Not-for-profit Teaching Services by US-based Educational Institute in Collaboration with Indian Company Not Taxable in India: AAR
12th April 2016, Authority on Advance Ruling (AAR) in an application made by Regents of the University of USA California (UCLA) Anderson School of Management Executive Education (AAR No. 1656 of 2014) exempted teaching services provided by UCLA in a collaboration with Indian Company as per Article 12(5)(c) of the India USA Double Tax Avoidance Agreement (DTAA).
Regents is a non-profit public benefit corporation incorporated in the USA. Northwest Universal Education Private Limited (“Northwest”) is a private company incorporated in India. Both entered into a collaborative agreement wherein Northwest arranged to teach of management techniques (“Programmes”) by the professors of Regent for senior executives having a work experience of over 8 years which lasted between 4 to 12 days. The place was arranged by Northwest and payment from the beneficiary was also received solely by Northwest. Northwest merely paid Regents consideration for the teaching imparted during the Programmes. The AAR determined on the following questions
- Whether the consideration by Northwest to Regents constituted FIS as per Article 12 of the DTAA and hence subject to withholding under section 195 of the Income Tax Act (“ITA”)?
- Whether the sum paid for the teaching activities conducted by Regents in India was taxable under Article 7 of the DTAA since such activities constituted a PE of the applicant in India under Article 5 of the DTAA?
AAR, keeping in view, that the Applicant is registered as a non-profit entity in the US, lacking a profit motive and is involved in the conduct of educational activities, consideration paid to it for teaching activities cannot constitute business income. Further Article 12(5)(c) of the DTAA specifically excludes teaching from its ambit.
Regents did not have control over the arrangements of the program and Northwest had control over arrangements of the place of training therefore negating the argument of revenue, AAR held that activity by Regent did not constitute Permanent Establishment under Article 5.
Also, the applicant has not gained royalty as its programme was derived from Harvard Publishing University which is globally available, and hence no transfer of Intellectual Property has occurred.
Accordingly, AAR held that the income generated by UCLA was not taxable.
It is also pertinent to note that source-based taxation has a wide scope and many activities fall within its ambit. Generally, not-for-profit organizations are exempted from tax in their domestic states and subsequently get benefits under tax treaties between two nations.
Vaibhav Karadale | Research Intern | EduLegaL
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