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Foreign consultants' income taxable at lower rate of 15%
December, 04th 2008
Foreign consultancy firms can breathe easy on their tax liability in India with a tribunal ruling that their income falls in the category of "fees for included services" and is taxable at a rate of 15%, lower than a 20% rate claimed by tax authorities. "The payment received by assessee is in the nature of 'fees for included services' and hence, to be taxed as such at the rate (15%)," said the Delhi bench of Income Tax Appellate Tribunal (ITAT) recently, giving an order in case of Canadian consultant SNC Lavalin. Fee for included services is a payment received by a firm for the technical and consultancy services rendered by it. SNC Lavalin, a Canadian company engaged in providing consultancy for infrastructure projects had executed two contracts with National Highway Authority of India (NHAI) to provide technical services for upgradation of two national highways. The bone of contention between the tax authorities and the company was the rate of tax applicable on the fees received by the company from NHAI. While SNC said that the income was "fees for included services" and taxable at the rate of 15% as per the Double Taxation Avoidance Agreement between India and Canada, the tax department's assessing officer held that the income was "fees for technical services" and should be taxed at a higher rate of 20%. However, the tax department argued that the "assessee's (SNC Lavalin) case is not covered as "fees for included services" as the technical design for widening and rehabilitation of the two national highway improvement projects, provided by SNC to NHAI, would be considered as a product and not a technology.
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