Abstract
International tax is somewhat of a misnomer if it tends to conjure in our minds some kind of a supra-national law that is applied globally; international tax usually refers to the application of a country’s tax principles (rather than global tax principles) to transactions that have an international dimension, usually due to that country’s companies investing overseas or foreign companies investing in that country. In the past fifty years, more and more countries have entered into bilateral “double tax avoidance” agreements (DTAAs) with each other. Since these agreements have generally standard provisions, decisions by domestic tribunals across the world can perhaps be looked at as an “international law” of tax. Courts in various countries frequently refer to each other’s decisions in interpreting double tax agreements and so, in a manner of speaking, a loose melange of common tax law principles is beginning to take shape. The advent of the OECD BEPS process and the emergence of the Multilateral Tax Instrument (discussed in Chap. 7) will accelerate the emergence of a common set of tax principles worldwide.
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Notes
- 1.
Section 2, ITA.
- 2.
Section 6(3), Explanation.
- 3.
Section 9 (1)(i), ITA.
- 4.
Despite India’s assertion of a source based taxation, why should a non-resident be worried about the Indian government going after him for unpaid taxes if his property is situated wholly outside India? In other words, how can India exercise extra-territorial jurisdiction in taxing the income of a non-resident? Needless to say, the Act has a mechanism that solves—at least partially—the problem of taxing the income of non-residents in India in circumstances where the non-resident and its property may be outside India’s territorial reach. Section 161 of the ITA enables the government to tax persons situated in India as agents of the non-resident. A person is considered as an agent of a non-resident if he has a certain relationship with the non-resident such as having a “business connection” with the non-resident or being employed by him etc.
- 5.
Section 9(1)(i) read with Explanation 1, 2, 2A and 3.
- 6.
Section 9(1)(vi) and Section 9(1)(vii).
- 7.
See Nuggehalli (2019) on the OECD BEPS projects’ first steps in public international tax law.
- 8.
Pursuant to Section 90(1)(a)(i), the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country. Pursuant to Section 90(1)(a)(ii), the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief in respect of income-tax chargeable under this Act and under the corresponding law in force in that country.
- 9.
Section 90(1)(b) provides that the Central Government may enter into an agreement with the Government of any country outside India for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country.
- 10.
Article 5, India U.K. DTAA. Permanent establishments are discussed in Chap. 4.
- 11.
Pursuant to Section 90(1)(a)(ii), the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief in respect of income-tax chargeable under this Act and under the corresponding law in force in that country.
- 12.
2015 Indlaw KAR 9678.
- 13.
Ibid, para 59.
- 14.
For example, Article 12 of the U.K. India DTAA provides that while the resident state can tax interest income (without any limits), the source state can tax interest income up to a maximum of 15%, subject to some exceptions.
- 15.
[2012] 18 ITR (Trib) 358 (Kolkata).
- 16.
India-Singapore DTAA, Article 11 (interest) and Article 12 (Royalty).
- 17.
Ibid, para 10.
- 18.
Commissioner of Income-Tax versus Davy Ashmore India Ltd., 190 ITR 626, para 8.
- 19.
2012 Indlaw ITAT 16.
- 20.
Kikabai Premchand versus CIT, 1953 Indlaw SC 77.
- 21.
Sumitomo, ibid, para 84.
- 22.
Ibid, para 61.
- 23.
Dresdner Bank versus ACIT, (2006) 105 TTJ Mum 149.
- 24.
See paras 22–33 of the Dresdner case (above) for a discussion bearing on the taxability of a branch as a PE.
- 25.
Article 4, Agreement for avoidance of double taxation and prevention of fiscal evasion between India and the United Kingdom of Great Britain and Northern Ireland (Hereafter the India-UK DTAA).
- 26.
Under ITA Section 4, the term “income” has been defined in the Act in Section 2(24). Income has been defined as including a number of enumerated items such as profits and gains, dividend, the value of perquisites, capital gains, winnings from lotteries, and sums received under insurance policies. However, a receipt of a capital nature is not taxable. For example, a sum of money received for transferring carbon credits was considered as a capital receipt and therefore outside the purview of the ITA ( Subhash Kabini Power versus CIT, 2015 (1) TMI 646, overruled by the Finance Act, 2017 through the introduction of Section 115 BBG.
- 27.
The schedular system divides income according to the source of income. Therefore if an income is from a certain source, say the letting of property, it is taxable under the schedule most directly related to that source (income from house property) even if there are other schedules under which this income can potentially be classified (Raheja IT Park vs. CIT, 2014 11 TMI 349).
- 28.
As provided in Section 5 of the Income Tax Act, 1961, residents are taxed on their income without any regard to where it is earned, i.e. without any regard to whether it is earned in India or elsewhere. On the other hand, non-residents are taxed only on income earned in India.
- 29.
Section 9, ITA.
- 30.
The ITA identifies different kinds of taxpayers. Section 5 imposes an income tax on a ‘person’. Section 2(31) defines a person to include an individual, a Hindu Undivided Family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, a local authority, and every artificial juridical person, not falling within any of the preceding categories.
- 31.
This is particularly important for business income. Section 37(1) of the ITA states that any expenditure (not being expenditure of the nature described in Sections. 30–36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ‘Profits and gains of business or profession’.
- 32.
Section 145, Income Tax Act, 1961.
- 33.
For example, Chapter X and Chapter X-A, Income Tax Act, 1961.
- 34.
Section 195, ITA.
- 35.
See Sections 201, 220 and 221 of the ITA.
- 36.
Section 40 of the ITA.
- 37.
GE India Technology Centre (P) Ltd. versus CIT [2010] 327 ITR 456 (SC).
- 38.
Section 160 read with Section 163 of the ITA.
- 39.
See Sections 195, 201, 220 and 221 of the ITA.
References
CBDT (2017) Circular No. 06 of 2017, Guiding Principles for determination of Place of Effective Management (POEM) of a Company, 24th January, 2017, available at https://www.incometaxindia.gov.in/news/circular06_2017.pdf
Nuggehalli N (2019, January 21) BEPS and the dawn of public international tax law [Blog post]. Retrieved from https://ijiel.in/blog/f/beps-and-the-dawn-of-public-international-tax-law
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Nuggehalli, N. (2020). Overview of Indian Legislation Regarding International Taxation. In: International Taxation. SpringerBriefs in Law. Springer, New Delhi. https://doi.org/10.1007/978-81-322-3670-2_2
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