Monday, July 21, 2008

'The AAR ruling is binding only on the taxpayer and the Revenue authorities'

A favourable ruling on referral fee

Sometimes having something permanent can be a drawback. The Authority for Advance Rulings (AAR) in a recent ruling held that where a non-resident company had referred a potential customer to its Indian group company and received referral fees, the fees received being business income, would be liable to tax in India - only if it has a permanent establishment (PE) in India.
This means the absence of a PE may work out in an entity's (in this case Cushman & Wakefield Pte - CWS) favour as it doesn't have a permanent shop in the country. Says Mr Girish Mistry, Executive Director, PricewaterhouseCoopers Pvt Ltd, "The AAR ruled that referral fee was not royalty or fees for technical services and was not taxable in India as business income since CWS did not have a PE in India. Under the tax treaty provisions a non-resident's business income would be taxable in India only when it has PE in India."


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