TaxTMI 
TaxTMI 
2005 (2) TMI 17
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....ost is payable in US dollars according to the invoices raised by TENL either by draft or by wire transfer. To enable the Indian advertisers including Government undertakings and to secure international market TENL extended the facility of payment of advertisement charges in Indian currency. Under an agreement which is to be concluded between them, TENL proposes to authorize SMPL to collect the advertisement charges from Indian advertisers in Indian currency and remit the same in foreign currency (US dollars) to TENL. On these facts SMPL seeks advance rulings of the Authority on the following questions: • Whether SPECIALITY MAGAZINES PRIVATE LIMITED (RESIDENT) collecting advertisement charges from Indian advertisers towards cost of advertisements in overseas publications, such collections being in Indian currency, converting to foreign currency and remitting the same to THE ECONOMIST NEWSPAPER LIMITED (NON RESIDENT) tantamount to income deemed to accrue or arise in India u/s 9 of the Income Tax Act, 1956 to the NON RESIDENT? • If income is deemed to accrue or arise in India under section 9 of the Income Tax Act, 1956 to THE ECONOMIST NEWSPAPERS LIMITED (NON RESIDENT), then wha....
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....ore. It is asserted that SMPL is not a dependent agent of TENL but has enjoyed an independent status and that it cannot be treated as a representative assessee of the non-resident. 4. Number of opportunities were given to the applicant to represent its case by granting adjournments as prayed for from time to time. However, Counsel for the applicant expressed his inability to represent the case of the applicant on the last day of hearing and requested that the application might be considered on the basis of written submission filed by it. It is urged in the written submissions that SMPL is not the agent of the Economist group alone and that it is also the agent of Media Representation International, New Delhi for 'Travel Weekly' published by REED Group, Fortune published by the Time Inc. Group New York, as well as territorial representative of Media Representation International, New Delhi for South India. It receives commission in Indian currency from the principal agent and from the Economist group in foreign currency. SMPL also represents National Geographic group of publication, North Star Travel Media and European Television Network. Therefore, SMPL cannot be treated as exclusi....
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....India shall be only such part of the income as is reasonably attributable to the operations carried out in India; • in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export; (c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India; (d) in the case of a non-resident, being - • an individual who is not a citizen of India ; or • a firm which does not have any partner who is a citizen of India or who is resident in India ; or • a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph in India;] A perusal of provisions of section 9(1)(i), extracted a....
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....auses (a) to (c), referred to above, within the fold of the expression "business connection" which has to be understood in its ordinary meaning. We shall presently advert to the decisions of the Hon'ble Supreme Court wherein the meaning of that expression has been elucidated. On the facts of this case it cannot but be concluded that the business activities in the aforementioned clauses (a) and (c) are carried out in India by SMPL for TENL. There is thus "business connection" within the meaning of Explanation 2 between SMPL and TENL in India. We may with advantage note here the following decisions of the Hon'ble Supreme Court to comprehend the full import of the expression "business connection": - In CIT, Punjab , v. R.D. Aggarwal & Co., the essence of the expression is brought out in the following observation of the Supreme Court: "The expression "business connection" postulates a real and intimate relation between the trading activity carried on outside the taxable territories and the trading activities within the territories, the relation between the two contributing to the earning of income by the non-resident in his trading activity". Hon'ble Mr. Justice Shah (as he then w....
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....ment entered into between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland which came into force on 26 th October, 1993 vide Notification dated 11.2.1994 (hereinafter referred to as the " Treaty "). It is, therefore, necessary to advert to the relevant provisions of the Treaty. 11. It is a common ground that by virtue of articles 1 and 2, both SMPL and TENL are covered by the Treaty. The contention based on article 7 of the Treaty is that the profit of TENL shall be taxable in India only if it has permanent establishment (PE) situated in India and only so much of them as is directly or indirectly attributed to that PE. The controversy now centres around the point as to whether SMPL can be treated as the PE of TENL in India. 12. The expression "PE" is defined in article 5 of the Treaty. Inasmuch as the focus of the arguments is on para 5 of article 5, we shall quote it here. Article 5 : Permanent Establishment : 1 to 4. xx xx xx xx xx xx xx xx 5. An enterprise of a Contracting State shall not be deemed to have permanent establishment in the other Contracting State merely because it carries on business in tha....
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....e and other enterprises controlling, controlled by, or subject to the same control, as that enterprise. Para 5, quoted above, is in two parts. The first part incorporates a deemed exclusion clause and says that an enterprise of a contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in the other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course of business. Nonetheless the second part provides that when the activities of such an agent are carried out wholly or almost wholly for the enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same control, as that enterprise, he shall not be considered as an agent of an independent status within the meaning of the paragraph. In effect the test embodied in the second part is that the enterprise should be the sole client of such an agent and not that he/it should be the sole agent of the enterprise to treat such an agent as not an agent of an independent status. Paras 6 and 7 need not detai....
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....t cannot but be an independent agent of the applicant both legally and economically." In re Morgan Stanley & Company 2003, this Authority ruled (6) thus:- "There is no merit in the plea of the Commissioner that the difference between 'dependent' and 'independent' agents has to be seen from the perspective of the 'principal' and not from that of 'agent'. In our view for a proper understanding of the deeming provisions contained in paras 4 and 5 of (5) Ruling dated 27.9.2004 in Fidelity Advisor Services VIII (Application No. AAR/566/2002) (6) Ruling dated 29.11.2004 in Morgan Stanley & Co. International Ltd. (Application No. AAR/611/2003) article 5, they have to be read together. Para 4 deals with a person other than an agent of independent status to whom para 5 of the article applies. We shall, therefore, refer to the basic features of para 5, as mentioned above. It contains a deemed non - inclusion clause and provides that an enterprise of the Contracting State shall not be deemed to have a PE in the other Contracting State merely because it carries on business in that state through a broker, general commission agent or any other agent of an independent status provided such pe....
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....emains that the activities of SMPL for TENL yield 75% to 80% of its income and income from other clients, is between 22% to 25%, so it cannot be said that the activities of the SMPL are carried out wholly or almost wholly for TENL. It follows that SMPL does not fall in the second part of para 5 of article 5 of the Treaty. In Al Nisr Publishing v. Commissioner of Income-tax [supra (1)], applicant was a partnership registered under the United Arab Emirates (UAE) Laws, having its head office in Dubai. It was engaged in the business of publishing, printing and distributing newspapers, magazines and other publications. It entered into agency agreement with advertisement representative in various countries including India. Bennett Coleman & C. Ltd. (BCL) was its sole advertisement representative of the applicant in India. BCL was to endeavour to obtain advertisements, collect the advertisement charges and remit the same to the applicant after deducting its commission. The applicant had posed the following questions for seeking advance ruling of the Authority:- • Whether, on the facts and circumstances of the case, any business profit or income accrues or arises in India in the hands ....