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com

[2014] 42 taxmann.com 288 (AAR - NewDelhi)/[2014] 223 Taxman 302 (AAR -

NewDelhi)/[2014] 362 ITR 134 (AAR - NewDelhi)/[2014] 265 CTR 449 (AAR -
NewDelhi)

IT/ILT : One of sine qua non of a fixed place PE is that fixed place through which
business is carried on should be 'at the disposal' of taxpayer and, in order to
satisfy said 'disposal test', taxpayer must have element of ownership,
management and authority over establishment
IT/ILT : In order to establsih 'business connection', a real and intimate relation
must exist between trading activities carried on outside India by a non-resident
and activities within India and such relation shall contribute, directly or indirectly,
to earning of income by non-resident in his business
IT/ILT : A course of dealing or continuity of relationship and not a mere isolated
or stray nexus between business of non-resident outside India and activity in
India, would furnish a strong indication of 'business connection' in India

■■■

[2014] 42 taxmann.com 288 (AAR - New Delhi)

AUTHORITY FOR ADVANCE RULINGS
Booz & Company (Australia) (P.) Ltd., In re
JUSTICE DR. ARIJIT PASAYATT.B.C. ROZARA
A.A.R. NOS. 1018 TO 1027 OF 2010
FEBRUARY 14, 2014

Section 9 of the Income-tax Act, 1961, read with articles 5 of DTAA between India and
Australia, USA, U.K., Germany, Itlay, Japan, Netherlands, China and France - Income -
Deemed to accrue or arise in India (Permanent establishment) - Whether one of sine qua
non of a fixed place PE is that fixed place through which business is carried on should be
'at disposal' of taxpayer and, in order to satisfy said disposal test' taxpayer must have
element of ownership, management and authority over establishment - Held, yes [Para 7]
Section 9 of the Income-tax Act, 1961, read with articles 7 of DTAA between India and
Australia, USA, U.K., Germany, Itlay, Japan, Netherlands, China and France - Income -
Deemed to accrue or arise in India (Business profits) - Whether in order to establish
'busienss conection' a real and intimate relation must exist between trading activities
carried on outside India by a non-resident and activities within India and such relation
shall contribute, directly or indirectly, to earning of income by non-resident in his
business - Held, yes - Whether a course of dealing or continuity of relationship and not a
mere isolated or stray nexus between business of non-resident outside India and activity
in India, would furnish a strong indication of 'business connection' in India - Held, yes
[Para 7]
FACTS

■ The Booz Group ('Applicant') is a global network of group companies. In order to optimize the
benefits, affiliates of Booz Group provided or availed of services from each other.
■ The entire Booz Group is being catered to by a basket of approximately 2,200 technically and
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professionally qualified personnel which are deputed for executing any project won by the applicant
or its affiliates.
■ Booz India would execute the client’s project using its own employees and to the extent required,
procure services of technical or professional personnel from the applicant and other affiliates.
■ The applicant has the power to recall these technical or professional personnel and replace them with
other personnel. These personnel would work under the supervision of Booz India with respect to the
concerned project. However, the overall control over these personnel is with the applicant.
■ Revenue case is that there exists assessee's PE in India on following grounds:
(a) Agency PE : Since all entities of the applicant are interdependent, they cannot attain optimal
efficiency without receiving services from each other. Therefore, these inherent and specific
dependencies made it very clear that Booz India is a dependent agent of the applicants.
(b) Service PE : The number and high level of qualified personnel deployed by the applicant to
Booz India clearly establishes that Booz India is a service PE.
(c) Fixed PE : The access given by Booz India to the technical and professional personnel deployed
to work in a given space also rendered that place as a fixed place PE.

■ In aforesaid circumstances, the applicants, non-resident companies, seek advance ruling on question as
to whether payments received/receivable by them in connection with provision of services of
technical/professional personnel to ('Booz India') is chargeable to tax in India as fees for technical
services or business income.
HELD

■ The basic issues which need to be addressed are (1) whether the amount payable is to be treated as
Fees for Technical Services (FTS) or business income? (2) whether the amount payable would be
chargeable to tax as FTS under section 115A read with section 9(1)(vii) as well as section 44DA or as
business income? (3) and whether payment by Booz India to the respective applicant is subject to
withholding tax @ 10% as per Article 12 of the respective DTAAs. [Para 5]
■ Under the Double Tax Conventions, right of the contracting States to tax the business profits of an
enterprise of other contracting State arises only if the enterprise carries on its business in the first
mentioned State through a "Permanent Establishment" ('PE') situated therein. PE is generally
classified into five categories:
(i) Fixed place PE;
(ii) Construction PE;
(iii) Installation PE;
(iv) Service PE:
(v) Dependent Agency PE

■ One of the sine qua non of a fixed place PE is that the fixed place of business through which the
business is carried on should be 'at the disposal' of the taxpayer which is called the "disposal test".
■ It is of significance, that Organisation for Economic Co-operation and Development (in short 'OECD')
does not expressly define what constitutes the place to be 'at the disposal' of the taxpayer and instead
gives examples wherein it may or may not tantamount to 'right of disposal'. Conducting trading
operations generally require a fixed place which the taxpayer uses on a continuous basis.
■ However, taxpayers rendering services usually do not require a place to be at their constant disposal
and therefore application of 'disposal test' is generally more complex in such cases. In some
jurisdictions the 'disposal test' is satisfied by the mere fact of using a place. In some other jurisdictions
it is stressed that something more is required than a mere fact of use of place.

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■ Various factors have to be taken into account to decide a Fixed place PE which inter alia includes a
right of disposal over the premises. No strait jacket formula applicable to all cases can be laid down.
■ Generally the establishment must belong to the employer and involve an element of ownership,
management and authority over the establishment. In other words, the taxpayer must have the element
of ownership, management and authority over the establishment.
■ On the issue of Agency PE the relevant question is 'business connection'.
■ The essential features of 'business connection' may be summed up as follows:

(a) a real and intimate relation must exist between the trading activities carried on outside India by
a non-resident and the activities within India;
(b) such relation shall contribute, directly or indirectly, to the earning of income by the non-resident
in his business;
(c) a course of dealing or continuity of relationship and not a mere isolated or stray nexus between
the business of the non-resident outside India and the activity in India, would furnish a strong
indication of 'business connection' in India.

♦ Apart from the fact that requirements of Explanation 2 to section 9(1)(i) referred to above, are
satisfied, the facts of the instant case would also fulfil the aforementioned essential features of
business connection. [Para 7]
♦ Further, in view of fact that the applicants have Permanent Establishment in India, the incomes
received by them from the Indian Company are taxable as business profit under Article 7 of the Tax
Agreement of India and the respective countries. [Para 8]
CASES REFERRED TO

Rolls Royce Plc v. DIT (International Taxation) [2011] 339 ITR 147/202 Taxman 309/13 taxmann.com
233 (Delhi) (para 7), Seagate Singapore International Headquaters (P.) Ltd., In re [2010] 322 ITR
650/189 Taxman 181 (AAR - New Delhi) (para 7), Motorola Inc. v. Dy. CIT [2005] 95 ITD 269/147
Taxman 39 (Delhi) (Mag.) (SB) (para 7), Western Union Financial Services Inc. v. Asstt. DIT [2007] 104
ITD 34 (Delhi) (para 7), DIT (International Taxation) v. Morgan Stanley & Co. [2007] 292 ITR 416/162
Taxman 165 (SC) (para 7) and Aramex International Logistics (P.) Ltd., In re [2012] 348 ITR 159/208
Taxman 355/22 taxmann.com 74 (AAR - New Delhi) (para 7).
Sunil Moti Lala, Jayesh Kariya, Prashant Maheshwari, Nirmal Nagda and Vyomesh Pathak for the
Applicant. R.S. Rawal and Rajkumar for the Department.
RULING

1. These ten applications involve identical disputes concerning Double Tax Avoidance Agreement (in
short DTAA) of different countries, except in case of the applicant M/s. Booz & Co. (ME) Ltd., Cayman
Island in which case no treaty is involved.
The basic features involved, special features of the treaties if any shall be dealt with in the detail infra.
2. In respect of the ten applications which have been filed u/s. 245Q (1) of the Income-tax Act 1961 (in
short the "Act") seeking advance ruling, following questions are involved:

'(1) Whether, on the facts and circumstances of the case, the payments received/receivable by the
Applicant in connection with the provision of services of technical/professional personnel to
Booz & Company (India) Private Limited ("Booz India") is chargeable to tax in India as "Fees
for Technical Services"(in short"FTS") /Royalty under the provisions of Article 12 and its sub
articles of the relevant India - and the country concerned Double Taxation Avoidance
Agreement ("the Tax Treaty") in the absence of Permanent Establishment("PE") in India?
(expression supplied)
(2) Whether, on the facts and circumstances of the case, the payments received/receivable by the
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Applicant in connection with the provision of services of technical/professional personnel to

Booz India is chargeable to tax in India as FTS under section 9(1)(vii) read with section 115A
as well as Section 44DA of the Act in the absence of fixed place PE in India?
(3) Whether, on the facts and circumstance of the case, the payments received/receivable by the
Applicant towards reimbursement of actual ' out of pocket' expenses incurred by the Applicant
for and on behalf of Booz India (as explained in Para B.4 of Annexure I) during the course of
provision of services of technical/professional personnel to Booz India is chargeable to tax in
India under the provisions of the Act and the Tax Treaty and consequently, whether Booz India
is required to withhold tax from such reimbursements?
(4) Whether, on the facts and circumstances of the case at what rate Booz India is required to
withhold tax under Section 195 of the Act from payments made/proposed to be made in
connection with the transactions as mentioned in question no.1 and 2 above?'
However, in the case of Booz & Co. ME Ltd. Cayman Island, the question (2), (3) & (4) above are
rechristened as number (1), (2) & (3) respectively.
3. The details of the applicants, the treaty applicable and the questions raised are as follows:

No. Name of the Treaty Questions and Arguments taken by Applicants

applicant applicable
1. M/s. Booz & Co. India - (i) Amount to be treated as FTS under Article 12(4) read with
GmbH Germany 12(5)
(ii) The amount payable would be chargeable to tax as FTS
under section 115A read with section 9(1)(vii) of the Act.
(iii) The expenses recovered from Booz India being on
account of reimbursement of expenses like air ticket cost,
freight charges, courier charges, travel expenses,
communication expenses, etc on the personnel deputed to
India and borne by the applicant are part of service
provisioning and thus do not have any element of income
embedded therein.
(iv) Payment by Booz India to the applicant is subject to
withholding tax @ 10% as per Article 12.
2. M/s Booz & Co. India - Japan (i) Amount to be treated as FTS under Article 12(4) read with
SAS Japan 12 (5)
(ii) The amount payable would be chargeable to tax as FTS
under section 115A read with section 9(1)(vii) of the Act
(iii) The expenses recovered from Booz India being on
account of reimbursement of expenses like air ticket cost,
freight charges, courier charges, travel expenses,
communication expenses, etc on the personnel deputed to
India and borne by the applicant are part of service
provisioning and thus do not have any element of income
embedded therein.
(iv) Payment by Booz India to the applicant is subject to
withholding tax @ 10% as per Article 12.
3. M/s. Booz & Co. India-USA (i) Amount to be treated as FTS under Article 12 (4) read with
NA Inc USA 12 (6)
(ii) The amount payable would be chargeable to tax as FTS
under section 115A read with section 9(1)(vii) of the Act
(iii) The expenses recovered from Booz India being on

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