Wednesday, April 18, 2012

Tax breather for foreign varsities in distance learning courses

The Delhi bench of the Income-tax Appellate Tribunal (ITAT) has held that payment received by a foreign university for offering distance educational courses in India is not taxable. In the case of Hughes Escorts Communication Ltd (HECL), the taxpayer, the tribunal in March rejected the income-tax department's contention that the income received by a foreign university under affiliate agreement to provide distance education is in the nature of royalty and, therefore, liable for taxation at the rate of 15% under the provisions of the tax treaty between India and the US.

HECL has an agreement with Tower Innovative Learning Solutions (TILS) Inc USA, a wholly owned subsidiary of eCornell University, to market, promote and provide ancillary services in connection with the distance learning courses offered by the university in India. HECL assists in registering students for eCornell and in collection of fees for its course content.

The ITAT held that in order to consider a payment as royalty, the transaction should have been in the nature of transfer of any right, title, copyright, patent, trade mark, service mark, trade secret and other intellectual property or proprietary rights, which was not the case in the transaction under consideration.

The tribunal said the role of the Indian company was confined to registering students and providing infrastructure for accessing the course material offered by the foreign university. HECL collects Rs. 165,000 per student, of which $2,100 is remitted to eCornell for the course content and $350 as registration charges.

Source: The Economic Times, April 18, 2012

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