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2010 (3) TMI 114 - AAR - Income TaxIncome from referral service - DTAA with UK - the nature of services to be provided by the applicant in India are stated to be two-fold; (i) recruitment services where the applicant would place a candidate with an Indian company and receives payment for providing such service from the Indian company; (ii) referral services where the applicant would refer potential Indian clients to a third party based in India (likely to be another Indian-based recruitment agency) for which the payment will be received by applicant from the third party in India. - Whether the payments received by the applicant for the proposed recruitment services and referral 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 the Indian based recruitment company without creating any commitment to recruit them does not, without anything more, give rise to an inference of PE. For rendering such services, a fixed place of business in India or dependent agent need not necessarily be there. The applicant has clarified that it has really no office or business place in New Delhi and that the address in New Delhi is basically a ‘virtual office’. Evidently, it means that the address and phone number is given so as to serve as a contact point and for some routine work of inconsequential nature. - the receipts in the nature of referral fee from the Indian based recruitment company cannot be subjected to tax as business profits in view of the provisions of the Treaty.
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