New Delhi, July 03: Foreign telecom firms operating
without a permanent establishment in India are no more
required to pay any tax on income from carrying international
calls and data services in pacts with domestic operators.
Giving a ruling on an application from Cable & Wireless
Networks India which proposed to enter a pact with the UK arm
of the same parent company, the Authority for Advance Ruling
(AAR) said, "in the absence of there being any permanent
establishment of C&W UK In India, this income is not at all
taxable here."
Cable and Wireless UK would earn an income from
carrying those calls and data carried by the Indian arm within
the country to recipients abroad. This income, according to
the AAR, is not taxable in India.
"Since this income is not chargeable to tax under the
(income tax) Act, there is no question of making any deduction
at source," said the ruling.
Cable and Wireless Networks India has sought AAR's
ruling before starting the business on the issues of
taxability of the income earned by the foreign firm.
The Indian firms are responsible to deduct a tax
at source for the payments made to a foreign firm. The Indian
company had asked if the income earned by the UK firm will be
taxable as royalty or fees for technical services.
The AAR ruling brings good news to those foreign telecom
firms which have plans to enter into similar pacts with Indian
companies.
The ruling from AAR is binding only on those who seek
it a judgments on taxation matters relating to foreign firms'
income but it sets a persuasive precedent for other firms
engaging in similar activities.
While ruling in favour of the foreign firm AAR said that
the Indian company has said there would be no personal staff
deputed by the company in India so that would also not lead to
setting an establishment like technical staff in India.
Under the proposed contract between the two companies,
network and equipment of C&W UK will not be used in India and
that of Indian company not used outside India.
In telecom parlance, domestic half circuit will be
provided by the Indian firm and international half circuit
will be provided by C&W UK for which it will receive a fee.
Bureau Report
First Published: Friday, July 03, 2009, 15:09