Fees received on assignment of contractual rights not taxable: Authority of Advance Ruling

A recent ruling of the Authority of Advance Ruling (AAR) [2010-TIOL-06- ARA-IT] in the case of M/s Laird Technologies India Pvt. Ltd. (Applicant) on the issue of tax ability of fees received by a US company (US Co) for assigning contractual rights to the Applicant to supply products in India.

The AAR held that the fee received by US Co from the Applicant is in the nature of business profits of US Co and the same is not taxable in India in the absence of US Co constituting a permanent establishment (PE) in India under the India-US tax treaty (Tax Treaty). Further, the Applicant is not required to withhold taxes under the Indian Tax Law (ITL) while making remittance to US Co as it has not derived any income chargeable to tax in India.

Background and facts of the case

• The Applicant, a company incorporated in India, is engaged in the business of designing and manufacturing antenna and battery packs for the mobile phone industry. The Applicant is a group company of a UK company, the ultimate parent company, which is a leading international supplier of custom-designed electronic components and solutions to the global electronic industry. The Applicant is UK company’s first manufacturing facility in India.

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