Membership Fee and Contribution Received by IZA Belgium from the Indian members not Taxable in India: AAR [Read Order]

The New Delhi Bench of the Authority of Advance Rulings (AAR) in the application filed by International Zinc Association held that membership fee and contribution from members received by the applicant from the Indian members would not be liable to Income-tax in India under the provisions of the Income Tax Act, 1961 or the India-Belgium DTAA.

The Applicant was incorporated under the laws of Belgium, and registered as an International Non-Profit Association in Brussels. It is a tax resident of Belgium. The Applicant helps sustain long-term global demand for Zinc by creating awareness about the key end uses of Zinc. Its main programs are Sustainability & Environment, Technology & Market Development and Communications. The applicant has a Liaison Office (LO) in India, which plays an important role in educating the importance of zinc in fertilizers and in increasing the level of knowledge about Zinc deficiency and proper Zinc fertilization techniques. It also promotes Zinc as an agent to galvanize steel to increase the strength of steel.

The issues before the Authority are two-fold. The first one being the determination of whether the LO in India would be liable to Income Tax in India or under the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and Belgium. The second issue being: whether the membership fees and contribution from members received by applicant from Indian members would be liable to Income Tax in India under the Act or DTAA.

The Revenue contended that income derived by the applicant falls under section 28(iii) of the Act and is liable for taxation under the head “Profits and Gains of Business and Profession”. The services include Representation; Communication Materials; Websites; Conferences; Technical Expertise and Commercial listing. On the issue of Mutuality, the Revenue has submitted that applicant organized the International Zinc Galvanizing Conference in New Delhi, India in 2014 and collected the participation fees from participants. However, the RBI had granted the aforesaid approval subject to the condition that the statutory auditor of the LO certifies that such funds have been fully spent on meeting the expenses of the Conference and the LO did not make any profits from the same. With the receipt of outside subscription, the basic condition of common identity of contributors and participants has been violated by applicant and the mutuality principle is breached.

The Applicant states that the term ‘specific services’ is not defined in the Act. Further, the ‘specific services’ as contemplated under section 28(iii) of the Act would mean that the same would be available or would be rendered by the association for only a select number of members and would definitely not be available for all the members. The applicant further submitted that the collection of such participation fees /sponsorship fees cannot be held to have violated the doctrine of mutuality which is squarely applicable in the Applicant’s case.

The Authority after going through the rival contentions was of the opinion “that for a PE to come into existence, within the meaning of Article 5 of the said DTAA, in the first place there should be a fixed place of business through which the business of an enterprise is wholly or partly carried on. Once we hold that the Applicant works on the principle of mutuality and is not an enterprise set up for the purpose of doing business or earning profit, the question of any PE coming into existence does not arise.” Hence, membership fee and contribution from members received by the applicant from the Indian members would not be liable to Income-tax in India under the provisions of the Income-tax Act, 1961 or the India-Belgium DTAA.