Friday, May 30, 2008
HAVING reviewed the External Commercial Borrowing (ECB) in in consultation with Reserve Bank of India (RBI) to keep it in tune with the evolving macroeconomic situation, changing market conditions, sectoral requirements, the external sector and lessons of experience, the Ministry of Finance today enhanced the limit to USD 50 mn for Rupee expenditure for permissible end-users under the approval route.
The policy has been modified as
(i) borrowers in infrastructure sector may avail ECB up to USD 100 million for Rupee expenditure for permissible end-uses under the Approval Route;
(ii) in the case of other borrowers, the existing limit of USD 20 million for Rupee expenditure for permissible end-uses under the Approval Route has been enhanced to USD 50 million.
The all-in-cost ceilings in respect of ECB are modified as follows:
Average Maturity Period All-in-Cost ceilings over 6 Months LIBOR
Three years and up to five years 150 bps 200 bps
More than five years 250 bps 350 bps
The above changes will apply to ECB both under the automatic route and the approval route.
All other aspects of ECB policy such as USD 500 million limit per company per year under the Automatic Route, eligible borrower, recognised lender, end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.
The above amendments in ECB policy will come into force on the date of Notification of Regulations / directions issued by the Reserve Bank in this regard under the Foreign Exchange Management Act, 1999.
FIIs' Investments in Government Securities and Corporate Bonds
At present, FIIs registered with SEBI are permitted to invest in Government Securities and corporate bonds up to USD 3.2 billion and USD 1.5 billion, respectively. It has been decided in consultation with the Reserve Bank to enhance the limits to USD 5 billion and USD 3 billion, respectively. SEBI is being advised to take further action in the matter.
Thursday, May 29, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'A' CHENNAI
Assessment Year : 2005-06
M/s ASHOK LEYLAND LTD
19, RAJAJI SALAI
THE DEPUTY COMMISSIONER OF INCOME-TAX
COMPANY CIRCLE-I(1), CHENNAI
Income Tax - Applicability of Sec 195(2) - Assessee enters into an agreement with an Austrian company for supply of designs, drawings and consultancy for development of automobile engines - as per the agreement, the assessee was to reimburse certain expenses in addition to the fee for technical knowhow - Certain personnel of the non-resident company come to India to impart technical expertise to the assessee's staff - reimbursement of expenses - Assesee applies for a certificate of non-deduction of tax on such payment - AO rejects it and prescribes 10% deduction - CIT(A) agrees with the AO - True that the non-resident company has no PE in India but this fact has no bearing on the chargeability of tax on fees for technical services u/s 9(1)(vii). The agreement was entered into for rendering technical services. The services of the experts of the foreign company were requisitioned in that connection. There is absolutely nothing on record to indicate that how such reimbursement could be termed as business income of the assessee. The payments of reimbursement were made in the process of executing the agreement. The expenditure in question was part and parcel in the process of advice of technical character. As such the payment on account of reimbursement also attracts the provisions of section 195 of the Act - CIT(A) order upheld - Assessee's appeal dismissed
This appeal by the assessee is directed against the order dated 17.4.2006 passed by the Commissioner(Appeals)-XI, Chennai and relates to the assessment year 2005-06.
2. The solitary issue raised in this appeal relates to the question as to whether the reimbursement of expenses to M/s AVL List GmbH, Austria comes within the ken of section 195 of the Income-tax Act, 1961.
3. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. The assessee is a company manufacturing motor vehicles, etc. It entered into a technical assistance agreement with M/s.AVL List GmbH, Austria for supply of designs, drawings and consultancy in the development of engines. As per the terms of the agreement in addition to fees for technical knowhow the assessee was required to reimburse expenditure towards air fare, accommodation and subsistence cost for the personnel deputed by the Austrian firm to India. The personnel were deputed to assist the assessee in India for imparting their technical expertise. The Austrian firm raised four invoices on the assessee towards reimbursement on items of expenses. The assessee applied for a certificate for non deduction of tax at source on such reimbursements under section 195(2) of the Act. The Assessing Officer declined to grant the exemption and directed the assessee to deduct tax at 10% on such reimbursements. The matter was assailed in appeal before the Commissioner(Appeals). The Commissioner(Appeals) confirmed the order of the Assessing Officer. Being aggrieved of the said order the assessee is in appeal. The Revenue authorities took the view that the amount sought to be reimbursed in terms of the agreement would constitute fees for technical services. As such the assessee is duty-bound to deduct tax at source in accordance with the prescription of section 195(2) of the Act.
4. Shri R. Vijayaraghavan, the learned counsel for the assessee invited our attention on the prescription of section 195 and submitted that it is applicable only in the context of such sums which are chargeable to tax under the Act. At the outset it was contended that reimbursement of expenses cannot be construed to be the income chargeable to tax. Reliance was placed on the decision of the Hon'ble Delhi High Court rendered in the case of CIT vs. Industrial Engineering Projects Pvt. Ltd., 202 ITR 1014 (Del). In this case the assessee had an agreement with a foreign company ETAG whereby some services were to be rendered by the assessee to ETAG for which the assessee would receive a minimum sum of Rs.1,20,000/- per year. The agreement also provided that certain costs and expenses incurred by the assessee would be reimbursed. The Assessing Officer disallowed some of the expenses incurred which were in the nature of entertainment and travelling expenses on the ground that they mere more than the permissible limit. On reference the Hon'ble High Court has held that reimbursement of expenses can under no circumstances be regarded as revenue receipt. Reference was also made to the decision rendered by the Delhi Bench-A of the Tribunal in the case of HNS India VSAT Inc. vs. Deputy Director of Income-tax, International Taxation, Circle I(1), 95 ITD 157. In this case the Tribunal held that in the facts of the case the amount paid on account of reimbursement of actual expenses incurred by sub contractors could not be treated as income of the sub contractors chargeable to tax in India. As such the provisions of section 195 are not attracted.
5. Next it was argued that the assessee did not have any permanent establishment in India. As per the convention between the Government of the republic of India and the Government of the Republic of Austria for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income dated 20th September, 2001 (251 ITR St. 97) even if it is treated as income it could be taxed only in Austria. Reference was made to Article 7 of the DTAA which deals with business profits. Lastly, it was argued that this was only reimbursement of expenses of individuals. Each one of them was in India for less than sixty days. As such it is not exigible to tax. Reliance was placed on the decision of the Hon'ble Delhi High Court rendered in the case of CIT vs. Bharat Heavy Electricals, 252 ITR 218. In this case two employees of a foreign concern came to India. The foreign concern was not doing any business in India. No amount was paid to the foreign concern for technical services. The services of the employees were requisitioned for seeking guidance' as well as consultation services. As such the amount was exempt under section 10(6)(vi) of the Act.
6. Shri Shaji P Jacob, the learned departmental representative, vehemently contended that the expenses incurred in question were incidental to the implementation of the agreement and as such form part and parcel of technical fees. Therefore it is not correct to say that these are not chargeable to tax. He explained the context in which the decision of the Delhi High Court in the case of Industrial Engineering Projects Pvt. Ltd., cited supra, was rendered and stated that the facts in the present case before us are entirely different. It was submitted that the payments in question bear a clear nexus with the technical fees. Further reliance was placed on the decision of the Hon'ble Kerala High Court rendered in the case of Cochin Refineries Ltd. vs. CIT, 222 ITR 354. In this case Cochin Refineries requested a foreign company to evaluate whether the coke produced from a blend of vacuum bottoms and clarified oil from Bombay High crude was suitable for making anodes for the aluminium industry. The tests were carried out in the USA in regard to which the assessee made payment. The assessee also reimbursed the expenses incurred by the foreign company. The Hon'ble High Court has held that the services rendered by the foreign company would be in the nature of technical services and would therefore consequently be covered fully by the Explanation to section 9(1)(vii) of the Act. Even with regard to the payments of reimbursement no different situation would be available because these payments would be part and parcel in the process of advice of a technical character and would fall for coverage only within the meaning of the above Explanation to section 9(1)(vii). Reliance was also placed on the decision of the Hon'ble Madras High Court rendered in the case of CIT vs. Cross Fraser (Division by agent BHEL), 244 ITR 654. In this case BHEL placed an order on a foreign company for supply of a deephole drilling machine. The machinery supplied was damaged on account of the unforeseen collapse of the roof of the building, wherein it had been kept awaiting erection. The foreign supplier was therefore requested to depute an engineer to assess the actual damage. BHEL placed an order for supervision of repair and commission of that machine by the engineer of the foreign company. The contract provided for payment to the foreign company. The Hon'ble High Court has held that the amount received by the foreign company for such services was exigible to tax in India.
7. In order to invoke the provisions of section 195 in the context of non resident it is sine qua non that the amount payable in question must bear the taxable character. Where the person responsible for making the payment is not sure as to which part of the amount of income referred to in section 195(2) is chargeable to tax, he can apply to the Assessing Officer to determine the proportion of the sum so chargeable and on such application the Assessing Officer is required to make an order determining the proportion of such income on which tax is to be deducted at source. It pre supposes that the person responsible for making the payment is in no doubt that tax is payable in respect of some part of the amount to be remitted but is not sure what should be the portion so taxable or the amount of the tax to be deducted. It is evident from the perusal of section 195 that it is applicable in the context of such sums which are chargeable to tax under the Act. It, is therefore, necessary to enquire as to whether the amount in question could be charged to tax.
8. The assessee did not have any permanent establishment in India. There is absolutely no dispute on this point. But this fact is relevant if the income in question bears the character of business income. It is not relevant in the context of chargeability of tax on fees for technical services. The agreement was entered into for rendering technical services. The services of the experts of the foreign company were requisitioned in that connection. There is absolutely nothing on record to indicate that how such reimbursement could be termed as business income of the assessee. The payments of reimbursement were made in the process of executing the agreement. The expenditure in question was part and parcel in the process of advice of technical character. As such the payment on account of reimbursement also attracts the provisions of section 195 of the Act. We have gone through the reasonings adduced in the impugned order. In our opinion the Commissioner(Appeals) took a correct view in the matter and his order calls for no interference on this count. Accordingly we uphold the same.
9. In the result the appeal of the assessee stands dismissed.
Wednesday, May 28, 2008
The woman, Amelia Bassano Lanier Bassano, was of Italian descent and lived in England as a Marrano. She has been known only as the first woman to publish a book of poetry ( Salve Deus Rex Judaeorum in 1611) and as a candidate for "the dark lady" referred to in the sonnets, daily Ha'aretz reported.
The theory rests largely on the circumstances of Bassano's life, which John Hudson, an expert in Shakespeare, contends matches much better to the content of Shakespeare's work.
The researcher has also identified technical similarities between the language used in Bassano's known poetry and that used in Shakespeare's verse.
The conginitive scientist has located several clues in the text like recently noted Jewish allegories and the statistically significant appearance of Amelia Bassano Lanier's various names in the plays, which he says point to her as the only convincing candidate as the author of Shakespeare's work.
When asked if this is the biggest literary hoax ever pulled off or the worst example of a man stealing a woman's glory, the researcher dubbed it a "stratagem".
"I don't think this is a hoax. It is a stratagem she used to get her work published, as many other women have done, by having their work published under a man's name. In Elizabethan London, women could not write original literature at all, let alone plays, so this was her only option", Hudson said in an interview published in Ha'aretz .
"The example I use is that of the Pharos Lighthouse of Alexandria. In order that his name might be known, the architect Sostratus had his name carved on the stone base, then covered over with a piece of plaster with a dedication to the king. In time the plaster fell away, revealing the architect's name", Hudson said.
"Amelia's strategy was to leave behind a preposterous case for William Shakespeare, which has now fallen away, revealing the true creator who is now at last visible", the cognitive scientist added.
He is so convinced of Bassano's authorship that he formed a theater company, The Dark Lady Players, to bring out, through performance, the true meanings of the plays as, he argues, Bassano intended them.
Hudson holds numerous degrees from various prestigious academic institutions, in a range of specialties from Shakespeare and dramaturgical theory to sociology and anthropology.
He has spent most of his career as a cognitive scientist, restructuring the communications industry and inventing new industry models, exactly what he is now doing with Shakespeare.
Friday, May 16, 2008
The images from Google Earth show different types of launch pads, command and control facilities, and missile deployment equipment at a large facility in downtown Delingha, said Hans Kristensen, a researcher with the Federation of American Scientists.
"The US government often highlights China's deployment of new mobile missiles as a concern but keeps the details secret, so the discovery of the deployment area provides the first opportunity for the public to better understand how China operates its mobile ballistic missiles," he wrote.
The find comes only two weeks after the discovery of a secret Chinese nuclear submarine base on Hainan Island in South China Sea, also using commercial satellite imagery and published by Jane's Intelligence Review.
The latest images were posted along with Kristensen's analysis on the website of the Federation of American Scientists. Kristensen said the imagery revealed missile launch sites along a 275-kilometer (170 miles) stretch of highway leading from the city of Delingha through Da Qaidam to Mahai in the northern part of Qinghai province.
Thirty-six launch pads were arrayed in three strings extending north of the highway and west of Delingha. Another 22 launch pads were detected in an area running west of Da Qaidam to Mahai, according to Kristensen's analysis.
"From these launch pads DF-21 missiles would be within range of southern Russia and northern India (including New Delhi), but not Japan, Taiwan or Guam," he wrote. DF-21s are medium range solid fuel missiles that have been replacing China's older DF-3 and DF-4 liquid fuel missiles.
Kristensen said the imagery shows what appear to be a buried command and control bunker marked by antennas at each of the deployment area. In downtown Delingha, images show what appear to be the headquarters of a missile brigade base with tent-like structures of identical size and design as structures previously detected on DF-21 launch pads.
An open area near the base contained what appeared to be camouflaged nets over unidentified vehicles, he said.
RPCD.CO.RF.BC.No. 69 / 07.06.00 / 2007-08
Dated: May 13, 2008
Customer charges for use of ATMs for cash withdrawal and balance enquiry
Automated Teller Machines (ATMs) have gained prominence as a delivery channel for banking transactions in India. Banks have been deploying ATMs to increase their reach. While ATMs facilitate a variety of banking transactions for customers, their main utility has been for cash withdrawal and balance enquiry. As at the end of December 2007, the number of ATMs deployed in India was 32,342. Commensurate with the branch network, larger banks have deployed more ATMs. Most banks prefer to deploy ATMs at locations where they have a large customer base or expect considerable use. To increase the usage of ATMs as a delivery channel, banks have also entered into bilateral or multilateral arrangements with other banks to have inter-bank ATM networks.
2. It is evident that the charges levied on the customers vary from bank to bank and also vary according to the ATM network that is used for the transaction. Consequently, a customer is not aware, beforehand, of the charges that will be levied for a particular ATM transaction, while using an ATM of another bank. This generally discourages the customer from using the ATMs of other banks. It is, therefore, essential to ensure greater transparency.
3. International experience indicates that in countries such as UK, Germany and France, bank customers have access to all ATMs in the country, free of charge except when cash is withdrawn from white label ATMs or from ATMs managed by non-bank entities. There is also a move, internationally, to regulate the fee structure by the regulator from the public policy angle. The ideal situation is that a customer should be able to access any ATM installed in the country free of charge through an equitable cooperative initiative by banks.
4. In view of this, RBI had placed on its website an Approach Paper and sought public comments. The comments received have been analysed. Based on the feedback a framework of service charges would be implemented by all banks as under:
For use of own ATMs for any purpose
Free (with immediate effect)
For use of other bank ATMs for balance enquiry
Free (with immediate effect)
For use of other bank ATMs for cash withdrawals
. Banks which are charging more than Rs. 20 per transaction shall reduce the charges to a maximum of Rs. 20 per transaction with immediate effect.
. Free with effect from April 1, 2009
5. For the services at (1) and (2) above, the customer will not be levied any charge under any other head and the service will be totally free.
6. For the service number (3) the charge of Rs.20/- indicated will be all inclusive and no other charges will be levied on the customers under any other head irrespective of the amount of withdrawal.
7. The service charges for the following types of cash withdrawal transactions may be determined by the banks themselves:
(a) cash withdrawal with the use of credit cards.
(b) cash withdrawal in an ATM located abroad.
8. Please acknowledge the receipt of the circular to our Regional Office concerned.
Wednesday, May 14, 2008
Jeffrey Walline and his colleagues surveyed 42 girls and 38 boys between the ages of 6 and 10 to get their views on glasses. The majority thought kids wearing glasses looked smarter and more honest than non-spectacled peers.
"If the impression of looking smarter will appeal to a child, I would use that information and tell the child it is based on research," Walline said. "Most kids getting glasses for the first time are sensitive about how they're going to look. Some kids simply refuse to wear glasses because they think they'll look ugly."
The researchers used 24 pairs of pictures showing children with and without glasses of varying gender and ethnicity. When presented with the photos, the young study participants were asked: Which child would you rather play with? Which looks smarter? Looks better at playing sports? Is better looking? Looks more shy? Looks more honest?
On average, two-thirds of the participating children said they thought kids wearing glasses looked smarter, and 57 percent said they thought kids with glasses appeared to be more honest. The results held regardless of whether participants themselves sported spectacles. (Among the study participants, 38 percent wore glasses.)
The study also found no connection between wearing glasses and perceptions regarding the other four questions, however.
Walline figures media portrayals associating spectacles with intelligence may be reinforcing a stereotype that even young children accept.
"I would tell children that glasses have become a fashion statement, so kids don't tend to choose who they play with based on whether or not the child is wearing glasses," Walline told.
According to a report in the Telegraph , it is thought that the near zero gravity conditions in space result in super-sized fruit and vegetables with a higher vitamin content.
This was also observed when Chinese researchers fired off a batch of 2,000 seeds into space in 2006 on the Shijian 8 satellite.
After germination, the best specimens were selected for further breeding.
On their return, they were cultivated in giant Chinese hothouses producing oversized specimens, along with a host of other fruit and vegetables, like pumpkins, two-foot long cucumbers, 6.3 kg aubergines, and chilli plants which resemble small trees. Also struggling for space in giant hothouses at the Guandong Academy of Agricultural Sciences are 9.5kg tomatoes and enormous watermelons.
A total of 22 provinces are taking part in the programme, coordinated by the China Academy of Sciences, and China says its giant fruit and vegetables have already been sold to Japan, Thailand and Singapore. There has also been interest from European agricultural firms.
According to researcher Lo Zhigang, "Conventional agricultural development has taken us as far as we can go and demand for food from a growing population is endless."
"Space seeds offer the opportunity to grow fruit and vegetables bigger and faster," he added. Crucially, the plants are said to produce harvests, which are ten to 20% higher than normal - offering a rich source of food.
Though it is not fully understood that how does sending seeds into space produces such enormous fruits, it is thought cosmic radiation, micro-gravity and magnetic fields may play a part.
Food prices have risen across the world in recent times. This has been attributed to the droughts in large parts of Australia and the diversion of agricultural land for growing biofuel plants.
Tuesday, May 13, 2008
FUTURES AND OPTIONS SEGMENT
Circular No.: NSE/F&O/118/2007
Download No. NSE/FAOP/9972
Date: December 27, 2007
Sub: Introduction of mini derivative (Futures & Options) contract
on S&P CNX Nifty index
The Exchange is in receipt of a SEBI circular no. SEBI/DNPD/Cir- 33/2007 dated December 27, 2007, regarding Introduction of mini derivative (Futures & Options) contract S&P CNX Nifty index. The copy of SEBI circular is enclosed as Annexure I.
Members are requested to take note of the above.
Further details in this regards shall be intimated by the Exchange through subsequent circulars.
For National Stock Exchange of India Ltd.
Asst. Vice President
Derivatives and New Products Department
December 27, 2007
The Managing Director / Executive Director
of Derivative Segment of NSE & BSE
and their Clearing House / Corporation.
Sub: Introduction of mini derivative (Futures & Options) contract
on Index (Sensex & Nifty)
Pursuant to the recommendation of the Derivatives Market Review Committee (DMRC) headed by Professor M. Rammohan Rao, it has been decided to introduce mini derivative contract on Index (Sensex and Nifty).
I. CONTRACT SIZE
To begin with, the mini derivative contract on Index (Sensex and Nifty) shall have a minimum contract size of Rs. 1 lakh at the time of its introduction in the market.
II. RISK CONTAINMENT AND OTHER MEASURES
The existing risk containment and other measures applicable for existing exchange traded equity Index derivative contracts shall also be extended to the mini derivative contract on Index. The risk containment and other measures shall be the same as specified for the Index Futures and Index Option contracts in SEBI Circular Nos. IES/DC CIR-4/99 dated July 28, 1999, IES/DC/CIR-5/ 00 dated December 11, 2000, SMDRP/DC/CIR- 7/01 dated June 20, 2001, SMD/DC/CIR-11/ 02 dated February 12, 2002, SEBI/DNPD/Cir- 17/2003/10/ 29 dated October 29, 2003, SEBI/DNPD/Cir- 26/32004/ 07/16 dated July 16, 2004 SEBI/DNPD/Cir- 27/2004/07/ 16 dated July 16,2004, DNPD/Cir-29/ 2005 dated September 14, 2005 and SEBI/DNPD/Cir- 31/2006 dated September 22, 2006.
This circular is being issued in exercise of powers conferred by sub-section (1) of Section 11 of the Securities and Exchange Board of India Act, 1992, to promote the development of the securities market.
This circular is available on SEBI website at www.sebi.gov. in, under the category "Derivatives – Circulars". The Circular shall come into force from the date of the circular.
Thursday, May 8, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" : NEW DELHI
Asstt. Year : 2003-04
Dy CIT, CIRCLE 11(1), NEW DELHI
M/s ESTEL COMMUNICATIONS PVT LTD
B-115, SARVODAYA ENCLAVE, NEW DELHI
March 10, 2008
Income Tax - AO disallows payments made for purchase of internet bandwidth - In view of the Tribunal's earlier order in the case of the same assessee whereby it was held that the payment is not towards rendering of any managerial, technical or consultancy services but merely use of Internet access facility of certain bandwidth, it cannot be disallowd u/s 40(a)(i); Such payment can also not be said to be chargeable to tax u/s 9(1)(vii) of the Act and no TDS to be deducted u/s 195 - Revenue's appeal dismissed.
Per : M.A. Bakshi :
The appeal of the Revenue for A.Y. 2003-2004 is directed against the order dt. 15th May, 2007 of ld.CIT(A)-XIII, New Delhi. The only issue involved in this appeal is relating to the disallowance of payment of Rs. 3,18,21,328/- made by the assessee company towards the purchase of internet band width. The ld.counsel for the assessee filed a copy of the Delhi Bench decision of the Tribunal in assessee's own case wherein the issue relating to the similar disallowance made for A.Y. 2001-2002 has been considered and the appeal of the Revenue against the decision of CIT(A) dismissed. The ld.D.R. also agreed that the issue was decided by the Tribunal in assessee's own case for A.Y. 2001-2002 in favour of the assessee.
2. We accordingly reproduce the operative portion being para nos. 12 to 16 of the order of Tribunal in ITA 4560/Del/2003 for A.Y. 2001-2002 dt. 8.9.2006 and adopt the same for disposal of this appeal.
"12. We have considered the relevant facts, arguments advanced and the case laws cited. In the Reseller Agreement between Teleglobe International Corpn. and the assessee we find the scope of services as under:-
"2.1 Teleglobe, either directly or through its affiliates, shall provide to Reseller for resale to end user customers in the territory, on a non-exclusive basis, those Internet services as more particularly described in Annex I attached hereto and incorporated herein by reference (the 'Services'). Additional services may be added from time to time to this Agreement (upon terms and conditions to be mutually agreed upon by the Parties and to be included by adding an amended annex-I to this Agreement. Reseller understands and agrees that Teleglobe directly or through other resellers or sales agents, may also directly market the services to customers in the Territory and elsewhere.
2.2 Teleglobe shall have the right to accept or refuse, in whole or in part, any orders for services obtained by Reseller if acceptance of such orders will be in violation of any law, statute or Government policy, or if such acceptance, as determined by Teleglobe in its sole discretion, will be contrary to its business interest. In the event of such refusal, Teleglobe will advise Reseller in writing of its decision and may, at its option, provide Reseller with an explanation of the reasons for refusal in order to help Reseller detect orders which are likely to be refused in the future.
2.3. Teleglobe will endeavour to provide the Services on the date of completion of testing (the 'Service Date'), and will notify Reseller when such testing is completed."
13. There is no privity of contract between the customers of the assessee and Teleglobe Services. The assessee is to contact directly with the end user customers for the provision of services and to charge them for such services. The assessee has no authority to act on behalf of Teleglobe so as to bind it to any contract or agreement. Annexure I to the Agreement referred above provided as under: -
"Teleglobe, either directly or through its affiliates, agrees to route the Reseller's data traffic via a leased simplex or duplex circuit (the "Circuit") between Germany and the Territory for access to the Teleglobe Internet backbone through Teleglobe's Internet router provided by Teleglobe in Germany. The capacity, facilities and technical specifications of the Service are set forth below. The Service shall, as far as commercially practicable, be offered on a 24 hour per day basis, 7 days a week.
Subject to the availability of capacity, Teleglobe will provision the IP Interconnection service through simplex (one-way) International transmission facilities as follows:
Bandwidth Facility Route
1.5 Mbps - 6.0 Mbps (constant) based on Schedule for charges in Section 3.0 below 1/DVB/IP simplex
3.0 Mbps - 12.0 Mbps (burstable) based on Schedule for charges in Section 3.0 below
The Reseller is responsible for providing a return IP path to the Internet.
2.0 Service Features
2.1 Global Routes:
Teleglobe has established connections to the major U.S. Network Access Points (NAPs) and European Internet Exchanges (Ixs) to provide direct connectivity to leading U.S. and European ISPs. At the same time Teleglobe's base of International customers provides direct and transit routes to Internet networks in Europe, Asia-Pacific, Latin America, Carribbean, Middle East, Indian Subcontinent and Africa. The Teleglobe network also includes direct high-speed connections to the U.S. Internet networks of other major Internet backbone providers. Thus Teleglobe Internet provides global Internet route coverage on either a direct or transit basis. This makes Teleglobe Internet a one-stop shop for Internet connectivity.
Teleglobe Internet collects all available global routes from its U.S. and European peering arrangements, International customers, as well as its high speed transit connections to other key U.S. backbone providers, and optimizes them for multi-homed customers (shortest AS path).
2.3 Route stability:
The Service minimizes route flapping by filtering out route instability (using BGP Dampening).
2.4 Route Reliability:
Teleglobe's Network architecture offers diverse and redundant routing options by incorporating connections to multiple Network Access Points (NAPs) for public pearing, multiple private peering partners, and direct connections to other U.S. backbones. Additionally using route registries, Teleglobe filters routing information from all customers and peers to prevent erroneous routing information from impacting its network.
2.5 High Performance:
Teleglobe's Internet network utilizes high-speed routers in conjunction with broadband transnational backbone links to facilitate superior performance.
2.6 Carrier-Grade :
All Internet network equipment is installed in carrier-grade facilities to provide superior performance and reliability.
For ISPs/carriers that wish to be connected to the Service as well as another Internet provider (multi-homes), Teleglobe supports the BGP-4 dynamic routing protocol.
Partial or full Usenet newsfeeds may be included at no charge within the bandwidth resources stated in Section 1.0. Over 29,000 newsgroups are currently available on a full Usenet newsfeed.
2.9 Network Time:
Teleglobe supports the Network Time Protocol (NTP) so customers can receive time (based on an atomic clock) from Teleglobe's routers and synchronize clocks on their network equipment.
2.10 DNS Services:
Backup (tertiary) DNS Service is available on an optional basis at no charge. Under this option, the customer maintains their own primary and secondary DNS servers within their network and Teleglobe offers additional secondary DNS support for select customer zones.
2.11 Web Reports:
Teleglobe customers can obtain various traffic statistics reports on their connection(s) via the World Wide Web using any browser software and an ID/password provided by Teleglobe. Statistics available include link utilization, link availability and packet loss."
14. From the aforesaid agreement it is clear that the assessee is not paying any fees for technical services but merely for the purchase of Internet Bandwidth. Though sophisticated equipments are used and the connection of the Internet is through a Satellite link, it cannot be said that the assessee is availing technical services. It is like using a telephone line and though such telephone service provider uses sophisticated equipment, the user of such telephone line is merely paying for the calls made and not for the technical services or technology. The technology is never passed on to the assessee. As rightly held by the learned CIT(A) the issue is identical to the decision rendered by ITAT, Bangalore in the case of Wipro Ltd. (supra) to which one of us (AM) was a signatory. The Tribunal in the said case after considering agreement between an Indian assessee and US counterpart and also examining provision of Section 9(1)(vii) as well as the decision of the Madras High Court in the case of Skycells (supra) held in para 5.4 as under:-
"In the present case the assessee has paid the sum for services as set out in the agreement. As per the agreement the assessee is to use the standard facility provided as described in para 3.2 above. The agreement for provision of services in the case of AT&T is titled as Master Service Agreement. The standard format refers to menu of service which can be utilized by customers. These master agreements are available on Internet and can be downloaded by any one. The pricing patterns are standard with an offer for bulk discounts. The services referred to in the agreements are various types of telecom services which are offered to different types of customers depending upon the volume of traffic. The invoices by AT&T are charges for utilization of customer based circuits. The invoices are periodical in nature and each invoice has a different amount indicating varying volume of services utilized at various point of time. Shorn of high commercial and technical lingo in simple terms it is nothing but regular documents involved in utilization of telecom services. We find no document which evidences that the appellant was provided with any technology or technical services for encapsulation or amplification or conversion of light signal into magnetic signal or vice versa or any evidence for hiring or utilization of satellite by the appellant. The department is clearly confused on the nature of services rendered by the telecom companies to the appellant. Hence, we find no evidence to support any rendering of technical services to the appellant. The fact that the telephone service provider has installed sophisticated equipment in the exchange to ensure quality connectivity to its subscriber does not on that score make it as provision of technical service to the subscriber. The Hon'ble Madras High Court in the Skycells' decision (supra) has held that what applies to cellular mobile services is also applicable in fixed telephone service. Hence the decision applies to the present case. Further it is an undisputed fact that while uplinking the data from customers premises in India, VSNL offers similar services to the appellant. Such service is not regard as technical services u/s 9(1)(vii) so as to attract the TDS provisions u/s 194J of the Act. Parity of reasoning demands similar treatment even if the services are provided by a private party or a non-resident. Department has no issue on the service provided by VSNL or STPI. It is inexplicable as to how the same becomes an issue when such a service is provided by a private party or a non resident. Going through the decision of ITAT Delhi 'C Bench mentioned supra, we find that when services are provided between the telecom operator and the customer the same would not amount to technical service or royalty. For these reasons we hold that the amount paid cannot be considered as 'fees for technical services' under section 9(1)(vii) in the present case."
15. In the present case also we find that the payment is not towards rendering of any managerial, technical or consultancy services but merely use of Internet access facility of a deserved bandwidth. Accordingly the payment cannot be covered as chargeable to tax u/s 9(1)(vii) of the Act. Thus the assessee was not required to deduct tax at source u/s 195 of the Act. In the absence of any tax liability u/s 195 the amount cannot be disallowed u/s 40(a)(i) of the Act. On a query from the Bench it was made clear by both counsels that no action against the assessee has been taken u/s 201 treating the assessee as "assessee in default" u/s 201 for failure to deduct tax as required u/s 195 of the Act in respect of such payment. This also support the view that the payee is not considered as receiving any taxable income in India in respect of such payments.
16. On the basis of the above discussion and following the decision of ITAT, Bangalore, we uphold the order of learned CIT(A)." We respectfully following the above decision, which is on identical facts, dismiss the appeal of the Revenue.
3. In the result the appeal of the Revenue is dismissed.
Tuesday, May 6, 2008
Jim Lane editor of Biofuels Digest has written a very interesting report on the impact of China's increased meat consumption and how it is effecting grain supplies.
The report looks at changes in corn demand stemming from ethanol production and increased demand from China caused by higher meat consumption for the period from 1995 to 2008. Some of the key conclusions are as follows.
- Rising demand for grain in China, stemming from an increase in meat consumption, is overwhelmingly the cause of supply and demand imbalances in corn production.
- Given that the US population has grown 15 percent in the past 13 years, the 82 percent increase in US corn production left plenty for people, plenty for livestock, and plenty for ethanol.
- Chinese meat consumption is still 45 percent less than the average consumption in the US. An additional 277 million tonnes of grain would be needed to support China at parity with the US. That would take 68 million acres to grow.
- If the Chinese people had consumed the same amount of meat, per person, in 2007 as in 1995, there would have been enough grain left over to support 927 million hungry people with enough grain for an entire year,” said Lane.
- The growth rate for grain in China is so intense that, even if the US ethanol industry were completely shut down tomorrow, increased Chinese demand would soak up the excess grain by 2011.
Source : Meat vs Fuel: Grain use in the U.S. and China, 1995-2008 (PDF)
And this is just looking at China's increased consumption of grains. Other developing countries are increasing their consumption of meat as well as their incomes rise creating more demand on world grain supplies.
But the one thing that is clear from this is that scaling back biofuels production would just be a temporary cure. If ethanol production was ended there would be a temporary supply glut that would lower prices but in just a few years China's grain demand would once again outstrip supply.
Eliminating the demand on grains created by ethanol production would be nothing more than a quick fix temporary solution. The only real longterm solution is finding ways to increase supply through increased yields, bringing idled farmland back into production and improved farming practices.
Saturday, May 3, 2008
1. The tax treatment of cross-border software transactions has always been a matter of controversy. One of the major issues has been whether payments for software, where the seller retains all copyright, trademark and other proprietary rights in the software, should be characterized as 'royalty' or 'business' income.
Section 9 of the Income-tax Act, 1961 defines royalty and fees for technical services as having deemed source in India. Such income is taxed under section 115A of the Act at a flat rate of 10 per cent on gross amount of receipt subject to reduced (prescribed) rate under appropriate DTAA.
In case of business income, the same is subject to tax in India only if there is sufficient business connection in India. If there happens to be in existence a comprehensive DTAA and there is a PE, the business income would be subject to tax.
Position under dom-estic law - Meaning of 'royalty'
2. Explanation 2 to section 9(1)(vi) defines royalty as under:
"consideration (including lump sum payment but excluding any consideration which would be the income of the recipient chargeable under the head 'capital gains') for—
i. The transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trademark or similar property;
ii. The imparting of any information concerning the working of or use of a patent, invention, model, design, secret formula or process or trademark or similar property;
iii. The use of any patent, invention, model, design, secret formula or process or trademark or similar property;
iv. The imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;
(a) The use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;
v. The transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for the use in connection with television or tapes for the use in connection with radio broadcasting, but not including consideration for sale, distribution or exhibition of cinematographic films; or
vi. Rendering of any services in connection with activities referred to in sub-clauses (i) to (v)."
At the outset, it may be observed that the term 'royalty' means a consideration for ........the transfer of any right in respect of the copyright, literary, artistic or scientific work or in respect of the patent, invention, model, design, secret formula or process or trademark or similar property. Even a consideration for the use of the patent, invention, model, design, secret formula or process or trademark or similar property could be regarded as royalty. Therefore, unless there is a transfer of any right or the use of the right in patent, invention, model, design, secret formula or process or trademark or similar property, it cannot be regarded as royalty. It is evident that where the consideration paid is for the purchase of a product and not for the transfer of an intellectual property per se, it cannot be regarded as a royalty. A closer look at sub-clauses (i) to (vi) of the definition of the term 'royalty' under section 9 would show that the word 'copyright' is not used in sub-clauses (i) to (iv), but is specifically dealt with in sub-clause (v) of the said section. Accordingly, sub-clauses (i) to (iv) and (iva) and (vi) should not be relevant and it cannot be construed that term 'copyright' is included in the words 'similar property' in clauses (i) to (iv). This position has been upheld by the Tribunal in Lotus Development (Asia Pacific) P. Ltd. v. DDIT, Samsung Electronics Co. Ltd. v. ITO (TDS), Lucent Technologies Hindustan Ltd. v. ITO. Therefore, copyright cannot be construed to have been included in the words 'similar property' in sub-clauses (i) to (iv). For example, the purchase of a book by a customer does not tantamount to the purchase of the copyright in the book, even though the publisher publishes the book by purchasing the copyright.
Thus, the most important aspect of this definition is the use of the words 'consideration for ...'. This clearly implies that the purpose for which the consideration is paid is of paramount importance for the interpretation of the expression 'royalty'. The Indian courts have emphasized that where the predominant transaction is the sale of the product and use of intellectual property is incidental to the sale of the product, the same cannot be regarded as royalty. Now let us examine what would be the nature of transaction when right given in an intellectual property is only incidental to the primary transaction. In this regard, the Madras High Court in CIT v. Neyveli Lignite Corpn. Ltd. has observed that :
"In a contract for the design, manufacture, supply, erection and commissioning of machinery which does not involve license of the patent concerning the machinery, or copyright of its design, mere supply of drawings before the manufacture is commenced to ensure that the buyer's requirements are fully taken care of and the supply of diagram and other details to enable the buyer to operate the machines, and also to assure the buyer, that the machines will perform to the specification required by the buyer, such supply is only incidental to the performances of the total contract which includes design, manufacture and supply of the machinery.
The price paid by the assessee to the supplier is a total contract price which covers all the stages involved in the supply of machinery from the stage of design to the stage of commissioning. The design supplied is not to enable the assessee to commence the manufacture of the machinery itself with the aid of such design. The limited purpose of the design and drawings is only to secure the consent of the assessee for the manner in which the machine is to be designed and manufactured, as it was meant to meet the special design requirements of the buyer."
One can observe from the above that the term 'royalty' normally connotes the payment made to a person who has exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Mere passing of information concerning the design of a machine which is tailor-made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive use, so as to render the payment made, as 'royalty'. In a case where information concerning the working of the machine is supplied with the machinery, the courts have held that this information would not attract sub-clause (vi) of section 9(1) as the supply of the design was only preliminary to the manufacture and integrally connected therewith.
It can, therefore, be inferred that when the payment is made for the machinery and the supply of design etc., it is only incidental to the sale of machinery. In order to utilize the machine in the best possible way, there is no license of any patent involved and the amount payable would essentially be taxed as business profits in the hands of the recipient.
The Technical Advisory Group of Organization for Economic Co-operation and Development ('OECD') has similar position in their specific regulations for the tax treatment of certain transactions involving 'software'. They emphasized that the main question to be addressed is the identification of the consideration for payment. Where the essential consideration is for something other than use of, or right to use, rights in copyright, and the use of copyright is limited to such rights as are required for downloading, storage and the operation on computer, network or other storage device, such use of copyright should be disregarded in the analysis of the character of payment for treaty purposes. Thus, if the consideration is paid for a right other than a right in the intellectual property, then in that event, the payment made should not be treated as royalty as it is a purchase for the purpose of use of the product.
The principle that emerges on such transactions is 'where the use of intellectual property is merely incidental to the use of the product and it is put to use merely due to advancement in technology, i.e., like a medium, payment in respect of such product should not be classified as royalty since the consideration is not made for using the intellectual property, but for the use of product. The intellectual property merely passes incidental to use the product.
In short, such payments will not fall under the definition of term 'royalty' under section 9 because :
l There is no transfer of any right in respect of the copyright, literary, artistic or scientific work;
l There is no transfer of any right in respect of the patent, invention, model, design, secret formula or process or trademark or similar property;
l There is no 'use' of the patent, invention, model, design, secret formula or process or trademark or similar property;
l The consideration is being paid for the use of the product and not for any right in respect of the copyright, or the patent, invention, model, design, secret formula or process or trademark or similar property; (it may also be noted that under the Indian law no assignment of copyright is valid unless it is in writing)
l Lastly, the copy which takes place is only incidental to the use of the product and not for the purpose of acquiring any right in the copyright and, thus, should be ignored for the purpose of characterization.
Definition of royalty as per DTAA (India-USA)
3. As per clause 3 of article 12 of the Double Taxation Avoidance Agreement between India and USA, the term 'Royalty' is defined as :
Payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use or disposition thereof, and payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise.
It can be seen from above, that the term 'royalties' means payment of any kind received as a consideration for the use of, or the right to use any right in any copyright of a literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trademark design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience, including gains derived from the alienation of any such right, property or information.
The definition applies to payments for the use of/or right to use. It covers payments made under a copyright. Since the payment is for the 'use' or 'right' to use the asset, a distinction should be made between letting the asset and transferring the same by alienation. Distinction has to be made between 'copyright' in the intellectual property of the product and the 'product' which is merely a copy of the copyrighted intellectual property. The nature of payment made for transfer of computer software depends on the nature of the rights acquired by the transferee as regards use and exploitation of the software. There is a clear distinction between acquisition of copyright in the computer software on one hand and the acquisition of software, which incorporates a copy of the copyright program, on the other. The transferee's right may consist of partial or complete rights in the underlying copyrighted or partial or complete right in a copy of the program.
For instance, where end-user procures software and other digital products (where the end user, is not getting any right for duplication of the software, but instead has been allowed to use the software) and downloads it on to hard disk or other storage media, the fact that the end-user is entitled to keep the copy of the software for archival purpose is only incidental to the use of the software and not for the purpose of acquiring any right in the copyright and, thus, needs to be ignored for the purpose of characterization of payments and such payments would not qualify as 'royalty' as defined under the treaty.
The standard clauses of a normal end user license agreement (EULA), which needs to be accepted before downloading/installing software are as under :
"Limited license clause : You are granted a limited, non-exclusive license to install the Software on one individual computer for your own use provided that such computer does not render the Software accessible to other users through local or Internet networks or other methods. Only the individual that installed the Software, as indicated by the user information provided when installing the Software, will have the license to use the Documents. Use by any other person, company, affiliate, corporation, Limited Liability Company, trust, or other separate legal entity will require a separate license. This includes companies that may be affiliated to you by ownership or otherwise. The license granted herein shall remain in effect perpetually, but shall terminate upon your use of the Software beyond the scope licensed herein or upon your violation of any term or condition hereof. All protections with which Licensor is provided under this EULA shall survive the termination of your license to use the Software.
Proprietary rights clause : Licensor and its suppliers retain all title, ownership, and intellectual property rights in the Software, including but not limited to all supporting documentation, files, marketing material, images, multimedia and applets. The Software is protected by copyright and other intellectual property laws and by international treaties. The Software may include security measures designed to control access and prevent unauthorized copying and use. You agree not to interfere with any such security components. Licensor permits you to download, install, use, or otherwise benefit from the functionality or intellectual property of the Software only in accordance with the terms of this EULA."
From the above, it is clear that the consideration is being paid for the use of the product and not for any right in respect of the copyright, or the patent, invention, model, design, secret formula or process or trademark or similar property. Such income has to be construed as earned from the activity of sale of the product and cannot be classified as royalty. The consideration paid is for the purpose of the product and does in no manner result in the transfer of a copyright in the product. Hence, it must be classified as 'Business income'.
4. Reference can be made to some of the favourable judgments :
l In the case of Lotus Development (Asia Pacific) Pte Ltd. v. Deputy Director, it was held that there was no element of royalty in the transaction of sale of 'shrink wrap' software by the assessee to its Indian distributors and the gains resulting therefrom were commercial/business profits.
l In the case of Lucent Technologies Hindustan Ltd. v. ITO, the Tribunal has held that payments for import of software do not constitute royalty, if there is no transfer of copyright rights in the software. These payments would be business income of the foreign entity and, thus, be liable to tax in India only if the foreign entity has a permanent establishment or business connection in India.
l In the case of Samsung Electronics Co Ltd. v. ITO (TDS), the Tribunal had observed that the rights granted upon acquisition of readymade off the shelf software was not for commercial exploitation of the copyright in the software and transaction was in the nature of purchase of copy of a copyrighted article. It was stated that the incorporeal right to software, i.e. copyright remained with the owner and the same was not transferred to the assessee. Right to use a copyright is totally different from the right to use the programmable embedded cassette or CD or it may be software.
l In case of Sonata Information Technology Ltd. v. ITO, it was held that payment for the procurement of software does not amount to royalty and no withholding provisions are applicable.
l Reference can be made to Rational Software Corpn. (India) Ltd. v. ITO as well as the decision of the Special Bench of the Tribunal in case of Motorola Communication Inc.
But there are instances where it has been held that such payments constitute royalty :
l In Headstart Business Solutions P. Ltd. v. CIT, it was held that the expression 'any other sum chargeable under the provisions of the Income-tax Act', brings within its ambit not only the amounts, the whole of which are taxable without deduction, but also amounts of a mixed composition, where only a part of it may be liable to tax, as well as other reimbursements which are in the nature of gross revenue receipts are not liable to tax.
l In IMT Labs (India) Pvt Ltd. v. CIT, it was held that the expression 'any other sum chargeable under the provisions of this Act' would mean a sum on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. The only consideration would be whether payment of the sum to the non-resident is chargeable to tax under the provisions of the Act. The sum may or may not be income or income hidden or otherwise embedded therein. The scheme of tax deduction at source applies not only to the amount paid, which wholly bears 'income' character, but also to gross sums, the whole of which may not be income or profits of the recipient.
This has resulted in litigation and spiralling impact of the cost of procurement of software, where the contracts were entered without factoring the tax cost.
Conclusion and way forward
5. Though a Special Task Force was set up to examine the issues of taxation of software, no clarification has been issued by the CBDT. This issue finds a place in almost all the Pre-Budget Memorandum's submitted to Finance Ministry during Budget Season.
Excerpts from Pre-Budget Memorandum-2008 on Direct Taxes submitted by Institute of Chartered Accountants of India (ICAI) are also enclosed for reference :
"Taxability of software payments made to non-residents :
An amendment may be made to provide that license payments made for use of software for the payer's own operations (as against duplication for onward sale/license) being payments for use of a copyrighted article are outside the ambit of the definition of 'royalty' as provided in section 9(i)(vi)."
It is high time that the CBDT/Finance Act should come up with a clarification/amendment so as to address the confusion and litigation which is prevailing on the taxability of software payments.
Thursday, May 1, 2008
4/2008 , Dated: April 28, 2008
Clarification on deduction of tax at source (TDS) on service tax component on rental income u/s. 194-I of the Income Tax Act.
Representations/letters have been received in the Board seeking clarification as to whether TDS provisions u/s. 194-I of the Income Tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194I as
" rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn't partake the nature of "income" of the landlord. The landlord only acts as a collecting agency for Government for collection of Service Tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.