Law:

Section:

Section 90 of the Income-tax Act, 1961, read with article 12 of the Double Taxation Avoidance Agreement between India and USA - Double taxation relief - Where agreement exists - Applicant (AAI) has entered into a contract for 'automation upgrade for third runway at IGI Airport, New Delhi' with an American company ('Raytheon') - Contract involves Raytheon supplying hardware, software and providing services in connection with installation - Contract specifically provides that title and risk in property (hardware) shall pass on to AAI outside India and AAI would be responsible for payment of import duties and customs clearances - As regards software and documentation, contract grants to AAI a non-transferable, non-exclusive, royalty-free licence for using software only at Delhi - Applicant has sought advance ruling on taxability of amount received by Raytheon under transaction in India - Whether in view of specific stipulations in agreement that title and risk in property would pass on to AAI outside India; that AAI would be responsible for import duties and customs clearance; and that consignments were to be shipped directly to AAI at cost of Raytheon, there was outright sale of hardware and, therefore, income received by Raytheon from hardware would not be taxable in India - Held, yes - Whether, however, since software is a part of package of setting-up upgraded automation system and it has no value unless supplier shares technical knowledge, information and experience with user and suitably equips personnel of AAI to handle system by themselves, payment made towards software can be legitimately brought within fold of article 12(4)(b) if not within article 12(3) and, therefore, it will be taxed in India, irrespective of fact that Raytheon has no PE in India - Held, yes FACTS The applicant (AAI), which is a public sector undertaking set up under the Airports Authority of India Act, has entered into a contract for 'automation upgrade for third runway at IGI Airport, New Delhi' with an American company 'Raytheon'. The contract involves Raytheon supplying hardware, software and providing services in connection with installation. The applicant states that all the…

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