Frequently Asked Questions (FAQs) on Goods and Services Tax (GST)

Frequently Asked Questions (FAQs) on Goods and Services Tax (GST)

Following are the answers to the various frequently asked questions relating to GST:

Question 1.What is GST? How does it work?

Answer: GST is one indirect tax for the whole nation, which will make India one unified common market.

GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Question 2. What are the benefits of GST?

Answer: The benefits of GST can be summarized as under:

• For business and industry
• Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.
• Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.
• Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
• Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
• Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.

• For Central and State Governments
• Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.
• Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
• Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

• For the consumer
• Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
• Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.

Question 3. Which taxes at the Centre and State level are being subsumed into GST?

Answer:

At the Central level, the following taxes are being subsumed:

• Central Excise Duty,
• Additional Excise Duty,
• Service Tax,
• Additional Customs Duty commonly known as Countervailing Duty, and
• Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

• Subsuming of State Value Added Tax/Sales Tax,
• Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
• Octroi and Entry tax,
• Purchase Tax,
• Luxury tax, and
• Taxes on lottery, betting and gambling.

Question 4. What are the major chronological events that have led to the introduction of GST?

Answer: GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes. A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as follows:

• In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
• A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
• Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
• Based on inputs from Govt of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November, 2009.
• In order to take the GST related work further, a Joint Working Group consisting of officers from Central as well as State Government was constituted in September, 2009.
• In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
• Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’, consisting of the officials of the Government of India, State Governments and the Empowered Committee was constituted.
• This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January, 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.
• The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-
(a) Committee on Place of Supply Rules and Revenue Neutral Rates;


(b) Committee on dual control, threshold and exemptions;


(c) Committee on IGST and GST on imports.


• The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.
• The final draft Constitutional Amendment Bill incorporating the above stated changes were sent to the Empowered Committee for consideration in September 2013.
• The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March, 2014.
• The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
• In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
• Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.

Question 5.How would GST be administered in India?

Answer: Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

Question 6. How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

Answer : The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of Central Excise.

A diagrammatic representation of the working of the Dual GST model within a State is shown in Figure 1 below.

Figure 1: GST within State

Question 7. Will cross utilization of credits between goods and services be allowed under GST regime?

Answer: Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.

Question 8. How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

Answer: In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.

A diagrammatic representation of the working of the IGST model for inter-State transactions is shown in Figure 2 below.

Figure 2

Question 9. How will IT be used for the implementation of GST?

Answer: For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT governments.

GSTN is working on developing a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.

There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be auto-generated, and there would be no need for manual interventions. Most returns would be self-assessed.

Question 10. How will imports be taxed under GST?

Answer: The Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied on imports will be subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, IGST will be levied on all imports into the territory of India. Unlike in the present regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.

Question 11. What are the major features of the Constitution (122nd Amendment) Bill, 2014?

Answer: The salient features of the Bill are as follows:

• Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
• Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs;
• Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
• Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
• Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
• GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
• Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
• Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

Question 12. What are the major features of the proposed registration procedures under GST?

Answer: The major features of the proposed registration procedures under GST are as follows:

• Existing dealers: Existing VAT/Central excise/Service Tax payers will not have to apply afresh for registration under GST.
• New dealers: Single application to be filed online for registration under GST.
• The registration number will be PAN based and will serve the purpose for Centre and State.
• Unified application to both tax authorities.
• Each dealer to be given unique ID GSTIN.
• Deemed approval within three days.
• Post registration verification in risk based cases only.

Question 13. What are the major features of the proposed returns filing procedures under GST?

Answer: The major features of the proposed returns filing procedures under GST are as follows:

• Common return would serve the purpose of both Centre and State Government.
• There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return.
• Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
• Filing of returns shall be completely online. All taxes can also be paid online.

Question 14. What are the major features of the proposed payment procedures under GST?

Answer: The major features of the proposed payments procedures under GST are as follows:

• Electronic payment process- no generation of paper at any stage
• Single point interface for challan generation- GSTN
• Ease of payment – payment can be made through online banking, Credit Card/Debit Card, NEFT/RTGS and through cheque/cash at the bank
• Common challan form with auto-population features
• Use of single challan and single payment instrument
• Common set of authorized banks
• Common Accounting Codes

Amendment to NI Act regarding place of filing cheque bounce compliant has retro-effect

Bridgestone India (P.) Ltd. v. Inderpal Singh [2015] 64 taxmann.com 50 (Supreme Court) 

The amendments made to the Negotiable Instruments Act, 1882 by the Second Ordinance of 2015, as regards territorial jurisdiction for filing cheque bounce complaints, retrospectively apply to pending cases filed before the Ordinance came into force. The words "….as if that sub-section has been in force at all material times…."used wrt new section 142(2) in new section 142A(1) gives retrospective effect to new section 142(2)

Facts:

• A cheuqe was drawn on the Union Bank of India, Chandigarh by the respondent to the appellant - M/s Bridgestone India Pvt.Ltd. The appellant presented the said cheque at IDBI Bank in Indore for realization, the same was dishonoured on account of insufficient funds.
• On failing to discharge obligation by respondent, the appellant initiated proceeding in the Court of the Judicial Magistrate, First Class, Indore (‘Magistrate’) under Section 138 of the Negotiable Instruments Act, 1881.
• The Magistrate by an order held that he had the territorial jurisdiction to adjudicate upon the controversy raised by the appellant under Section 138 of the Negotiable Instruments Act, 1881. The decision rendered by the Judicial Magistrate, First Class, Indore, was assailed by the accused-respondent in another petition under Section 482 of the Criminal Procedure Code, in the High Court of Madhya Pradesh before its Indore Bench.
• The High Court accepted the prayer made by the accused-respondent - Inderpal Singh by holding, that the jurisdiction lay only before the Court wherein the original drawee bank was located, namely, at Chandigarh, where-from the accused-respondent had issued the concerned cheque, drawn on the Union Bank of India, Chandigarh.
• Dissatisfied with the order passed by the High Court, the appellant has approached Supreme Court. The appellant cited the decision rendered by a three-Judge Bench of this Court in Dashrath Rupsingh Rathod v. State of Maharashtra and another, (2014) 9 SCC 129

The Supreme Court held as under:

• In view of the decision rendered by this Court in Dashrath Rupsingh Rathod's case, it was apparent, that the impugned order passed by the High Court of Madhya Pradesh, Bench at Indore, was wholly justified. Howeve, Section 142(2)(a), amended through the Negotiable Instruments (Amendment) Second Ordinance, 2015, vests jurisdiction for initiating proceedings for the offence under Section 138 of the Negotiable Instruments Act, inter alia in the territorial jurisdiction of the Court, where the cheque is delivered for collection (through an account of the branch of the bank where the payee or holder in due course maintains an account).
• Based on Section 142A(1) to the effect, that the judgment rendered by this Court in Dashrath Rupsingh Rathod's case, would not stand in the way of the appellant, insofar as the territorial jurisdiction for initiating proceedings emerging from the dishonor of the cheque in the present case arises.
• Since cheque was drawn on the Union Bank of India, Chandigarh, was presented for encashment at the IDBI Bank, Indore, which intimated its dishonor to the appellant we are of the view that the Judicial Magistrate, First Class, Indore, would have the territorial jurisdiction to take cognizance of the proceedings initiated by the appellant under Section 138 of the Negotiable Instruments Act, 1881, after the promulgation of the Negotiable Instruments (Amendment) Second Ordinance, 2015. The words "...as if that sub-section had been in force at all material times..." used with reference to Section 142(2), in Section 142A(1) gives retrospectivity to the provision.
• In the above view of the matter, the instant appeal was allowed, and the impugned order passed by the High Court of Madhya Pradesh, was set aside.

Transaction charges paid to Stock Exchange don't attract section 194J TDS

[2016] 70 taxmann.com 23 (Mumbai - Tribunal)

Facts: 

• The assessee debited certain amount on account of transaction charges paid to the Stock Exchange. The Assessing Officer disallowed such charges on the ground that the assessee had not deducted tax at source while making the payment of transaction charges.
• The Commissioner (Appeals) held that the transaction charges were paid to the Stock Exchange for rendering the managerial services which constituted fees for technical services under section 194J and, hence, the assessee was liable to deduct tax at source before crediting the transaction charges to the Stock Exchange. In that view of the matter, the disallowance was upheld.
• The aggrieved-assessee filed the instant appeal. 

The Tribunal held in favour of assessee as under: 

• The question as to whether TDS is deductible under section 194J on payments of transaction charges made by members to Stock Exchange has been considered by the Apex Court in the case of CIT v. Kotak Securities Ltd. [2016] 67 taxmann.com 356 wherein it was held that no TDS is required to be deducted on transaction charges paid by members to Stock Exchange as they are not for 'technical services' rendered but are in the nature of payments for facilities provided by the Stock Exchange.
• Following the decision of the Apex Court in the case of Kotak Securities Ltd. (supra), it was held that no TDS would be deductible on payment of transaction charges by members to Stock Exchange under section 194J. Accordingly, the Assessing Officer was directed to delete the disallowance made on account of transaction charges paid to Stock Exchange. 

10 million USD penalty levied on Satyam for violating US Securities Exchange Act won't attract TDS

Satyam Computer Services Ltd., In re [2015] 64 taxmann.com 162 (AAR - New Delhi)

The applicant (‘Satyam Computer services ltd.’) approached Authority for Advance Ruling (‘AAR’) to consider whether payment of penalty levied by US Court (due to violation of provisions of US Securities Exchange Act, 1934) would attract provisions of section 195.

The AAR held as under:

• It is a trite law that unless the payment made attracts the tax under the Income-tax Act, there would be no liability to deduct tax under section 195.
• Penalty ordered by the US Court does not attract any tax liability, thus, applicant would not be required to withhold tax on such penalty under section 195. 

Custom duty borne by purchaser would be deductible even if liability disputed by importer seller

CIT v. Monica India [2016] 70 taxmann.com 47 (Bombay High Court)

 

Facts: 

• Assessee-firm purchased certain imported products under two agreements. The price as agreed in both the cases was the gross costs to the sellers with certain amount of net profit. The gross cost included all expenditure incurred by the sellers for supplying the goods to the assessee. 
• However, as there was uncertainty about the incidence of customs duties, the parties inserted a clause in the agreements, to make it clear that any liability with respect to duty of customs payable by the seller, would be a part of the costs and the buyer (assessee) would pay for the same. In terms of the contract the assessee was required to pay custom duty of Rs 1.78 crores to its seller as a part of the cost of the goods. 
• While completing assessment, the Assessing Officer accepted expenditure incurred on account of customs duty. Thereafter, the CIT, in exercise of powers under section 263, reversed assessment order holding that the amount of custom duty was a contingent liability as the sellers of goods had challenged the same in the Supreme Court.
• On appeal, the Tribunal held that liability on account of customs duty was to be allowed as the deduction on accrual basis. Aggrieved-revenue filed the instant appeal. 

The High Court held in favour of assessee as under: 

• It couldn’t be disputed that the Customs Department had raised a demand upon the seller of the goods. This amount was a part of the consideration payable by the assessee to the seller of goods. The mere fact that the seller of the goods had obtained a stay, would not, by itself, result in the same being considered as an unascertained and unqualified liability.
• The entire consideration of customs duty demanded by the Customs Department from the seller was a part of the price so far as the seller and the assessee was concerned. Moreover, as the assessee was following the mercantile systems of accounting, mere challenge to the demand by the seller would not, by itself, lead to the liability ceasing, although, the seller of the goods could not be able to claim/obtain a deduction on the above account as the same had not been paid in terms of section 43B. However, this does not in any way deprive the assessee of the deduction of the amounts paid for purchase of goods.
• Thus, the assessee would be entitled to deduct the aforesaid amount as consideration paid for the goods. In any case, if the Apex Court holds that no custom duty is payable and quashes the demand of the Customs Department, then the consideration payable for the goods would stand reduced by virtue of section 41. Therefore, assessee would be liable to pay tax under section 41 on remission as its liability to pay for the goods purchased from the seller would stand reduced.

Production and broadcasting of radio programme is manufacture or production under Sec. 32(1)(iia)

CIT v. Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi High Court)

Issue:

Whether assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii).

The Delhi High Court held in favour of assessee as under-

• The production of radio programmes involves the processes of recording, editing and making copies prior to broadcasting. When the radio programme is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies.
• Therefore, it can definitely be stated that the radio programme produced by the Assessee is 'thing', if not an 'article’ as Dictionary meaning of the word envisages that "thing" could have intangible characteristic.
• The word 'manufacture' envisages subjecting any material or thing to certain processes in order to produce something which has a distinct characteristic. Hence, 'manufacture' includes various combinations of processes.
• In the context of 'broadcast', it includes the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting.
• Thus, assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii)- 

Income arising to ‘Western Union’ from money transfer services isn’t taxable in India

Deputy DIT v. Western Union Financial Services Inc. [2015] 64 taxmann.com 230 (Delhi - Tribunal)

‘Western Union’ isn’t liable to pay any tax in India for transferring money to India for their American clients even if it appoints agents in India to provide those services and setS-up a liaison office to interact with such agents.

Facts

• Western Union Financial Services Inc. (‘Western Union’), incorporated in USA, was engaged in the business of rendering money transfer services.
• In order to provide said services to citizens of the USA desirous of remitting money to India, Western Union had set-up a liaison office (LO) in India. It appointed agents in India and provided them software (Voyager) to access its mainframes in the USA. The agents were paid commission on completion of money transfer transactions.
• Western Union filed its return declaring ‘nil’ income by contending that it was not liable to pay any tax in India on income arising from money transfer services as it didn’t have any permanent establishment (PE) in India.
• The Assessing Officer was of the view that income arising to the Western Union from money transfer services was taxable in India both under the Income-tax Act (‘the Act’) and the India-USA DTAA.
• CIT(A) set aside the order of the AO. Aggrieved by the order of the CIT(A), revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under-

Though Western Union had business connection in India in terms of section 9 of the Income-tax Act, yet it did not have a PE in India under India-USA DTAA. It made following observations on different categories of PEs:

Fixed Place PE

It was held that Western Union could not be said to have fixed place PE in India as it did not have its own outlet in India and it was carrying on its business through agents appointed in India.

Liaison office as PE

It was held that LO could not be considered as Western Union’s PE in India as it carried out activities which were of a preparatory or auxiliary character. It had not carried on any trading activity for the assessee in India. It had only a small number of executives and a support staff. The LO had also filed status reports to the RBI listing out the activities which it actually carried out during the years. None of the activities could be described as anything other than of preparatory or auxiliary character. Therefore, the LO could not be considered to be the PE of the Western Union in India.

Software as PE

It was held that the software was the property of the Western Union and it had not parted with its copyright therein in favour of the agents. The agents had only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the said purpose from the premises of the agents could not lead to the decision that the premises-cum-software would be the PE of the assessee in India. As per article 5 of India-USA DTAA, an installation might amount to a PE, provided it is used for the exploration of natural resources. Therefore, even if the software was to be considered as an installation, since it was not used for exploration or exploitation of natural resources, it could not per se be treated as a PE.

Dependent Agent PE

It was held that agents appointed by Western Union were acting in the ordinary course of their business and their activities were not devoted wholly or almost wholly to the Western Union. Further, commissions were paid to them at arm’s length price. Therefore, the agents were independent agents under Article 5.5 of the India-USA DTAA.

Hence, in the absence of any PE in India the profits of the Western Union, if any, attributable to the Indian operations could not be taxed In India.