Income Tax, Issue Update

Taxability of ‘Referral fees’ received by the taxpayer from the Indian company: Fees for technical services vs attribution of referral fees to Permanent Establishment in India

Case: Edenred Pvt Ltd vs. CIT, Mumbai ITAT

Outcome: Assessee


  • During the year under consideration, the Assessee (an Indian company) had received fees for referral services/ other services of Rs.39.94 lakhs from SurfGold, Singapore.
  • The Assessing Officer was of the view that the referral services were in the nature of Fees for Technical services as per the Income Tax Act, 1961 and India- Singapore tax treaty.
  • The Assessee contended that the referral services were provided only to support SurfGold in carrying on business and additionally, these services did not make available any technical knowledge, skill, know-how or processes to SurfGold.
  • However, the Assessing Officer rejected the claim of the Assessee and treated referral fees to be in the nature of Fees for Technical Services.

Key points

  • As per the India-Singapore tax treaty, the services in the nature of managerial, technical or consultancy nature are taxable as Fees for Technical Services, if such services are ‘made available’ to the service recipient.
  • In the present facts of the case, the referral services were provided to support Surf Gold in carrying on its business. These services did not make available any technical knowledge, skill, know-how or processes to SurfGold because there was no transmission of the technical knowledge, experience, skill etc. from the Assessee to SurfGold or its clients.
  • Further, reliance was placed on the decision in the case of Knight Frant (India) Pvt. Ltd. wherein it was held that (i) where referral fees was received by foreign concern for introducing clients to Assessee-Indian company, providing international real estate advisory and management services, since referral services were rendered entirely outside India, it would not fall within the scope of ‘total income’ of said foreign concern as per section 5(2) and (ii) referral fees paid by Assessee-Indian company for availing referral services which were rendered by foreign concern entirely in USA would constitute business profits of foreign company under Article 7 of the India-USA DTAA; in absence of Permanent Establishment in India, it was not taxable in India.
  • Therefore, applying the same to the facts of the present case the referral agreement was not taxable in the hands of the Assessee as Fees for Technical Services under the India-Singapore tax treaty. Hence, the addition of Rs.39.94 lakhs made by the Assessing Officer towards referral fees was deleted.

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