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Offering services to non-profits not in tax net
December, 28th 2009

Foreign universities providing consultancy services to business chambers or other non-profit organisation are not liable to pay tax in India, the Authority for Advance Rulings (AAR) has said.

The ruling make business with the Indian non-profit sector more attractive for the foreign universities.

In a recent ruling involving a wing of the University of Texas, the AAR has said the university is not liable to pay income tax in respect of the payments received by it from Ficci, a prominent industry body.

Ficci had sought direction from AAR over the tax liability of the university and the amount of tax which the chamber had to deduct while making payments.

AAR is a quasi-judicial body, set up to give opinion to guide companies on their potential tax liabilities. AAR's rulings are case-specific, but they have a persuasive impact on tax assessment cases of similar circumstances.

The AAR ruling means that FICCI is not required to deduct tax at source while making payments to the University of Texas for its consultancy services.

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.

The project involved identification and business development of competitive global technologies from DRDO's 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," AAR 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).

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