(MENAFN- Khaleej Times)A German company has supplied equipment to an Indian company. The equipment has been designed and manufactured in Germany. The tax officer has treated a part of the price as being taxable in India on the ground that some engineering designs were supplied to the Indian party with the equipment and this amount was in the nature of royalty. Is this the correct view in law?
- R.K. Bhushan Dubai This view of the tax department is incorrect. All the activities relating to design fabrication and sale took place outside India. The ownership in the equipment was also transferred outside India. Being an offshore transaction no part of the profits is taxable in India. If the engineering designs are on the basis of standard technologies available which is part of the equipment sold to the Indian party no amount can be treated as royalty because the Indian customer was not using any designs or drawings for commercial exploitation. Therefore the German company should appeal against the assessment order as there are several decided cases on a similar issue to support its stand. While single-brand retail is permitted in India under the foreign direct investment rules there is no clarity whether these retailers should set up their own shops as well as allow operations through franchisees. The company for whom I work wants to set up more franchisee outlets than their own shops. I want to know the latest position on this issue. - T.S. Balu Doha The earlier policy was to allow single-brand retailers to invest in India provided they set up their own outlets. The present government has liberalised this policy and has permitted retailers to operate in multiple formats. This means that they can set up outlets through the franchising route. For investment of up to 49 per cent no permission of the government is necessary. However if the investment is more than 49 per cent prior government approval will have to be taken. The government has also clarified that single brand retail business can also be set up in India through one or more wholly-owned subsidiaries or joint ventures. However the government has not diluted the requirement that 30 per cent of the products sold should be sourced in India. This policy also requires that the products purchased in India should be from medium and small scale enterprises. This has prevented some foreign chains from setting up outlets in India. I have investments in India on the capital market apart from bank deposits. Every time I go for a new financial product I am asked to provide KYC documents. This is very bothersome and dissuades investors. I am told that some change is being introduced. Can you please clarify? - Lalit Desai Sharjah The Finance Ministry has now notified rules for a central registry which is to be established in August. This will ensure that once your KYC documents are stored in a central registry there will be no need to furnish these documents every time you start a relationship with a financial intermediary. The central registry will issue a unique identification number. This will be quoted in every transaction that is undertaken in the banking sector stock market or insurance. For proof of identity a Permanent Account Number card passport driving licence or Aadhaar Card will be sufficient for obtaining the unique identification number from the central registry. In case of any change the fresh documents can be furnished to any intermediary which will forward the same to the central registry for updating the records. The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.
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