Law:

Section:

Section 9(1)(vii) of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India - Fee for technical service - Where a French company owned/hired equipments in India to provide support service in area of information technology to applicant (Indian company) under Information Technology Sharing Agreement entered into by it with applicant, a PE of French company would exist in India and since services provided under agreement are in nature of fees for technical services and taxable under DTAA as well as under Act, income earned by French company by way of FTS would be taxed under section 44DA [In favour of revenue] A place of business means all tangible assets (e.g. premises, facilities, machinery or equipment or installations) used for carrying on the business, whether or not they are exclusively used for business purpose. Para 17 of Model Commentary states that a PE may exist if business of the enterprise is carried on mainly through automatic equipments and activities of personnel are restricted to setting up, operating, controlling and maintaining such of equipment. Thus, even existence of a computer server amounts to existence of a PE within a jurisdiction. The applicant is a subsidiary of a French company. French company is proposing to enter into an Information Technology Sharing Services Agreement ('IT Agreement') with applicant in order to provide support services to the applicant in the area of information technology. According to the applicant the payment made for such services would not amount to right to use industrial, commercial or scientific equipment and, hence, would not be brought under definition of 'royalty'. The applicant has sought advance ruling on taxability of such payments in India. Held that under the IT agreement, the French company may be hiring/taking on rental the equipment for providing services. There is a failure on part of the applicant in sharing the details of what equipment is going to be used and whether or not and to what extent is the same going to be hired. Hence, it is presumed that the French company may either own the equipment and even where it hires the equipment, the same will be under exclusive control…

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