IN RE: BOOZ AND COMPANY (AUSTRALIA) PVT. LTD. Vs. STATE
LAWS(AR)-2014-2-3
AUTHORITY FOR ADVANCE RULINGS
Decided on February 14,2014

In Re: Booz and Company (Australia) Pvt. Ltd., Australia (1018) Appellant
VERSUS
Respondents




JUDGEMENT

- (1.)THESE ten applications involve identical disputes concerning Double Tax Avoidance Agreement (in short DTAA) of different countries, except in case of the applicant M/s. Booz & Co. (ME) Ltd., Cayman Island in which case no treaty is involved.
The basic features involved, special features of the treaties if any shall be dealt with in the detail infra.

In respect of the ten applications which have been filed u/s. 245Q(1) of the Income -tax Act 1961 (in short the "Act") seeking advance ruling, following questions are involved:

(1) Whether, on the facts and circumstances of the case, the payments received/receivable by the Applicant in connection with the provision of services of technical/professional personnel to Booz & Company (India) Private Limited ("Booz India") is chargeable to tax in India as "Fees for Technical Services"(in short "FTS")/Royalty under the provisions of Article 12 and its sub articles of the relevant India - and the country concerned Double Taxation Avoidance Agreement ("the Tax Treaty") in the absence of Permanent Establishment("PE") in India?

(expression supplied)

(2) Whether, on the facts and circumstances of the case, the payments received/receivable by the Applicant in connection with the provision of services of technical/professional personnel to Booz India is chargeable to tax in India as FTS under section 9(1)(vii) read with section 115A as well as Section 44DA of the Act in the absence of fixed place PE in India?

(3) Whether, on the facts and circumstance of the case, the payments received/receivable by the Applicant towards reimbursement of actual 'out of pocket' expenses incurred by the Applicant for and on behalf of Booz India (as explained in Para B.4 of Annexure I) during the course of provision of services of technical/professional personnel to Booz India is chargeable to tax in India under the provisions of the Act and the Tax Treaty and consequently, whether Booz India is required to withhold tax from such reimbursements?

(4) Whether, on the facts and circumstances of the case at what rate Booz India is required to withhold tax under Section 195 of the Act from payments made/proposed to be made in connection with the transactions as mentioned in question No. 1 and 2 above?

However, in the case of Booz & Co. ME Ltd. Cayman Island, the question (2), (3) & (4) above are rechristened as number (1), (2) & (3) respectively.

(2.)THE details of the applicants, the treaty applicable and the questions raised are as follows:
In response, the stand of the Revenue is as follows:

Questions 1 and 2. The basic premise of the applicants is that in the absence of a PE in India, the fee receivable by them from Booz India is not taxable as business income and accordingly, being wholly in the nature of FTS, is taxable @ 10% in terms of 115A of the Act. This proposition is misplaced. The various terms and conditions governing the relationship between the applicants and Booz India, the global character and profile of the Booz Group, the interdependence amongst the various companies of the Booz Group, the nature of the services rendered and exchanged between the companies of the Booz Group and the location of Booz India's office in India combine to give rise to a case for Booz India being a PE in India from multiple angles. Following signature features of the business model of the Booz Group as mentioned in the various applications are listed below which will indicate that Booz India can be simultaneously/alternatively a service PE, an agency PE and also a fixed place PE:

i) The Booz Group is a global network of group companies and in order to optimize the benefits of Booz Group's global business network and expertise, affiliates of Booz Group provide/avail services from each other. (Para B 1.3 of Annexure 1 of the applications)

ii) The entire Booz Group is being catered by a basket of approximately 2200 technically/professionally qualified personnel which is utilized for executing any project won by the group/its affiliates. ((Para A 2.2 of Annexure 1 of the applications)

iii) Booz India would execute the client's project using its own employees and to the extent required, procure services of technical/professional/personnel from the applicant/and other affiliates of the group.) Para B 1.5 of Annexure 1 of the applications). This combine of professionals would work together as one team to execute the projects (third bullet of Para B 2.2 of Annexure 1 of the applications.

iv) The applicants will have the power to recall its technical/professional/personnel and replace them with other technical/professional/personnel. (Para B 3.3 of Annexure 1 of the applications)

v) The technical/professional/personnel of the applicant will work under the supervision of Booz India with respect to the concerned project. However, the overall control over the technical/professional/personnel shall be with the applicant. (Para B 3.6 of Annexure 1 of the applications).

vi) The technical/professional/personnel will abide by the employment agreement entered into with the applicant. Para B 3.9 of Annexure 1 of the applications)

vii) Any financial and/or other responsibility in respect of any claim made by the third party on Booz India for an actual or alleged infringement of any industrial or other rights of third parties vice versa usage by Booz India of Technical information, data, etc made available by the applicant to Booz India will be borne by the applicant. (Para B 3.16 of Annexure 1 of the applications).

viii) The applicant will also impart on the job training to the employees of India. (Para B 3.17 of Annexure 1 of the applications). This can be treated as one primary contention.

The above terms and conditions and the business model between the applicants and Booz India bring out a strong case of Booz India being a dependant agent of the applicants. This is the primary submission of the Revenue. As it is, the global business model of the group is such that all the entities in the group are interdependent as they cannot attain optimal efficiency without receiving services from each other. Booz Group thus has, what in the corporate and taxation parlance is known as, a blurred identity in which the close intra group interdependence blurs the identity of individual entities to third parties. Thus, the applicant's stand that Booz India is an independent entity does not find support from the business model of the group.

This apart, on facts also Booz India is exclusively dependent on the applicants in various ways. Booz India cannot optimally function without the expertise of the group entities in giving consultancy in the fields in which the group operates, the brand equity the group enjoys, the capabilities the group has developed across the globe and services from the group professionals and experts. Importantly, the group's business is manpower centric in which the only important asset is human resources. In this context, Booz India is exclusively dependent on other group entities in getting the services of appropriate personnel from other entities and job training of these personnel deployed to Booz India. Further, these employees are also under overall control of the applicants. The other group entities are also legally liable in case of third party liabilities. The employees deputed are also contracted by the applicants only. All these inherent and specific dependencies of Booz India make it very clear that it is a dependent agent of the applicants. The assertion of the applicant that no PE exists in the cases is devoid of merit.

The Revenue has submitted that even otherwise the number and high level of qualification of personnel deployed by the applicants to Booz India clearly establishes that Booz India is a service P.E. It has been further submitted that there can be no doubt that on the facts of the case i.e. the access given by Booz India client/Booz India to the technical and professional personnel deployed to work in a given space also renders that place as a fixed place PE.

(3.)IT needs to be noted that by its letter dated 6th May, 2013 the applicants requested this Authority to grant leave to withdraw the question No. 2 in the case of Booz & Company (ME) Ltd. and Q. No. 3 in the case of other applicants. Therefore, while dealing with the questions raised we are not expressing any opinion on the aforesaid questions as the applicants have withdrawn the questions and have not sought any ruling from this Authority on the said question.
On a consideration of rival submissions, the basic issues which need to be addressed are (1) whether the amount payable is to be treated as Fees for Technical Services (FTS) or business income? (2) whether the amount payable would be chargeable to tax as FTS u/s. 115A read with section 9(1)(vii) as well as section 44DA of the Act or as business income? (3) and whether payment by Booz India to the respective applicant is subject to withholding tax @ 10% as per Article 12?

Sections 115A and Section 44DA read as follows:

[115A. Tax on dividends, royalty and technical service fees in the case of foreign companies -

(1) [Where the total income of -

(a) a non -resident (not being a company) or of a foreign company, includes any income by way of -

(i) dividends [other than dividends referred to in section 115O]; or

(ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency [not being interest of the nature referred to in sub -clause (iia)]; or sub -clause (iiaa); or

[(iia) interest received from an infrastructure debt fund referred to in clause (47) of section 10; or]

[iiaa] interest of the nature and extent referred to in section 194LC; or

(iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India, the income -tax payable shall be aggregate of -

(A) the amount of income -tax calculated on the amount of income by way of dividends [other than dividends referred to in section 115O], if any, included in the total income, at the rate of twenty per cent;

(B) the amount of income -tax calculated on the amount of income by way of interest referred to in sub -clause (ii), if any, included in the total income, at the rate of twenty per cent;

[(BA) the amount of income -tax calculated on the amount of income by way of interest referred to in sub -clause (iia) or sub -clause (iiaa) [or sub -clause (iiab), if any, included in the total income, at the rate of five per cent;]

(C) the amount of income -tax calculated on the income in respect of units referred to in sub -clause (iii), if any, included in the total income, at the rate of twenty per cent; and

(D) the amount of income -tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in sub - clause (i), sub -clause (ii) [, sub -clause (iia)] and sub -clause (iii);

(b) [a non -resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub -section (1) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub -sections (1A) and (2), the income -tax payable shall be the aggregate of, - -

[(A) the amount of income -tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent if such royalty is received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such royalty is received in pursuance of an agreement made after the 31st day of May, 1997 [but before the 1st day of June, 2005];

[(AA) the amount of income -tax calculated on the income by way of royalty, if any, included in the total income, at the rate of ten per cent if such royalty is received in pursuance of an agreement made on or after the 1st day of June, 2005;]

(B) the amount of income -tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1997 [but before the 1st day of June, 2005]; and]

[(BB) the amount of income -tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are received in pursuance of an agreement made on or after the 1st day of June, 2005; and]

(C) the amount of income -tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services.

Explanation. - For the purposes of this section, -

(a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub -section (1) of section 9;

(b) "foreign currency" shall have the same meaning as in the Explanation below item (g) of sub -clause (iv) of clause (15) of section 10;

(c) "royalty" shall have the same meaning as in Explanation 2 to clause (vi)of sub -section (1) of section 9;

(d) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).]

[(1A) Where the royalty referred to in clause (b) of sub -section (1) is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern [or in respect of any computer software to a person resident in India], the provisions of subsection (1) shall apply in relation to such royalty as if the words [the agreement is approved by the Central Government or where it relates to a matter] included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted:

Provided that such book is on a subject, the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the period commencing from the 1st day of April, 1977, and ending with the 31st day of March, 1978, to be imported into India under an Open General Licence:

[Provided further that such computer software is permitted according to the Import Trade Control Policy of the Government of India for the time being in force to be imported into India under an Open General Licence.]

[Explanation 1]. - In this sub -section, "Open General Licence" means an Open General Licence issued by the Central Government in pursuance of the Imports (Control) Order, 1955.]

[Explanation 2. - In this sub -section, the expression "computer software" shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE.]

(2) Nothing contained in sub -section (1) shall apply in relation to any income by way of royalty received by a foreign company from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 31st day of March, 1976, if such agreement is deemed, for the [purposes of the [first] proviso] to clause (vi) of sub -section (1) of section 9, to have been made before the 1st day of April, 1976; and the provisions of the annual Finance Act for calculating, charging, deducting or computing income -tax shall apply in relation to such income as if such income had been received in pursuance of an agreement made before the 1st day of April, 1976.]

[(3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section 57 in computing his or its income referred to in sub -section (1).

(4) Where in the case of an assessee referred to in sub -section (1), -

(a) the gross total income consists only of the income referred to in clause (a) of that sub -section, no deduction shall be allowed to him or it under Chapter VIA;

(b) the gross total income includes any income referred to in clause (a) of that sub -section, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

(5) It shall not be necessary for an assessee referred to in sub -section (1) to furnish under sub -section (1) of section 139 a return of his or its income if -

(a) his or its total income in respect of which he or it is assessable under this Act during the previous year consisted only of income referred to in clause (a) of sub -section (1); and

(b) the tax deductible at source under the provisions of Chapter XVII -B has been deducted from such income.]

44DA. Special provision for computing income by way of royalties, etc., in case of non -residents - -(1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non -resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non -resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act:

Provided that no deduction shall be allowed, -

(i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or

(ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices: [Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section]

(2) Every non -resident (not being a company) or a foreign company shall keep and maintain books of account and other documents in accordance with the provisions contained in section 44AA and get his accounts audited by an accountant as defined in the Explanation below sub -section (2) of section 288 and furnish along with the return of income, the report of such audit in the prescribed from duly signed and verified by such accountant.

Explanation - For the purposes of this section, -

(a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub -section (1) of section 9;

(b) "royalty" shall have the same meaning as Explanation 2 to clause (vi) of sub -section (1) of section 9;

(c) "permanent establishment" shall have the same meaning as in clause (iiia) of section 92F.



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