The fee paid by an Indian company for technical services of a foreign company will not be taxed in India under the India Singapore Tax Treaty. The Authority of Advance Ruling (AAR) has held that advisory services such as comments and suggestions do not fall within the definition of the term ‘Fee for Technical Services’ under Article 12 of the treaty.
AAR, deciding on the case of payment made by Bharti AXA General Insurance to AXA Asia Regional Centre Pvt Ltd (ARC) of Singapore for consultancy and IT support services, said the payment did not amount to ‘fee for technical service’ and ‘royalty’. It said since AXA ARC did not have a permanent establishment in India, the payment could not be taxed as business profits under the treaty.
“The payments made to AXA ARC by Bharti AXA would not be subject to tax withholding under Section 195 of the Income Tax Act,” the Authority ruled.
The revenue department had argued that AXA ARC provided technical services on the basis of the provisions of the Article 12 of the treaty and fees received for such services are taxable in India attracting withholding tax provisions. It said Bharti AXA utilised the technology provided to it by AXA ARC and thus the life insurer could act independently to develop its own business.
Bharti AXA, on its part, said the services were merely advisory in nature and procured with the intention of carrying out business in line with the best practices followed by other AXA group entities globally.
AAR said the services rendered by AXA ARC could be brought under the definition of ‘Fee for Technical Services’ under the I-T Act, but in order to be taxed in India the services should fall within the purview of the definition under the treaty and “make available technical knowledge, experience, skills, know-how” which facilitates the Indian company apply the technology embedded in its own business.
“The ruling would be helpful to those foreign companies who render services to Indian companies but does not qualify ‘make available’. Even if one was to say that the services rendered ‘make available’ the technical knowledge, one needs to examine how the recipient of services can apply the technology to his business,” said Pranay Bhatia, associate partner, Economic Law Practice.
AAR relied on the recent decisions on Intertek Testing Services India Private Ltd and Ernst & Young Pvt Ltd to conclude that the services provided by AXA ARC could not be taxed in India.