Foreign varsity's consultancy income not taxable in India: AAR

The income foreign universities earn by providing consultancy services to industry chambers or other non-profit organisations in India is not taxable, a tax authority ruled.

"UT(IC2) (a wing of University of Texas) is not liable to pay income tax in respect of the payments received by it from Ficci as per the Agreement entered into between Ficci and the University of Texas," the Authority of Advance Ruling (AAR) said.

This means industry body Ficci is not required to deduct tax at source while making payments to the University of Texas for the consultancy services the university provided to it.

Ficci had sought the ruling of the AAR to know the tax liability of the university and the amount of tax which the chamber had to deduct while making payments to the foreign university.

The industry chamber had entered into an agreement with a wing of the University of Texas for certain work and services to complete a Defence Research and Development Organisation (DRDO) project.

Ficci is assisting DRDO laboratories in identification and business development of competitive global technologies from its inventory of existing defence-related innovations.

The authority pointed out that the payment made in this respect by FICCI to the University of Texas cannot be treated as fee for technical services, which are taxable under the Income Tax Act, 1961.

"They cannot be subjected to tax as business profits in view of the undisputed and undeniable fact that Texas University has no permanent establishment (PE) in India and the services were not carried out through a PE in India," the AAR ruling said.

FICCI, a leading industry chamber is a non-profit company registered under the Companies Act, 1956 and its income is not taxable in India while the University of Texas has been granted exemption from tax under the provisions of Internal Revenue Code (IRC).

Although the AAR decision is binding only on the applicant seeking an order on a tax query, it does set a persuasive precedence for similar cases.