCL and BCL had and habitually exercised in India, the authority to conclude contracts on behalf of the applicant, BCL should be considered as the applicant's permanent establishment. The provision in the agreement suggesting that the applicant had a right of refusal to accept advertisements book....
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....morandum which authorised it to carry on business in India as advertisement agents. It was pointed out that the agreement between BCL and the applicant was a non-exclusive arrangement and that BCL was at liberty to, and in fact does act as advertisement agent in India for several newspapers. A certificate by BCL was filed to the effect that it was acting as advertisement representative for as many as 19 foreign publications published in different countries in the world. It was brought to our notice that a number of applications (AAR Nos. 368 to 370 and 375 to 378 of 1997), have been filed before this Authority in which similar questions have been raised by certain other foreign newspapers which have BCL as their advertisement agent in India. The applicant also filed correspondence to indicate that the applicant was directly dealing with some of the advertisers and it was stated that there were many reasons why advertisements submitted for publication could not be accepted straightaway, as some of them could be violative of the laws of the UAE or otherwise not acceptable. It was submitted that, in the light of these facts, any reference to paragraph 4 of article 5 became redundant a....
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....aph 4 relied upon the Department are not available for the purposes of the present case as that paragraph is clear that it will apply only where the person carrying on business for the non-resident principal is one other than an agent of independent status referred to in para- graph5. In the view taken above, it is not necessary to consider the applicability of section 9(1)(i) of the Act on which some arguments were addressed at the hearing. For, even if a business connection can be said to exist between the applicant and BCL-and this in the tentative view of the Autho rity seems to be the position-and the profits arising out of operations in India of such business connection are taxable under section 9 of the Act, the applicant is entitled to rely on the exemption available to it for business profits arising through such business connection where no permanent establishment for the applicant in India can be said to exist. For the reasons stated above, the Authority is of the opinion that the applicant has no permanent establishment in India within the meaning of article 7 read with article 5 of the DTAA. That being so, the following ruling is given on the questions raised by ....