Partnership abroad by resident Indian and foreign partner

Tax planning 2813 views 8 replies

Guest

A partnership is formed in Canada by Indian and Canadian partner.

The business is of investing and renting of real estate in Canada.

Since the Indian Partner is a resident of India,

1. Will the Indian partner's share of profits (already taxed as partnership profits in Canada) from partnership be taxable in India?

2. Will the income of partnership (as assessee) be taxable in India?

As a fundamental principle under the IT Act, all resident taxpayers are subjected to tax in India on their worldwide income. In case a partnership is not organized within the meaning of the Indian Partnership Act, 1932, It will be taxed as AOP. Also, as per Section 6 of the IT Act, for a foreign partnership to qualify as a non-resident for Indian tax purposes, it is required that the control and management of its affairs is situated wholly outside India.

[As per DTAA,

INCOME FROM IMMOVABLE PROPERTY (Article 6)

Income from immovable property (including income from agriculture or forestry) may be taxed in the Contracting State in which such property is situated.

Business profits (Article 7)

The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

RESIDENCE(Article 4)

1. For the purposes of this Agreement, the term 'resident of a Contracting State' means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. 3. Whereby reason of the provisions of paragraph 1, a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question. In the absence of such agreement, such person shall not be considered to be a resident of either Contracting State for the purposes of enjoying benefits under the Agreement. ]

Pl advise.

Replies (8)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

196701 Points Joined July 2016

" It noted that the term ‘partnership’ is defined under the Canadian legislation to mean a relationship between persons carrying on the business in common with a view to make profits. Further, Section 7 of that Act states that the act of each partner binds the others as well as the firm and Section 11 makes each partner jointly liable with other partners for the debts and obligations of the firm. Section 15 of the Canadian Act provides that every partner is jointly and severally liable for all the liabilities of the firm and Section 36 provides that the partnership could be dissolved at the instance of any one partner. From its reading of the Canadian legislation on partnerships, the AAR was of the view that it was substantially similar to the Indian Partnership Act, 1932 and hence an ordinary partnership under the laws of Alberta would be understood as a partnership under the Indian partnership Act, 1932. The AAR even found that in the case before its consideration, the shares of each partner was ascertainable and hence ruled that the partnership firm in question in Alberta was to be assessed as a firm under the ITA, provided the requirements of Section 184 of the ITA are fulfilled. Based on the above ruling of the AAR, it appears that where it is established that a foreign partnership is organised with the same basic features and characteristics as that of an Indian partnership, it should be permissible to assess such foreign partnership as a ‘firm’ under the provisions of the ITA. However, in this context it should be noted that any ruling of the AAR is binding on the revenue in the matter of a specific taxpayer only and cannot be treated as a generally binding precedent." From:: Cross Border Taxation of Partnerships

Also refer:: Workshop on Taxation of foreign remittances

Guest

Thanks For the reply. So in your opinion will the partnership (as partnership) be taxed in India? (With credit for tax paid in Canada)?

As per DTAA article 6 and 7 will be taxed exclusively in Canada?

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

196701 Points Joined July 2016

Well, to be verified with recent amendments if any........ but..........

" Article 3(d) of the India-Canada DTAA the definition of ‘person’ includes partnerships which are treated as taxable units under tax laws of a contracting State. Partnerships deriving its status as such from the law in force in a contracting State are also included in the definition of the term ‘national’ under Article 3(h) of that Treaty."........From attached doc. (the same article attached in link earlier, which is not opening).

From the above, it can be concluded that the firm is not taxable in India, if not controlled from any place in India.