Foreign firm's royalty income taxable in India, rules AAR

NEW DELHI: Royalty income of foreign firms in India accruing on account of providing services to domestic firms is taxable here in full as royalty if the firm does not have a permanent establishment here, said a ruling by the Authority for Advance Ruling.
Giving ruling in case of Australia-based Worley Parsons Services Pty Ltd, the Authority said, "Services rendered and the work undertaken by the applicant (Worley Parsons) in terms of the Agreement for Basic Engineering and Procurement Services fall within the scope of 'royalties'...and the receipts are taxable in India."

The Australian firm, providing professional services to the energy and resource industries, had contracts with Reliance Petroleum to provide engineering services.

The firm had sought a ruling by AAR on the taxability of its royalty income in India. Worley had asked whether the income would be taxable in India and if yes, at what rate.

The Australian firm had contended that the receipts, which are attributable to the Permanent Establishment (PE) of the company in India should only be taxed as business income.

However, giving the ruling, AAR said that only a part of the income of Worley Parsons would be taxable at the rate of 15 per cent as royalty income, as for that part of the service the company had failed to provide proof of having a PE in India.