AAR : The applicant company has been established with the objects of “marketing, sale, hire, procurement and other distribution of products and services within radio and telecommunication and the carrying on other activities compatible with or related to these objects

Authority For Advance Rulings

Ericsson Telephone Corporation India Ab, In Re

Sections 44D, 115A, 195, 245R(2), Proviso (a), 1995FA SCH. I, PART II, PARA 2(b), CL (viii)

S. Ranganathan, J., Chairman; D.B. Lal & R.L. Meena, Members

AAR No. 269 of 1996

20th June, 1996

Counsel Appeared

P.N. Mehta & Sanjay Sharma, for the Applicant : Sanjay Jain, for the CIT concerned

BY THE AUTHORITY :

This is an application by Ericsson Telephone Corporation India AB, a company incorporated in Stockholm, Sweden, under s. 245Q(1) of the IT Act, 1961 (“the Act”).

The relevant facts as stated in the Annexure to the application are very few. The applicant company has been established with the objects of “marketing, sale, hire, procurement and other distribution of products and services within radio and telecommunication and the carrying on other activities compatible with or related to these objects”. It has entered into contracts with M/s RPG Cellular Services Ltd. of Madras, M/s Motorola of Bombay and M/s Bharti Cellular Ltd. of New Delhi for introduction of the cellular system of telecommunication in India. It has undertaken, for a stated consideration, the installation of GSM Mobile Telephone System with the hardware belonging to, and the software licensed to, these companies and provision of related services. For this purpose, it has also opened branch offices in India at New Delhi, Bombay and Madras with the permission of the Reserve Bank of India.

The Indian companies have informed the applicant that, while making payments to it under the contract, they will withhold income-tax @55% as prescribed under Para (2)(b)(ix) of Part II of the First Schedule to the Finance Act, 1995. The applicant, however, does not expect its net profits on the contracts in question to be more than 10% of the total gross receipts from the Indian companies. According to a P&L a/c and balance sheet prepared for the calendar year 1995 (unaudited), the applicant’s gross receipts from the Indian contracts during the period were Rs. 13,84,70,250 and the net profits were Rs. 35,27,289 which works out to even less than 3%. The case of the applicant, therefore, is that there is no justification to deduct tax at source on the entire payments made to it by the Indian companies @55%. The tax deduction should not, according to the applicant, exceed 5.5% of the total gross payments and even this is a very liberal estimate of the applicant’s profits for this purpose. The applicant has, therefore, made this application seeking the ruling of this Authority on the following question : “Whether the tax withholding by the Indian companies on amounts payable to the foreign company should be at the rate of 55% as provided under First Schedule, Part II(2)(b)(ix) of the Finance Act, 1995 or at the estimated net profits from the local operations of the foreign company. This is in view of the fact that the foreign company estimates that the net profits from the Indian operations will not be more than 10% of the amount received on installation of cellular systems from the Indian companies.”

4. Before dealing with the question posed, a preliminary difficulty in the way of entertainment of this application may be noticed. One of the companies with which the applicant has entered into a contract, RPG Cellular Services Limited, has filed an application dt. 18th March, 1996 under s. 195 (2) of the IT Act before the Dy. CIT, Special Range 30, New Delhi, seeking determination of the rate at which tax should be deducted on the amount of Rs. 4,58,01,462, payable by it to the applicant on account of installation and training services. This application is pending before that authority. Under s. 245R(2) of the Act r/w cl. (a) of its proviso, the Authority is bound to reject an application under s. 245Q “where the question raised in the application is already pending in the applicant’s case before any IT authority, the Tribunal or any Court.” In the present case, the application under s. 195(2) filed by the Indian company has raised the same question as to the tax to be deducted from the payments made by it to the applicant company. It is perhaps arguable that the question raised by the RPG Cellular Services Ltd., being a question raised in relation to the transaction of payments made to the applicant, is a question raised no doubt by that company but “in the applicant’s case”. This, however, would appear to be a strained interpretation of the provision. No application has been filed or contention urged by the applicant before any IT authority, raising the question raised in the present application. RPG Cellular Services has raised the question not on the applicant’s behalf or with a view to benefit the applicant but only to safeguard its own interest as it has a statutory duty to deduct the proper amount of tax from payments made to a non-resident. The question raised no doubt pertains to one of the payments made to the applicant but is not one pending determination before any other authority in the applicant’s case. In this situation, this Authority is of the view that it would not be proper to reject the application in limini by relying on cl. (a) of the proviso to sub-s. (2) of s. 245R. Turning now to the question raised by the applicant, which is in regard to the rate at which tax has to be deducted at source from the payments made by the Indian companies to the applicant company for the installation of the cellular system, the answer is directly provided by the provisions of the relevant Finance Act. The rates for deduction of tax at source during the financial year 1995-96 from payments on an income nature made to a foreign company are set out in Part II of the First Schedule to the Finance Act, 1995. Under para 2(b) of that Part, the rate of tax will be 50% or 30% where the payment is covered by cl. (vii)—the other clauses are irrelevant for our present purpose—and 55% if it falls under the residuary cl. (ix). Clause (vii) deals with “income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or an Indian concern and, where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy” and provides that the rate of tax deduction would be 50% where the agreement is entered into between 29th Feb., 1964 and 31st March, 1976, and 30% where the agreement is made, as in the present case, after 31st day of March, 1976. The issue for consideration, therefore, will be whether the payments made in the present case are covered by cl. (vii) or not. If they are not, the rate would be 55% (which is the stand taken by the Indian companies) but, if they are, the rate of tax deduction can be only 30%.

The nature of the payments in the present scheme would seem, prima facie, to fall squarely within the ambit of cl. (vii) of para 2(b) of Part II of the Fist Schedule to the Finance Act. The applicant company enjoys great expertise in the field of telecommunications. It has perfected the Ericsson GSM System out of its knowledge and experience in the areh of electronic telecommunication. It has agreed to install this system of cellular communications in India and also impart necessary knowledge and training to Indian personnel for the continued operation of the system in India. The payments made by the Indian companies are correlated to the two activities abovementioned in the following manner : (3) Bharti Cellular Installation and training . . 85,951,677 It is thus seen that the applicant is rendering consultancy and technical services to the Indian companies in a field of its speciality and receiving remuneration therefor. The remuneration received by the applicant is also “fees for technical services” within the meaning of India’s Double Taxation Avoidance Agreement (DTAA) with Sweden, Art. 13(4) of which reads : “ARTICLE 13—ROYALTIES AND FEES FOR TECHNICAL SERVICES (4) The term “fees for technical services” as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel.” and Expln. 2 to s. 9(1)(vii) of the Act which is in the following terms :

“Explanation. 2—For the purposes of this clause, `fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head `Salaries’.”

7. The applicant also has proceeded all along on this basis. In Annexure II to its application, it refers to the tax rate of 20% applicable to “fees for technical services” under Art. 13 of the DTAA but takes up the position that the rate of 20 per cent would be applicable only where the foreign company chooses to file no return of income and not to the present case, where the company intends to file a return under the Act. In a subsequent letter of the company’s representative dt. 9th May, 1996, sent in response to a query of the Authority dt. 30th April, 1996, it has been stated, in para 3, that the applicant company is “the beneficial owner of the technical fees which the foreign company will be receiving from Indian companies.” Indeed, the representative of the company, who appears before us, also started his arguments with a reference to Art. 13 but later modified this stand, as will be explained later.

In order that cl. (vii) should be applicable, it is not enough that the income in question is “fees for technical services”. It is further necessary that it should be payable under an agreement with an Indian concern which either has the specific approval of the Government of India or which relates to a matter included in the industrial policy for the time being in force, of the Government of India and is in accordance with that policy. In the present case, the agreements have not been approved by the Government of India but relate to the matter included in the 1991 Industrial Policy of the Government of India, viz., item (v) under the head “Electrical Equipments” in Annexure III to that policy and are in accordance with that policy. Prima facie, therefore, deduction of tax at source from the payments in question should be made @ 30% of the payments made.

The arguments before us proceeded, at the first stage, on the assumption, if not concession, that the payments received by the applicant from the Indian companies are in the nature of “fees for technical services”. The argument advanced by Shri P.N. Mehta, relying on the provisions of the DTAA, was as follows : The relevant provisions of the DTAA regarding the taxation of “fees for technical services” is Art. 13. Under para 1 of this Article, royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such royalties and fees for technical services may, under para 2, also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 20% of the gross amount of the royalties or fees for technical services. In other words, normally, under Art. 13 fees for technical services arising in India can be taxed to Indian income tax at a rate of upto 20%. Shri Mehta, however, does not ask for this rate of 20% to be applied in the present case. He says that para (5) of Art. 13 qualifies paras (1) and (2) and brings down the rate applicable to the income in question further. It is the correctness of this submission that needs to be considered now. Article 13(5) of the DTAA provides as under : “The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base or with business activities referred to under (c) of paragraph (1) of Art. 7. In such case, the provisions of Art. 7 or Art. 15, as the case may be, shall apply.” Basing himself on this provision, Shri Mehta contends that since, in the present case, the receipts in question arise to the applicant company in the course of a business carried on by it, the taxation of such payments will be governed not by Art. 13 but by Art. 7. Turning now to Art. 7, its relevant provisions are to the following effect : “(1) The profits of an enterprise of a Contracting State shall be taxable in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment : (2) (3) In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purpose of the business of the permanent establishment, including such executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, as are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated.” Paraphrasing this provision in its application to the present case, it is contended that the amounts received by the applicant should be treated as business profits and that the assessable profits from this source should be computed after making the necessary deductions and outgoings laid out to earn those profits. As already stated, according to the applicant’s unaudited balance sheet and P&L a/c for the year ending 31st Dec., 1995, the net profit worked out only to above 2.3% of the receipts. Making some allowance for estimates learned counsel contends that the assessable profits cannot be taken at more than 10% of the receipts and that, therefore, the tax leviable in respect thereof cannot be more than 5.5% of the total amounts of the receipts applying the tax rate specified in para 2(ix) of the First Schedule to the Finance Act, 1995 as applicable in respect of payments to foreign companies. Interesting as this argument is, learned representative for the applicant overlooks, in the opinion of the Authority, the real impact of para (3) of Art. 7. This para requires, no doubt, that in the determination of the profits of a permanent establishment, expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses attributable thereto, wherever incurred, shall be allowed as deduction expenses. It, however, also contains a very important restriction that, in the process, only such expenses can be allowed “as are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated”. In other words, the payments in question, though they are in the nature of “fees for technical services” should be treated as business profits and should be computed in accordance with the provisions of the Indian IT Act. One of the provisions of the Act applicable in the computation of business profits is s. 44D. This provision is important and has to be extracted here. It reads thus : “Special provisions for computing income by way of royalties, etc. in the case of foreign companies 44D Notwithstanding anything to the contrary contained in ss. 28 to 44C, in the case of an assessee, being a foreign company,— (a) the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern before the 1st day of April, 1976, shall not exceed in the aggregate 20% of the gross amount of such royalty or fees as reduced by so much of the gross amount of such royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property; (b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received (from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern) after the 31st day of March, 1976; (a) “fees for technical services” shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) Explanation—for the purposes of this section,— of s. 9; Clause (b) of this provision, it will be seen, mandates that no deductions shall be allowed in respect of any expenditure or allowance under the provisions of ss. 28 to 44C, where the payment is received, as in the present case, from an Indian concern under an agreement entered into after 31st March, 1976. In other words, one of the consequences of computing the income in the present case under Art. 7 of the Double Taxation Agreement is to attract, for the purposes of such computation, the relevant provisions of the Act and one of such provisions negates the allowance of any deduction whatsoever from the gross payments received. The result is that the acceptance of the applicant’s argument that the income in question has to be computed under Art. 7 of the DTAA does not improve the applicant’s position; on the other hand, it makes the entire gross amount of fees received by the applicant in the present case liable to tax @55%. However, the Act itself provides for a special relief in respect of foreign companies. This is under s. 115A. It is not necessary to extract this section in full. Suffice it to say that it provides, on the same lines as para 2(b)(vii) of Part II of the First Schedule to the Finance Act, that where the fees for technical services are received in pursuance of an agreement entered into after 31st March, 1976 and which fulfils the conditions laid down therein, the amount of tax chargeable in respect of the fees for technical services will be only 30% and not 55% that would have been otherwise applicable as explained above. This brings us back to the same position that the receipts of the applicant in question are liable to income-tax at 30% on the gross amounts thereof.

Shri Mehta seeks to escape the logic of the above conclusion in two ways. In the first place, he contends that the whole object of para 3 of Art. 7 in treating the technical fees as business profits is to make available the deductions that are usually available in the process of computation of business profits. He says that it would be ironical to read it as prohibiting any deductions whatsoever. There is, however, no force in this argument. Para 3 is not as he contends, a carte blanche provision for the allowance of all expenses against the receipts. It is also a limiting provision. It permits deductions against receipts sought to be assessed under Art. 7 only to the same extent as would be permissible if an assessment were to be made under the Act. In the case of a foreign company, the allowance of deductions is, inter alia, governed by the provisions of s. 44D. This provision restricts the scope of deductions available to foreign companies in the matter of taxation of royalties and technical fees received by them from India. It provides that if the payments are received under an agreement entered into on or before 31st March, 1976, only 20% of the expenses necessary for the earning of those receipts would be allowed as a deduction but that if the agreement has been entered into after 31st March, 1976, no portion of such expenses would be allowable as a deduction. It is not, therefore, possible to accept the contention that under para (3) of Art. 7 it is only the net income earned by the applicant which, according to it, is not more, than 10% of the receipts from the Indian companies, that can be brought to tax in India. On the other hand, the entire gross receipts will be subject to tax @ 30% under s. 115A.

The second avenue of escape sought by the applicant from the provisions of ss. 44D and 115A of the Act is by contending that, in the present case, the receipts accruing to the applicant company are business profits and not `fees for technical services’. It is conceded that the receipts fall within the meaning of the expression “fees for technical services” contained in Art. 13. But it is said that they are taken out of the purview of this description and assigned for purposes of assessment to Art. 7 under the head “business profits”. They have, therefore, it is said, ceased to be fees for technical service and will not attract the provisions of ss. 44D and 115A. There is a fallacy in this argument. The receipts of the applicant company from the three Indian companies are clearly fees for technical services within the meaning of Art. 13 of the DTAA. Para (3) does not take away this character of the receipts. It merely says that where such receipts by way of fees for technical services arise in the course of a business, their computation and the rate of tax applicable to them will be governed not by Art. 13 but by Art. 7. It is true that, when making the computation under Art. 7, normally the expenses incurred for the earning of the fees might have been available as a deduction but, unfortunately, that is precluded in the present case by the very language of s. 44D. It should be emphasised again that the direction in Art. 7(3) for the assessment of the receipts as business profits is not inconsistent with, or repugnant to, their description as “fees for technical services”. Even when their computation is made under Art. 7, they are only fees for technical services. However, since they are receipts arising from business, they will be taxed in the same manner as business profits. Fees for technical services may arise in the course of a business or may arise from other sources. If they arise from a business, the income computation will be under Art. 7 on the net amount on the lines indicated in para 7(3) and if they are not, tax will be charged at 20% on the gross amount under para 13(2). If the Indian Act had not contained a provision corresponding to s. 44D or if the receipts had arisen out of an agreement entered into on or before 31st March, 1976, deductions would have been allowed in full in the former case but restricted, in the latter case, only to the extent of 20% of the total expenditure incurred. Unfortunately, in the present case, the agreements entered into by the applicant are after 1st April, 1976 and cl. (b) of s. 44D prohibits the deduction of any part of the expenses and makes the entire gross amount received liable to tax. Sec. 44D occurs in a catena of sections relating to business income and the fees for technical services, referred to therein, relate only to such fees arising in the course of a business. It is, therefore, not correct to say that the receipts, in the present case, cease to be “fees for technical services” because they arise in the course of a business.

It may be mentioned that this Authority has had occasion to repel contentions similar to the above in AAR 219 of 1995. Finding that the provisions of ss. 44D and 115A stand in the way of his availing of the benefits of Art. 7 of the agreement that might have otherwise been available to it, learned counsel for the applicant sought to exclude the applicability of these two sections to the present case altogether. He contended that, whatever might be the position under Art. 13 of the DTAA, the receipts by the applicant will not constitute `fees for technical services’ within the meaning of Expln. 2 of cl. (vii) of s. 9(1) inasmuch as the definition, which is also applicable to s. 44D and s. 115A, excludes “consideration for any construction, assembly, mining or like project undertaken by the recipient”. He contended that, in the present case, the applicant does not do anything except to assemble the hardware and software belonging to the Indian companies. He sought to bring the present case within the scope of the expression “assembly or like project” used in the Explanation.

The Authority does not desire to express any final opinion on this contention raised on behalf of the applicant and would leave it open to the applicant to raise such contention in other proceedings that may arise later for two reasons. In the first place, this is a new point taken at the time of the arguments and not substantiated by any statement of facts relevant thereto. It is true that the preamble (in two of the agreements) talks of the applicant having offered to install GSM Mobile Telephone Hardware belonging to the Employer and the Software licensed to the Employer, the Employer being the relevant Indian company. But this is hardly a sufficient factual foundation for the argument. It seems an over-simplification to say that the applicant’s only task under the contracts is the assembly of the hardware imported by the Indian companies in a knocked down condition. The introduction of the new system of telecommunications by the applicant company involves much more than the mere assembly of some hardware. Even according to the applicant, the hardware has to be installed in premises which are required to fulfil certain specifications and the installation of the hardware and software involves a high degree of technical knowledge and experience. The contract also talks of related services which include the training of the staff of the Indian companies to efficiently operate the same. It might be more appropriate to call this a case of installation of a new system. The words “installation” and “assembly” are well known expressions in the area of technical know-how. The absence of the expression “installation” in the definition contained in the explanation as well as the omission of the words “assembly” in either the contracts between the applicant and the Indian companies or in the statement of facts before the Authority are quite eloquent. Moreover, what is the exact nature of activities of the applicant for fulfilling the contracts is a matter of fact and evidence. Even if the Authority permits the applicant to raise this question, it will have to call upon the applicant to furnish the factual background on the basis of which the activities of the applicant can be properly appreciated and described and this course will take some more time whereas the applicant is in a hurry to get a ruling in this case because the tax deduction has to be effected by the Indian companies by 31st May, 1996 at the latest. Secondly, the question of the ultimate tax liability of the applicant in respect of its receipts from the Indian companies does not arise for decision in the present case. As already mentioned, the rate of tax deduction is specified in the Finance Act and the Act provides two situations in which that rate can be got reduced. One is under s. 195(2), where the person who pays the amounts files an application and obtains a certificate from the AO that tax need not be deducted on the gross amounts paid but could be restricted to a smaller portion of the payments made. Such an application has been filed by one of the Indian companies in the present case but its subject-matter is not, and cannot be, the subject-matter of adjudication here. The second is the course prescribed under s. 195(3), under which it is open to a non-resident receiving payments from a resident to obtain from the AO a certificate that the payment can be made without making any tax deduction at source. This he can do only if he satisfies the AO that the amount of tax payable by the non-resident recipient on the said receipts will be nil. But that is not the case here even of the applicant. This being so, tax deduction at source has to be done under s. 195(1) read with the provisions of the Finance Act, 1995. The Authority can only direct the AO to apply these provisions if they are applicable and cannot, de hors the Act, give a direction that the rate of tax deduction should be reduced. It follows, therefore, that the only ruling that the Authority can give has to be that tax should be deducted at source at 30% from the gross payments made to the applicant company.

20. Sri P.N. Mehta next contended that an attempt to deduct tax at the rate of 55% or even 30% on the gross payments is discriminatory and violates the provisions of the DTAA. For the purposes of this argument, he relied on Art. 26 of the DTAA. Paragraph (1) and (2) of this article are relevant and need to be set out. They read : “ARTICLE 26—NON-DISCRIMINATION (1) Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances and under the same conditions are or may be subjected. This provision shall, notwithstanding the provisions of Art. 1, also apply to persons who are not residents of one or both of the Contracting States. (2) The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in the same circumstances and under the same conditions. This provision shall not be construed as preventing a Contracting State from charging the profit of a permanent establishment which an enterprise of the other Contracting State has in the first-mentioned State at a rate of tax which is higher than that imposed on the profits of a similar enterprise of the first-mentioned Contracting State.”

The word “Nationals” in paragraph (1) above also includes a company by virtue of the general definition contained in Art. 3(1)(g) of the DTAA. The contention raised by the learned representative is that the DTAA prohibits a discrimination, for the purpose of tax, between Indian assessees and foreign assessees. It is pointed out that, if an Indian company should receive fees for technical services, it is entitled to claim deductions and allowances for earning those receipts and can be called upon to pay tax only at the rate of 46% of the net income that is applicable to domestic companies under the Finance Act. The levy of a higher tax or the levy of a tax on gross payments instead of net payments would be discriminatory and contravene the provisions of Art.

26. The Authority would like to express no opinion on this contention either. Once again, it should be pointed out that the question before the Authority is one of the rate of tax deduction. Whether the tax liability sought to be imposed on the applicant in any way discriminatory can be resolved only after the assessment is made and the tax payable by it is determined. This can be done only after the applicant company files its return and takes up its stand on this issue before the AO. It is open to the applicant company to contend at that stage that though the tax might have been deducted at source at a rate of 30% on the gross payment received by it, the assessment should be different, whether because the receipts fall outside the purview of the Explanation to s. 9(1)(vii) or because the levy of tax on gross receipts or a higher rate even on the net receipts would be violative or Art. 26 of the DTAA. It is now premature to express any opinion on this contention in the absence of appropriate factual data to ascertain whether the case falls under the last part of the definition or to determine the final assessable profits of the applicant in accordance with the provisions of the Act. It is, however, made clear that it will be open to the applicant to raise, at the time of final assessment and in the appropriate forum all questions other than the one on which the Authority is giving the present ruling viz. that the Indian companies shall deduct tax at the rate of 30% on the gross payments made to the applicant company.

21. For the reasons stated above, the ruling of the Authority on the present application is as follows : Ruling Question Answer Whether the tax withholding by the The Indian companies shall not Indian companies on amounts withhold tax on amounts payable payable to the foreign company to the applicant company at the should be at the rate of 55% as rate of 55%. They should deduct provided under First Schedule,, Part tax only at the rate of 30% being II(2)(b)(ix) of the Finance Act,, the rate applicable to such 1995 or at the estimated net profits payments under paragraph 2(vii) from the local operations of the of Part II of the First Schedule to foreign company. This is in view of the Finance Act,, 1995. The the fact that the foreign company Authority does not express any estimates that the net profits from opinion about the net profits of the Indian operations will not be the applicant company from the more than 10% of the amount local operations and leaves the received on installation of cellular question open to be agitated by systems from the Indian the applicant in appropriate companies. Proceedings.

[Citation : 224 ITR 203]

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