The Pune Bench of the Income Tax Appellate Tribunal (ITAT) recently stated that the disentitlement of specific export incentives for permanent establishments (PEs) of a US company based in India did not attract article 26(2) of the India-US tax treaty.
Section 80 HHE of the Income Tax Act (ITA) provides an incentive to Indian residents (i.e. Indian companies and individuals residing in India) engaged in the export of computer software and related technical services, by allowing a deduction of a specified portion of profits derived from such exports, provided that these exports have resulted in an inflow of foreign exchange.
Under these provisions, an Indian branch of a foreign entity is not entitled to these export incentives since it doesn’t exist independently of its non-resident parent, and cannot qualify as a “person” under section 2(31) of the Income Tax Act.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
