Foreign consultants' income to be taxed as biz profit

Income earned by foreign technical consultants for providing monitoring services to Indian entities will be taxed at higher rate as business profits, the Authority for Advance Ruling has said.

The ruling was given after Australia-based WorleyParsons Services filed an application asking whether the monitoring services provided by its Indian arm to Dehej-Vijaipur Gas Pipeline project of GAIL would be treated as royalty under the Double Tax Avoidance Agreement (DTAA) or business profit.

"The income from such receipts is liable to be taxed as business profits in India," the AAR said. While the royalties under the DTAA are taxed at 15 per cent on gross amount, the business profits attract a tax of more than 30 per cent on net amount.

Giving its ruling, the AAR held that as the receipts under the contract with GAIL, signed in July 2003, are not in nature of royalties, "income from such receipts are liable to be taxed as business profits in India".

The income earned could not be treated as royalty as the services provided by the foreign firm "does not amount to making available to GAIL the technical knowledge, experience etc which can be made use of by GAIL subsequently on its own", the authority explained.

Referring to the contract between the Australian company and GAIL, the AAR said that monitoring activities undertaken by the foreign company was not within the scope of the DTAA between Australia and India.

Under the contract, the Australian firm was acting as a project monitoring consultant and its scope of work included monitoring of detailed project schedule and providing fortnightly status report to GAIL.