foriegn taxation

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sandeep (Querist)
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27 November 2009 MY CLIENT IS NRI. HE IS IN ONLINE BUSINESS OF BOOKS AND CD.HIS INDIAN RESIDENT BROTHER EXCLUSIVELY WORKING FOR HIM TO SECURE ORDER, AND ATTENDING NRI CLIENT THROUGH INTERNET FROM INDIA. MY CLIENT PAID HIM SOME RESONABLE CONSIDERATION FOR HIS SERVICES. WHAT WILL BE THE INCOME TAX AND SERVICE TAX LIABILITY OF MY CLIENT AND HIS INDIAN RESIDENT BROTHER ?

Sunil

Sunil (Expert)
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27 November 2009 As no sale is being done in India there will be no income accruing to him in India.

The Resident Indian Brother is a DAPE of the NRI in India and is responsible for compliance and discharge of tax liability of the NRIs business done through him. The service he is giving his brother is a Business Auxiliary Service and liable for service tax. Exemption is there upto 10.00 lakhs receipt in a year. However, no service tax is payable if it qualifies as export of service. To qualify as export the payment should be received in convertible foreign exchange.

As far as income tax is concerned, the nri brother should pay an arms length consideration for the service. In case the consideration is less than arms length, then the difference will be taxed as the income of the nri accrued in India for which the resident Indian brother is liable to discharge the tax liability as agent of the NRI (u/s 163). This is in addition to his own tax liability on his income for his services. The DAPE and the Resident brother are two separate Tax units.

Moreover, in case there is any sales in India through the Resident brother, as per recent tribunal case in Mumbai in Sony Entertainment Case, the profit is still further taxable in India even if arms length consideration has been paid to agent for his services. Per section 163 agent is responsible to discharge the liability for the non resident.