1.IDEA CELLULAR LTD, MUMBAI (A.A.R. No. 967 of 2010), dated 28th February,2012
Facts
Idea Cellular Ltd entered into a contract with Ericsson India (P) Ltd and Ericsson AB for procuring cellular
telecommunication equipments, software, service and documentation. To facilitate the financing for such procurements,
it availed of a loan facility for $ 300 million from ABN Amro Bank NV Stockholm Branch and NORDEA Bank AB Sweden
under a facility agreement and guaranteed by the Swedish Export Credits Guarantee Board (EKN) to the extent of 95% in
respect of risk arising due to political and commercial events. The guarantee is provided in respect of the actual amount
drawn down by the applicant from time to time. Subsequently, the Royal Bank of Scotland NV, the successor of ABN
Amro Bank and NORDEA transferred all their rights and obligations under the Loan Facility Agreement to AB SVENSK
Export Kredit (SEK), a company incorporated in Sweden. Idea approached the Authority for a ruling arguing that all the
agreements relating to this transaction were negotiated and concluded outside India and the loan having been
guaranteed by EKN, the interest paid under the transaction is not liable to charge to tax in India under the Income-tax Act
in view of Article 11.3 of the Double Taxation Avoidance Convention between India and Sweden. It was urgedthat
guaranteeing a loan is the same as‘extending or endorsing’a loan. The Revenue on the other hand submitted that
guaranteeing a loan is not the same as extending or endorsing a loan and hence the claim for exemption is
unsustainable. Issues Whether guaranteeing a loan is the same as extending or endorsing a loan? Whether when loan
is guaranteed by an entity mentioned in Article 11.3 of the India-Sweden DTAA, the interest thereon is exempt from
taxation in India in view of MFN clause in the Protocol and in view of the provision in the treaty with Ireland? Held AAR held
that guaranteeing a loan is not the same as extending a loan or endorsing a loan. Reliance is also place donRuling in
Poonawalla AviationPrivate Limited (AARNo.953of 2010). The Authority further held that in the Protocol to India-Sweden
DTAC entered into on 24.6.1997, there is a Most Favoured Nation Clause covering interest dealt with in Article 11 of the
Tax Convention and going by it and going by the Convention entered into by India with Ireland, even a loan or credit
guaranteed by EKN would come within the purview of the exemption contained in paragraph 3 of Article 11 of the
Convention. AAR has upheld such plea in their Ruling in AARNo.953of2010referredto earlier. The payment of interest by
the applicant to SEK through NORDEA Bank AB is not taxable in India under Article 11.3 of the India-Sweden Double
Taxation Avoidance Convention in view of and only in view of the Most Favoured Nation Clause in the India-Sweden
Protocol which has to be taken as part of the Convention. Also, SEK has no Permanent Establishment in India; there will
be no obligationon the applicant to withhold taxes under Section 195 of the Income-tax Act, on the interest payable on the
transaction. CTCIOverseasCorporation Ltd (A.A.R.No.854of 2009), dated1st February,2012 Facts Applicant (CTCI) is a
Hong Kong company and is in the business of engineering, procurement and construction of petroleum, petro-chemical
and power plants. With a view to execute a project awarded by Petronet LNG Ltd. (Petronet), it formed a consortium with
CINDA Engineering and Construction Pvt. Ltd. (CINDA), an Indian company, to develop a terminal for the receipt and
storage of liquefied natural gas at Kochi, Kerala. Petronet awarded the contract for the project to the consortium. Under
the contract, the consortium members are to undertake the designing, engineering, procurement of equipment, material
supplies to erect, construct, test and commission and turn over the facilities for the storage and regasification of liquefied
natural gas to Petronet. As per the terms of the contract, CTCI is responsible for offshore supplies, offshore services and
mandatory spares (for offshore supplies). CINDA is responsible for onshore supplies, onshore services, construction
and erection and machinery spares (for onshore supplies). CTCI transferred goods to Petronet i.e. the offshore supplies,
being outside India, there is no territorial nexus for taxation regarding those offshore supplies. The counsel for the
applicant submitted that in the light of the decision in Ishikawajima Harima Heavy Industry, the facts being identical, the
questions raised have to be ruled in its favour. The counsel pointed out that the only objection raised by the Revenue is
that the consortium formed by CTCI and CINDA is an Association of Persons (AOP) as per the provision of section 2(31)
of the Act and payments made by Petronet should be taxedin India. The representative of the Revenue submitted that the
decision in IHHI does not apply to the facts of the case as CTCI is a resident of Hong Kong with whom there is no
agreement under section 90(2) of the Act by the Government of India and the Government of Hong Kong. The taxability of
the receipts in the hands of the CTCI would be governed under section 9(1) (i) read with Explanation 2(b) to section 9(1)
of the Income-taxAct,1961(Act).The consortium partner CINDAwill constitute business connection of CTCI in India and
CTCI is responsible for whole of the contract along with CINDA. Issues Whether when a Hong Kong based company
enters into a consortium agreementwith Indian parties, the consortium willbeassessed asAOP? Whether in such event
the foreign company while executing the project can be said tohave a businessconnection in India? Whether business
income accruing or arising to company can be taxed in India only in respectof operations carried out in India? Whether
income in respect of offshore supplies by the foreign company can be taxedin India?
Held AAR Held that no payment is
made to the applicant.The payment is made in the bank inTaiwan on the basis of bill submitted by the Supplier (Holding
Company) and not by the applicant. There is a difficulty in answering the question in the absence of information that the
supplies were arranged through the holding company and that payment made is for supplies by the applicant. The
counsel for the applicant has submitted that for the purposes of custom clearance and preparation of documents, etc.
the services of AFL Dacher Pvt. Ltd. (AFL), Kochin were obtained. AFL inadvertently mentioned the name of CTCI
Overseas Corporation Ltd, Taiwan instead of CTCI Overseas Corporation Ltd, Hong Kong as supplier while filling in the
import declaration.This was examined and found correct by the custom authority. Regarding the name of the bank to
which the payment has been remitted by Petronet, it is submitted that the applicant has maintained a bank account in
Calyon Taipei Branch (Now CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK) as per the certificate from the
said bank. Further, a certificate from Petronet was furnished that the offshore supplieswere made by the applicant and
that the payments have been made in its favour.The facts as subsequently clarified were not controverted by the
Revenue. The Revenue has argued that the case of the applicant is covered under the provisions of the Act as the
Government of India has not entered into a TaxT reaty under section 90(2) of the Act with the Government of Hong Kong. It
has a business connection in India for the reasons that it is a part of the consortium constituting an AOP as also in terms
of Explanation 2(b) to section 9(1)(i) of the Act since it is providing offshore supplies. The Authority notice that under
section 2(31) of the Act, the consortium of CINDA and CTCI forms an Association Of Persons (AOP) to carry out the
project awarded by Petronet. Whether the consortium’s object is to derive profit or share the profit in a particular manner
is not relevant in view of the fiction created under the Explanation to section 2(31) of the Act.The responsibilities of the
consortium members mentioned under the terms of the contract would also not affect conferring AOP status to the
consortium in view of the formation of a consortium by CINDA and CTCI. The applicant can be said to have a business
connection in India for the purpose of application of section 9(1) of the Act. As the applicant is excluded from the relief
under section 90(2) of the Act, the fiscal jurisdiction to tax the offshore supplies would be governed under the Act.
Authority further held that, the applicant has a business connection in India; it has not carried out any part of the business
relating to offshore supplies in India. Under the deeming provision of section 9(1) read with Explanation 1(a), any
business income accruing or arising to the applicant can be taxed in India only in respect of such operations carried out
in India. All that is income in the transaction for supplies has not arisen in India as the right, title, payments, etc, in the
supplies have passed on to Petronet which is importing these supplies outside India. The applicant is not the owner of
the supplies in India. The ownership vests with Petronet who imported these supplies. All such issues, including
whether the contract is composite and indivisible, have been addressed in the case of IHHI Authority clarify that our ruling
on offshore supplies does not include offshore services which may be included therein. Therefore rule on the questions
posed that the amount received/receivable by the applicant from Petronet for offshore supplies in terms of the contract is
not liable to tax in India under the provisions of the Act, in view of the decision of SupremeC ourt in IHHI. SEPCO III
2.Electric Power Construction Corporation (A.A.R. No. 1008 of 2010),dated31stJanuary,2012
Facts
The applicant is a company incorporated under the laws of China and is a supplier of equipments for Electric Power
Projects. The applicant entered into a contract with M/s Jhajjar Power Limited, for supplying of equipments for the
Haryana Power Project. According to the applicant, the payment received by it for the equipment supplied under the
contract are not taxable in India under the Income-tax Act since the supply of material was outside the territory of India. It
has also claimed that under the India-China Double Taxation Avoidance Convention no tax can be levied on it in
India.The applicant approached to authority for an advance ruling.
Issue whether the amounts received/receivable by
SEPCO III, China from JPL India for offshore supply of Equipments, under Offshore Supply are liable to tax in India under
the provisions of the Income taxAct,1961(‘Act’)?
Held
The Authority held that, the title to the equipment was passed
outside the country. The title passed at the port of loading. Port of loading itself was defined to show that it was outside
the country. The port of loading was Shanghai. The payment was to be made in terms of Clause 5 of the agreement read
with the schedule, i
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