IN RE: DHV CONSULTANTS BV Vs. STATE

JUDGEMENT

(1.) IN this application under Section 245Q(1) of the IT Act, 1961 (for short 'the Act'), DHV Consultants BV (hereinafter referred to as Dutch BV) is the applicant. The applicant is a foreign company incorporated in Netherlands and is engaged in the business of providing consultancy services in the areas of highways, transportation, water supply and waste water, urban development, environment, agricultural, natural resources, etc. Dutch BV has set up several Project Offices in India (hereinafter collectively referred to as 'the PCs') to carry out its activities in India. Dutch BV, through the POs, is currently providing consultancy services to National Highways Development Projects, Delhi Water Supply and Sewerage Project, etc. being executed in India. The POs derive income in the nature of fee for technical services from India. The income of the company is taxed on presumptive basis under Section 44D read together with Section 115A of the IT Act, 1961 (the Act). Dutch BV sends its employees from Netherlands to India to work on various projects being executed by it in India. During their stay in India the employees continue to receive salary and allowances in the home country. Since Dutch BV in its capacity of an employer, is under an obligation to deduct taxes at source in India to the extent its employees' salary is subject to tax in India, it is keen to know with certainty its liability towards taxes to be deposited on behalf of its employees. That the salary paid to an individual either in India or outside India in respect of services rendered by him in India will be chargeable to tax in India. However, in case an individual is also liable to pay taxes in his country of residence with which the Government of India has signed a Double Taxation Avoidance Agreement (DTAA) in accordance with Section 90 of the Act, then the provisions of the DTAA may be made applicable to such individual, in case the provisions of the DTAA are more beneficial to him.

(2.) THE jurisdictional CIT in his written submissions has stated that the applicant sends its employees from Netherlands to India to work on various projects being executed in India. During their stay in India the employees continue to receive salary and allowances in Netherlands. The employees are assured of "net of taxes" salary and the entire tax liability of the employees in India is borne by the applicant. The applicant in its capacity of an employer, is under an obligation to deduct taxes at source in India to the extent its employees' salary is subject to tax in India. The salary paid to an individual either in India or outside India in respect of services rendered by him in India will be chargeable to tax in India. However, in case an individual is resident of a country with which Government of India has signed a DTAA in accordance with Section 90 of the Act, then the individual is entitled to claim benefit under the provisions of the DTAA. However, no evidence has been given regarding the residence of these employees in Netherlands and their liability to tax in that State. There is nothing on record to demonstrate that these employees are liable to tax both in India and Netherlands. The benefit of Section 90 of the Indian IT Act cannot be availed of if the taxpayer pays tax or is liable to pay tax under the law in force in one country alone. This view has been held by the Authority for Advance Rulings in the case of Cyril Eugene Pereira, In re (1999) 239 ITR 650 (AAR). That the applicant has further stated that the condition under Sub -clause (c) of Clause 2 of Article 15 of the DTAA is satisfied in its case, since it is taxed on presumptive basis under Section 44D read with Section 115A of the Indian IT Act. The contention of the applicant is that, since it is liable to tax as prescribed under Section 115A on its gross receipts, none of the expenses incurred by it for its Indian operations are deductible in computing the taxable profits in India. That, since the salary paid by it to its employees in Netherlands is not deductible while computing the taxable profits in India, such remuneration cannot be treated to have been 'borne by' the PE of the applicant in India and hence the condition prescribed in Sub -clause (c) of Clause 2 of Article 15 is satisfied in applicant's case. However, this view of the applicant is not correct since the concept of determination of taxable income under Section 44D read with Section 115A of the Indian IT Act cannot be considered to exclude the expenses attributable to such income (including remuneration paid to employees) as non -deductible merely because the statute fixes a percentage in this regard. The fixation of a rate of gross receipts as the net assessable profit only indicates statutory attempt at estimating the expenses normally incurred in such business [Lloyd Helicopters International Pty. Ltd., In re (2001) 249 ITR 162 (AAR)]

(3.) THE learned counsel for the Revenue pleaded that, as already pointed out by the CIT in his report dt. 27th Oct., 2004, complete facts have not been stated in the application which would be required for considering the question of exemption from taxation in respect of remuneration paid to the employees. That the applicant has not clarified its position regarding first two conditions of Article 15(2) while seeking advance ruling in respect of the third condition. In this regard, it was clarified by the learned counsel for the applicant in the Court that visit of the employees would be less than 183 days and the agreement entered with the source State were relevant to the period after 31st March, 1976, and before the 1st day of April, 2003. It was, therefore, pleaded that the ruling may be given on the basis of these facts. The factual position was also confirmed subsequently vide applicant's letter dt. 4th May, 2005. By another letter dt. 30th May, 2005, the applicant sought time to file written submissions in respect of legal issues by 13th June, 2005. However, these were filed later on 8th July, 2005.