Referral fee received by Cushman & Wakefield (S) Pte Ltd not taxable in India

Authority for Advance Rulings(Income Tax) vide a significant ruling AIT-2008-216-AAR has ruled that the referral fee received by Cushman & Wakefield, (S) Pte. Ltd. from Cushman & Wakefield India Pvt. Ltd., in terms of the referral agreement dated January 1, 2005 would not be taxable in India having regard to the provisions of the Income Tax Act and the provisions of the DTAA between India and Singapore either under the head business income, or royalty income or income by way of FTS.

Further, the referral fee received by Cushman & Wakefield(S) Pte. Ltd., from Cushman & Wakefield India Pvt. Ltd. in terms of the referral agreement dated January 1, 2005 is not liable for deduction of tax at source in the hands of the payer.

The applicant does not have a ‘business connection’ in India under the provisions of the Act.

The applicant does not have a Permanent Establishment in India in having regard to the provisions of the Double Taxation Avoidance Agreement between India and Singapore by virtue of its agreement with Cushman & Wakefield India Pvt. Ltd.

The applicant, a foreign company incorporated and based in Singapore, offers a full range of real estate services to its local and international clients.  Cushman & Wakefield India Pvt. Ltd.(in short, CWI) is, a wholly owned subsidiary of Cushman & Wakefield Mauritius, which, in turn, is a subsidiary of Cushman & Wakefield, Asia. The applicant is, as per averment, engaged in the business of rendering services in connection with acquisition, sales and dealings in real estate and other services such as advisory & research facilities management, project management etc. in the field of real estate. The applicant states that it has also developed certain international client relationships and in accordance with the global policy, various offices provide referral services to other Cushman and Wakefield (C&W) offices, wherein one C&W Office would refer client to other C&W office, depending on the requirements of the clients. In respect of such referrals, as per the applicant, each serving C&W Company is liable to pay a ‘referral fee’ to referring group company in accordance with the international fees sharing rules of C&W group. In consonance with this very general policy, the applicant entered into an agreement dated 1st January, 2005 with CWI, as per which, the applicant CWS shall refer/recommend the potential customers, desirous of obtaining real estate consultancy and associated services in India, to CWI.  As per the terms of the agreement, CWI will pay the applicant a percentage of amount charged by the applicant (CWS) on the referred customers as referral commission after it (CWI) has realized in full the amount from the customers. Further, withholding of tax on the referral commission paid, has to be deducted by CWI. As mentioned in the statement of facts, the applicant is neither involved in persuading the customers to avail services of CWI, nor in negotiating or collecting fees charged by CWI from the customers referred to by CWS. It has further been stated that they (CWS) simply refer the potential customers for real estate transactions and give some details (locations etc.) about the property in question.

The applicant sought rulings from the Authority on the following questions :-

i.        Whether the referral fee received by Cushman & Wakefield, (S) Pte. Ltd. (the applicant) from Cushman & Wakefield India Pvt. Ltd., in terms of the referral agreement dated January 1, 2005 is liable to be taxed in India in accordance with the provisions of the Income-tax Act, 1961 (‘the Act’) read with Double Taxation Avoidance Agreement between India and Singapore?

ii.       Whether the referral fee received by Cushman & Wakefield(S) Pte. Ltd., from Cushman & Wakefield India Pvt. Ltd. in terms of the referral agreement dated January 1, 2005 is liable for deduction of tax at source in the hands of the payer?

iii.       Whether the applicant can be said to have a business connection in India under the provisions of section 9(1)(i) of the Indian Income-tax Act (‘Act’) by virtue of its agreement with Cushman & Wakefield India Pvt. Ltd.?

iv.      If the answer to question (iii) above is in the affirmative, whether the whole or any part (if yes what proportion) of referral fee could be attributed to India in terms of explanation to Section 9(1)(i) of the Act and would constitute income accruing or arising in India?

v.       If the referral fee is held to be taxable, whether the same can be classified as Royalty under section 9(1)(vi), fee for technical services under section 9(1)(vii), or “income from business or profession” under the Act read with the Double Taxation Avoidance Agreement between India and Singapore and what is the rate of tax applicable?

vi.      Whether the applicant can be said to have a Permanent Establishment in India in having regard to the provisions of the Double Taxation Avoidance Agreement between India and Singapore by virtue of its agreement with Cushman & Wakefield India Pvt. Ltd.?

vii.      If the answer to 6 above is in affirmative, whether the whole or any part thereof (if so what part) can be attributed to the Permanent Establishment?

(Click here for full text of Ruling AIT-2008-216-AAR )

(Source Allindiantaxes)

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