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W.e.f. 1/6/1993 the Income Tax Act has inserted a provision under which  Non resident persons may approach the Authority of Advance Rulings located in New Delhi for the determination of a question of law or fact in relation to a transaction already undertaken or likely to be undertaken in future .The scope of this provision has further been extended wef 1/10/98 to cover the residents with in any class or category as notified by the Central Govt. These rulings are binding on the applicant who has sought it in respect of the transaction in which it is delivered and also on the Income Tax Deptt. with reference to that particular assessee and the transaction.

AAR Rulings

Ruling #1

1. A ruling from AAR -New Delhi deciding the Tax treatment of the business profits arising from a PE (Permanent Establishment)  in India of a Singaporian company under the DTA between India and Singapore

The facts of the case are:

-A Singaporian company carries out a contract of laying down the pipelines offshore India and onshore India.

-Duration of the Project is 47 days (i.e. less than 183 days in India).

Matters to be decided :

-Whether the Singaporian company is deemed to have a place of business in India either under Para 2(f) or Para 3 of Article 5 of DTA .

-And if the Singaporian co. is deemed to have a place of business, whether the Business Profits are taxable in India.


Since the applicant co. was only engaged in the burial of pipelines, therefore it could not be said that there was any fixed place of Business in India thru which its business was carried out. Thus the applicant co. could be said to have a PE in India only if the nature of its activities in the designated field can be brought within the scope of cl. (f) or (j) of Para 2 or para 3 of Article 5 of the DTA.

From a perusal of the scope of the work carried on by the applicant, it was clear that the applicant co. was engaged mainly in an installation and assembly project which pertained to the burial of pipelines in the seabed. Such activities are covered by para 3 of article 5 of DTA and not by cl (f) or (j) of para2 of article 5 as claimed by the Deptt. But para 3 permits such projects to be treated as PE only if the duration of the Project exceeds 183 days in any fiscal year.which is not the case here. It followed that the applicant had no PE in India within the meaning of Para 5 of the DTA and since article 7 of the DTA permits the taxation in the hands of a resident of Singapore, only of the Profits attributable to a PE in India, no part of the profits earned by the applicant co. from its activities under the contract can be charged to Indian Income Tax even though such activities took place in Indian territory and profits therefrom would have been chargeable to Tax in India but for DTA.

For the above reasons the revenue earned by the Singaporian co. are not taxable in India.as it had no PE in India.

We quote relevant extracts from the DTA between India and Singapore.

Article 5 :Permanent Establishment

1.The term PE means a fixed place of Business thru which the business of the enterprise is wholly or partially carried on.

2.The term Permanent Establishment includes:

(a)a place of managemant

(b)a branch

(c)an office

(d)a factory

(e)a workshop

(f)a mine , an oil or gas well ,a quarry or any other place of extraction of natural resources

(g)a warehouse in relation to a person providing storage facilities for others

(h)a farm ,plantation or other places where agriculture ,forestry ,plantation or related activities are carried out

(i)premises used as a place for soliciting the sales order

(j)an installation or structure used for exploration or exploitation of natural resources but only if so used for a period of more than 120 days in any fiscal year.

3. A building site or construction ,installation or assembly project constitutes a PE only if it continues for a period of more than 183 days in any fiscal year.

2. A ruling from AAR -New Delhi deciding the Tax treatment of the withdrawls from IRA account (similar to Provident Fund scheme in India ) representing the moneys accumulated from salaries earned in the past years from services rendered in USA.


Ruling #2

The facts of the case :

-The applicant an NRI employee working in the USA is a member of IRA (Internal Revenue Arrangement) with institution SIS, trustees of IRA in US.

-According to the IRS ( Taxation deptt.) code, the taxability of the interest and the capital gains are deferred till the time of their withdrawls from the IRA a/c of the applicant.

-The applicant now intends to settle down in India and he wants to invest part of his IRA proceeds in a Non Resident-Non Repatriable -Rupee Deposit a/c (NR-NR-RD a/c) with an Indian bank in the name of SIS (the US banking Inst.) in which all the future withdrawls from his IRA account shall be deposited in the Indian rupees.

Matters to be decided:

-Whether the amounts of withdrawls by the applicant from his IRA a/c in US and deposited in the NR-NR-RD a/c in India shall be taxable under the Indian Tax Act

-Whether interest earning from the NR-NR-RD a/c shall be taxable from the prvious year in which he ceased to be a Non resident.


Regarding Q.no.1 ,the withdrawls from the IRA accounts are not taxable in India as it constitutes the income from salary, intetrest and the capital gains earned from time to time by the applicant from rendering the services in USA whatever the residential status may be.

In Q. No. 2 the interest income on the NR-NR-RD a/c shall be taxable in India.