RBI moves to protect customers against online fraud

Q: A company based in the UAE proposes to enter into an agreement with an Indian company whereby the UAE company would provide confidential information and other services in India. The Indian company will pay fees for obtaining the confidential information and for the services which will be provided by the UAE company. The Indian company will be involved in a project for which the UAE company will provide such services. I want to know whether the UAE company will be liable to pay tax in India on the fees which it earns.
- S D'Costa, Abu Dhabi
A: It will be necessary to see the actual terms of the agreement for ascertaining whether any tax liability arises in India. Recently, the Bengaluru Bench of the Income-tax Appellate Tribunal has taken the view that even if a foreign company does not have an office in India and there is no physical presence of its employees in India, a Service Permanent Establishment would be deemed to exist in India. According to the Bench, information and consultancy services can be provided through internet, video conferencing, remote monitoring and, therefore, a Service PE does not require a fixed place of business in India.
The bench also took the view that the fees paid for these services fall within the definition of 'royalty' under Article 12(3) of the Indo-UAE Tax Treaty, whereby information concerning industrial, commercial and scientific expertise is covered. Therefore, if the UAE company takes the stand that the fees earned by it from the Indian company are not taxable in India, there would undoubtedly be litigation with the tax department which will not accept this stand and levy tax on the UAE company. Litigation is, therefore, inevitable if the Indian company does not pay tax when it remits the fees to the UAE company.
Q: The Indian stock market has recorded impressive gains in the past few weeks. However, the manufacturing sector has been sluggish. What is the reason for this unprecedented optimism shown by investors?
- T.P Sajnani, Dubai
A: The prospects of a good monsoon in the current year is one of the factors which has enthused confidence among investors. It is expected that agriculturists will have a good income which will spur demand for goods and services as more purchasing power will be with the rural masses. Further, the Nikkei Purchasing Managers' Index has risen dramatically for the month of June. According to this survey, the PMI index has risen to 53.1 in June.
There has also been inflow of new businesses and employment has risen across most sectors. The Finance Ministry expects the GDP to grow by 7.5 per cent during the current financial year 2017-18. Introduction of the Goods & Services Tax will give a boost to economic activity as is reflected from the fact that goods are now freely moving throughout India without the bottleneck of paying octroi and other entry taxes. Further, the cascading effect of tax on tax which has been eliminated is expected to give a substantial boost to industrial activity.
Q: Credit card frauds have been rising all over the world. Are any measures being taken by the Indian authorities to counter unauthorised transactions by those who have fraudulently secured unauthorised data?
- K L Chugh, Bahrain
A: The Reserve Bank of India (RBI) has recently come up with guidelines to protect the interest of persons who have been defrauded. All credit card and debit card transactions get reported to the concerned customer by alerts through SMS and e-mails. As soon as a transaction is undertaken in India by a customer using his debit/credit card, he is alerted by a SMS message. If the customer finds that his debit/credit card has been misused for an unauthorised transaction, he is required to report the same to the credit card issuing authority or to the bank within three days of such transaction being undertaken. In such a case, the customer's account will be credited within ten days.
However, the RBI has stated that if the unauthorised transaction is reported to the bank after three days, but between the fourth and seventh day, the card holder will have to bear the liability which will not exceed 25,000 rupees. However, if the fraud is reported after seven days, the customer's liability will be determined as per the approved policy of the board of directors of the bank. The cardholder will be liable for any loss if it is found that such loss was caused by his own negligence. The RBI has, therefore, advised that under no circumstances should customers disclose their PIN to a shopkeeper or at a restaurant while using their card. Further, the card should be swiped in the presence of the customer and the PIN should be entered in a manner which would not reveal the same.
 
The writer is a practising lawyer specialising in tax and exchange management laws of India.
 

• India