Law:

Section:

Section 9 of the Income-tax Act, 1961 read with articles 7 and 12 of the Double Taxation Avoidance Agreement between India and Australia - Income - Deemed to accrue or arise in India - Whether rationale of article 12(4) is to tax non-resident on same basis as a resident of source country, i.e., on net income basis, insofar as he derives profits on account of operations carried out through a fixed base or establishment maintained by him in source country - Held, yes - Whether, however, pre requisite for attracting exclusion clause under article 12(4) is that services in respect of which royalties are paid are effectively connected with permanent establishment (PE); it is not enough that there is a permanent establishment of non-resident in source country carrying out some other activities in connection with project or work - Held, yes - Applicant, a non-resident company of Australia, is engaged in business of providing professional services to energy and resource industries - 'RPL', an Indian company, proposed to lay cross-country pipelines for transportation of hydrocarbons - In connection therewith, applicant was awarded contracts for providing services, namely, (i) engineering and procurement services and (ii) project management services - In respect of first agreement, more than 80 per cent activities concerning basic engineering services were primarily carried out in Australia and in respect of second agreement, services were partly performed from Australia and partly from India - Applicant has a PE in India - Applicant claims that both agreements should be seen as one integrated agreement and if so viewed, receipts under said agreements being connected with PE, go out of purview of royalty provisions by virtue of exclusion clause in article 12(4) of DTAA and income should be deemed to be business income to be dealt with under article 7 - Whether since visits of applicant's personnel to India and their stay at Mumbai commenced only in October, 2001 by which date services under first agreement were to be completed, it cannot be said that services giving rise to royalties in connection with first agreement get effectively connected with PE in India, merely…

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