The Government has announced a series of committees to relook tax laws,
GAAR, DTC and others to bolster investor confidence. This is also,
perhaps, the time to build clarity on certain aspects of transactions to
help the Indian entrepreneur raise more finances internationally.
Currently, transactions for investments related to future performance
are challenged on grounds of income tax and exchange control. The need
is to balance the risks with rewards in a manner that is fair to all
stakeholders navigating parameters such as income tax, foreign
investment policy, SEBI laws, corporate laws and securities, which at
times could create conflicts.
Swiss law firm’s fee taxable in India
For decades, benefits claimed by partnership firms through international
tax treaties have been under litigation. The complexities of
legislations, jurisdictions and variance in tax treatments have kept
alive the controversy on the topic. Recently, the AAR dealt with one
such issue in the case of Schellenberg Wittmer, a Switzerland-based
partnership firm whose partners are Swiss residents. The firm engaged in
law practice in Switzerland was appointed by an Indian company for
representation in an adjudication proceeding in that country. The
controversy was over whether the firm could be treated as a resident of
Switzerland under the India-Switzerland tax treaty.
The AAR held that the definition of ‘person’ in the tax treaty includes a
company, body of persons, or any other entity ‘which is taxable under
the laws in force in either contracting state’. Section 2(31) of the
Income Tax Act, 1961 confers the status of a ‘person’ on a partnership
firm, but there is no corresponding definition in Swiss law. Also, the
partnership firm is not a taxable entity in Switzerland. Even though the
partners are residents, they cannot invoke the tax treaty as they are
compensated by the firm and not the Indian company. Further, the source
of income for rendering professional services is in India.
Accordingly, the firm will not be treated as a resident under the tax
treaty, and cannot benefit from it. Therefore, the legal fees received
will be taxable in India.
Tax relief for inter-State gas sale
Since the inception of VAT (local sales tax) and Central Sales Tax (CST)
laws, the issue of whether a sale would qualify as intra-State (subject
to VAT) or inter-State (subject to CST in the originating State) has
been under intense litigation.
More so in the oil and gas sector, where it has surfaced time and again
as oil and gas for different buyers is transported through a common
pipeline. Hence, the destination State often tries to levy VAT on the
transaction (as such oil and gas is appropriated to the buyer at the
exit point) while the originating State demands CST.
The Allahabad High Court, in a recent writ petition filed by Reliance
Industries Ltd, has tried to settle this ambiguity. RIL was shipping gas
from Gadimoga in Andhra Pradesh to Auraiya in Uttar Pradesh. The
company was depositing CST on the sale in AP, while UP demanded VAT by
treating it as a local sale.
The Court held that according to contracts executed, the delivery point
is Gadimoga. From the seller’s perspective, the sale concludes at
Gadimoga as all the rights and liabilities (that is, title of natural
gas) are transferred at the delivery point. Therefore, it is an
inter-State sale subject to CST.
The Court further held that if the contention of revenue were to be
accepted, then every buyer would be required to install his own pipeline
to transmit such gas, which is practically not possible. Accordingly,
the Court while allowing the writ petition also directed the UP
authorities to refund the VAT collected by them.
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