Taxing Differences: Resolving the Dispute
tax cuet_pg advanced mcq_debateHey guys, I'm having a tiff with my friend over this question from the CUET PG Law paper.
We have a scenario where XYZ Limited, a company registered in India, earns a royalty income of ₹1 crore from its UK subsidiary. The UK subsidiary has a PE (Permanent Establishment) in India which is responsible for marketing and distributing the goods. The UK parent company does not have any other business operations in India. What is the tax liability of XYZ Limited on its royalty income?
My friend says the entire royalty income of ₹1 crore should be taxable in India under section 9(1)(i) of the Income-tax Act, since the PE has a significant influence on the royalty payment. I, on the other hand, think that only a proportionate portion of the royalty income should be taxable in India, as the PE is only responsible for marketing and not the creation of the intellectual property.