In mercantile method of accounting allowability of expenditure depend on liability to pay.

In mercantile method of accounting allowability of expenditure depend on liability to pay.
SUMMARY OF CASE LAW
Once the goods have been purchased, the invoices raised and the purchase considerations are accounted for in the books of the assessee, the expenditure can be said to have been incurred as per the method of accounting – mercantile basis – followed by the assessee.
CASE LAW DETAILS
Decided by: HIGH COURT OF DELHI, In The case of: CIT v. Panacea Biotech Ltd.,
Appeal No.: ITA No. 422/ 2007, Decided on: July 27, 2009
RELEVENT PARAGRAPH
3. So far as the contention with regard to the disallowing the claim on the expenditure incurred on the purchase of two machineries is concerned, the counsel for the Revenue has urged that though with respect to the first machinery an advance payment was made within the Assessment year, with respect to the second machinery no payment at all was made. It was, therefore, urged that since expenditure was not incurred within the meaning of the provision of section 35(2)(i)(a), it was said that in the present assessment year the benefit of the same cannot be claimed and it would be entitled only in the next assessment the benefit of the same cannot be claimed and it would be entitled only in next assessment year. Per contra the counsel for the assessee has urged that the books of accounts were maintained on mercantile basis and, therefore, since the invoices were raised within the relevant financial year and since a letter of credit was already opened with respect to the second machinery, it cannot be said that expenditure was not incurred. It was argued that a debt incurred is an expenditure incurred within the meaning of the expression ‘expenditure is incurred’ occurring in section 35(2)(i)(a). The counsel for the assessee drew the attention of this Court to section 43 sub-section 2 of the Act which defines the expression “paid” to means actually paid or incurred according to the method of accounting upon the basis of which profits or gains are computed. It is not disputed by the Revenue that the books of accounts are maintained by the assessee on mercantile basis. This is also the concurrent finding of the two authorities below. In the mercantile method of accounting incurring of the expenditure is not based on payment but on the liability to pay. Once the goods have been purchased, the invoices, raised and the purchase considerations are accounted for in the books of the assessee, the expenditure can be said to have been incurred as per the method of accounting followed by the assessee. Counsel for the assessee has rightly relied upon the judgment reported as Belapahar Refractories Ltd. v. CIT, 2007 ITR 144 (Orissa) in which the Division Bench of the Orissa High Court has held that incurring of expenditure for scientific research means “to become liable to” i.e. to incur a debt and at such time the expenditure can be said to have been incurred. It was further held that the expression “incurring” includes either an actual payment or that the concerned person has become liable for payment but had not actually made payment. We agreed with this view since in the facts of this case the position which has emerged from the record is that the assessee has maintained its books on a mercantile basis.

Why Lehman Brothers Fell ?

September 15, 2008: Shockwaves went through the world financial markets as it was hit by the biggest bankruptcy known to man.
Dow Jones fell by more than 500 points, its biggest one-day drop since reopening after the September 11 attacks; more than 50 billion pounds was wiped out off London's bluechip shares as the FTSE 100 index tumbled by 213 points; Asian markets were on a selling frenzy, and 26,000 people around the world lost their jobs.
Lehman Brothers Holdings Inc, America's fourth-largest investment bank, hit by gargantuan $60 billion loss in bad real estate loans filed for bankruptcy.
And this happened just when the United States government decided that Lehman wasn't 'too big to fail'.
The fall of the 158-year-old institution that started cotton trade in the US before the American Civil War and financed the railroad that built the American nation, got battered by a large dose of bad luck, pride, arrogance and greed.
Lehman, while it was a large and complex business trading in a web of assets, supported 100 per cent mortgage loans to people with little visible means of support.
When interest rates soared, borrowers could no longer afford their monthly payments.
Other banks refused to trade with Lehman. Without the ability to trade and without investors prepared to bet on its long-term viability, Lehman effectively had no business.
The main perpetrator
Lehman went under, holding assets of $639 billion against debts of $613 billion, making it the biggest corporate bankruptcy since WorldCom collapsed in 2002.
As central banks around the world battled to stabilise the system, the US Federal Reserve eased its rules for emergency lending. It announced that it would accept company shares in return for crisis loans for the first time.
Wall Street analysts believe that Lehman Brothers' collapse was the 'hubris' of Dick Fuld, the 62-year-old chief executive of Lehman Brothers, who did not take the tell-tale signs of impending doom seriously.
Fuld -- nicknamed 'The Gorilla' for his foul temper, intimidating presence and tough talk -- rejected many bids to save Lehman because he thought that the sinking giant was much bigger than Wall Street was giving it credit for and wanted to get more price for the sale of the company.
Analysts say if the bank was sold just a week before it went kaput, it could have been saved the ignominy of a bankruptcy, but Fuld was far too adamant to see reason.
Fuld, who is estimated to have lost more than $1 billion as a result of Lehman's failure, is believed to be in the process of setting up a financial consulting firm, Matrix Advisors.
The other villains
Joe Gregory, former president and chief operating officer, Lehman Brothers was a close friend of Fuld. The pair worked together for 30 years, rising up through the bank's ranks and transforming it from a mere division of American Express to a serious contender on Wall Street.
While Fuld was in charge, Gregory was the fixer.
But in June 2008, after the bank's shares fell 25% Gregory ended the partnership.
Since his exit, he has become one of Lehman's largest individual creditors, filing a claim for $233 million in deferred compensation.
The rise and fall of Erin Callan, former chief financial officer, is perhaps one of the most enduring tales of Lehman's collapse.
A talented hedge fund adviser Callan was made the CFO in September 2007. But soon doubts were raised about her ability and others started querying the bank's capital position.
By September 2008, as Lehman collapsed, she was joining Credit Suisse to run its hedge fund advisory group. But since February 2009 she has been on indefinite paid leave.
Bart McDade, president and chief operating officer, joined Lehman in 1983. When Gregory fell, McDade was the obvious replacement.
He played a vital role in the bank's final hours, liaising with both potential buyers -- Bank of American and Barclays Capital -- as well as regulators.
After BarCap took over most of Lehman's US business, he stayed on to help with integration, leaving at the end of November. He joined Nomura, the Japanese bank which bought Lehman's London assets.
Lehman Brothers was once considered one of Wall Street's biggest dealers in fixed-interest trading. It was heavily invested in securities linked to the US sub-prime mortgage market.
When these investments were shunned as high risk, confidence in Lehman Brothers inevitably took a hit.
During the June to August period 2007, the bank had said it would make write downs of $700m as it adjusted the value of its investments in residential mortgages and commercial property.
A year later (in 2008) this figure soared to $7.8 billion. Lehman's share price plummeted more than 95 per cent.
Despite having access to cash reserves, worried investors battered the firm's shares after talks to raise billions of dollars from outside investors fell flat.
Lehman's collapse greatly intensified the financial crisis and contributed to the erosion of close to $10 trillion in market capitalisation from global equity markets in October 2008, the biggest monthly decline on record at the time.

In 2003 and 2004, with the US housing boom well underway, Lehman bought five mortgage lenders, including subprime lender BNC Mortgage and Aurora Loan Services, which specialised in Alt-A loans (made to borrowers without full documentation).
Lehman reported record profits every year from 2005 to 2007.
In February 2007, the stock reached a record $86.18, giving Lehman a market capitalisation of close to $60 billion. However, by the first quarter of 2007, cracks in the US housing market were already becoming apparent as defaults on subprime mortgages rose to a seven-year high.
As the credit crisis erupted in August 2007 with the failure of two Bear Stearns hedge funds, Lehman's stock fell sharply. During that month, the company eliminated 2,500 mortgage-related jobs and shut down its BNC unit. In addition, it also closed offices of Alt-A lender Aurora in three states.
On June 9, Lehman announced a second-quarter loss of $2.8 billion.
As the world financial markets reeled, questions were raised as to why the US government decided to let Lehman fail, specially in the backdrop of its tacit support for Bear Stearns (which was acquired by JPMorgan Chase) in March 2008.
Its collapse also served as the catalyst for the purchase of Merrill Lynch by Bank of America on the very same day of September 15.
The US government could have helped, but US Treasury Secretary Henry Paulson said that it would not use up any more taxpayer dollars to bail out Lehman Brothers as it would lead to investment banks getting away with their gambling ways.
Paulson had bailed out Fannie Mae, Freddie Mac and Bear Stearns, saying that if the government had not done so, the US housing loan market would have collapsed leading to gigantic losses for hundreds of banks all over the globe that have invested in US property.
Paulson thought that a brokerage major like Lehman, which did not have a direct connection with ordinary people who have taken on home loans, need not be bailed out as it would not cause any systemic damage to the US economy.
Lehman Brothers's was one of those extraordinary rags-to-riches story. Only here, it did not have the fairy tale ending.
Its humble origins can be traced to a small general store founded by German immigrant Henry Lehman in Montgomery, Alabama, in 1844.
In 1850, Henry Lehman and his brothers, Emanuel and Mayer, founded Lehman Brothers.
Lehman survived the railroad bankruptcies of the 1800s, the Great Depression of the 1930s, two world wars, a capital shortage when it was spun off by American Express in 1994, and the Long Term Capital Management collapse and Russian debt default of 1998.
However, despite its ability to survive past disasters, the collapse of the US housing market ultimately brought Lehman Brothers to its knees, as its exposure to subprime mortgage market proved to be a disastrous step.

For s. 47(v), share capital of the subsidiary need not be “held” in the name of the holding company

CASE LAW DETAILS
Decided by: Delhi High Court, In The case of: The Commissioner of Income Tax (Appellant) Vs. M/s.Papilion Investments Pvt. Ltd. (Respondent), Appeal No.: 4 SOT 304 (Mumbai), Decided on: 28Th August 2009.
SUMMARY OF CASE LAW
S. 47 (v) provides that a transfer of a capital asset by a subsidiary company to its holding company shall not be regarded as a “transfer” if the whole of the share capital of the subsidiary company is held by the holding company. The assessee transferred shares to its subsidiary and claimed exemption from capital gains u/s 47 (v). The AO denied exemption on the ground that as two shares of the said subsidiary were held by a director of the assessee and not by the assessee itself, the shares were not “wholly held” by the holding company and s. 47 (v) did not apply. The Tribunal upheld the plea of the assessee. On appeal by the Revenue, the High Court upheld the order of the Tribunal and upheld the following findings:
(a) Though s. 47 (v) refers to shares being “wholly held”, a strict or mechanical interpretation should not be adopted. A construction must be adopted which makes the statute effective rather than redundant. It must be construed having regard to the object and purpose which the legislature had in view in enacting the provision. K.P. Varghese 131 ITR 597 (SC) andTeja Singh 35 ITR 408 (SC) followed.
(b) Under the Companies Act it is not possible for a company to have less than two shareholders. The requirement of s. 47(v) that the whole of the share capital of the subsidiary company should be held by the holding company is certainly not the same thing as the whole of the share capital being held in the name of the holding company. If one proceeds on the basis that the entire share capital of the subsidiary company should be held in the name of the holding company, there cannot be any situation in which s. 47(v) can apply. That interpretation makes the statutory provision redundant. If the holding company has a beneficial ownership over the entire share capital, s. 47 (v) applies.
Note: The decision of the Tribunal is in ACIT vs. Papillon 4 SOT 304 (Mumbai)

TDS on arrears of 6th Pay Commission's payments

Clarification regarding deduction of tax at source from payments of second installment of arrears to Government employees on account of implementation of Sixth Central Pay Commission’s recommendations.
Circular No. 6/2009, dated 31-8-2009
Under the provisions of Section 192 of the Income-tax Act, an employer is required to deduct tax at source from any payments in the nature of salary, which inter alia also includes any arrear payments. The Implementation Cell of the Department of Expenditure, Govt of India, vide its Office Order dated 30th Aug’ 08 had stated that 40% of the aggregate arrear (first installment of arrears) would be payable during FY 2008-09. In Circular No. 09/2008 dated 29th Sept. 2008 issued from this office it was stated that during 2008-09 the tax has to be deducted at source on this 40% of aggregate arrear during FY 2008-09. The OM,F.No-1//1/ 2008-IC, of the Implementation Cell of the Department of Expenditure, Govt of India, vide its order dated 25th August, 2009 has stated that the remaining 60% of the aggregate arrear ( second installment of arrears) would be paid to the concerned Government servants during FY 2009-10. Such arrangements could be followed by State Governments also. In this regard, all the DDOs and PAOs as the case may be, in the Central/State Government and various organizations under them are advised to compute the correct tax liability of every employee on second installment of arrears drawn by him and immediately recover the full tax liability along with education cess thereon at the rates in force. The deduction of tax at source on such arrear payment should not be deferred in any circumstance. They should further ensure that the tax so recovered is paid to the account of Central Government account immediately as per the Income Tax Rules, 1962. The DDOs/PAOs are further advised that they should ensure that the PAN details of the deductees (recipient of arrears) are correctly quoted in the relevant quarterly e-TDS returns filed by them so that the Government Servants get proper credit of their tax deducted in their respective income tax returns.
DDOs/PAOs who fail to comply with the provisions of Section 192 of the Income-tax Act, 1961 would be liable to pay interest under section 201(1)/(1A) of Income Tax Act along with other penal consequences.

Provident Fund-Due Date

For determining “due date” for payment of Provident Fund contributions, clause (1) of Paragraph 38 of Employees’ Provident Fund Scheme, 1952 is relevant. It reads as follows :-
“The employer shall, before paying the member his wages in respect of any period or part of period for which contribution are payable, deduct the employee’s contribution from his wages which together with his own contribution as well as an administrative charge of such percentage [of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee and in respect of which provident fund contributions are payable, as the Central Government may fix], he shall within fifteen days of the close of every month pay the same to the Fund by separate Bank drafts or cheques on account of contributions and administrative charge.” It has been held in:-
(a) Fluid Air (India) Ltd. Vs. D.C.I.T. (1997) 63 ITD 182 (Mumbai)
And
(b) Madras Radiators & Pressings Ltd. Vs. D.C.I.T. (1996) 59 ITD 515 (Mad.)/ (1996) 56 TTJ (Mad.) 662 that the term “month” has not been defined in the Scheme, there is ambiguity regarding interpretation of the words “fifteen days from the close of month” appearing in Paragraph 38 of Employees’ Provident Fund Scheme as to whether it should be reckoned from the month in which such contributions are received by the assessee from its employees or from the month in respect of which such contributions are received by the assessee, in cases where wages are paid in subsequent month(s), and this ambiguity should be resolved in favour of assessee, i.e. fifteen days are to be reckoned from close of the month in which employees contributions are recovered i.e. the month of payment of wages.
With due respect to above decisions, in my opinion, there is no such ambiguity. Proper analysis of Paragraph 38 of E.P.F. Scheme reveals as follows:-
(i) Employer’s liability to deduct employee’s contribution arises before paying wages to employees (and not as and when wages are earned by employees) in respect of any period or part of period. Thus the employees’ contribution comes in the hands of the employer during the wage disbursal month and not during the wage period (which may be a calender month or any other period and not necessarily a period equal to one month.)
(ii) Employees’ contribution thus deducted is to be deposited together with employer’s contribution within 15 days of the close of month. Thus, if both employees’ and employer’s contributions for Provident Fund is made within 15 days of the close of month in which wages are paid, it will be within due date. So, relevant month to be considered for determining due date is payment month i.e. wages disbursement month and not month or period to which wages relate.
Otherwise also, any other interpretation would produce absurd results in following cases:-
1. Where wage-period is not month. It may be weekly or daily and may cover portions of two months.
2. Where due to lock-out or strike or due to natural calamities or financial stringency, wages are paid after return of the situation to normalcy.
3. Increment in wages is effected with retrospective effect.
The view that payment month is relevant for considering due date for payment of Provident Fund contribution is also supported by Calcutta Tribunal ‘E’ Bench’s decision dated 28-5-2001 rendered in the case of Kanoi Paper & Industries Ltd,. Calcutta Vs. ACIT, Co. Circle 7(2), Calcutta [ITA No.1260(Cal) of 1996], an unreported decision till the date of this write-up, which held in para 6 of its order as follows:-
“Clause 38 of the Employees’ Provident Fund Scheme, 1952, fixes the time limit for making payment in respect of contribution to the provident fund to be 15 days from the close of the month concerned. However, the issue here is whether the “month” should be considered to be the month to which the wages relates or the month in which the actual disbursement of the wages is made. We are of the considered opinion that the expression “month” should mean here the month during which the wages/ salary is actually disbursed irrespective of the month to which the same relates. Thus, the scheme of the Govt. in this regard is that once a deduction is made in respect of the employees’ contribution to the provident fund from the salary/ wages of the employee or the employer also makes his contribution, factually at the time of disbursement of the salary the payment in respect of such contribution should be made forth with. If for some reason or other the payment of salary for a particular month be held up for considerable period of time it cannot be said that the employer would be liable to make payments in respect of the “employer’s” as well as “employees” contribution in respect of wages for such period within a period of 15 days from the close of the month to which the wages relates. On the other hand, in our view, most appropriate interpretation would be that the employer’ would be at liberty to make payment of the contribution concerned within 15 days (subject however to the further grace period) from the end of the month during which the disbursement of the salary is actually made and the contribution of the provident fund are, thus, generated.”
Since the due date has to be determined under the provisions of the Employees provident Fund & Misc. Provisions Act 1952, let us examine some other provisions of E.P.F. Scheme framed under the said Act.
While returns and forms are required to be filed with reference to the month (meaning calender month as per provisions of the General Clasues Act), or currency period (referring to period of financial year of Government i.e. period commencing in April and ending in March next), mention of wage period(s) is required specifically. Form No.12 is captioned as follows:-
“Statement of Contributions for the month of ………..19….
Wage Period from …………… to ………………..”
Form No.3A on annual contribution card requires tabulation of date for the currency period o calendar-monthly basis and the first month mentioned is “March paid in April”.
The last month mentioned is “February paid in March”.
The intention is apparent that wages paid between April to March and contributions deducted there from are to be reported in this form, although the wages may relate to any period from March to February next.
In Form No.12A (revised), monthly statement of contributions requires report on amount of contribution “recovered from the workers”. As per paragraph 38, recovery of contributions can be made only at the time of disbursal of wages. Thus the data required to be produced should relate to the payment-month irrespective of the wage period.
Also, five days of grace period has been allowed to employers for payment of Provident Fund contributions by clause (iii) of CPFC’S Circular No.E.128(1) 60-III dated 19-3-1964 as modified by circular No.E11/128 (section 14-B Amendment)/73 dated 24-10-1973.
CONCLUSION REGARDING ISSUE OF ‘DUE DATE’:
Due date for payment of Provident Fund contributions is 15 days from the end of month in which wages are paid (plus grace period of 5 days). Thus, if wages pertaining to April’ 2003 is paid on, say, 7th May’ 2003, due date for payment of Provident Fund contribution is 20th June’ 2003 [i.e. 15th June' 2003 as increased by grace period of 5 days].

The Descent of Finance
by Niall Ferguson
When today’s great crisis ends, the U.S. financial system will be a shadow of its former self, but America will be stronger than ever. History shows that money and power don’t always go hand in hand.
If the ascent of modern finance began in the 1980s, with “liar’s poker” on Wall Street and the City of London’s Big Bang, it ended on September 15, 2008—the day Lehman Brothers Holdings went bankrupt. Seven years on, 9/15 supplanted 9/11 as the costliest day in Wall Street’s history.
Lehman Brothers’ demise was one of seven events that, in the space of just 19 days, signaled the end of an epoch. The first, on September 7, was the nationalization of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). On September 14 Bank of America announced that it would buy Merrill Lynch. On September 16 a money market fund, Reserve Primary, broke the buck—that is, its net asset value dropped below $1 per share—because of losses on the unsecured commercial paper it had bought from Lehman. That same day the Federal Reserve agreed to give AIG $85 billion to avoid a lethal chain reaction if the insurance giant couldn’t meet its obligations on the credit default swaps it had sold to banks. Nationalization in this case took the form of a warrant to the Federal Reserve for 79.9% of the company’s equity. On September 22 the investment bank became an extinct species when Goldman Sachs and Morgan Stanley converted themselves into bank holding companies. Finally, on September 25, Washington Mutual Bank was seized by the Office of Thrift Supervision and placed into the receivership of the Federal Deposit Insurance Corporation—marking the biggest bank failure in America’s history.

Although the crisis began nearly two years ago, September 2008 was the month American finance fell off a cliff. What will be the long-term impact on the U.S. economy and the global financial system?

From Crisis to Breakdown
Imagine the worst-case scenario: The current recession turns out to be another great depression. The one that began in August 1929 lasted 43 months, according to the U.S. National Bureau of Economic Research. However, the first great depression, which only historians now remember, began with the Panic of 1873 and lingered for 65 months. If the U.S. economy keeps shrinking that long, there won’t be a sustained recovery until after May 2013.

Fast-forward to 2013. The government-owned Citibank of America, formed by the forced merger and nationalization of the United States’ two biggest banks, now dominates retail banking. The number of U.S. banks has fallen by half, from 8,534 in 2007. There are just 3,000 hedge funds all over the world—less than a third of the precrisis total. The regulatory framework that was imposed by Treasury Secretary Timothy Geithner in the previous four years has completely changed the financial landscape. With new restrictions on executive compensation, bank capitalization, and derivatives trading, retail banking has become more like a public utility. Even nonbank entities like hedge funds and insurance companies have to operate under the unsleeping eye of the new Financial Authority for the Regulation of Systemic Institutions (FARSI).

Despite FARSI’s extensive powers, the U.S. government is still grappling with the fiscal legacy of the crisis. The federal debt is now around $20 trillion—$3 trillion higher than the Obama administration forecast in its 2009 budget. The top income tax rate is 45%. The S&P 500 is down to 418, where it was in December 1991—a decline comparable to that between 1929 and 1934. The United States, it appears, is stuck in the middle of its own lost decade, with real GDP having grown by barely 1% per annum since 2010.

We started out calling it the Subprime Crisis. It quickly became the Credit Crunch and then the Global Financial Crisis. By 2013 a new name has stuck: the Breakdown.

Worlds Fastest Growing Companies

The world's fastest growing company is Canada-based Research In Motion, the maker of BlackBerry phones.

Three Indian-founded companies Infosys Technologies, Robin Raina-founded insurance company Ebix, and Bharat Desai co-founded IT company Syntel, have made it to Fortune's 100 fastest growing companies. Ebix is ranked 4th, while Syntel is ranked at 81st. Infosys is ranked at 100th. Google and Apple have also been named among the world's 100 fastest growing companies by the American magazine, Fortune. Cognizant is placed at 90th, Apple at 39th position, and Google takes the 68th spot.About Infosys, the magazine said, 'India's No 2 IT firm counts Goldman Sachs and UBS among its 570 clients.'Five Chinese companies have been listed by Fortune among the top 100. Companies were ranked based on their revenue, profit growth and total return in the past three years.

Check out the world's top 10 fatest growing companies...

1. Research In Motion (RIM)Research In Motion has topped the Fortune list with a three-year average earnings-per-share growth of 84 per cent, revenue growth of 77 per cent and total return of 45 per cent.
Research In Motion (RIM) is one of the leading designers and manufacturers of innovative wireless solutions for the worldwide mobile communications market. The company's growth has been driven by its flagship product, blackberry. RIM founded in 1984 has grown at fast pace, it plans to raise headcount to 12,000 employees by the end of the year.Jim Balsillie is the co-chief executive officer and Mike Lazaridis is president and co-chief executive officer of Research In Motion.
Revenue: $11,065.2 million
(Revenue figures are of the last four quarters)

2. Sigma Designs

RIM is followed by Sigma Designs. Sigma Designs develops and markets high-performance, highly-integrated System-on-a-Chip (SoC) semiconductors. Headquartered in Milpitas, California, the company has sales offices in China, Europe, Hong Kong, Japan and Taiwan. The company was founded in 1982. The company's CEO is Trinh Q. Tran.Revenue: $209.2 million

3. Sohu.com
Sohu.com is ranked third in the Fortune list. Sohu.com Inc, a search engine company based in China offers a network of web properties and community based/web 2.0 products. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines.Sohu was incorporated under the name Internet Technologies China Incorporated (ITC) in 1996. Charles Zhang is the CEO of the company.
Revenue: $460 million

4. EbixThe Robin Raina-founded company Ebix is fourth in the Fortune list. It is a leading international supplier of software and e-commerce solutions to the insurance industry. The company is headquarted in Atlanta.
Revenue: $78.8 million

5. DG FastChannel
DG FastChannel is the fifth fastest growing company in the world. It offers digital media services to the advertising industry and operates the largest network designed specifically for spot distribution. DG FastChannel digitally delivers over six million television and radio commercials each year for more than 5,000 national advertisers and advertising agencies
Scott K. Ginsburg is the CEO of the company.
Revenue: $169.3 million

6. CF Industries Holdings
CF Industries comes next at the 6th position. A subsidiary of CF Industries Holdings, it is one of North America's largest manufacturers and distributors of nitrogen and phosphate fertilizer products.A fertilizer brokerage operation by a group of regional agricultural cooperatives founded in 1946, CF Industries grew by enhancing its distribution capabilities and diversifying into fertilizer manufacturing.
Stephen R. Wilson is the CEO of the company.
Revenue: $3,934.4 million
Image: Courtesy, CFI

7. Shanda Interactive Entertainment
The 7th ranked Shanghai-based Shanda Interactive Entertainment is a leading media company. Shanda offers entertainment content including massively multi-player online role-playing games (MMORPGs) and advanced casual online games in China, as well as online chess and board games and e-sports game platform. The company came into existence in 1999.Tianqiao Chen is the CEO of the company.
Revenue: $574.1 million
Image: A game from Shanda.Photographs: Courtesy, Shanda Interactive Entertainment.

8. Arena Resources
Arena Resources Inc is the 8th fastest growing company. The Oklahoma-based oil and gas exploration, development and production company has operations in Texas, Oklahoma, Kansas and New Mexico. Founded in 2000, the company has made significant acquisitions, increased their proven reserves to an estimated 65.6 million BOE's (barrel of oil equivalents).Phillip W. Terry is the CEO of the company.
Revenue: $183.7 million
Image: Arena bets big on oil & gas.

8. Arena Resources

Arena Resources Inc is the 8th fastest growing company. The Oklahoma-based oil and gas exploration, development and production company has operations in Texas, Oklahoma, Kansas and New Mexico. Founded in 2000, the company has made significant acquisitions, increased their proven reserves to an estimated 65.6 million BOE's (barrel of oil equivalents).Phillip W. Terry is the CEO of the company.
Revenue: $183.7 million
Image: Arena bets big on oil & gas.

10. Potash Corp of Saskatchewan
Potash Corp, ranked 10th in the list is an integrated producer of fertilizer, industrial and animal feed products. The world's biggest fertilizer company, it produces three primary plant nutrients: potash, phosphate and nitrogen. William J. Doyle is the CEO of the company.
Revenue: $8,478.4 million
Image: Potash Corp, a world leader.Photographs: Courtesy, Potash Corp

Make money in volatile markets

Practically all stock selection techniques are designed to identify issues that will rise faster than average in bull markets or hold up better than average in bear markets.
Unfortunately, few stocks possess both attributes. Stocks that outperform the market on the upside tend to fall most rapidly in a general decline, while those that lag behind an advance tend to suffer less in a collapse.
Just as price trends seem to persist under certain conditions, the tendency of a specific stock or group of stocks to exhibit above average volatility also persists over time.
But while all price trends ultimately come to an end, the volatility characteristics of most stocks persist for years or even decades. Hence volatility can, in and of itself, be an especially useful stock selection criterion.
When the market is expected to rise, diversified portfolios of stocks, -- and, equally, diversified equity mutual funds, with a history of highly volatile price swings - will almost certainly outperform the market averages. Random walk theorists hasten to attribute these above average returns to the additional risk inherent in volatile stocks.
They claim that on a "risk adjusted basis," such portfolios will provide only average returns. Their concept is easily proven (to their own satisfaction, at least) by defining risk as volatility - hence they contend that higher returns accruing to portfolios of volatile stocks - or volatile equity mutual funds - are directly attributable to higher risk and do not represent superior stock selection.
Investors interested in making money rather than debating semantics might well argue that the only risk they fear is the risk of loss, and that kind of risk is low in a rising market. On the other hand, in a falling market almost every diversified portfolio or fund will lose money and an investor who expects a decline should be out of stocks altogether, not merely switching to less volatile stocks that will just lose money for him more slowly.
Thus, to the extent that investments are confined to periods of generally rising prices, namely to bullish phases, highly volatile stocks and equity funds are superior investments and can provide above average returns on a far more consistent basis than most other stock selection techniques.
Beta volatility
'Volatility' can be measured in many ways. One crude method is to calculate each stock's average daily or weekly price change (ignoring the sign, up or down, of those changes) over the past year or two. A far more sophisticated approach is to correlate a stock's daily or weekly percent price changes with the daily or weekly percent price changes of a broad based market index (e.g., Standard & Poor's 500 Index). This type of relative volatility is called a "Beta" statistic and is derived from a complex mathematical calculation, usually made by computer.
A Beta tells not just how volatile a stock has been, but how volatile it has been: relative to the market. An extremely useful characteristic of Beta statistics of stocks is that they are so stable through time that it is relatively unimportant whether they are calculated from daily, weekly, or monthly data, or whether the historical base used in the calculation is one, two, or even five years in length.
A Beta of 1.00 means that, on average, a stock has traditionally matched the market's swings, moving just as rapidly as the indices on the upside and downside. A Beta greater than 1.00 reflects above average volatility, and a Beta less than 1.00 indicates below average volatility.
A Beta that is actually less than zero - a negative Beta - is typical of assets that move contrary to the general market, going down in bull markets and rising in bear markets. (Gold mining stocks often have negative Betas.)
Betas have been so widely used in recent years that they have become available at low cost to most investors. They have been widely studied and numerous historical analyses have proven that portfolios of stocks with high Betas will continue to exhibit the characteristic of high volatility in the future.
It is worth noting, however, that Betas do have a tendency to drift back towards 1.00. Volatile portfolios selected on the basis of Beta alone will therefore never be quite as volatile as expected, although the Beta volatility estimate will still be very good.
Square root volatility
Low priced stocks are more volatile than high priced stocks. A formal statement of that assertion is the Square Root Rule which hypothesizes that the magnitude of a stock's price move is directly related to the price of the stock: the lower the price of the stock the more volatile it is, and, the higher the price of the stock the less volatile it is.
In a declining market, when all stocks should lose the same number of points from the square root of their beginning prices, we would expect the lower priced stocks to decline more rapidly and the higher priced issues to decline at a somewhat lesser rate.
Unlike the Beta statistic, the Square Root Volatility for a stock is always positive: All stocks are always expected to move in the same direction, albeit in different magnitudes, as the market. As a measure of expected performance for a single stock, this is, of course, somewhat unrealistic since all stocks do not always move in the same direction as the market.
However, like the Beta statistic, as the portfolio becomes more broadly diversified Square Root Volatility becomes a better measure of expected percentage change. For very large portfolios it is extremely accurate. Indeed, the author's research reveals that Square Root Volatility is usually superior to Beta as an estimator of future expected return, even though Betas are much better known and more widely used.
Conclusion
Used independently or jointly, the Beta and Square Root Volatility measures are valuable and highly functional stock selection tools. Most investors would improve their overall performance if they refined their market timing techniques and simply resorted to holding highly volatile securities during bull markets.

DTAA With Singapore

41. Agreement for avoidance of double taxation and prevention of fiscal evasion with Singapore
Whereas the annexed Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has entered into force on 27th May, 1994 on the notification by both the Contracting States to each other of the completion of the procedures required by their respective laws, as required by the said Agreement;
Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said Agreement shall be given effect to in the Union of India.
Notification : No. GSR 610(E), dated 8-8-1994.
TEXT OF AMENDED AGREEMENT
The Government of the Republic of India and the Government of the Republic of Singapore, desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income,
Have agreed as follows :
ARTICLE 1 : Personal scope - This Agreement shall apply to persons who are residents of one or both of the Contracting States.
ARTICLE 2 : Taxes covered - 1. The taxes to which this Agreement shall apply are :
(a) in India :
income-tax including any surcharge thereon
(hereinafter referred to as Indian tax) ;
(b) in Singapore :
the income-tax (hereinafter referred to as Singapore tax).
2. The Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.
ARTICLE 3 : General definitions - 1. In this Agreement, unless the context otherwise requires :
(a) the term India means the territory of India and includes the territorial sea and air space above it, as well as any other maritime zone in which India has sovereign rights, other rights and jurisdictions, according to the Indian law and in accordance with international law ;
(b) the term Singapore means the Republic of Singapore ;
(c) the terms a Contracting State and the other Contracting State mean India or Singapore as the context requires ;
(d) the term company means any body corporate or any entity which is treated as a company or body corporate under the taxation laws in force in the respective Contracting States ;
(e) the term competent authority means in the case of India, the Central Government in the Ministry of Finance (Department of Revenue) or their authorised representative; and in the case of Singapore, the Minister for Finance or his authorised representative ;
(f) the terms enterprise of a Contracting State and enterprise of the other Contracting State mean respectively and enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;
(g) the term fiscal year means :
(i) in the case of India, previous year as defined under section 3 of the Income-tax Act, 1961 ;
(ii) in the case of Singapore, calendar year ;
(h) the term international traffic means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State ;
(i) the term national means any individual, possessing the nationality of a Contracting State and any legal person, partnership or association deriving its status as such from the laws in force in the Contracting State ;
(j) the term person includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States ;
(k) the term tax means Indian tax or Singapore tax, as the context requires, but shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which this Agreement applies or which represents a penalty imposed relating to those taxes.
2. As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have, the meaning which it has under the law of that State concerning the taxes to which the Agreement applies.
ARTICLE 4 : Resident - 1. For the purposes of this Agreement, the term resident of a Contracting State means any person who is a resident of a Contracting State in accordance with the taxation laws of that State.
2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows :
(a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests) ;
(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode ;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national ;
(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1, a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.
ARTICLE 5 : Permanent establishment - 1. For the purposes of this Agreement, the term permanent establishment means a fixed place of business through which the business of the enterprise is wholly or partly carried on.
2. The term permanent establishment includes especially :
(a) a place of management ;
(b) a branch ;
(c) an office ;
(d) a factory ;
(e) a workshop ;
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ;
(g) a warehouse in relation to a person providing storage facilities for others;
(h) a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on ;
(i) premises used as a sales outlet or for soliciting and receiving orders ;
(j) an installation or structure used for the exploration or exploitation of natural resources but only if so used for a period of more than 120 days in any fiscal year.
3. A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any fiscal year.
4. An enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it carries on supervisory activities in that Contracting State for a period of more than 183 days in any fiscal year in connection with a building site or construction, installation or assembly project which is being undertaken in that Contracting State.
5. Notwithstanding the provisions of paragraphs 3 and 4, and enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in that Contracting State for a period of more than 183 days in any fiscal year in connection with the exploration, exploitation or extraction of mineral oils in that Contracting State.
6. An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services, other than services referred to in paragraphs 4 and 5 of this Article and technical services as defined in Article 12, within a Contracting State through employees or other personnel, but only if :
(a) activities of that nature continue within that Contracting State for a period or periods aggregating more than 90 days in any fiscal year; or
(b) activities are performed for a related enterprise (within the meaning of Article 9 of this Agreement) for a period or periods aggregating more than 30 days in any fiscal year.
7. Notwithstanding the preceding provisions of this Article, the term permanent establishment shall be deemed not to include :
(a) the use of facilities solely for the purpose of storage, display or occasional delivery of goods or merchandise belonging to the enterprise ;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or occasional delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise ;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise ;
(e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the enterprise.
However, the provisions of sub-paragraphs (a) to (e) shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State through which the business of the enterprise is wholly or partly carried on.
8. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 9 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if
(a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ;
(b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise ; or
(c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise.
9. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.
10. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise shall not of itself constitute either company a permanent establishment of the other.
ARTICLE 6 : Income from immovable property - 1. Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State.
2. The term immovable property shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.
3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting or use in any other form of immovable property.
4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.
ARTICLE 7 : Business profits - 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as it directly or indirectly attributable to that permanent establishment.
2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. In any case where the correct amount of profits attributable to a permanent establishment is incapable of determination or the determination thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis.
3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State.
4. Insofar as it has been customary in the Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.
5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.
6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.
7. Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.
8. For the purpose of paragraph 1, the term directly or indirectly attributable to the permanent establishment includes profits arising from transactions in which the permanent establishment has been involved and such profits shall be regarded as attributable to the permanent establishment to the extent appropriate to the part played by the permanent establishment in those transactions, even if those transactions are made or placed directly with the overseas head office of the enterprise rather than with the permanent establishment.
ARTICLE 8 : Shipping and air transport - 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.
2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of ships or aircraft.
3. Interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 shall not apply in relation to such interest.
4. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived from the transportation by sea or air of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of the ships or aircraft, including profits from :
(a) the sale of tickets for such transportation on behalf of other enterprises;
(b) the incidental lease of ships or aircraft used in such transportation;
(c) the use, maintenance or rental or containers (including trailers and related equipment for the transport of containers) in connection with such transportation; and
(d) any other activity directly connected with such transportation.
ARTICLe 9 : Associated enterprises - Where
(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,
and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
Article 10 : Dividends - 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed :
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 25 per cent of the shares of the company paying the dividends;
(b) 15 per cent of the gross amount of the dividends in all other cases.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
3. Notwithstanding the provisions of paragraph 2 of this Article, as long as Singapore does not impose a tax on dividends in addition to the tax chargeable on the profits or income of a company, dividends paid by a company which is a resident of Singapore to a resident of India shall be exempt from any tax in Singapore which may be chargeable on dividends in addition to the tax chargeable on the profits or income of the company.
4. The term dividends as used in this Article means income from shares or other rights not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.
5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.
6. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company except insofar as such dividends are paid to a resident of that other State or so far as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the companys undistributed profits to a tax on the companys undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.
7. (a) Dividends shall be deemed to arise in India if they are paid by a company which is a resident of India ;
(b) Dividends shall be deemed to arise in Singapore :
(i) if they are paid by a company which is a resident of Singapore ; or
(ii) if they are paid by a company which is a resident of Malaysia out of profits arising in Singapore and qualifying as dividends arising in Singapore under Article VII of the Agreement for the Avoidance of Double Taxation between Singapore and Malaysia signed on 26th December, 1968.
Article 11 : Interest - 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed :
(a) 10 per cent of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company) ;
(b) 15 per cent of the gross amount of the interest in all other cases.
3. The term interest as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors profits; and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.
5. Interest shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political sub-division, a local authority, a statutory body or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.
6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.
Article 12 : Royalties and fees for technical services - 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
1[2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.]
3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use :
(a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information ;
(b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8.
4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services :
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or
(b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or
(c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.
For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person.
5. Notwithstanding paragraph 4, fees for technical services does not include payments :
(a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ;
(b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic ;
(c) for teaching in or by educational institutions ;
(d) for services for the personal use of the individual or individuals making the payment;
(e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14 ;
(f) for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5 ;
(g) for services referred to in paragraphs 4 and 5 of Article 5.
6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.
7. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, a statutory body or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.
ARTICLE 13 : Capital gains - 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the alienator is a resident.
1a[4. Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of this Article shall be taxable only in that State.]
ARTICLE 14 : Independent personal services - 1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State :
(a) if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State ; or
(b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant fiscal year, in that case, only so much of the income, as is derived from his activities, performed in that other State may be taxed in that other State.
2. The term professional services includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.
ARTICLE 15 : Dependent personal services - 1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State, if :
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant fiscal year ; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State ; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
3. In the case of a recipient who satisfies all the conditions under sub-paragraphs (a), (b) and (c) of paragraph 2, if his remuneration is deductible as an expense against fees for technical services (dealt with under Article 12) derived by his employer and the employer has no permanent establishment in the other Contracting State, the remuneration may, notwithstanding the provisions of paragraph 2, be taxed in that State. In such case, the tax so charged shall not exceed 15 per cent of the gross amount of the remuneration.
4. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.
ARTICLE 16 : Directors fees - Directors fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.
ARTICLE 17 : Artistes and sportspersons -1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an artiste such as a theatre, motion picture, radio or television artiste or a musician or as a sportsperson, from his personal activities as such exercised in the other Contracting State may be taxed in that other State.
2. Where income in respect of or in connection with personal activities exercised by an artiste or a sportsperon accrues not to the artiste or sportsperson himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the artistes or sportspersons are exercised.
3. Notwithstanding the provisions of paragraph 1, income derived by an artiste or a sportsperson who is a resident of a Contracting State from his personal activities as such exercised in the other Contracting State, shall be taxable only in the first-mentioned State, if the activities in the other State are supported wholly or substantially from the public funds of the first-mentioned State, including any of its political sub-divisions, local authorities or statutory bodies.
4. Notwithstanding the provisions of paragraph 2 and Articles 7, 14 and 15, where income in respect of or in connection with personal activities exercised by an artiste or a sportsperson in a Contracting State accrues not to the artiste or sportsperson himself but to another person, that income shall be taxable only in the other Contracting State, if that other person is supported wholly or substantially from the public funds of that other State, including any of its political sub-divisions, local authorities or statutory bodies.
ARTICLE 18 : Remuneration and pensions in respect of Government service - 1. (a) Remuneration, other than a pension, paid by a Contracting State or a political sub-division, a local authority or a statutory body thereof to an individual in respect of services rendered to that State or sub-division or authority or body shall be taxable only in that State.
(b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that State who :
(i) is a national of that State ; or
(ii) did not become a resident of that State solely for the purpose of rendering the services.
2. (a) Any pension paid by, or out of funds created by a Contracting State or a political sub-division, a local authority or a statutory body thereof to an individual in respect of services rendered to that State or sub-division or authority or body shall be taxable only in that State.
(b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of that other State.
3. The provisions of Articles 15, 16 and 19 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political sub-division or a local authority or a statutory body thereof.
ARTICLE 19 : Non-Government pensions and annuities - 1. Any pension, other than a pension referred to in Article 18, or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned State.
2. The term pension means a periodic payment made in consideration of past services or by way of compensation for injuries received in the course of performance of services.
3. The term annuity means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or moneys worth.
ARTICLE 20 : Students and trainees - 1. An individual who is or was a resident of a Contracting State immediately before making a visit to the other Contracting State and is temporarily present in the other State solely :
(a) as a student at a recognised university, college, school or other similar recognised educational institution in that other State ;
(b) as a business or technical apprentice ; or
(c) as a recipient of a grant, allowance or award for the primary purpose of study, research or training from the Government of either State or from a scientific, educational, religious or charitable organisation or under a technical assistance programme entered into by the Government of either State ;
shall be exempt from tax in that other State on :
(i) all remittances from abroad for the purposes of his maintenance, education, study, research or training ;
(ii) the amount of such grant, allowance or award; and
(iii) any remuneration not exceeding United States Dollars five hundred per month or its equivalent in local currency in respect of services in that other State provided the services are performed in connection with his study, research or training or are necessary for the purposes of his maintenance.
2. The benefits of this Article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken, but in no event shall any individual have the benefits of this Article for more than five consecutive years from the date of his first arrival in that other Contracting State.
ARTICLE 21 : Teachers and researchers - 1. An individual who is or was a resident of a Contracting State immediately before making a visit to the other Contracting State, and who, at the invitation of any university, college, school or other similar educational institution, visits that other State for a period not exceeding two years solely for the purpose of teaching or research or both at such educational institution shall be exempt from tax in that other State on any remuneration for such teaching or research.
2. This Article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons.
ARTICLE 22 : Income of Government - 1. The Government of a Contracting State shall be exempt from tax in the other Contracting State in respect of income derived by that Government from sources within the other State.
2. The types of income to which paragraph 1 applies are:
(a) dividends under Article 10 ;
(b) interest under Article 11 ; and
(c) any other income or gains derived from transactions not pursuant to the conduct of commercial activities.
3. For the purposes of paragraph 1, the term Government :
(a) in the case of Singapore means the Government of Singapore and shall include :
(i) the Monetary Authority of Singapore and the Board of Commissioners of Currency;
(ii) the Government of Singapore Investment Corporation Pvt. Ltd. to the extent it is not engaged in the conduct of commercial activities ;
(iii) a statutory body not engaged in the conduct of commercial activities ;
(iv) any other institution or body as may be agreed from time to time between the competent authorities of the Contracting States ;
(b) in the case of India means the Government of India and shall include :
(i) the Governments of the States and the Union Territories of India;
(ii) the Reserve Bank of India or any of its subsidiaries which is not engaged in the conduct of commercial activities;
(iii) a statutory body not engaged in the conduct of commercial activities;
(iv) any other institution or body as may be agreed from time to time between the competent authorities of the Contracting States.
ARTICLE 23 : Income not expressly mentioned - Items of income which are not expressly mentioned in the foregoing Articles of this Agreement may be taxed in accordance with the taxation laws of the respective Contracting States.
ARTICLE 24 : Limitation of relief - 1. Where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State.
2. However, this limitation does not apply to income derived by the Government of a Contracting State or any person approved by the competent authority of that State for the purpose of this paragraph. The term Government includes its agencies and statutory bodies.




ARTICLE 25 : Avoidance of double taxation - 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where express provision to the contrary is made in this Agreement.
2. Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Singapore, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Singapore tax paid, whether directly or by deduction. Where the income is a dividend paid by a company which is a resident of Singapore to a company which is a resident of India and which owns directly or indirectly not less than 25 per cent of the share capital of the company paying the dividend, the deduction shall take into account the Singapore tax paid in respect of the profits out of which the dividend is paid. Such deduction in either case shall not, however, exceed that part of the tax (as computed before the deduction is given) which is attributable to the income which may be taxed in Singapore.
3. For the purposes of paragraph 2 of this Article, Singapore tax paid shall be deemed to include any amount of tax which would have been payable but for the reduction or exemption of Singapore tax granted under :
(a) the provisions of the Economic Expansion Incentives (Relief from Income-tax) Act and the provisions of sections 13(1)(t), 13(1)(u), 13(1)(v), 13(2), 13A, 13B, 13F, 14B, 14E, 43A, 43C, 43D, 43E, 43F, 43G, 43H, 43-I, 43J and 43K of the Income-tax Act, insofar as they were in force and have not been modified since the date of signature of this Agreement, or have been modified in minor respects so as not to affect their general character.
(b) any other provision which may subsequently be enacted granting an exemption or reduction of tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character to any provision referred to in sub-paragraph (a) of this paragraph, if such provision has not been modified thereafter or has been modified only in minor respects so as not to affect its general character.
4. Subject to the provisions of the laws of Singapore regarding the allowance as a credit against Singapore tax of tax paid in any country other than Singapore, Indian tax paid, whether directly or by deduction, in respect of income from sources within India shall be allowed as a credit against Singapore tax payable in respect of that income. Where such income is a dividend paid by a company which is a resident of India to a resident of Singapore which owns not less than 25 per cent of the share capital of the company paying the dividends, the credit shall take into account Indian tax paid in respect of its profits by the company paying the dividends.
5. For the purposes of paragraph 4 of this Article the term Indian tax paid shall be deemed to include any amount of tax which would have been payable in India but for a deduction allowed in computing the taxable income or an exemption or reduction of tax granted for that year in question :
(a) Sections 10(4), 10(4B), 10(5B), 10(15)(iv), 10A, 10B, 33AB, 80-I and 80-IA, insofar as these provisions were in force and have not been modified since the date of signature of this Agreement, or have been modified only in minor respects so as not to affect their general character,
(b) any other provision which may subsequently be enacted granting an exemption or reduction of tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character to a provision referred to in sub-paragraph (a) of this paragraph, if such provision has not been modified thereafter or has been modified only in minor respects so as not to affect its general character.
6. Income which, in accordance with the provisions of this Agreement, is not to be subjected to tax in a Contracting State, may be taken into account for calculating the rate of tax to be imposed in that Contracting State.
ARTICLE 26 : Non-discrimination - 1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances and under the same conditions are or may be subjected.
2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in the same circumstances or under the same conditions. This provision shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first-mentioned State at a rate of tax which is higher than that imposed on the profits of a similar enterprise of the first-mentioned Contracting State, nor as being in conflict with the provisions of paragraph 3 of Article 7 of this Agreement.
3. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected in the same circumstances and under the same conditions.
4. Nothing contained in paragraphs 1, 2 and 3 of this Article shall be construed as
(a) obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs, reductions and deductions which it grants to its own residents;
(b) affecting any provisions of the tax laws of the respective Contracting States regarding the imposition of tax on non-resident persons as such;
(c) obliging a Contracting State to grant to nationals of the other Contracting State those personal allowances, reliefs, reductions and deductions for tax purposes which it grants to its own citizens who are not resident in that State or to such other persons as may be specified in the taxation laws of that State; and
(d) affecting any provisions of the tax laws of the respective Contracting States regarding any tax concessions granted to persons fulfilling specified conditions.
5. In this Article, the term taxation means taxes which are the subject of this Agreement.
ARTICLE 27 : Mutual agreement procedure - 1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Agreement, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident. This case must be presented within three years of the date of receipt of notice of the action which gives rise to taxation not in accordance with the Agreement.
2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to avoidance of taxation not in accordance with the Agreement. Any agreement reached shall be implemented notwithstanding any time limits in the national laws of the Contracting States.
3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in the Agreement.
4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through a Commission consisting of representatives of the competent authorities of the Contracting States.
ARTICLE 28 : Exchange of information - 1. The competent authorities of the Contracting States shall exchange such information (including documents) as is necessary for carrying out the provisions of this Agreement or of the domestic laws of the Contracting States concerning taxes covered by the Agreement, insofar as the taxation thereunder is not contrary to the Agreement, in particular for the prevention of fraud or evasion of such taxes. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State. However, if the information is originally regarded as secret in the transmitting State, it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Agreement. Such persons or authorities shall use the information only for such purposes but may disclose the information in public court proceedings or in judicial decisions.
2. The exchange of information or documents shall be either on a routine basis or on request with reference to particular cases or both.
3. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation :
(a) to carry out administrative measures at variance with the laws or administrative practice of that or of the other Contracting State;
(b) to supply information or documents which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information or documents which would disclose any trade, business, industrial, commercial or professional secret or trade process or information the disclosure of which would be contrary to public policy.
ARTICLE 29 : Diplomatic and consular officials - Nothing in this Agreement shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.
ARTICLE 30 : Entry into force - 1. Each of the Contracting States shall notify the other the completion of the procedures requires by its law for the bringing into force of this Agreement. This Agreement shall enter into force on the date of the later of these notifications and shall thereupon have effect :
(a) in India, in respect of income arising in any fiscal year beginning on or after the first day of April, 1994;
(b) in Singapore, in respect of income arising in any fiscal year beginning on or after the first day of January, 1994.
2. The Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income signed in Singapore on 20th April, 1981 shall terminate and cease to be effective from the date on which this Agreement comes into effect.
ARTICLE 31 : Termination - This Agreement shall remain in force indefinitely but either of the Contracting States may, on or before the thirtieth day of June in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give the other Contracting State through diplomatic channels, written notice of termination and, in such event, this Agreement shall cease to have effect :
(a) in India, in respect of income arising in any fiscal year beginning on or after the 1st day of April next following the date on which the notice of termination is given;
(b) in Singapore, in respect of income arising in any fiscal year beginning on or after the 1st day of January next following the date on which the notice of termination is given.
IN WITNESS WHEREOF the undersigned, being duly authorised thereto, have signed the present Agreement.
DONE in duplicate at India this twenty-fourth day of January, one thousand nine hundred and ninety-four in the Hindi and English languages, both texts being equally authentic. In the case of divergence between the two texts, the English text shall be the operative one.

Permanent Establishment-Morgan Stanley

Landmark ruling on permanent establishment

A recent ruling on the interpretation of provisions of Double Tax Avoidance Agreements is a landmark decision on the concept of a permanent establishment, which is the bedrock on which business profits can be taxed in a contracting state. When there is a close and continued relationship between a resident and non-resident business, the latter becomes liable to tax in India.

The Income-Tax Act, 1961 deals with the concept of a business connection between a resident and a non-resident. Where there is an intimate and a real relationship between the two on a continued basis, the non-resident becomes liable to tax in India in respect of income earned pertaining to a business connection that is deemed to accrue in India.

Section 9 of the Act, which deals with business connection, stands superseded where the non-resident is residing in a country with which India has entered into a Double Tax Avoidance Agreement (DTAA).

Under such an agreement, business profits are taxable under Article 7, provided such profits are attributable to the permanent establishment (PE), defined by Article 5 of the DTAA.
A reading of Article 5 of the DTAA shows that Para 1 thereof applies where an enterprise carries on a business, whether wholly or partly, through a fixed place of business.

The commentary of OECD on Article 5 states that there must be a fixed place of business which takes in not only fixed premises but also machinery or equipment. The expression "a fixed place" indicates a certain degree of permanence. It is necessary that the business of the enterprise be carried on through a fixed place. Para 2 of Article 5 of the DTAA is an inclusive provision that takes in various places and services enumerated in clauses (a) to (l). A number of places are specified in Clauses (a) to (k) whereas clause (l) postulates provision of services by an enterprise within a contracting state through employees or other personnel.

Landmark case

These points were considered in a landmark ruling in the case of Morgan Stanley and Co., US, (2006; 152 Taxman 1). The facts in this case were that the applicant, M group, a non-resident company incorporated in the US, provided financial advisory services, corporate lending and securities underwriting.
The diverse activities of the applicant were undertaken by various divisions.
One of the group companies, MSAS, incorporated in India, was set up by the applicant to manage the group members' front office and infrastructure functions of its global operations, including services such as IT support, account reconciliation and research.
MSAS entered into a service agreement with the applicant. Under the agreement, it undertook to provide M group the aforesaid support services. To enable MSAS provide those services it was agreed between the parties that the applicant would send staff to MSAS (India) for stewardship and similar activities.
The applicant group agreed to pay MSAS the actual sum of all costs, together with an appropriate mark-up, mutually agreed on.
From an employment perspective, the staff would continue to be employed or engaged and their salaries and fees would be paid directly by the applicant.
Net margin method
A company `E' conducted a transfer pricing study for MSAS. The transactional net margin method (TNNM) was selected as the most appropriate, with operating profit margins being the profit level indicator in respect of the services rendered by MSAS to the applicant.
The average margin earned by comparable companies providing similar services was worked out at 28.33 per cent and under the existing arrangement, MSAS charged the applicant a margin of 29 per cent on the costs it incurred.
MSAS agreed to develop computer software including customised electronic data or computer programmes of critical relevance for the various divisions of the applicant such as equity research, fixed income division, equity finance service divisions and investment banking divisions.
It also agreed to provide research reports, data analysis, industry- and company-specific analysis, earning models of companies as an on-going process so as to help various divisions of the applicant formulate their business strategies.
MSAS would use the brand name, trade name as well as computer hardware of M. Whatever was produced or developed by it would be passed on to the M group and the former would have no right or interest in the said products.
The staff deputed to MSAS would be on the payroll of the applicant and the remuneration paid by it would be reimbursed by MSAS.
According to the AAR, MSAS had a fixed place of business but there was nothing to show that the business of the applicant was carried on through the place of business of MSAS.
The contention that rendering of the aforementioned services by MSAS to the applicant and other group companies which may be utilised by them in running their business, amounts to carrying on business through the fixed place of business of MSAS was not accepted by the AAR.
The germane condition of carrying on business through a fixed place of business of MSAS, not being fulfilled, Article 5 (1) would not be attracted. Therefore, MSAS cannot be treated as the PE of the applicant.
According to the AAR, for the purpose of Para 4, it is not necessary that MSAS should be an agent of the applicant/M group. It is enough if it satisfies the two requirements which are cumulative.
So far as the first requirement is concerned, that was satisfied as MSAS would be acting in India on behalf of the applicant/M group. Regarding the second requirement, MSAS is not an agent and, according to the commissioner, it was not an agent of independent status. Thus, admittedly, this requirement is also satisfied.
Having considered the facts and contentions of the parties both oral and written, the AAR ruled that MSAS could not be held to be a PE of the applicant/M group.
As regards the question whether the applicant would be regarded as having a PE in India under Article 5(2)(1) if it were to send some of its employees to India for undertaking stewardship activities or on deputation in the employment of MSAS, the AAR ruled that the ingredients of Para (2)(1) of Article 5 have to be considered.
From the terms of agreement, it is clear that the employees of the applicant are to be sent to MSAS whether for stewardship activity or on deputation basis for more than 90 days.
The applicant's contention that the staff would be working for the applicant was not accepted by the AAR. It may be that the benefit of services of the staff would be ensured to the applicant but it would not be the same as working for the applicant.
Once employees are sent by the applicant on deputation for stewardship activities, they would be actively involved in the key managerial activities of MSAS.
It follows that the ingredients of para (2)(1) of Article 5 are satisfied. Therefore, the AAR ruled that MSAS would constitute a PE.
This ruling is a landmark decision on the interpretation of provisions of Double Tax Avoidance Agreements, on the concept of a permanent establishment, which is the bedrock on which business profits can be taxed in a contracting state