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TMI Blog2010 (3) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... ferral services from the Indian clients is liable to tax withholding under section 195 of the Income-tax Act, 1961 read with Double Taxation Avoidance Agreement between India and UK? Held that - If the payments received by the applicant are not in the nature of royalty or FTS then, they can be subjected to Indian income tax in terms of Art.7 of the Tax Treaty only if the income results from a business activity carried on through a permanent establishment situated in India. The term ‘permanent establishment’ (PE) has been defined in Art.5. On the facts stated by the applicant, it cannot be said that the applicant operates through a permanent establishment in India. Catering to the function of referring the potential Indian candidates to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by applicant from the third party in India. 2. Broadly, it is the contention of the applicant that the payments received in respect of these services are not chargeable to tax in India as it has no permanent establishment in India and moreover, as per the India-UK Tax treaty (DTAA), the provision relating to 'fees for technical services' is not attracted. Therefore, it is submitted that while making payments to the applicant, the Indian clients are not obliged under law to withhold the tax at source. 3. The following question has been framed for consideration at the time of admitting the application: Whether the payments received by the applicant for the proposed recruitment services and referral services from the Indian cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee for recruitment services from its Indian clients which were referred to the Indian based recruitment company by Real Resourcing." 6. The applicant has relied on the ruling of this Authority in Cushman Wakefield Ltd. [305 ITR 208] 7. In response to the additional information furnished by the applicant, the Commissioner has stated that as per the information downloaded from the internet, it appears that Real Resourcing Ltd. is having an office at Nehru Place, New Delhi which is indicative of the presence of the permanent establishment of the applicant in India. In reply thereto, the applicant has stated as follows: "We do have an address in New Delhi but this is basically a virtual office i.e., we rent the use of the address and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cl.(a) (c) of Art. 13.4, we do not think that they have any application. The contention that the applicant will be rendering consultancy services which are ancillary and subsidiary to the application of a right or information of the nature described in Paragraph 3(a) of Art.13 is untenable. The said paragraph contains the definition of royalty. It reads: "payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, any patent, trademark, design or model, plant, secret formula or process or for information concerning industrial, commercial or scientific experience." 10. Collecting data and analyzing it and making a data base for providing information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available." 11. We do not think that the criterion envisaged by Art.13.4(a) of DTAA has been satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, it emerges that the referral fee paid by the Indian company is not FTS as per the phraseology "make available" used in article 12(4)(b) of the Treaty." 13. If the payments received by the applicant are not in the nature of royalty or FTS then, they can be subjected to Indian income tax in terms of Art.7 of the Tax Treaty only if the income results from a business activity carried on through a permanent establishment situated in India. The term 'permanent establishment' (PE) has been defined in Art.5. On the facts stated by the applicant, it cannot be said that the applicant operates through a permanent establishment in India. Catering to the function of referring the potential Indian candidates to the Indian based recruitment company w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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