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AAR Continues High Volume of Rulings

10 Sep 2012

The Authority for Advance Rulings (AAR) continue to make a high volume of rulings on disputes with companies at home and abroad. Taxand India provides a summary of recent rulings to affect multinationals.

AAR holds settlement compensation of overseas court suits to be taxable
This ruling was with respect to the ability to tax compensation in India which was received following the settlement of Court suits outside India. 'IC' was listed in the Bombay Stock Exchange and National Stock Exchange. Its American Depository Shares were also listed in New York Stock Exchange.The prices of the shares of IC fell suddenly in the market. A Class Action suit was filed in USA Court against IC. The contentions of the Revenue Authorities (RA) were that the amounts paid by IC by way of settlement were chargeable to tax in India. After considering the contentions of the parties and the facts of the case, the AAR ruled in favor of the RA.

AAR permits reopening of ruling on finding 'mistake apparent from record'
The AAR has permitted the reopening its original ruling in the case of CTCI Overseas Corporation Ltd (CTCI) while considering an application filed by the RA. Though the AAR had held that the consortium between CTCI and an Indian Company to develop a terminal for receipt and storage of liquefied natural gas formed an Association of Persons (AOP), the income arising to CTCI on account of offshore supplies was held not to be taxable in India.The RA contended that the arrangement included an Indian resident, therefore the actual ruling holding income of CTCI as not being taxable in India was a mistake.

'Consideration for right to use submarine cable bandwidth is royalty'
In the case of Dishnet Wireless Ltd (the Applicant) the AAR decided the right to use submarine cable bandwidth would be covered within the scope of the term "royalty" under the income-tax Act, as well as the DTAA between India and Saudi Arabia. To put this in context,the applicant, an Indian company, is engaged in the business of providing telecommunication services. Saudi Telecom Limited (STC) indirectly holds 18.5% in the applicant. STC was part of the consortium which had entered into a Construction and Maintenance Agreement (CMA) to plan and lay a cable system, Europe India Gateway Submarine Cable (EIG).The AAR ruled that there was no transfer of ownership and the applicant was only given right to participate in the use of the EIG System.

AAR denies tax treaty benefit to fiscally transparent Swiss partnership
The AAR has held that a Swiss partnership is not eligible for the benefits of the tax treaty between India and Switzerland (Treaty). It further held that fees received by such partnership for representation services, to an Indian company in adjudication proceedings outside India, is taxable in India under the provisions of the Income-tax Act. The RA contended that the Fee was taxable under the Act as the partnership was not 'liable to tax' under the Swiss laws, and did not qualify as a resident of Switzerland. Accordingly, it was not eligible for relief under the Treaty.

Taxand's Take

These articles show the influence the AAR has on mulitnationals doing business in India, and the reach they have internationally. However, the reopening of an AAR ruling is extremely interesting. This is the first occasion it has happened, meaning it could be a precedent set for other rulings.

Your Taxand contact for further queries is:
Mukesh Butani
T. +91 124 339 5010

Taxand's Take Author