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AUTHORITY FOR ADVANCE RULINGS
DR. ARIJIT PASAYAT, T.B.C. Rozara, JJ.
J & P Coats Ltd., In re
A.A.R. No. 1077 of 2011
Decided On : 10-01-2014
Girish Dave, K.R. Vasudevan, Arup Borua, K. Subramanian, Ramya Nayak,R.S. Rawal, Aravind
1. The applicant J&P Coats Limited (JPCL) is a company incorporated under the laws of the U.K. having its registered office at 155 St Vincent Street, Glassgow, Scotland G2, 5PA, United Kingdom. It has carried on business as manufacturer and merchant of sewing threads and yarns and other goods in the United Kingdom and elsewhere.
2. The applicant has entered into a Master Global Framework Agreement with BT UK under which BT UK provides the Coats Group entities with two-way transmission data through telecom bandwidth and interconnects the Coats group companies of UK located across the globe with managed wide area network (referred to as "data connectivity"). BT UK raises periodic invoices on the applicant for the connectivity thus provided to the Coats entities. The applicant, in turn recoups the cost so incurred to its Coats group companies for the connectivity utilized. As part of the agreement entered into between the applicant and BT UK, Madura Coats Private Limited ("MCPL"), an Indian company is also provided connectivity. The applicant has also entered into an Applications Support and Wide Area Network Support Services Agreement ("Agreement") with MCPL for recouping the cost so incurred on behalf of MCPL based on usage. Accordingly, the applicant raises periodic debit notes on MCPL for recovering a portion of the amount charged by BT UK to the applicant.
3. Presenting the above facts the applicant seeks ruling of the Authority for Advance Rulings on the following questions:—
'(1) Whether, based on the facts and in the circumstances of the case, the cost recouped by the Applicant from MCPL for the connectivity provided by BT UK would in the nature of reimbursement of expenses and hence not subject to tax in India?
(2) In the event, the answer to Question 1 is in the negative, would be cost recouped by the Applicant from MCPL be regarded as—
(a) "royalties" within the meaning of the said express in Article 13 of the India-UK Double Taxation Avoidance Agreement ("Indo-UK DTAA") or within the meaning of the said term in Explanation 2 to section 9(1)(vi) of the Income tax Act, 1961 ("the Act")?; or
(b) "fees for technical services" within the meaning of the said expression in Article 13 of the Indo-UK DTAA or within the meaning of the said term in Explanation 2 to section 9(1)(vii) of the Act?
(3) In the event, the answer to Question 1 is in the negative, would the cost recouped by the Applicant from MCPL be chargeable as "business profits" in the hands of the Applicant in India?
In the event it is held to be chargeable as "business profits", in the absence of Permanent Establishment for the applicant in India the same would not be subject to tax in India?
(4) Having regard to answers to Questions 1 to 3 above, whether there is any obligation for MCPL to deduct taxes at source and if so, at what rate?'
4. The Revenue objected to the admissibility of the application stating that return of income was filed before filing the application. Relying on the decision by the AAR in the case of SEPCO III Electric Power Construction Corpn., In re
