Whether the Hongkong company will be liable to pay tax in India?

Published: Mon 23 Apr 2012, 9:50 PM

Last updated: Tue 7 Apr 2015, 12:00 PM

We have a company based in Hongkong.This company proposes to enter into an agreement with an Indian company whereby the latter will be given advice and information pertaining to business proposals and other business support services. The Indian company will be paying a fee to the Hongkong company. I want to know whether the Hongkong company will be liable to pay tax in India.

It has been held in a few cases that services like management support, development, communication and audit of standards of performance are in the nature of general business support services. In a recent case, the Authority for Advance Rulings has held that the fees payable for such services by the Indian company would not be in the nature of royalty. However, such fees would be liable to tax as fees for technical services. Hence, the amount would constitute income in the hands of the foreign company because the services are rendered in India.

The Indian company would, therefore, be under an obligation to withhold tax under section 195 of the Income-tax Act while paying the amount to the foreign company. Any advice tendered which is commercial in nature tantamounts to a technical or consultancy service.

Such income is taxable both under the Income-tax Act and under the provisions of the double tax avoidance agreements which India has entered into with several countries of the world.

Therefore, the Hongkong company would be liable to pay tax in India and it would receive its consultancy fees only after the tax is deducted at source by the Indian company.

By G V Kumar Dubai

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