Agreement for Avoidance of Double Taxation

Contention of the appellant was that he had not used intellectual property of any kind like use of equipment as hardware, software, infrastructure and network as royalty rather a satellite receiver owned by the non-resident placed in the upper space and anyone could buy the technical facility of the satellite who possessed compatible ground facility as local recipient, therefore such payment could not be treated as "royalties"

Validity

Payments made by the taxpayer were quite distinguishable from "royalty" as the satellite in the upper space installed by anyone and its usage would not attract usage of intellectual property i.e. trademark, copyright or patents

Commissioner had not taken cognizance of frequency, intensity, duration and focus of activities accrued between the two contracting parties or alternate options available to taxpayer i.e. presence of other parties in the open market

Ownership of technical equipment and control over operational management was performed by the taxpayer in Pakistan despite the higher degree of interdependence

Disbursement of amount was to be treated as "normal business expense".

Principles.

Tax charged should not exceed 12% as stated in Art. 13 of the Treaty should be kept in mind.

Definition of permanent establishment as given in the Treaty enumerates the places which fall within the concept of "permanent establishment" and enlarge the scope of "permanent establishment" by including agents in its ambit

Definition of "permanent establishment" distinguishes between independent agent; or contractor and dependent agent or contractor

An agent is deemed to create a permanent establishment who has the authority to conclude contracts on behalf of a US enterprise or who actually exercises such authority; such are dependent agents

Agents of independent status acting in the ordinary course of their business are excluded from the scope of "permanent establishment-Mere agency for acting on behalf of US enterprises is not enough to constitute a permanent establishment and for such purpose the agent must fill orders from stock of goods or habitually exercise an authority to conclude contracts on behalf of or in the name of US enterprise

If the agent is independent and acting in the ordinary course of its business there is no permanent establishment of US enterprise in Pakistan.

Courts, in case of domestic/local laws were required to ascertain and discern the intention of Legislature, while in case of International Agreements the intention of contracting parties was to be ascertained from the contents of International Agreement or the Regulations prescribed by the contracting parties to interpret and carry out the provision of the International Treaties.

Assessee was deriving income from lease price of the Aircrafts that remained the property of the assessee over the Wet Lease Term and, thereafter, it had undertaken the maintenance and operation of the Aircrafts by its own personnel to be kept posted in Pakistan over the lease term

Receipts of the assessee on account of Basic Lease Price and Extra Flying Hour Price was taxed by the Assessing Officer on the ground that the assessee had permanent establishment to carry on the business in Pakistan

Assessing Officer found that the assessee had office and a workshop that fell under the definition of the "Permanent Establishment "

Commissioner of Income-tax (Appeals) found that permanent establishment was not constituted simply by provision of certain facilities like small office space and small, storage space on non-reimbursable basis which the Convention (Agreement for Avoidance of Double Taxation) specifically excludes from the term "permanent establishment"

Validity

Appellate Tribunal, in the light of Convention and Lease Agreement, held that the assessee had suitable office which the lessee was contractually bound to provide and the assessee had legally enforceable claim over the office and that the assessee by virtue of having the agreed facilities and the proper store-room at the location where the maintenance for the aircrafts was to be organized by assessee, also had a v0rkshop and the profit of the assessee was taxable in Pakistan.

Assessee, a non-resident appointed as consultant and technical advisor of Pakistani Company was entitled to exemption under Art. VIII from Pakistan income only in respect of payments made by Pakistani Company to the Assessee for services rendered for manufacturing, informations, factory administration, training of technical staff, patents and storage and control

Payments made for availability of consultants personnel and inspection being not "royalty" were not exempt under Art. VIII.