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April 2013

Referral fees received by non-resident for referring international clients does not constitute FTS u/s. 9(i)(vii) of I T Act.

By Geeta Jani
Dhishat B. Mehta
Chartered Accountants
Reading Time 2 mins
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3. CLSA Ltd vs. ITO [2013] 31 taxmann.com 5  (Mumbai-Trib)
Section 9 r.w. S. 5 of I T Act
Asst Year: 2004-05
Decided on: 18th January 2013
Before P M Jagtap (AM) and D K Agarwal (JM)

Referral fees received by non-resident for referring international clients does not constitute FTS u/s. 9(i)(vii) of I T Act.


Facts

The taxpayer was a company incorporated in Hong Kong. It was a member of a group of companies having global presence. During the year, the Indian group company (“IndCo”) of the taxpayer had made certain payments to the taxpayer which were recorded by IndCo as recovery of overhead expenditure. IndCo had also withheld tax from the payments. The taxpayer contended that the payments were referral fees for referring overseas institutional clients to IndCo and hence, were not FTS in terms of section 9(1)(vii) of I-T Act. Consequently, they were not chargeable to tax. The issue before the Tribunal was: whether the referral fees constitute FTS in terms of section 9(1)(vii)?

Held

The Tribunal observed and held as follows. The Tribunal referred to Advance Ruling in Cushman and Wakefield (S) Pte Ltd., In re [2008] 305 ITR 208 (AAR) wherein, on similar facts, the AAR had held that the referral fees was not FTS1. Following the AAR ruling, the Tribunal held that the referral fees received by the taxpayer were not FTS u/s. 9(1)(vii) of I T Act.

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