Referral fee not taxable in India under Income-tax Act or DTAA

M/s Cushman & Wakefield (S) Pte. Ltd.

M/s Cushman & Wakefield (S) Pte. Ltd. - [2008] 305 ITR 208 (AAR) Issues Involved:
1. Taxability of referral fee under the Income-tax Act, 1961 and Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
2. Requirement of tax deduction at source on the referral fee.
3. Existence of a business connection in India under section 9(1)(i) of the Act.
4. Attribution of income to India if a business connection exists.
5. Classification of referral fee as royalty, fees for technical services (FTS), or business income.
6. Existence of a Permanent Establishment (PE) in India under the DTAA.
7. Attribution of income to the PE if it exists.

Issue-wise Detailed Analysis:

1. Taxability of Referral Fee:
The referral fee received by the applicant from Cushman & Wakefield India Pvt. Ltd. (CWI) is neither received nor deemed to be received in India. The fee is received in Singapore, and no activity except making a referral from Singapore to CWI is conducted in India. Therefore, it does not accrue or arise in India under section 5 of the Act. Section 9(1)(i) of the Act, which deals with income deemed to accrue or arise in India, requires a 'business connection' in India. The applicant does not have any business activities in India, and there is no real and intimate relation between the trading activities carried on outside India and the activities in India. Thus, there is no 'business connection' under section 9(1)(i) of the Act.

2. Requirement of Tax Deduction at Source:
Under section 195 of the Act, tax deduction at source is required only if the sum is chargeable under the provisions of the Act. Since the referral fee is not chargeable to tax under the Act or the DTAA, section 195 is not attracted, and no tax deduction at source is required.

3. Existence of a Business Connection in India:
The applicant does not have a business connection in India under section 9(1)(i) of the Act. The referral made from Singapore does not establish a business connection, as there is no continuity of business activities in India contributing to the income of the applicant.

4. Attribution of Income to India:
Since there is no business connection in India, the question of attributing any part of the referral fee to India does not arise. Therefore, this issue is academic and requires no ruling.

5. Classification of Referral Fee:
The referral fee is not classified as royalty under section 9(1)(vi) of the Act, as it does not involve imparting of any information concerning technical, industrial, commercial, or scientific knowledge, experience, or skill. It is also not classified as FTS under section 9(1)(vii) read with Article 12(4)(b) of the DTAA, as no technical knowledge, experience, skill, know-how, or processes are made available to CWI. The referral fee is considered business income, taxable in Singapore only, as there is no PE in India.

6. Existence of a Permanent Establishment in India:
The applicant does not have a PE in India under the DTAA. The referral activity conducted from Singapore does not establish a fixed place of business or any other form of PE in India.

7. Attribution of Income to the PE:
Since there is no PE in India, the question of attributing any part of the referral fee to the PE does not arise. Therefore, this issue requires no ruling.

Rulings:
1. The referral fee is not taxable in India under the Act or the DTAA.
2. No tax deduction at source is required under section 195 of the Act.
3. The applicant does not have a business connection in India.
4. No ruling required as there is no business connection.
5. No ruling required as the referral fee is not taxable.
6. The applicant does not have a PE in India.
7. No ruling required as there is no PE.

Conclusion:
The referral fee received by the applicant is not taxable in India, and no tax deduction at source is required. The applicant does not have a business connection or a PE in India. The referral fee is classified as business income taxable in Singapore only.