Remittance of Examination Fees outside India - Not taxable in India and no TDS is liable to be deducted "

Relevant provisions

Income Act, 1961	DTAA with USA
Section 5	Article 1
Section 190	Article 4
Section 195	Article 5
	Article 7

Facts of the case:

M/s KnoWerX Education (India) Private Limited, states in its application that it is engaged in promoting professional examinations/certification programmes of foreign institutes, societies, professional bodies, etc., of international repute, which do not have any establishment of their own in India.  In the course of this activity, the applicant has signed an agreement with the American Production and Inventory Control Society, Inc. (APICS) which is a non-profit making body, and offers three certification programmes, namely, CPIM, CIRM and CSCP.  The applicant is in the process of signing another agreement with the American Society of Transportation and Logistics Inc. (AST&L) which is also a non-profit making body and offers its own certification programme known as CTL programme.   The applicant intends to sign similar agreements in future with other foreign entities.  Apart from this, the applicant carries on other activities as well, such as, corporate training, open public training, management consultancy, publishing and trading in educational material, etc.  So far as promotion of professional examination/certification programmes of foreign entities is concerned, the applicant will act as their agent; it will collect registration forms and fees from the individuals in India, who wish to register themselves for the examination; and pass them on to the foreign entity after deducting its administrative cost and commission.  The foreign entity will conduct examinations either through the applicant or through other entities in India.  The evaluation of answer sheets and award of certificates will be done by those foreign entities and they will send certificates to the applicant for local distribution to the successful candidates.

Questions reframed and answered by the AAR

Q.1 (a) Whether the examination fee collected by the applicant on behalf of two professional organizations in USA, namely, APICS and AST&L and remitted to those two organizations is liable to be treated as the 'income' of the said entities liable to be taxed in India?

(b) If the answer is in affirmative, how that income has to be classified - such as business income, income from royalty, technical services?

 Q.2 Whether the applicant has a legal obligation to deduct tax at source in relation thereto under the relevant provisions of Income-tax Act, 1961 and if so at what rate?

Ruling:

1. The applicant thus cannot be regarded as a dependent agent of APICS or AST&L.

2.  The applicant cannot be deemed to be a permanent establishment of APICS and /or AST&L in India.

3. No tax is attracted on payment of examination fees being made to APICS & AST&L by virtue of paragraph 1 of article 7 of the DTAA.

4. No deduction of taxes need be made from such payments.  

(For full text of ruling - visit 2008 -TMI - 3823 - AUTHORITY FOR ADVANCE RULINGS)

Taxability of foreign examination fees: payments to foreign certifying bodies not taxable in India and no TDS required. The applicant acts as an agent collecting examination fees, is not a dependent agent or a permanent establishment of the foreign bodies, and remittances to those foreign certifying bodies do not attract tax in India; no tax need be deducted at source on such payments.