The State government paying our consultancy fee is deducting tax at 42.85 per cent when the India-UK treaty caps technical fees at 15 per cent, and it - not we - has already gone to the Assessing Officer under s.195(2). Can we still get an advance ruling on the rate?
Yes on maintainability, and yes on the rate. The Authority held the application maintainable because the s.195(2) reference had been made by the Government of Orissa as payer, not by the applicant, so nothing was pending in the applicant's own case within clause (a) of the proviso to s.245R(2). On the substance it held the receipts were fees for technical services and that deduction was to be made at 15 per cent of the gross amount under article 13 of the India-UK agreement, not at the 42.85 per cent the Income-tax Officer (TDS) had arrived at. It refused to rule on whether the sums routed through the applicant to its Indian sub-consultant were its income at all - that was a question of fact for the Assessing Officer. The ruling binds only Hyder Consulting.
Pronounced by the Authority for Advance Rulings (Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members; ruling delivered by Dr. Mohini Bhussry, Member) on 1999-01-05, reported as [1999] 236 ITR 640 (AAR). It bears on section 195, section 195(2), section 245R, section 10(6A), section DTAA art 13 of the Income Tax Act 1961, in TDS Defaults and Residence & Treaty Benefit matters.
Two uses. The first is the admission point: a payer's application under s.195(2) is not the payee's proceeding, so the payee is not shut out of Chapter XIX-B by it - useful whenever a government department or a customer has parked a rate question with an Assessing Officer and left the non-resident to wait. Here the reference had been pending since 20 January 1998 with tax being deducted at the higher rate throughout. The second is the limit of the remedy: the Authority would fix the rate but would not compute the income, and told counsel in terms that the profit element in a pass-through is a vexed question of fact for assessment. Do not take a reimbursement argument to an advance ruling expecting it to be decided there.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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Hyder Consulting Limited, a company incorporated in the United Kingdom, was awarded a contract by the Government of Orissa on 10 January 1995 for technical services in connection with the Second World Bank National Highway Project - laning and strengthening of NH5 between Bhubaneswar, Cuttack and Jagatpur. On the same day it entered into a sub-consultancy agreement with STUP Consultants Limited, an Indian company, for manpower and other services. The main agreement provided for three payments: in foreign currency to HCL, in local currency to HCL, and in local currency to the sub-consultant, the last being routed through HCL although payable under the Government of Orissa's own contractual obligation. The Executive Engineer, Orissa PWD, was the officer authorised to pay. On 20 January 1998 the Government of Orissa asked the Income-tax Officer (TDS), Bhubaneswar, under s.195(2) what rate to deduct at; that reference was still pending, and tax was meanwhile being deducted at 42.85 per cent on foreign currency payments and 30 per cent on local currency payments. HCL applied to the Authority asking whether the amounts it received for onward payment to STUP were its income liable to deduction under s.195, and whether those rates were appropriate against the 15 per cent in the India-UK agreement.
The application was maintainable, because it was not the applicant who had referred the matter to the Income-tax Officer and so nothing was pending in the applicant's case before any income-tax authority. On question 2 the Authority held the income to be fees for technical services and the rate of deduction to be 15 per cent of the gross amount under article 13 of the India-UK double taxation avoidance agreement; the Commissioner's report had said the same. It added that the tax paid would not form part of the income by reason of s.10(6A). On question 1 it held that no answer was necessary: whether the amounts received on behalf of the sub-consultant were reimbursement of actual expenses was a question of fact for the Assessing Officer at the time of assessment, and it would not be proper for the Authority to go into the profit element of the transaction.
On maintainability the Authority read clause (a) of the proviso to s.245R(2) as directed at the applicant's own resort to the ordinary machinery. The reference under s.195(2) had been made by the Government of Orissa in its capacity as the person responsible for deducting, and the exercise the Income-tax Officer was engaged in was the statutory one of determining the appropriate proportion of the sum chargeable to tax. That proceeding was not the applicant's, and the applicant had not itself invoked any remedy, so the embargo was not attracted. On the rate the Authority characterised the receipt first and applied the treaty second: the services rendered for the highway project were technical services, article 13 of the India-UK agreement governs fees for technical services, and it caps the tax at 15 per cent of the gross amount. Having settled that, the Authority saw no need to discuss the question further. The refusal to answer question 1 turns on the division of function between the Authority and the assessing machinery. Whether money routed through a main consultant to its sub-consultant carries a profit element, or is merely reimbursement, depends on the accounts and on what the parties actually did; the Authority described it as a vexed question of fact best left to the Assessing Officer, and declined to pre-empt the assessment.
It was pointed out to counsel that this is a vexed question of fact which is best left to the Assessing Officer to compute as it will not be proper to go into the determination of the profit element or otherwise of the transaction.
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Handle my notice → Ask a CA on WhatsAppYes on maintainability, and yes on the rate. The Authority held the application maintainable because the s.195(2) reference had been made by the Government of Orissa as payer, not by the applicant, so nothing was pending in the applicant's own case within clause (a) of the proviso to s.245R(2). On the substance it held the receipts were fees for technical services and that deduction was to be made at 15 per cent of the gross amount under article 13 of the India-UK agreement, not at the 42.85 per cent the Income-tax Officer (TDS) had arrived at. It refused to rule on whether the sums routed through the applicant to its Indian sub-consultant were its income at all - that was a question of fact for the Assessing Officer. The ruling binds only Hyder Consulting. This was decided by the Advance Ruling (Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members; ruling delivered by Dr. Mohini Bhussry, Member) and bears on section 195, section 195(2), section 245R, section 10(6A), section DTAA art 13 of the Income Tax Act 1961. It is reported as [1999] 236 ITR 640 (AAR). Two uses. The first is the admission point: a payer's application under s.195(2) is not the payee's proceeding, so the payee is not shut out of Chapter XIX-B by it - useful whenever a government department or a customer has parked a rate question with an Assessing Officer and left the non-resident to wait. Here the reference had been pending since 20 January 1998 with tax being deducted at the higher rate throughout. The second is the limit of the remedy: the Authority would fix the rate but would not compute the income, and told counsel in terms that the profit element in a pass-through is a vexed question of fact for assessment. Do not take a reimbursement argument to an advance ruling expecting it to be decided there. If it applies to you, the first step is this: If the payer has moved under s.195(2), say so in the application and show that the applicant itself has nothing pending before any income-tax authority.
Hyder Consulting Limited, a company incorporated in the United Kingdom, was awarded a contract by the Government of Orissa on 10 January 1995 for technical services in connection with the Second World Bank National Highway Project - laning and strengthening of NH5 between Bhubaneswar, Cuttack and Jagatpur. On the same day it entered into a sub-consultancy agreement with STUP Consultants Limited, an Indian company, for manpower and other services. The main agreement provided for three payments: in foreign currency to HCL, in local currency to HCL, and in local currency to the sub-consultant, the last being routed through HCL although payable under the Government of Orissa's own contractual obligation. The Executive Engineer, Orissa PWD, was the officer authorised to pay. On 20 January 1998 the Government of Orissa asked the Income-tax Officer (TDS), Bhubaneswar, under s.195(2) what rate to deduct at; that reference was still pending, and tax was meanwhile being deducted at 42.85 per cent on foreign currency payments and 30 per cent on local currency payments. HCL applied to the Authority asking whether the amounts it received for onward payment to STUP were its income liable to deduction under s.195, and whether those rates were appropriate against the 15 per cent in the India-UK agreement. The matter was decided on 1999-01-05 by the Advance Ruling (Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members; ruling delivered by Dr. Mohini Bhussry, Member). On those facts the Advance Ruling held as follows. The application was maintainable, because it was not the applicant who had referred the matter to the Income-tax Officer and so nothing was pending in the applicant's case before any income-tax authority. On question 2 the Authority held the income to be fees for technical services and the rate of deduction to be 15 per cent of the gross amount under article 13 of the India-UK double taxation avoidance agreement; the Commissioner's report had said the same. It added that the tax paid would not form part of the income by reason of s.10(6A). On question 1 it held that no answer was necessary: whether the amounts received on behalf of the sub-consultant were reimbursement of actual expenses was a question of fact for the Assessing Officer at the time of assessment, and it would not be proper for the Authority to go into the profit element of the transaction.
On maintainability the Authority read clause (a) of the proviso to s.245R(2) as directed at the applicant's own resort to the ordinary machinery. The reference under s.195(2) had been made by the Government of Orissa in its capacity as the person responsible for deducting, and the exercise the Income-tax Officer was engaged in was the statutory one of determining the appropriate proportion of the sum chargeable to tax. That proceeding was not the applicant's, and the applicant had not itself invoked any remedy, so the embargo was not attracted. On the rate the Authority characterised the receipt first and applied the treaty second: the services rendered for the highway project were technical services, article 13 of the India-UK agreement governs fees for technical services, and it caps the tax at 15 per cent of the gross amount. Having settled that, the Authority saw no need to discuss the question further. The refusal to answer question 1 turns on the division of function between the Authority and the assessing machinery. Whether money routed through a main consultant to its sub-consultant carries a profit element, or is merely reimbursement, depends on the accounts and on what the parties actually did; the Authority described it as a vexed question of fact best left to the Assessing Officer, and declined to pre-empt the assessment. In the words reproduced by the source cited on this page: "It was pointed out to counsel that this is a vexed question of fact which is best left to the Assessing Officer to compute as it will not be proper to go into the determination of the profit element or otherwise of the transaction."
It was decided by the Advance Ruling on 1999-01-05 and is reported as [1999] 236 ITR 640 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 195, section 195(2), section 245R, section 10(6A), section DTAA art 13, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The application was maintainable, because it was not the applicant who had referred the matter to the Income-tax Officer and so nothing was pending in the applicant's case before any income-tax authority. On question 2 the Authority held the income to be fees for technical services and the rate of deduction to be 15 per cent of the gross amount under article 13 of the India-UK double taxation avoidance agreement; the Commissioner's report had said the same. It added that the tax paid would not form part of the income by reason of s.10(6A). On question 1 it held that no answer was necessary: whether the amounts received on behalf of the sub-consultant were reimbursement of actual expenses was a question of fact for the Assessing Officer at the time of assessment, and it would not be proper for the Authority to go into the profit element of the transaction. It arises in TDS Defaults and Residence & Treaty Benefit matters, on section 195, section 195(2), section 245R, section 10(6A), section DTAA art 13 of the Income Tax Act 1961, and was decided by Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members; ruling delivered by Dr. Mohini Bhussry, Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the treaty article and its cap in front of the officer with the Commissioner's own report where you have one - here the Commissioner accepted 15 per cent. Keep the characterisation question (is this fee, or reimbursement of a sub-consultant's cost) for the assessment, where the facts can be gone into. Check the current text of the treaty article before relying on the rate: the India-UK convention has been amended since.
Searched for later treatment; none was found. That is not the same as a source affirming it. A later-treatment search was run and nothing overruling, doubting, applying or affirming this ruling was found. The Indian Kanoon cited-by list shows four later documents; Van Oord ACZ India (P) Ltd. v. ACIT (ITAT Delhi, 30 November 2007) records this ruling at 236 ITR 640 (AAR) among the authorities relied on by the assessee but expressly declined to consider them, which is a citation and not an application, and the other three were not read. A ruling of the Authority binds only the applicant and the Commissioner in that applicant's case, so this is the ordinary position for such a ruling rather than a gap. What has changed around it was checked. The departmental page for the India-UK comprehensive agreement shows the convention notified by GSR 91(E) dated 11 February 1994, entering into force 26 October 1993, amended by Notification S.O. 372(E) (No. 10/2014) dated 10 February 2014 with effect from 27 December 2013; that page describes the 2014 amendment as touching articles 3, 4 and 11 and inserting articles 28A and 28B, and shows article 13(2) still capping the tax at 15 per cent (20 per cent in some cases during an initial five-year period) for one category and 10 per cent for the category defined in paragraph 4(b). The departmental page carrying the full text of article 13 timed out on repeated attempts, so which sub-paragraph a fee of this kind now falls under has not been re-verified and the ruling itself does not say; that much remains open. Section 10(6A) is still on the statute book but is confined to agreements made before 1 June 2002. Note also that section 90(4) now requires a tax residency certificate before treaty relief and section 206AA applies where PAN is not furnished, neither of which existed in 1999. The Authority has since been replaced by the Boards for Advance Rulings constituted by Notification No. 96/2021 dated 1 September 2021, whose rulings are appealable to the High Court under section 245W, and the Income-tax Act 1961 has been replaced by the Income-tax Act 2025 with effect from 1 April 2026. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
No second source was found for this ruling; the entry rests on the full text of the ruling itself. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and the Commissioner and the income-tax authorities under him in relation to that applicant and that transaction. It holds only so long as the law and the facts on which it was given stay as they were. It binds nobody else, though a considered ruling is treated as persuasive. On this ruling: the Authority did not answer question 1 at all - it held an answer unnecessary once the rate was settled, and expressly left the profit element to the Assessing Officer, so this is not authority that pass-through payments to a sub-consultant escape deduction. It does not say which sub-paragraph of article 13(2) it applied, nor does it discuss article 7 or whether the applicant had a permanent establishment. No Revenue representative appeared; only written submissions were filed. The reported citation is the equivalent citation printed on the Indian Kanoon page and has not been checked against the ITR volume. The ruling does not identify the sub-paragraph of article 13(2) it applied, does not explain why the local currency rate of 30 per cent was also displaced, and does not deal with the applicant's Circular No. 372 argument beyond recording it. It says nothing about whether the applicant had a permanent establishment in India or how article 7 would interact with article 13 if it did. Whether the reimbursement question was ultimately decided in assessment is not traceable from the ruling. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The application was maintainable, because it was not the applicant who had referred the matter to the Income-tax Officer and so nothing was pending in the applicant's case before any income-tax authority. On question 2 the Authority held the income to be fees for technical services and the rate of deduction to be 15 per cent of the gross amount under article 13 of the India-UK double taxation avoidance agreement; the Commissioner's report had said the same. It added that the tax paid would not form part of the income by reason of s.10(6A). On question 1 it held that no answer was necessary: whether the amounts received on behalf of the sub-consultant were reimbursement of actual expenses was a question of fact for the Assessing Officer at the time of assessment, and it would not be proper for the Authority to go into the profit element of the transaction.
TaxSphere, “Hyder Consulting Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/hyder-consulting-aar-1999/ (validity last checked 2026-09-16)
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