Tax on consultancy rendered abroad

FOREIGN ENTERPRISES

Where a foreign consultant provides professional or technical service from outside India, a question arises whether the amount received by the consultant from the Indian concern is liable to be taxed in India. This issue was raised in Wallace Pharmaceuticals P Ltd 278 ITR 97.

In this case, an Indian company engaged in manufacture and sale of pharmaceutical products struck an agreement with a US-based company.

The foreign company provided research into business development practices and advised the Indian company's employees and consultants. It was contended that since the services were rendered outside India, the consultants were not liable to pay tax in India.

But the Authority for Advance Ruling observed that where the payment is made by a person resident in India, it will be considered deemed as income arising in India, irrespective of whether the recipient is a resident or not.

However, where the services are utilised in a business or profession carried on by such person outside India or for the purposes of earning any income from any source outside India, such income may not be taxed in India at all. The authority held that as the consultancy fee payable for services utilised is not in connection with a business or profession carried on by the applicant outside India or for the purposes of earning any income from any source outside India, the fee would be considered deemed income of the non-resident consultant in India.

On the same principle, when a non-resident is engaged in testing and analysis of samples abroad in his technical lab outside India, the income of the non-resident may still be liable for tax in India.

In another case (South West Mining Ltd 278 ITR 233), the owner of a Canadian lab entered into a contract with the owner of an Indian mine for testing samples in Canada. The material has to be sent to the consultant. The fees for the technical services and the lab are required to be paid in dollars in Canada.

However, the technical consultants will visit India for collecting samples etc, for which the Indian concern has to bear the expenses. On whether income of the Canadian lab-owner will be taxable in India or not, the authority held:

"From the above discussion, it follows that though the consultant carried on analysis and lab tests of samples collected in India and prepared the reports outside India, the fact remains that the services in the form of reports were utilised in India in the business of the applicant in India and also for earning income from source within India and therefore the services are rendered in India."

agar@bol.net.in