[2018] 94 taxmann.com 27 (AAR – New Delhi)
International Zinc Association, In re
A.A.R. No. 1319 of 2012
Date of Order: 24th May, 2018
Facts
The Applicant was a company incorporated in
Belgium, which was registered as an International Non-Profit Association. It
was a tax resident of Belgium. The Applicant helped to sustain long term global
demand for Zinc. The Applicant had obtained permission of RBI for establishing
a Liaison Office (“LO”) in India for promotion of uses of Zinc. The Applicant
received membership fee and contribution from members which were tax resident
in India.
Before the AAR, the Applicant raised the
following questions:
(i) Whether membership
fee and contribution received by the Applicant from its Indian members were
liable to tax in India under India-Belgium DTAA?
(ii) Whether LO
proposed to be established in India by the Applicant was liable to tax in India
under India-Belgium DTAA?
Held
– The Applicant
was hosting information of members on its website, publishing various material,
organising conferences, representing its members, etc. These activities
were not undertaken for deriving any profit for the Applicant and were undertaken
for the benefit of all members. They were performed in fulfilment of its
objects. Hence, they were not in the nature of ‘specific services’ as
contemplated in section 28(iii) of the Act.
– The LO was set
up on not-for-profit basis. The surplus that may be generated at the end of the
year cannot acquire the character of profit as contemplated under the Act
because the activities of the Applicant were not in the nature of business and
the surplus was to be utilised only for the objects of the Applicant. The
surplus was not to be distributed to the members. Accordingly, section 28(iii)
of the Act was not attracted. This view was also supported by the decision in CIT
vs. South Indian Films Chamber of Commerce [1981] 129 ITR 22 (Madras).
– The LO incurred
expenditure for organizing various events for which it did not charge any fee.
LO collected sponsorship fee only in case of large events and that too with
prior approval of RBI. Such fee was utilised for organizing the event without
the Applicant making any profit. The facts in CIT vs. Standing Conference of
Public Enterprises [2009] 319 ITR 179 (Delhi)1 squarely applied in case of the Applicant.
Thus, the Applicant cannot be said to have violated the doctrine of mutuality.
________________________________________________________
1
The Supreme Court dismissed special Leave Petition of the revenue. Hence, the
decision of Delhi High Court stands affirmed.
– In ICAI vs.
DCIT [2013] 358 ITR 91 (Delhi) it was held that the purpose and the
dominant object for which an institution carries on its activities is material
to determine whether the activities constitute business or not. The object of
the Applicant is primarily to serve its members. Hence, merely because of
receipts from some non-members activities of the Applicant cannot be termed as
business. No clause of the Article of Association of Applicant indicated that
the Applicant intended, either to carry on any business or to provide any
services to non-members. Further, in case of dissolution of the Applicant, the
surplus was to be handed over to another non-profit-organization and was not to
be distributed to members. The test of mutuality is satisfied if members agree
and exercise their right of disposal of surplus in mutually agreed manner.
– Under Article 5
of India-Belgium DTAA, a PE is constituted if there is a fixed place of
business and the business of enterprise is wholly or partly carried on through
that fixed place. Since the Applicant was operating on the principle of
mutuality and was not set up for doing business or earning profit, the question
of the LO constituting a PE could not arise since there was no business.
– Accordingly,
membership fee and contribution received by the Applicant from its members were
not liable to tax in India, and the LO proposed to be established in India was
not liable to tax in India.
