Authority for Advance Ruling rejected an application to deliver ruling on the ground of non availability of clear picture

In a recent order, Sri Ramachandra Educational and Health Trust (SREHT), In re [2009 -TMI - 33617 - AUTHORITY FOR ADVANCE RULINGS]

DTAA with USA

Question before the AAR

"Whether, on the facts and circumstances of the case and having regard to the provisions of Article 12 para 5 of the Treaty for Avoidance of Double Taxation of Income and Prevention of Fiscal Evasion between India and the USA, the applicant is required to deduct tax at source U/s. 195 of the Annual Fees payable to Harvard Medical International, USA, especially when both the payer and payee are not liable to tax in their respective countries?

The case of the applicant is that, HMI will be practically rendering all the services to the applicant from USA. Being a non-resident, HMI is not liable to tax under section 9 of the Act in respect of the services rendered in USA.  It is also stated that HMI has no place of business in India.  The applicant also relies on article 12 of the agreement for avoidance of double taxation of income between India and USA ('DTAA').  According to the applicant, para 5(c) of article 12 of DTAA excludes the amounts paid for teaching in or by educational institutions from the purview of included services. According to the applicant its case falls within the purview of article 12. 5(c). To substantiate this proposition, the applicant refers to examples 10 and 11 given in the Memorandum of Understanding (MOU) appended to DTAA concerning fees for included services in article 12.  The applicant states that since HMI is not liable to pay tax in India, the question of deduction of tax at source does not arise.

Order:

11. From the facts made available by the applicant, a clear picture of the activity and payments does not emerge. We will, therefore, lay down some broad guidelines. So far as the activities of workshops and seminars are concerned, these are shown to be conducted from time to time.  The speakers are generally, but not always, from HMI. Medical teachers, professionals, etc., from different places come and participate in these events.  It is not known whether these workshops and seminars are connected to a particular course of study run by the medical college of the applicant and whether they are meant to benefit the students. These activities could be regarded as teaching in or by an educational institution as contemplated in paragraph 5(c) of article 12 if only there is participation of the faculty from HMI and some of the participants who benefit by it are pursuing medical courses in the applicant's institution and the seminar/workshop is substantially connected with the course of studies in the college. As regards tuition fees paid in respect of scholars sent to do some course in MIT, it is clearly covered by example 10 of the MOU. As such, it falls under paragraph 5(c) of article 12 and is excluded from the purview of 'fees for technical services'. Regarding teleconferencing and e-learning, as it appears to be part of teaching methodology, the payments made for them would qualify for exclusion under paragraph 5(c) of article 12. Similarly, the payment made to faculty members for teaching through teleconferencing and other modes of e-learning will also come under paragraph 5(c)of article 12. If the fee paid includes consideration for intellectual property, if any, made available to the applicant, the same is not covered by article 12.5(c). As the applicant makes lump sum payment for various services rendered by HMI, it is not possible for us to say what amount relates to which particular service.  On the whole, we would like to observe that the fee paid to HMI at least partly is relatable to the teaching in or by educational institution.

12. In the light of the above discussion, we cannot give ruling that the applicant is not at all liable to deduct any tax at source in respect of the payments made to HMI. It depends on further scrutiny by the appropriate authority in the light of observations made herein. The applicant may make an application to the assessing officer in terms of sub-section (2) of Section 195 of the Act for determination of the appropriate proportion of such payment which would be chargeable to tax. Upon such determination, the applicant shall deduct tax on that portion of the payment which is chargeable to tax.

See:

DTAA with USA

Sri Ramachandra Educational and Health Trust (SREHT), In re [2009 -TMI - 33617 - AUTHORITY FOR ADVANCE RULINGS]