AAR Ruling: Referral fee received from an Indian based recruitment agency by a non-resident is not liable to tax in India in view of the provisions of India-UK Double Taxation Avoidance Agreement [Real Resourcing Limited (AAR No. 828 of 2009)].
Facts:
Real Resourcing Limited (applicant), a company incorporated in United Kingdom (UK), was a tax resident of UK. The applicant proposed to render the following services in India:
- Recruitment services where the applicant would place a candidate with an Indian company;
- Referral services where the applicant would refer potential Indian clients to third parties based in India (likely to be another Indian-based recruitment agency);
For the said services, applicant would receive payment for providing such services.
Questions before the Authority for Advance Rulings (AAR):
Whether payment to be received by the applicant for the proposed recruitment and referral services from an India client are liable to withholding tax under section 195 of the Income Tax Act read with India-UK Double Taxation Avoidance Agreement (DTAA).
Contention of the Applicant:
- Payments received will not be chargeable to tax as there is no permanent establishment (PE) of the applicant in India;
- The address information available on the web-site of the applicant is a virtual office i.e. applicant has rent the use of address and telephone address for the purpose of communication but does not have actual office space in India and therefore, there is no PE of the applicant in India;
- Further, provisions relating to fees for technical services (FTS) as per the DTAA are not attracted. Therefore, while making the payments to the applicant, the Indian clients are not obliged to withhold tax at source.
- Reliance has been placed on Cushman & Wake field Ltd (305 ITR 208).
Contention of the Revenue:
