Johnson Matthey Public Ltd. Company v. DCIT (Int. Tax)  88 taxmann.com 127 (Delhi Tribunal)
Recently, the Tax Tribunal, Delhi Bench held that guarantee fee charged by the UK parent entity from its Indian subsidiaries should be characterized as 'Other Income' and does not fall under the definition of interest as provided by Article 12(5) of the DTAA.
Johnson Matthey Public Ltd. Company (JM Plc), a company incorporated in UK, provided guarantees to HSBC and Citibank, on a global basis outside India, including guarantee for the credit facilities extended to two of its subsidiaries in India. While filing its return of income in India, guarantee fee charged by JM Plc from the Indian subsidiaries, was offered to tax as interest @ 15% in terms Article 12(5) of the DTAA. However, the tax officer, pursuant to directions from the Dispute Resolution Panel (DRP), held such guarantee fee to be taxable in India @ 40% as 'Other Income' in terms of Article 23 of the DTAA.
Aggrieved by the order of the tax officer, JM Plc preferred an appeal before the Tax Tribunal wherein it was held as under:
Therefore, the guarantee fee charged by a foreign parent entity, for providing guarantee to banks to extend credit facilities to its subsidiary in India, must be characterized as income from other sources.
Furthermore, in the context of instant case, Article 23(3) of the India - UK DTAA provides the right of taxation of such income, to the source state. Accordingly, such guarantee fee charged by JM Plc was held to be liable for tax in India @ 40% in terms of the provisions of the Act.
However in case of certain other DTAAs, right to tax over the Other Income (which is not dealt by any other article of such DTAA) lies with the resident state, and as such guarantee fee being characterized as other income may not be liable for tax in India under the provisions of such DTAAs.
(Contributed by: Mr. Anuj Mathur/ Ms. Purnima Bajaj)
Dabur India Limited v. Pr. CIT [TS-979-HC-2017(Del)]
In a recent case of Dabur India Limited (“Dabur India”), the Hon’ble High Court of Delhi (“HC”) affirmed Tax Tribunal’s decision that royalty for brand ‘Dabur’ should continue to be charged from its foreign subsidiary in Dubai at the rate of 0.75%, dismissing the appeal filed by the assessee.
On the facts of the case, the assessee, Dabur India used to provide technical know-how and use of its brand name “Dabur” by a UAE based unrelated entity Redrock under an agreement. Subsequently, Redrock became 100% subsidiary of the assessee and its name was changed to Dabur International Ltd., after such change it ceased to pay royalty to the assessee.
During the transfer pricing assessment proceedings for AY 2006-07, the transfer pricing officer, considering the agreement as was entered between the assessee and Redrock, computed royalty chargeable from Dabur International Ltd. at 4%. The TPO, in doing so, clubbed the rates of royalty at 3% being the royalty as was payable on items manufactured with the support and technical know-how of the assessee and at 1% of the products manufactured, without the support of the assessee but marketed under the “Dabur brand”. Accordingly, transfer pricing adjustment was made. In appeal, CIT(A) reduced royalty rate to 2% taking the average of the two categories of transactions.
The assessee filed an appeal before the Tax Tribunal, which noted that during the relevant year the foreign subsidiary had manufactured FMCG products which were different from the Indian products having different raw material and medium used in the manufacture. However, the Tax Tribunal noted that the brand name of the assessee was being used by its foreign subsidiary. Accordingly, the Tax Tribunal reduced the royalty rate to 0.75%.
The assessee thereafter filed an appeal before HC and contended that absence of consideration for the use of the Dabur brand cannot amount to an international transaction. Further, assessee urged that for making any lawful adjustments, the tax authorities cannot necessarily consider the history of the assessment of a party as constituting a comparable.
Rejecting assessee’s submission, HC stated that accepting the argument of the assessee would imply that the omission by a party to indicate, an initial income, which was concededly being shown in the past as an international transaction, cannot be scrutinized at all. The HC further stated that the assessee was only to explain why its foreign subsidiary was permitted to use the Dabur brand without consideration as royalty was charged in the past years. Thus, the HC found no infirmity with the order of Tax Tribunal and dismissed assessee’s appeal, thus upholding inclusion of royalty at 0.75% for use of brand name.
(Contributed by: Ms. Shweta Kapoor)
Some of the key developments during the month of December, 2017 have been highlighted herein below:
I. Changes in Return filling dates
|S.No||Quarter for which the details in FORM GSTR-1 to be furnished||Time period for furnishing the details in FORM GSTR-1|
|1||October - December, 2017||15th February, 2018|
|2||January - March, 2018||30th April, 2018|
|S.No||Months for which the details in FORM GSTR-1 are furnished||Time period for furnishing the details in FORM GSTR-1|
|1||December, 2017||10th February, 2018|
|2||January , 2018||10th March, 2018
|3||February, 2018||10th April|
|4||March, 2018||10th May, 2018|
II. Other Changes
The Companies (Amendment) Act, 2017 has received the assent of the President on 3rd January, 2018 and it shall come into force on such date as the Central Government may by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of the Act. Earlier, the Bill was passed by the Rajya Sabha on 19th Dec, 2017 and by Lok Sabha on 27th July, 2017. Details of the amendments as contained in the Amendment Act have already been commented upon in the relevant Bill, in the Corporate Update issued for October, 2017. No change has been noticed from the provisions as comment in the Bill and the Act.
Deposit of TDS for the month of January, 2018
|Feb 07 , 2018|
Date of deposit and filing of GSTR-3B for the month of December, 2017
|Jan 20 , 2018|