Pl give Tax advice on deduction rules between Nonresident Parent shipping company & Indian subsidiary company..
Illustration –
Dubai based company gets contract for construction of ship from XYZ Ltd. say for $ 1000 M.
Ship will be constructed in Dubai only and hand over to Indian company will also be in Dubai itself.
Question 1 at this stage – It’s a contract which would be covered under one of the sections from 194 family(probably 194C). Whether XYZ Ltd. will deduct tax under 194 while making payment to Dubai Co.?
Twist – Dubai company has subsidiary (captive outsource co) situated in SEZ freezone in India which may be involved in making designs and engineering drawings ONLY for ship construction but ship will be constructed in Dubai. Indian company will simply act as a outsourcer between Dubai company & XYZ Ltd. All invoices would be sent by Dubai parent company to XYZ Ltd because Contract is between Dubai Parent company and XYZ Ltd.
Question 2 at this stage – Whether now XYZ Ltd. will deduct tax while paying Dubai Co.?
Question 3 at this stage – Other thing - Subsidiary is in SEZ free zone which is exempted under section 10 family or which enjoys tax holiday I believe. Even then XYZ Ltd. will have to deduct tax?
Please advice ASAP.
Please let me know in case you require any clarification.
Regards,
Tej
CAclubindia
