Income from professional services receipts liable to tax as business profits

NEW DELHI. Authority for Advance Rulings (Income Tax) vide a significant ruling AIT-2008-151-AAR has ruled that receipts under the contract with GAIL are not in the nature of royalties as defined in Article 12 of the DTAA between India and Australia.

The income from such receipts are liable to be taxed as business profits in India in view of Article 7 of DTAA and only the profits attributable to the permanent establishment in  India are liable to be taxed as per the provisions of Income Tax Act, 1961

                The applicant is a company incorporated in Australia and a ‘tax resident’ of Australia. The applicant which is in the business of providing professional services such as engineering, procurements and project management, entered into a contract with GAIL.

The applicant raised the issues as under:

  • whether the receipts from the contract entered into with GAIL are in the nature of ‘royalties’ as defined in Article 12 of the DTAA between India and Australia. ?
  • If the answer to the first question is in the negative, whether such receipts are to be treated as business profits under Article 7 of the DTAA liable to be taxed in India and if so, to what extent?

(Source: Allindiantaxes)

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