India: Permanent establishment under tax treaty with Japan; no withholding tax at source on share purchase

The KPMG member firm in India has prepared reports about recent tax developments.

The KPMG member firm in India has prepared reports about recent tax developments.

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

Determining permanent establishment of joint venture under income tax treaty with Japan

The Delhi Bench of the Income-tax Appellate Tribunal—in a case concerning whether there was a permanent establishment in India under a provision (Article 5) of the India-Japan income tax treaty—held that the premises of the joint venture did not constitute a fixed place permanent establishment in India. According to the tribunal, merely providing the taxpayer access to the premises for the purpose of providing certain services to the joint venture would not amount to the place being at the disposal of the taxpayer. While the taxpayer had access to the factory premises of the joint venture, the tribunal found it was for the limited purpose of rendering agreed services to the joint venture without any control over the premises. The taxpayer's business was not conducted from the alleged fixed place permanent establishment.

Further, the tribunal held that there was no supervisory permanent establishment of the taxpayer in India, since no activities performed by the employees were supervisory functions, and the employees were not rendering any services in connection with a building site, construction project, installation project or assembly project. The case is: FCC Co. Ltd. v. ACIT. Read a March 2022 report [PDF 472 KB]

No withholding at source by foreign holding company when shares were purchased by wholly owned subsidiary company

The Bombay High Court—in a case concerning the question of withholding tax at source by a foreign holding company even though the transaction (the purchase of shares) was undertaken by its wholly owned subsidiary company—found that the taxpayer was not the purchaser of shares. Rather, the taxpayer (a U.S. based company engaged in the distribution of technology products) was determined to be the guarantor of the payment for the share purchase transaction undertaken by its wholly owned subsidiary company.

Further, the taxpayer had not made any payment with respect to the transaction. The court observed that the subsidiary company was an independent entity different from the parent company, and the actions and transactions of the subsidiary were not transactions of the holding company. Therefore, the taxpayer was not liable to withhold tax at source under Section 195 of the Income-tax Act, 1961. The case is: Ingram Micro Inc. v. ITO. Read a March 2022 report [PDF 380 KB]



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