No tax on the examination fees collected for non-resident

AIT News Network

NEW DELHI. Authority for Advance Rulings(Income-Tax) vide AIT-2008-152-AAR has ruled that  the examination fee collected by the applicant on behalf of two professional organizations in USA, namely, APICS and AST&L and remitted to those two organizations is not to be treated as the ‘income’ of the said entities liable to be taxed in India. The applicant is not required to either deduct any income-tax or to pay any such tax on the examination fees collected by it for APICS and AST&L and remitted to them as the same is not taxable in India.

                M/s KnoWerX Education (India) Private Limited, is engaged in promoting professional examinations/certification programmes of foreign institutes, societies, professional bodies, etc., of international repute, which do not have any establishment of their own in India.  In the course of this activity, the applicant has signed an agreement with the American Production and Inventory Control Society, Inc. (APICS) which is a non-profit making body, and offers three certification programmes, namely, CPIM, CIRM and CSCP.  The applicant is in the process of signing another agreement with the American Society of Transportation and Logistics Inc. (AST&L) which is also a non-profit making body and offers its own certification programme known as CTL programme.  Apart from this, the applicant carries on other activities as well, such as, corporate training, open public training, management consultancy, publishing and  trading in educational material, etc.  So far as promotion of professional examination/certification programmes of foreign entities is concerned, the applicant will act as their agent; it will collect registration forms and fees from the individuals in India, who wish to register themselves for the examination; and pass them on to the foreign entity after deducting its administrative cost and commission.  The foreign entity will conduct examinations either through the applicant or through other entities in India.  The evaluation of answer sheets and award of certificates will be done by those foreign entities and they will send certificates to the applicant for local distribution to the successful candidates.  In the light of above mentioned facts, the applicant sought advance ruling of this Authority in respect of APICS and AST&L on the following questions:-

Q.1          a) Whether the examination fee collected by the applicant on behalf of two professional organizations in USA, namely, APICS and AST&L and remitted to those two organizations is liable to be treated as the ‘income’ of the said entities liable to be taxed in India?

b) If the answer is in affirmative, how that income has to be classified – such as business income, income from  royalty, technical services?

Q.2          Whether the applicant has a legal obligation to deduct tax at source in relation thereto under the relevant provisions of Income-tax Act, 1961 and if so at what rate?

                Authority observed that the applicant is not a part of APICS.  It does not conclude any contracts on behalf of APICS.  The acceptance of candidature of an individual for a certification examination is solely done by APICS.  The applicant does not maintain stock of goods or merchandise belonging to APICS, it does not secure orders wholly or almost wholly for APICS and it does not in any way bind APICS in the conduct of latter’s examination programme in India.  Similar will be the position in respect of AST&L. The applicant thus cannot be regarded as a dependent agent of APICS or AST&L under paragraph 4 of article 5. It is seen that the applicant enjoys an independent status.  As stated by the applicant, there is no financial, managerial or any other type of participation between it and APICS.   It carries on a variety of activities as noted above, besides promoting examinations of APICS and AST&L.  So far as promotion of examination is concerned, it has engaged itself into business relationship with APICS, is in the process of forging such relationship with AST&L, and is open to having such relationship with other foreign entities.  Thus, in respect of this activity too, the applicant is not wholly or substantially devoted to APICS and AST&L only.  The applicant appears to carry on the work of examination promoter in the ordinary course of its business.   The applicant is not subject to any control of APICS with regard to the manner in which it shall carry out its activities with regard to promotion of the certificate examination.  We are thus of the view that in terms of paragraph 5 of article 5 the applicant cannot be deemed to be a permanent establishment of APICS and /or AST&L in India.

(Click here for Full Text of Ruling)

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