India has entered into Double Taxation Avoidance Agreements (‘DTAA’ or ‘tax treaty’) with various countries outside India for granting relief of tax / avoidance of double taxation. In order to be able to claim the benefits of the DTAA, the taxpayer needs to be a resident of one of the contracting states.
A person who qualifies
as a non-resident under the Indian domestic tax law and to whom the DTAA
applies is not entitled to claim any relief under the DTAA unless a certificate
of his being a resident in any country outside India is obtained by him from the
Government of that country and the non-resident provides the prescribed
information in Form 10F.
What is Tax Residency
Certificate
The Government of
India has concluded a Double Taxation Avoidance Agreement with a number of
countries to avoid taxing an income twice. From the year 2013, Indian citizens
living in these countries can benefit from such tax treaties. A tax residency
certificate (TRC) is one of the main documentary evidence to establish your tax
residency and be eligible for a DTAA relief claim.
For example, an NRI
earns taxable income in India and repatriates the same income to his/her
country of residence after the deduction of applicable taxes, or other way
round. He/she may be liable to pay income tax in India and his/her country of
residence for the same income. To avoid being taxed twice (in India and country
of your residence) under DTAA, you can obtain the TRC from the government of
the country of which you are a tax resident.
Eligibility Criteria for obtaining TRC
§ To
be eligible for a TRC, an individual or company must be a tax resident of the
issuing country, as per the tax laws of that country.
§ Additionally,
the applicant must have a permanent establishment or fixed place of business in
the foreign country, or they must be a resident of that country for tax
purposes.
Requirements of availing DTAA Benefits
A person who earns income is accountable for paying
the tax for that specific jurisdiction. India entered into a treaty (DTAA) with
many countries to discourage dual taxation.
However, to claim this benefit, one has to make sure that its native
country where he/she lived has a DTAA with India. Here is the list of documents
you requires to meet this requirement.
(i)
Form 10F
(ii)
Tax Residency Certificate (TRC)
(iii)
Self -declaration
Benefits of Tax Residency Certificate
There are various benefits that you can enjoy by
getting a Tax Residency Certificate. Some of the benefits being:
(i) Double
Taxation Relief:
A person resident in India may end
up paying tax twice, on income earned in foreign countries. For an instance a
resident earning an income from the USA shall have to pay tax in USA as well as
India. In order to provide relief to such taxpayers, Government of India enters
into Double Taxable Avoidance Agreement with the governments of other
countries. For getting relief mentioned under DTAA’s, a taxpayer needs to get a
TRC which proves its tax residency in India in front of the US tax authorities.
(ii) Transparency
in Remittance:
In
case a person resident in India exports goods and/or services, for remitting
the amount for exports the foreign entity with whom the transaction is entered
into more often than not, asks for the TRC before making remittance. Thus, TRC
brings transparency in remittance of funds of transaction between the two
entities located in two different country
(iii) Once in Year Activity:
Tax
Residency Certificate once issued, remains valid till the end of the financial
year. Hence, there is no multiple applications or lengthy recurring processes..
Types of Income Covered
§
Salary earned abroad
§
Income that is earned from services that are provided
abroad
§
Income from assets abroad
§
Capital gain on property transfer abroad
§
Fixed deposit interest
§
Saving bank account interest
§
Revenue from agricultural produce sold abroad
§
Shares and fund dividends
Tax Residency
Certificate [TRC]
§ Section 90(4) –
Non-Resident cannot avail DTAA benefit without Tax Residency Certificate (TRC)
§ Section 90(5) – The
assessee to provide prescribed details –
§ Rule 21AB provides list
of information to be provided
§ Self-attested Form 10F
to be provided if all the information is not covered in the TRC.
[A] Tax
Residency Certificate (TRC) : For Indian
Resident Assessee
§ From 01.04.2013, the
India Residents who earns Income from Countries with which India have a DTAA agreement
can obtain a Tax Residency Certificate
from Income Tax Department. The same may be submitted to the Payer to claim
DTAA Benefit.
§ An assessee, being a
resident in India, shall, for obtaining a certificate of residence for the
purposes of an agreement referred to in section 90 and section 90A, make an
application in Form No. 10FA to the Assessing Officer.
§ Assessing Officer on
receipt of an application referred to in sub-rule (3) and being satisfied in
this behalf, shall issue a certificate of residence in respect of the assessee
in Form No. 10FB.
[B] Tax
Residency Certificate (TRC) : For Non
Resident Assessee
(1)
From 01.04.2012, An assessee, not being a resident in India, shall
obtain Tax Residency Certificate (TRC) from the Government of the country or
the specified territory of which Assessee claims to be resident, which shall
contain the following particulars, namely:-
(i)
Name
of the assessee;
(ii)
Status
(individual, company, firm etc.) of the assessee;
(iii)
Nationality
(in case of individual);
(iv)
Country
or specified territory of incorporation or registration (in case of others);
(v)
Assessee’s
tax identification number in the country or specified territory of residence or
in case no such number, then, a unique number on the basis of which the person
is identified by the Government of the country or the specified territory;
(vi)
Residential
status for the purposes of tax;
(vii)
Period
for which the certificate is applicable; and
(viii)
Address
of the applicant for the period for which the certificate is applicable;
(2)
The above details shall be provided by the non resident assessee in Form 10F
(3)
The certificate referred to in sub-rule (1) shall be duly verified by the
Government of the country or the specified territory of which the assessee,
referred to in sub-rule (1), claims to be a resident for the purposes of tax.
How to obtain the Tax Residency Certificate (TRC)
NRI
can download Form 10F available at website and approach the tax/government
authorities of the overseas where NRI resides to obtain the form Tax Residency
Certificate (TRC) certified. No other document in lieu of the Tax Residency
Certificate (TRC) is considered for availing the benefits under Double Taxation
Avoidance Agreement (DTAA).
In case failed to submit Tax Residency Certificate
(TRC)
In
case the prescribed documents are not submitted to the bank within stipulated
timelines, the bank will have to deduct interest earned on NRO deposits at the
presently applicable rate of 30% (subject to revision by the tax/government
authorities). TDS once deducted cannot be refunded.
Rate and jurisdiction under DTAA
DTAA
allocates jurisdiction between source and residence country. In case of certain
income jurisdiction to tax is agreed to be with both countries, DTAA in such
case prescribes maximum rate of taxation in source country which is generally
lower than the rate of tax under domestic laws of that country. Double taxation
in such cases are avoided by residence country generally by agreeing to give
credit of tax paid in source country thereby reducing tax payable in residence
country by the amount of tax paid in source country. Whereas DTAA provides
specified reduced rates for income in the nature of Dividend, Interest,
Royalties, Fees for technical services, received by residents of one
country from those in other. Irrespective of general rate of taxation for those
four types of income, these specified DTAA reduced rates are applicable.
Claims of credit of Tax
A
resident has to apply to Assessing Officer in Form 10FA to obtain Tax Residency
Certificate (TRC) and Assessing Officer may issue TRC in Form 10FB. TRC may be
required for DTAA purpose in foreign country. Persons resident in India have to
furnish details of income from outside India and tax relief in Schedule FSI and
further summary of tax relief claimed for taxes paid outside India in Schedule
TR of all ITRs (except ITR - 1, 2A, 4S, as person claiming relief under section
90/90A/91 cannot file these three ITRs).
For claiming relief under DTAA must have Tax Residency
Certificate (TRC)
A
non-resident claiming relief under DTAA must have TRC from country/specified
territory outside India and further particulars in Form 10F. A non-resident has
to furnish details of Capital Gains (not chargeable to tax in India, only for
disclosure purpose) and other particulars in Schedule CG of all ITRs. Income
chargeable to tax in India has to be shown in respective Parts and Schedules of
all ITRs including DTAA income which is to be furnished in Schedule OS of all
ITRs (except ITR-1, 2A, 4S).
TRC Validity and Renewal Process; Documents to be submitted every year
Double
Taxation Avoidance Agreement (DTAA) benefit is extended on an annual basis.
Therefore, any Non-Resident Indian (NRI) is required to provide all the
requisites every year to continue availing the benefit under Double Taxation
Avoidance Agreement (DTAA).
TRCs are typically valid for one financial year, and they need to be renewed every year to continue availing of the tax benefits under the DTAA. The renewal process is similar to the initial application process, and the applicant needs to submit the required documents and information to the tax authorities in the issuing country.
Non- Issuance of TRC
Many countries may not have any provision under
their tax laws for issuance of TRC. It implies that the benefit under the tax
treaty, which is otherwise available, cannot be claimed just because TRC is not
issued by foreign country although the individual qualifies as resident in the
foreign country.
Time required to obtain TRC
Obtaining TRC involves time and is not an
instant process. Foreign tax authorities need to review details furnished by an
individual before issuing TRC. Also, many countries issue TRC only after the
tax return for the year for which TRC is sought has been filed and processed by
the tax authorities. A dilemma is often there for tax payer whether to claim
treaty benefit in India pending the receipt of TRC at the time of filing the
India tax return. This is because there is a requirement in the tax return forms
to mention the TRC details. For example, the tax return form requires the
individual to update the TRC details if DTAA benefit is claimed.
Furnishing of Form 10F electronically [CBDT Notification No. 3/2022, Dated 16.07.2022]
This form is used as identification proof and to
identify if you pay taxes in your country of residence. The time period that
you have been a resident of that country has to be mentioned in the TRC. NRI
individuals who do not have enough information from TRC and PAN are required to
fill this form.
Purpose to File Form 10F
Form 10F is required to be filed by a non-resident taxpayer with the Income-tax department of India under section 90 and section 90A of the Income-tax Act, 1961, in order to claim relief under the applicable Double Taxation Avoidance Agreement.
It is also important to file Form 10F for the following reasons:
§ The form allows you to claim Tax Deduction Certificate at a lesser rate
§ NRIs who do not have a PAN card but receive
money from India have the complete Form 10F.
§ The Income Tax Department has made it compulsory
to file Form 10F for NRIs to help them by reducing the tax that they pay
§ This form helps NRIs by reducing Tax Deduction
Certificate on payments that are received and made from India.
§ The Central Board of Direct Taxes (CBDT) has
passed a rule that NRI taxpayers who do not have PAN are not required to file
Form 10F until 31.03.2023.
§ This relaxation by the board is to provide
relief for NRI taxpayers who have to get a PAN card for the sole purpose of
filing Form 10F electronically.
Rule 21AB of Income Tax Rules, 1962
§ Sub-rule 1 of Rule 21AB
provides that for the purpose of Sections 90(5) and 90A(5), the assessee has to
furnish Form 10F to the Income-tax department.
§ So, the key takeaway
from the above discussion can be that if any non-resident of India wants to
claim relief under the applicable DTAA to avoid paying taxes twice on the same
income, he will have to furnish the following two important documents to the tax
authorities of India:
(i) A
tax residency certificate obtained from the Government of the country or the
specified territory he claims to be a
resident of, and
(ii) Form 10F
Text of Rule 21AB
21AB.
Certificate for claiming relief under an agreement referred to in sections 90
and 90A.
(1)
Subject to the provisions of sub-rule (2), for the purposes of sub-section (5)
of section 90 and sub-section (5) of section 90A, the following information
shall be provided by an assessee in Form No. 10F, namely: -
(i) Status (individual, company, firm etc.) of
the assessee;
(ii) Nationality (in case of an individual) or
country or specified territory of incorporation or registration (in case of
others);
(iii) Assessee’s tax identification number in the
country or specified territory of residence and in case there is no such
number, then, a unique number on the basis of which the person is identified by
the Government of the country or the specified territory of which the asseessee
claims to be a resident;
(iv) Period for which the residential status, as
mentioned in the certificate referred to in sub-section (4) of section 90 or
sub-section (4) of section 90A, is applicable; and
(v) Address of the assessee in the country or
specified territory outside India, during the period for which the certificate,
as mentioned in (iv) above, is applicable.
(2)
The assessee may not be required to provide the information or any part thereof
referred to in sub-rule (1) if the information or the part thereof, as the case
may be, is contained in the certificate referred to in sub-section (4) of
section 90 or sub-section (4) of section 90A.
(2A)
The assessee shall keep and maintain such documents as are necessary to
substantiate the information provided under sub-rule (1) and an income-tax
authority may require the assessee to provide the said documents in relation to
a claim by the said assessee of any relief under an agreement referred to in
sub-section (1) of section 90 or sub-section (1) of section 90A, as the case
may be.]
(3)
An assessee, being a resident in India, shall, for obtaining a certificate of
residence for the purposes of an agreement referred to in section 90 and
section 90A, make an application in Form No. 10FA to the Assessing Officer.
(4)
The Assessing Officer on receipt of an application referred to in sub-rule (3)
and being satisfied in this behalf, shall issue a certificate of residence in
respect of the assessee in Form No. 10FB.]
FORM
No. 10F
[See sub-rule (1) of rule
21AB]
Information
to be provided under sub-section (5) of section 90 or sub-section (5) of
section 90A of the Income-tax Act, 1961
I, ________________
*son/daughter of Shri _____________, in the capacity of _________________
(Designation) do provide the following information, relevant to the previous
year ________________ in my case/in case of ________________ for the purposes
of sub-section (5) of section 90/section 90A :-
|
S. No. |
Nature of information |
Details # |
|
(i) |
Status
(individual, company, firm etc.) of the assesse |
|
|
(ii) |
Permanent
Account Number (PAN) of the assessee, if allotted |
|
|
(iii) |
Nationality
(in the case of an individual) or Country or specified territory of
incorporation or registration (in the case of others) |
|
|
(iv) |
Assessee’s
tax identification number in the country or specified territory of residence
and if there is no such number, then, a unique number on the basis of which
the person is identified by the Government of the country or the specified
territory of which the assessee claims to be a resident |
|
|
(v) |
Period
for which the residential status as mentioned in the certificate referred to
in sub-section (4) of section 90 or sub-section (4) of section 90A is
applicable |
|
|
(vi) |
Address
of the assessee in the country or territory outside India during the period
for which the certificate, mentioned in (v) above, is applicable |
2. I have obtained a certificate referred to in
sub-section (4) of section 90 or sub-section (4) of section 90A from the
Government of __________________ (name of country or specified territory
outside India).
Signature : __________________
Name : __________________
Address :__________________
Permanent Account Number or Aadhaar
number : __________________
Verification
I, __________________ do
hereby declare that to the best of my knowledge and belief what is stated above
is correct, complete and is truly stated.
Verified today the
__________ day of _____________.
Signature
of the person providing the information
Place: ______________
Notes :
- Delete whichever is not applicable.
- Write N.A. if the relevant information
forms part of the certificate referred to in sub-section (4) of section 90
or sub-section (4) of section 90A.
A non-resident, who intends
to claim the benefit of Indian Treaties with their country of residence, is
required to provide information in Form 10F - Information to be provided
under sub-section (5) of section 90 or sub-section (5) of section 90A of
the Income-tax Act, 1961
FORM NO. 10FA
[See rule 21AB (3)]
Application for Certificate of residence
for the purposes of an agreement under section 90 and 90A of the Income-tax
Act, 1961
To
The Assessing Officer,
_________________,
_________________,
_________________.
Sir,
I request that a
certificate of residence in Form No. 10FB be granted in my case/in
the case of
________________________ [for person other than individual]
2. The relevant details in
this regard are as under: -
(i) Full
Name and address of the applicant
(ii) Status
(State whether individual, Hindu undivided family, firm,
body of individuals, company etc.)
(iii) Nationality
(in case of individual)
(iv) Country
of incorporation/registration (in case of others).
(v) Address of the applicant during the period for
which TRC is desired
(vi) Email
ID
(vii) Permanent Account Number or Aadhaar Number/TAN
(if applicable)
(viii) Basis on which the status of being
resident in India is claimed
(ix) Period for which the residence certificate is
applicable
(x) Purpose of obtaining Tax Residency
Certificate (must be specified)
(xi) Any other detail
3. The following document
in support are enclosed: -
(1)
(2)
(3)
Verification
I,______________________[full
name in block letters] _____________son / daughter of
____________________________________,
in the capacity of__________ [designation for person other than individual],
verify that to the best of my knowledge and belief, the information given
in this form is correct and
complete and that the other particulars shown therein are truly stated.
Verified today
the_____________________________________ day of _____________
Place ________ Signature of
the Applicant ___________
Name__________
FORM
NO. 10FB
[See rule 21AB (4)]
Certificate of residence for the purposes of section 90 and 90A
1. Name of the Person
________________
2. Status ______________
3. Permanent Account Number _______________________
4. Address of the person during the period of ________________
Tax Residency Certificate
Certificate
It is hereby certified that
the above mentioned person is a resident of India for the purposes of
Income-tax Act, 1961.
This certificate is valid
for the period __________________
Issued on __________ the day of ________, ________.
Name of the Assessing Officer
Designation____________
Seal ______________
Relaxation to
non-residents from obtaining PAN under Rule 37BC
In accordance with Rule
37BC of the Income-tax Rules, in the case of non-resident assessees, payments
such as interest, royalty, fees for technical services, dividend, and payment
on the transfer of any capital asset will not be subject to the higher TDS rate
of 20% even in cases where PAN is not furnished, so long as such assessee
(deductee) provides certain details and documents such as name, e-mail address,
contact number, address in the resident country, TRC, etc. to the deductor.
FAQs
on Tax Residency Certificate
Q :
1 - What is Tax Residency
Certificate ?
Answer : TRC is a document issued by tax authorities to enable
a taxpayer to claim the benefit of the Tax Treaty affirming his tax residency
status as a Resident.
Q :
2 - Who can apply for TRC in
Form 10F and 10FA ?
Answer : An assessee who is
a resident of India , can apply to the Assessing Officer for a Tax Residency
Certificate in Form No. 10FA under rule 21AB to claim relief under a DTAA.
However, a non-resident, who intends to claim the benefit of Indian Treaties
with their country of residence, is required to provide information in Form 10F
Q :
3 - Whether Form 10FA for TRC
be filed online in India ?
Answer : No. The Tax
Residency Certificate (TRC) application must be submitted in Form 10FA at the
Income Tax Office manually.
Q :4.
- Where to submit Form 10 FA
?
Answer : The Form 10FA can
be filed before the jurisdictional Assessing Officer (‘AO’) for getting a TRC
in India.
Q :
5. - In which Form the
Assessing Officer provides TRC?
Answer : The Assessing
Officer shall give the assessee a certificate of residency in Form No – 10FB
upon receipt of an application and after being satisfied on the particulars
mentioned therein.
Q: 6
- What is a Residence
Country?
Answer : A Residence
Country is a country in which you have been deemed a resident. India is ruled
by Section 6 of the Income Tax Act 1961.
Q :
7 - What
is a Source Country?
Answer : A Source Country
is the country from where your income is earned and received.
Q : 8 - Whether TRC is
mandatory to avail tax treaty benefits? If yes, can the tax treaty benefit be
denied in the absence of TRC?
Answer : Yes, as per section 90(4) / 90A(4). The benefit can be
denied in the absence of TRC.
Q : 9 - Few countries issue
TRC in their local language. Whether the same amounts to sufficient compliance?
Answer
: An English-translated
version of the TRC which is duly apostilled should be additionally obtained
Q :
10 - If Form 10F is provided manually before the issuance
of the July 2022 notification mandating electronic filing of the same, whether
digital Form 10F is required to be provided again for the said taxable year?
Answer : No.
Q : 11 - Can an
individual/entity hold Tax Residency Certificates from multiple countries?
Answer : Yes, an individual/entity can hold Tax Residency
Certificates from multiple countries.
Q : 12 - Can Form 10F be used
instead of Tax Residency Certificate?
Answer
: Form 10F and Tax Residency Certificate (TRC)
are two different documents that serve different purposes. While TRC is issued
by the tax authorities of the country of residence of the taxpayer, Form 10F is
a self-declaration form used by the taxpayer to claim the benefits of the
Double Taxation Avoidance Agreement (DTAA) between India and another country.
Form 10F cannot be used instead of TRC in India. However, it is mandatory to
submit Form 10F along with the TRC while claiming the benefits of DTAA.
Q : 13 - Can I obtain a TRC
for my family members?
Answer : TRC applications are generally limited to the
individual taxpayer, and it may not be possible to obtain a TRC for family
members. However, some countries may allow for dependents to be included in the
application.
Q : 14 - What is the validity of a TRC?
Answer : The validity
of a TRC varies from country to country and may range from 6 months to 3 years.
Some countries may also allow for TRC renewals or extensions. It is important
to check the specific country’s regulations for TRC validity.
CBDT Circular F. No.
DGIT(S)-ADG(S)-3/E-Filing Notification/Forms/2023/13420, Dated 28.03.2023
Subject : Partial relaxation with respect to
electronic submission of Form 10F by select category of taxpayers in accordance
with DGIT (systems) Notification No. 3 of 2022
Reference is invited
to Notification No. 3/2022, dated 16th July, 2022 issued by Directorate of
Income Tax (Systems) New Delhi in exercise of powers conferred under Rule
131(1)/(2) of the Income-tax Rules mandating, inter alia, furnishing of Form 10F electronically.
2. On consideration
of the practical challenge being faced in making compliance as per the above
notification, those non-resident (NR) taxpayers who were not having PAN and not
required to have PAN as per relevant provisions of the Income-tax Act, 1961, read
with Income-tax Rules, 1962, were exempted from mandatory electronic filing of
Form 10F till 31st March, 2023 by the competent authority.
3. In view of the
continued practical challenges and to mitigate the genuine hardship being faced
by such category of taxpayers, it has been decided by the competent authority
to extend the above mentioned partial relaxation further till 30th September, 2023.
For the sake of clarity, it is reiterated that such category of taxpayers may
make statutory compliance of filingForm 10F till 30th September, 2023 in manual
form as was being done prior to issuance of the DGIT(Systems) Notification No.
3 of 2022.
Y K Singh
DGIT(Systems)-1, CBDT
CBDT Notification No. 3/2022 [F. No.
DGIT(S)-ADG(S)-3/E-Filing
Notification/Forms/2022/3813], Dated
16.07.2022
Subject : Specifying forms, returns, statements,
reports, orders, by whatever name called, prescribed in appendix-ll to be
furnished electronically under sub-rule (1) and sub-rule (2) of Rule 131 of the
Income-tax Rules, 1962
In exercise of the
powers conferred under sub-rule (1) and sub-rule (2) of Rule 131 of the
Income-tax Rules, 1962 ('the Rules'), the Director General of Income Tax
(Systems), with the approval of the Board, hereby specifies that the following
Forms, returns, statements, reports, orders, by whatever name called, shall be
furnished electronically and shall be verified in the manner prescribed under
sub-rule (1) of Rule 131:
|
S. No. |
Form |
Description |
|
1. |
3CEF |
Annual
Compliance Report on Advance Pricing Agreement |
|
2. |
10F |
Information
to be provided under sub-section (5) of section 90 or sub-section (5) of
section 90A of the Income-tax Act, 1961 |
|
3. |
10IA |
Certificate
of the medical authority for certifying ‘person with disability’, ‘severe
disability’, ‘autism’, ‘cerebral palsy’ and ‘multiple disability’ for
purposes of section 80DD and section 80U |
|
4. |
3BB |
Monthly
statement to be furnished by a Stock Exchange in respect of transactions in
which client codes have been modified after registering in the system for the
month of -- |
|
5. |
3BC |
Monthly
statement to be furnished by a Recognized Association in respect of
transactions in which client codes have been modified after registering in
the system for the month of |
|
6. |
10BC |
Audit
report under (sub-rule (1) of rule 17CA) of Income-tax Rules, 1962, in the
case of an electoral trust |
|
7. |
10FC |
Authorization
for claiming deduction in respect of any payment made to any financial
institution located in a Notified jurisdictional area |
|
8. |
28A |
Intimation
to the Assessing Officer under section 210(5) regarding the Notice of demand
under section 156 of the Income-tax Act, 1961 for payment of advance tax
under section 210(3)/210(4) of the Act |
|
9. |
27C |
Declaration
under sub-section (1A) of section 206C of the Income-tax Act, 1961 to be made
by a buyer for obtaining goods without collection of tax |
|
10. |
58D |
Report
to be submitted by a public sector company, local authority or an approved
association or institution under clause (ii) of sub-section (5) of section
35AC of the Income-tax Act, 1961 to the National Committee on a notified
eligible project or scheme. |
|
11. |
58C |
Report
to be submitted under clause (ii) of sub-section (4) of section 35AC of the
Income-tax Act, 1961 to the National committee by an approved association or
institution |
|
12. |
68 |
Form
of application under section 270AA(2) of the Income-tax Act, 1961 |
2. This notification
shall come into effect immediately.
(Govind Lal)
DGIT (Systems), CBDT
Finance Ministry
Clarification Regarding Tax Residency Certificate (TRC) [Press Release dated 01.03.2013
issued by the Ministry of Finance]
Concerns
on Language of DTAA To be Addressed When Finance Bill is Taken up for
Consideration
Concern
has been expressed regarding the clause in the Finance Bill that amends section
90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements.
Sub-section (4) of section 90 was introduced last year by Finance Act, 2012.
That sub-section requires an assessee to produce a Tax Residency Certificate
(TRC) in order to claim the benefit under DTAA.
DTAAs recognize different kinds of income. The DTAAs stipulate that a resident
of a contracting state will be entitled to the benefits of the DTAA.
In
the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax
Residency Certificate containing prescribed particulars is a necessary but not
sufficient condition for availing benefits of the DTAA. The same words are
proposed to be introduced in the Income-tax Act as sub-section (5) of section
90. Hence, it will be clear that nothing new has been done this year which was
not there already last year.
However,
it has been pointed out that the language of the proposed sub-section (5) of
section 90 could mean that the Tax Residency Certificate produced by a resident
of a contracting state could be questioned by the Income Tax Authorities in
India. The government wishes to make it clear that that is not the intention of
the proposed sub-section (5) of section 90. The Tax Residency Certificate
produced by a resident of a contracting state will be accepted as evidence that
he is a resident of that contracting state and the Income Tax Authorities in
India will not go behind the TRC and question his resident status.
In
the case of Mauritius, circular no. 789 dated 13.04.2000 continues to be in
force, pending ongoing discussions between India and Mauritius.
However,
since a concern has been expressed about the language of sub-section (5) of
section 90, this concern will be addressed suitably when the Finance Bill is
taken up for consideration.
Expounds on scope of ‘shares’
in India-Mauritius DTAA, TRC’s sanctity & ‘liable to tax’; Assessing
Officer could not question the tax residency of entity holding the valid Tax
Residency Certificate (TRC) as per the India-Mauritius Double Taxation
Avoidance Agreement (DTAA)
Delhi ITAT allows
exemption to Mauritius-based investment company (Assessee) on disposal of
shares that arose from conversion of cumulative convertible
preference shares (CCPS) where CCPS was issued prior to 01.04.2017 but
conversion took place afte the said date as there was no substantial change in
the rights of the Assessee; Holds that “it is well settled that once the tax
resident of Mauritius is holding a valid TRC, the Assessing Officer in India
cannot go behind the TRC to question the residency of the entity”; Relies
on Supreme Court ruling in Union of India v.
Azadi Bachao Andolan (2003) 132 Taxman 373 (SC),
jurisdictional High Court ruling in Blackstone
Capital Partners (Singapore) VI FDI Three Pte Ltd. v. ACIT (2023) 146
taxmann.com 569 (Del) and
co-ordinate bench ruling in MIH India
(Mauritius) Ltd. v. ACIT (ITA No. 1023/Del/2022) upholding the validity of Circular
No. 789 of 2000 dated 13.04.2000 and observing TRC a sufficient evidence to
claim not only the tax residency and legal ownership but also treaty
eligibility; Regarding, denial of treaty benefits due to capital gain tax
exemption in Mauritius, ITAT observes that Supreme Court in Azadi
Bachao held that ‘liable to taxation’ and ‘actual payment of tax’ are two
different aspects and merely because tax exemption is granted under the
domestic tax laws of Mauritius, it cannot lead to the conclusion that the
entities availing such exemption are not liable to tax; Assessee-Company,
a tax resident of Mauritius, was incorporated for making investments in India
in education, agriculture, healthcare, microfinance institutions and other
financial services; It made investment in equity shares of two Indian
companies, viz, Sewa Gruh Rin Ltd. and Veritas Finance (P) Ltd. which
were sold during Assessment year 2019-20 and long-term capital gain (LTCG)
earned was claimed as exempt income under Article 13(4) of the India-Mauritius
DTAA; Subsequently, Assessee filed revised return to offer the LTCG
from sale of equity share of Veritas Finance (P) Ltd. under Article
13(3B) of India-Mauritius DTAA; Revenue dislodged the validity of TRC and
denied the benefit of DTAA observing Assessee as a conduit and not the
beneficial owner of income; Before ITAT, Assessee raised an additional
ground regarding exemption of sale of shares of Veritas which was offered to
tax in revised return on a conservative basis under Article 13(3B) of DTAA;
Assessee claimed it to be not taxable as per Article 13(4) of DTAA, as shares
were acquired prior to 01.04.2017 and the amended provisions of Article 13 and
the limitation of benefit (LOB) under Article 27A would not be applicable, as
it is applicable only with reference to Article 13(3B) and also for the reason
that neither the Assessee has negligible business operations nor its expenses
were below the threshold limit prescribed in Article 27A; ITAT observes that
Revenue committed a fundamental error in denying treaty benefits as, once, TRC
has been issued by the competent authority of the other country, it will
demonstrate the tax residency of the entity and its eligiblilty to avail
benefits under India-Mauritius DTAA; Rejects Revenue’s argument that since
Assessee is not liable to tax under Article 4 of the India-Mauritius DTAA,
it cannot claim benefit of DTAA; Notes that Revenue’s argument of treaty
shopping and Assessee being a tax conduit as per Article 27A is not borne out
from any cogent evidence or material brought on record; ITAT finds that sale of
share of Sewa Gruh being acquired before 01.04.2017 were taxable in country of
residence only and not in India; For Veritas shares, ITAT observes that
Assessee acquired the CCPS of Veritas on 18.03.2016, which were converted to
equity shares on 04.08.2017, without there being any substantial change in the
rights of the Assessee; Opines that, Article 13(3A) covers ‘gains from
alienation of shares’ and the word ‘shares’ being used in a broader sense
will take within its ambit all shares, including preference shares and thus,
CCPS acquired prior to 01.04.2017 would fall within Article 13(4), hence exempt
from taxation; ITAT holds that the revised return offering to tax gain from
such shares would not preclude Assessee from claiming benefit under Article
13(4);Thus, allows, appeal of the Assessee. [In favour of assessee] (Related Assessment
yea r: 2019-20) – [Sarva Capital LLC v. ACIT
(International Taxation) Sarva Capital LLC
[TS-467-ITAT-2023(DEL)] : 2023 TAXSCAN (ITAT) 2104 – Date of Judgement : 10.08.2023 (ITAT Delhi)]
Tax residency certificate
is sufficient to determine the proof of residency and the income-tax
authorities cannot ignore the valid tax residency certificate issued by the
Government authority of the other contracting state, that is, Singapore; Alibaba
Singapore eligible for DTAA benefits; Rejects Revenue’s plea on TRC &
Infomedia as dependent agent permanent establishment (DAPE)
Bombay High Court dismisses Revenue’s appeals for Assessment
years 2009-10 to 2011-12 against Alibaba.Com Singapore E-Commerce Pte.
Ltd. (Assessee) as devoid of substantial question of law; Upholds
ITAT finding that if the Revenue was so convinced that Assessee’s activity in
India with various subscribers was carried out by Alibaba Hong Kong, then the
Revenue was expected to act against Alibaba Hong Kong and not the Assessee;
Considering Assessee’s Tax Residency Certificate (TRC), Certificate of
Incorporation and Audited Financial Statements, High Court concludes that
Assessee alone was the economic owner of the subscription it received from
India and it was not received on behalf of Alibaba Hong Kong; Rejects Revenue’s
reliance on Supreme Court ruling in Vodafone
International Holdings B.V. v. Union of India (2012) 341 ITR 1 (SC) arguing
that the Revenue has not blanket powers to negate or ignore the TRC, holding
that Supreme Court only observed that the TRC does not prevent the Revenue to
enquire into a possible tax fraud, which is not alleged in the present case;
Concurs with ITAT that TRC is sufficient to determine the proof of residency
and the Revenue cannot ignore valid TRC issued by the Singapore Government; High
Court notes that Assessee had a limited role in facilitating the posting of the
advertisement/ information on the web portal, the subscribers and the buyers
reach out to each other from the information provided by the Assessee and
without any participation or involvement of the Assessee; Finds that Indian
Company i.e. Infomedia 18 (P) Ltd. with which the Assessee had a co-operation
agreement was not its dependent agent permanent establishment (DAPE) as it was
an independent entrepreneur which was compensated for its services and entered
into several collaborations with others like Assessee; Also remarks that the
Assessee did not have any financial, managerial participation in Infomedia; The
appeals arose as Revenue denied the benefit of India-Singapore DTAA holding
that Assessee was merely an intermediary between the Indian subscribers and
Alibaba.com Hong Kong Ltd., thus, rejected its Certificate of Incorporation and
TRC issued by the Singapore authorities; Revenue held that Assessee’s income
was taxable in India under Section 9(1)(i) as it had ‘business connection’ in
India through Infomedia and alternatively also held that payments made by the
Indian subscribers to the Assessee taxable in India as Fees for Technical
Services (FTS); DRP, deleted the allegation of FTS but held Infomedia was
Assessee’s DAPE; ITAT allowed the Assessee’s appeals while High Court finds
that the Assessee transacted with Alibaba Hong Kong for availing web hosting
services which was not the parent company of the Assessee as wrongly presumed
by the Revenue in the assessment order; Explains the business model
wherein: (i) Alibaba.com Ltd is the owner of the IPR and of the domain name
Alibaba.com, (ii) the website is operated by Alibaba Hong Kong, (iii) the
server is located in California USA, (iv) the Assessee is doing online business
providing B2B services by providing portal for giving information about the
different products and services in the electronic form; Notes that its role is
confined to providing facility of posting and advertising or displaying the
information about the product and services; Rejects Revenue’s contention that
the Assessee was not entitled to the benefits of India-Singapore DTAA as it has
no presence in Singapore whereas the website is owned by Hong Kong based
company and Hong Kong had not DTAA with India; Condemns the entire focus of
Revenue which is that the website was registered in Hong Kong which is a
trademark of Alibaba Hong Kong which led the Revenue to deny the existence of
the Assessee as an independent entity as if the Assessee was only a front or a
shadow entity of Alibaba Hong Kong; Considers notice of assessment issued
by Singapore tax authorities to conclude that place of control and management
of the Assessee is also in Singapore, meeting of the board of directors,
web-based agreement between Alibaba Hong Kong and the Assessee, prove
that Alibaba Hong Kong has absolutely no connection or contract with the Indian
subscribers or Assessee’s customers in India and that only the alibaba.com logo
is registered in Hong Kong and Assessee only uses the website, the contractual
rights, privileges and liabilities under the agreement with the Indian
subscribers wholly lie with the Assessee; Regarding FTS, High Court notes that
ITAT rightly concluded that arrangement between Assessee and the subscribers
was for the provision of services for standard facility and not for ‘rendering
of any technical, managerial or consultancy services’ as provided in section
9(1)(vii), relying on Supreme Court ruling in CIT,
Mumbai v. Kotak Securities Ltd. (2016) 383 ITR 1 (SC) wherein it held that if any technology or
a process has been put to operation automatically without much human interface
or intervention, then such technology per se cannot be held as rendering of
technical services by human skills; Thus, dismisses Revenue’s appeals. [In
favour of assessee] – [CIT (International Taxation) v. Alibaba.Com Singapore
E-Commerce (P) Ltd. (2023) 152 taxmann.com 110 : [TS-361-HC-2023(BOM)]
(Bom.)]
Govt.’s repeated assurances
to foreign investors sacrosanct; Revenue cannot ‘go behind’ Tax Residency
Certificate (TRC)
Delhi High Court quashes reassessment proceedings against
Blackstone Group’s Singaporean company, holding a Tax Residency Certificate
(TRC), initiated on the basis that it was not the beneficial owner of the
share transactions as the source of funds and its management was in the US; High
Court holds that the Revenue cannot go behind the TRC issued by the other
tax jurisdiction which is sufficient evidence for claiming eligibility for DTAA
benefit, residence status, legal ownership; Thus, holds that the capital gains
earned by the Assessee are not liable for tax in India; Assessee was subjected
to reassessment proceedings for Assessment year 2016-17 with regard to sale of
shares of Indian company ‘Agile Electric Sub Assembly (P) Ltd.’ to ‘Agile to
Igarashi Electric Works Limited’ in July 2015 for Rs. 401.31 Cr. which were
acquired in August 2013 and October 2013; Assessee claimed treaty benefit
on capital gains under India-Singapore DTAA on the basis of TRC and its return
was processed under Section 143(1) with no demand, prior to initiation of
reassessment proceedings which were challenged by a writ petition; High Court
relies on Punjab & Haryana High Court ruling in Serco BPO (P) Ltd. v. Authority for Advance Rulings, New Delhi,
(2015) 60 taxmann.com 433 (P&H) holding
that TRC is sufficient to claim relief under the DTAA and observes that the
said ruling has been accepted by the Revenue as the same was not challenged
before Supreme Court; Consequently, High Court holds that TRC is
statutorily the only evidence required to be eligible for the benefit under the
DTAA and the Revenue’s attempt to question and go behind it is wholly contrary
to the Government’s consistent policy and repeated assurances to Foreign Investors;
High Court remarks that Singaporean authorities granted the TRC after a
detailed analysis of the documents, and the Indian authorities cannot disregard
the same as doing the same would be contrary to international law; In the
light of Press Release of the Finance Ministry dated 01.03.2013, High
Court observes that it is clear that “TRC is to be accepted and tax
authorities cannot go behind it. Further, since on the basis of repeated
assurances by the Government of India which have been upheld by the Apex Court,
the petitioner had invested in India, the respondent is estopped from arguing
to the contrary.”; High Court reiterates the settled legal position on
binding nature of CBDT Circulars and relies on Supreme Court ruling in Union of India v. Azadi Bachao Andolan (2003) 132 Taxman 373 (SC) upholding the validity and efficacy of the
Circular No. 682 dated 30.03.1994 and the Circular No. 789 dated 13.04.2000
issued by the CBDT; On Limitation of Benefit (LOB) Clause, High Court
remarks that the Revenue did not question the satisfaction of the LOB clause or
the independent Chartered Accountant certificate at any stage except in the
writ proceedings; Thus, holds the Assessee to be a bonafide entity and not a
shell / conduit entity as it complies with the LOB clause, therefore, the
allegation of treaty shopping is irrelevant in the present case; High Court
relies on Supreme Court ruling in NDTV and states, “It is
settled law that the reasons recorded cannot evolve or be allowed to grow with
age and ingenuity. The reasons which are recorded cannot be supplemented
by affidavits.”; On beneficial ownership w. r. t. capital
gains, High Court also remarks that under India-Singapore DTAA, “at
the relevant time, capital gain was to be taxed on the basis of legal ownership
and not on the basis of beneficial ownership. In fact, the concept of
beneficial ownership, at the relevant time under the India Singapore DTAA, was
attracted for taxation purposes only qua three transactions i.e. dividend,
interest and royalty and not for capital gains”; On Assessee’s
incorporation with nominal capital, High Court takes judicial notice of the
fact that that it is quite common for companies to be incorporated as a special
purpose vehicle for a particular investment / project and that too initially
with a minimum paid-up share capital of USD 1; Observes that the Assessee was
subsequently adequately capitalized and a genuine investment was made in India
which had grown exponentially from which the Assessee had exited; On
validity of reassessment proceedings, High Court finds the impugned notice
to be based on borrowed satisfaction as the Revenue placed reliance on the data
extracted from a third-party online source having and relies on recent Supreme Court
ruling in Hewlett Packard India Sales (P) Ltd. (Now
HP India Sales (P) Ltd.) v. Commissioner of Customs (Import), Nhava Sheva, 2023
SCC OnLine SC 31 cautioning
the governmental authorities to refrain from using online sources to arrive at
any conclusion; High Court also find that the Revenue did a ‘cut and paste’
job by issuing notice based on information forwarded by the TDS Officer of
buyer company without any independent application of mind or verification
or investigation; High Court also finds no live link or close nexus between the
material before the Revenue and the belief that there has been escapement of
the income chargeable to tax; On residential status of the Assessee,
High Court also finds that Form-10K filed by Blackstone Group before United
States Securities Exchange Commission in December, 2011 and relied upon by the
Revenue does not pertain to the Assessee as it does not include Assessee among
the list of subsidiaries; High Court observes that the Assessee is managed from
Singapore where it is incorporated and there is nothing on record to establish
that the decision making power for the Assessee was in the US; Thus, holds that
the Assessee is neither a US based company nor its affairs are managed from the
US; High Court quashes the reassessment proceedings as devoid of jurisdiction
along with the draft assessment order. [In favour of assessee] (Related Assessment year : 2014-15) – [Blackstone Capital Partners (Singapore) VI FDI
Three Pte. Ltd. v. ACIT (International
Taxation) (2023) 146 taxmann.com 569 : [TS-41-HC-2023(DEL)]
(Del.)]
Payment by Infosys BPO to
Docusign Inc. for digital signature & related services, not FTS; Admits Tax
Residence Certificate (TRC) as additional evidence
Bangalore ITAT
allows Infosys BPO's appeal and holds that the payment to
non-resident payee i.e. Docusign Inc., USA for subscription of e-signature
services and releated training and support charges
are not taxable in India as FTS; ITAT holds that the services do
not satisfy 'make available clause' under Article 12(4) of India-USA
DTAA and also rejects taxability under Section 9(1)(vii); Further holds
that higher rates of taxes for not furnishing the PAN details under Section
206AA is not applicable to Assessee by virtue of the India-USA DTAA
and also holds Assessee entitled to interest on refund of tax
deposited under protest; Assessee-Company, engaged in the
business of providing business process outsourcing services, made payments
to Docusign Inc. towards online subscription for e-signature,
training charges and support charges and deducted TDS thereon after
grossing up the invoice and paid it under protest; Assessee preferred an
application before CIT(A) under Section 248 for a declaration that the said payments
to non-residents are not chargeable to tax in India under both the provisions
of the Act and the applicable DTAA, thus, consequently no
tax was deductible at source; Assessee further sought
declaration from CIT(A) that tax deducted at higher rate under section 206AA
was not applicable when the payments were made to non-residents in the absence
of PAN and that the Assessee was entitled to refund
of TDS along with interest; CIT(A) dismissed Assessee’s application holding
that the income arising due to payments for the said services would be
chargeable to tax in India as FTS under Section 9(1)(vii) and that
the payment will not be covered by India-US DTAA in absence of tax
residency certificate, against which Assessee preferred the present appeal;
ITAT remarks that CIT(A) considered the payments made as ‘Training Charges’
based on Form No.15CB and failed to analyse the actual nature of the payment on
merits; Thus, rejects Revenue’s argument that the services provided
were in the nature of FTS under Section 9(1)(vii) and also
that Assessee was not eligible for benefits of India-USA DTAA in
absence of tax residency certificate of the payee by noting that the additional
evidence in form of payee's tax residency certificate submitted by
Assessee sufficiently substantiates the residential status of the payee; Relies
on jurisdictional High Court ruling in CIT v. De Beers India (P) Ltd. (2012) 346 ITR 467 : 208 Taxman 406
: 21 taxmann.com 214 (Karn.) and
observes that the 'make available' clause is a condition precedent for invoking
Article 12(4) for taxability of services as FTS, i.e. the
services should enable the person acquiring the services to apply technology
contained therein; Holds that the payment made by Assessee to
the payee i.e. Docusign is a subscription fee and that there is no transfer of
technology involved in services provided by the Docusign Inc.; On the
issue of deduction of tax at source at higher rate under section 206AA in the
absence of Permanent Account Number, ITAT notes that the co-ordinate bench
in Assessee’s own case held that there is no scope for deduction of
tax at the rate of 20% under Section 206AA, when the benefit of DTAA is
available; States that since the Assessee is entitled to the benefits of
DTAA after having submitted the certificate of tax residency of the
payee, the deduction of higher rate of tax under Section 206AA is not
applicable on the payments made by the Assessee to non-residents; As regards
the issue of interest on refund of tax deposited under section 195, ITAT holds
that the Assessee is entitled for the same by relying on co-ordinate
bench ruling in Assessee’s own case;
[In favour of assessee] (Related Assessment year : 2016-17) – [Infosys BPO Ltd.
v. DCIT (International Taxation) [TS-424-ITAT-2022(Bang)]
Date of Judgement : 17.05.2022 (ITAT Bangalore)]
Finds delay in furnishing Tax
Residence Certificate (TRC) justifiable; Allows benefit of India-USA DTAA on
interest income
Mumbai ITAT finds Assessee’s reasons behind
filing of TRC before CIT(A) instead of Assessing Officer as justifiable;
Directs Assessing Officer to determine the taxability on interest income as per
the special rate of tax under the India-USA DTAA; Assessee-Individual, a
non-resident, in his return of income for Assessment year 2014-15 sought to
avail special rates of tax on income from fixed deposits and bank deposits
under the India-USA DTAA; Assessee's claim was denied by the Assessing Officer
as the Assessee failed to furnish TRC and information in Form No. 10F under
Rule 21AB during the course of assessment proceedings; Assessee's furnished TRC
and Form No. 10F as additional evidence before CIT(A) who also rejected
Assessee's claim due to delay in furnishing TRC and Form No. 10F by holding
that Rule 21AB casts an obligation on the assessee to maintain and
furnish the documents, therefore, the said information ought to have been
available with the Assessee at the time of filing of the return of income
itself and was required to furnish TRC and Form No.10F and thus, held that the
Assessee failed to comply with the mandate of Section 90(4)/(5); ITAT
finds that detailed reasons furnished by the Assessee for non-filing of TRC in
the course of the assessment proceedings as justifiable and remarks that the
Assessee was declined the special rate of tax under the DTAA for not being able
to substantiate that the interest income in question was offered by him to tax
in the US and the very basis of rejecting the Assessee's claim of special rate
of tax was absolutely misconceived; ITAT disagrees with CIT(A) and holds that
the Assessee had filed the TRC and Form No.10F, therefore, there was no
justification in declining the special rate of tax qua the interest income on
fixed deposits and bank interest and directs the Assessing Officer to
determine the taxability of the interest income as per the special rate of tax
under India-USA DTAA. [In favour of assessee] (Related Assessment year : 2014-15)
– [Haresh C Sheth v. ITO [TS-769-ITAT-2021(Mum)] – date of Judgement : 19.07.2021 (ITAT
Mumbai)]
Supreme Court of Italy holds Tax Residence Certificate (TRC) not a Decisive Proof of Beneficial Ownership
Before the Supreme Court of
Italy, the issue was whether the Dutch company was the beneficial owner of the
royalty income, and thus was entitled to lower tax withholding of 5% as
provided in the tax treaty?
The taxpayer, Ovvio Italia
spa, was a tax resident of Italy. The taxpayer made payment to Ovvio Holding BV
('the Dutch company') for use of intellectual property after withholding tax of
5% as per Article 12(2) of the tax treaty between Italy and the Netherlands
('tax treaty'). The taxpayer treated the Dutch company as the beneficial
owner of royalties based on the Certificate of Tax Residence issued
by the Netherlands tax authorities. The Italian tax authorities alleged that
the condition of beneficial ownership is not met by merely relying on the
certificate of tax residence. Accordingly, the Italian tax authorities argued
that the taxpayer should have deducted tax at 30% as per domestic law, instead
of at 5% provided in the tax treaty.
The taxpayer appealed
against the Italian tax authorities' decision before the Provincial Tax
Commission; however, the Provincial Tax Commission rejected the taxpayer's
appeal. Against the said dismissal, the taxpayer appealed before the Regional
Tax Commission. The Regional Tax Commission allowed the appeal of the taxpayer.
The Italian tax authorities appealed before the Supreme Court of Italy against
the decision of the Regional Tax Commission. The Italian tax authorities
claimed that the Regional Tax Commission's decision was incorrect, as it
treated the Dutch company as the beneficial owner of the
amount paid by the Italian company without verifying the existence of the
beneficial ownership. The tax authorities further argued that, to be entitled
to the lower withholding tax rate, the burden of proving that the recipient is
the beneficial owner lies on the payer (i.e., the taxpayer in the instant
case).
The Supreme Court of Italy
observed and held as follows:
·
The
beneficial owner is the person who has real, legal and economic control over
the income. The said benefit is also available to the person who receives the
income through the interposed entity;
·
The
beneficial ownership criteria aims at preventing abuse of tax treaties
through treaty shopping practices;
·
The
certificate of tax residence of the recipient (i.e. the Dutch Company in the
instant case) is not a decisive test of beneficial ownership;
·
The
burden of proof whether the said condition is satisfied or not is on the payer,
and the payer needs to verify the same.
In this background, the
Supreme Court of Italy noted that the taxpayer applied Article 12(2) of the tax
treaty by merely relying on the certificate of tax residence of the Dutch
company issued by the Netherlands tax authorities. Accordingly, the Supreme Court
of Italy held that the burden of verifying beneficial ownership is not
discharged by the taxpayer in the instant case, and thus allowed the appeal of
the Italian tax authorities. [In favour of revenue] – [Ovvio Italia spa [TS-1118-FC-2021(ITL)]
- Date of Ruling : 22.06.2021 (Foreign Court Italy)]
French Supreme Court : Tax
Residence Certificate (TRC) - a
prerequisite for availing treaty benefits, not for determining residential
status
French Supreme Administrative Court (SAC)
rejects Revenue’s stand to treat assessees as resident in France merely due to
non-furnishing of tax residency certificate from Swiss authorities in
prescribed format, rules that furnishing of a tax residency certificate is not
a requirement for determination of residence; By the end of year 2007, the
assessees left France to settle in Switzerland; Subsequently during March 2008,
the assessees sold equity shares held in a public ltd. company (in which the
assessee held the position of manager till Sept., 2007) for EUR 55 million;
Revenue held that the assessees retained the status of French tax residents at
least until March 2008 and subjected the share sale transaction to income tax
and social contributions. Peruses Article 4 (Defining the term
resident) and Article 31 of the Tax convention and states that “It follows from
the letter itself of the provisions of this article 31 that the obligation to
present the residence certificate form….is only required to obtain the benefits
provided for by the agreement, excluding the determination of the taxpayer's
country of residence, which does not constitute an “advantage" provided
for by the agreement and which is governed only by the stipulations of article
4 of the agreement.”; States that “by judging that Mr. and Mrs. A ... could not
be considered as Swiss residents on the sole ground that the certificates they
produced did not meet the conditions set out in Article 31 of the convention,
the court Lyon appellate authority committed an error of law.”; Opines
that furnishing of a tax residency certificate is not a requirement for
determination of residence neither as per the convention nor as per the
administrative doctrine published by the French Tax authorities; Remarks that
“by judging that Mr. and Mrs. A ... had to produce a form of residence
certificate in the forms provided for in the second paragraph of article 31 of
the Franco-Swiss tax treaty to benefit….of the favorable interpretation given
by administrative doctrine, the Lyon administrative court of appeal vitiated
its judgment with another error of law.” ; Directs Revenue to pay the
assessees a sum of Euro 3000 as cost. [In favour of assessee] – [Mr A [TS-745-FC-2020(FRN)] - Date of Ruling : 23.11.2020 (Foreign Court France)]
Mere non-furnishing of Tax Residence Certificate (TRC) cannot deny treaty benefits; Cites Skaps Industries ruling
Hyderabad ITAT rejects Assessing Officer’s order denying exemption claimed by
assessee-individual [an employee of IBM India who has been seconded to
Austria] under Article 15(1) [Dependent Personal Services] of the
India-Austria DTAA only on the basis of mere non-furnishing of Tax Residence
Certificate (TRC) from Austria during Assessment year 2014-15,
cites Ahmedabad ITAT ruling in case of Skaps Industries India (P.) Ltd. v.
ITO (International Taxation, Ahmedabad
reported in 171 ITD 723, [which
had in turn taken cue from P&H High Court ruling in case of Secro BPO (P)
Ltd v. Authority for Advance Ruling reported in 379 ITR 256 (P&H)];
Finds force in assessee's submission that despite best possible efforts, he was
not able to procure TRC from country of residence and the situation therefore,
may be treated as impossibility of performance”, ITAT acknowledges that it is a
herculean task to obtain certificates from alien countries for compliance of
domestic statutory obligations. In such circumstances the taxpayer cannot
be obligated to do impossible task and penalized for the same”; Further, ITAT
states that it is obvious that where there is a conflict between the Treaty and
the Act, the Treat shall overrule the Act. In the case of the assessee, by
virtue of the Treaty, the assessee is liable to tax in Austria for the services
rendered in Austria and not in India.”; Therefore, ITAT rules that ....though
the Act mandates Tax Residency Certificate of Austria, non-production of the
same before the Ld. Revenue Authorities shall not enable the Ld. Revenue
Authorities not to grant the benefit of the Treaty to the assessee.”; ITAT
observes that 'From the facts of the case it is apparent that during the
previous year relevant to Assessment year 2014-15, the assessee qualifies as a
non-resident in India and as a tax resident in Austria.', observes that only
for 60 days assessee was in India, notes that 'the facts of the case
establishes that the salary and the foreign allowance was received in India for
the services rendered abroad and by virtue of DTAA and the Act, there is no bar
in law for receiving the money in India.'; Lastly, takes note of Ahmedabad
ITAT ruling in case of ITO v. Sunil Chitranjan Muncif (2013) 58
SOT 356(ITAT Ahmedabad)
& Karnataka High Court ruling in case of DIT
v. Prahlad Vijendra Rao (239 CTR 107) and
directs Assessing Officer to delete the tax imposed on the assessee with
respect to his salary income and the foreign allowances earned by him outside
India during the relevant Assessment year. [In favour of assessee]
(Related Assessment year : 2014-15) – [Sreenivasa Reddy Cheemalamarri v. ITO (International
Taxation), Hyderabad [TS-158-ITAT-2020(HYD)] – Date of Judgement : 05.03.2020 (ITAT
Hyderabad)]
Failure to submit a 'Tax Residency Certificate'
(TRC) as required by section 90(4) is not a bar to the grant of benefits under
the DTAA. However, the assessee is required to produce reasonable evidence of
the entitlement of the foreign entity to benefits under the DTAA
To avail benefits under
Indo-US tax treaty, US entity has to furnish Tax
Residency Certificate; Form W9, being not a certificate issued by any US
authority, is irrelevant in respect of tax withholdings outside US
Section 90(4), in the
absence of a non-obstante clause, cannot be read as a limitation to the treaty
superiority under Section 90(2), we are of the considered view that an eligible
assessee cannot be declined the treaty protection under section 90(2) on the
ground that the said assessee has not been able to furnish a Tax Residency
Certificate in the prescribed form. De hors the statutory provision under
Section 90(4), the assessee has to satisfy his eligibility for treaty
protection nevertheless and the onus of satisfying the same by any other mode,
i.e. other than a TRC, appears to be much more demanding than furnishing of a
TRC. To be entitled for Indo US tax treaty benefits in India, a foreign
enterprise has to establish that it is a resident of the other contracting
state, i.e. the United States. [In favour of assessee/Matter remanded] (Related
Assessment years : 2013-14 and 2014-15) – [Skaps Industries India (P) Ltd. v. ITO
(International Taxation), Ahmedabad (2018) 171 ITD 723 : 94 taxmann.com 448 (ITAT Ahmedabad)]
Rejects taxation of salary
accrued outside India despite failure to furnish Tax Residency Certificate
(TRC); holds
that such requirement is applicable only when DTAA benefit is claimed
Bangalore ITAT holds that
salary received in India by assessee (non-resident individual) for services
rendered in USA not taxable in India despite assessee’s failure to furnish tax
residency certificate (TRC); Relies upon co-ordinate bench ruling in Bholanath
Pal to hold that as per Section 15, salary is taxable only on accrual basis and
it would accrue in USA as services were rendered in USA; Further regarding
non-furnishing of TRC, holds that such requirement is applicable only when DTAA
benefit is claimed, Moreover, referring to co-ordinate bench decision in Skapps
Industries, ITAT holds that absence of TRC cannot be ground for denial of
benefit and assessee, in this case, has furnished evidence of her stay abroad
along with copy of US return; Separately, regarding 2 orders passed by 2 different
CIT(A)s - first favourable to assessee while subsequent order being adverse,
ITAT holds that favourable order was well reasoned and speaking order and it
cannot be wished away merely for administrative order of Principal CIT
transferring cases to another charge; Also holds that favourable order cannot
be recalled by passing order under section 154 as there is no such specific
power conferred under section 154, thus also quashes rectification order under section
154. [In favour of assessee] (Related Assessment year :
2013-14) – [Smt. Maya C Nair v. ITO (International Taxation), Bangalore [TS-646-ITAT-2018(Bang)] – Date of Judgement : 31.10.2018 (ITAT Bangalore)]
Assessee
did not challenge rejection of benefits of DTAA in absence of any tax residency
certificate, same was to be upheld
Assessee-exporter
claimed benefits under section 80HHC. On survey, it was transpired that
assessee had settled down in Canada and entire business was managed by his
brother on strength of general power of attorney. Accordingly, department
reopened assessment. Assessee submitted that even if it was presumed that he
was a non-resident, still as per provisions of article 5 of Indo-Canada DTAA,
there was no PE in India so as to levy tax on him. Now a number of letters had
been submitted by assessee claiming that he was a citizen of Canada. However,
Assessing Officer held that in absence of any tax residency certificate,
assessee could not claim benefits of DTAA. Commissioner (Appeals) allowed claim
of assessee. In revenue’s appeal before Tribunal, assessee did not pursue
matter. Since there was lack of assistance from assessee in defending revenue’s
appeals and submissions of Department was convincing, grounds raised in all
appeals preferred by revenue was to be allowed. [In favour of revenue] (Related
Assessment years : 1999-2000 to 2006-07) – [ITO v. Nasiruddin A. Jesani (2012)
53 SOT 526 : 25 taxmann.com 34 (ITAT Mumbai)]
Tax
Residency Certificate (TRC) will constitute sufficient evidence for accepting
the status of residence as well as beneficial ownership for applying the DTAA
In
the landmark judgment of Union of India v. Azadi Bachao Andolan, the Hon’ble
Supreme Court has held that the Tax Residency Certificate (TRC) will constitute
sufficient evidence for accepting the status of residence as well as beneficial
ownership for applying the DTAA.
Whenever
a certificate of residence is issued by the Mauritius authorities, such
certificate will constitute sufficient evidence for accepting the status of
residence as well as beneficial ownership for applying the DTAC accordingly. – [Union of India v. Azadi Bachao Andolan (2003) 132
Taxman 373 (SC)]
NOTE
The
Authority for Advance Ruling in E Trade Mauritius Ltd. (2010) 190 Taxman 232
(AAR – New Delhi) and Dynamic India Fund-I, In Re (2012) 23 taxmann.com 266
(AAR - New Delhi) has followed the ruling in Azadi Bachao Andolan in
considering Tax Residence Certificate as a sufficient evidence for accepting
the status of residence as well as beneficial ownership for applying the DTAA.
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