Mumbai: Overseas firms providing research facilities for clinical and bio-analytical studies to Indian companies for developing new drugs are not liable to pay tax here if they do not have a permanent establishment in the country, the Authority for Advanced Ruling has said.

Ruling on an application filed by Canada-based Anapharm Inc, the tribunal said ''the consideration received by it from them (Indian companies) would be its business income," and since there was nothing to prove that the Canadian company had a permanent establishment in India, the income earned by it cannot be taxed in India under the double taxation avoidance agreement (DTAA).

Anapharm is in the business of providing bio-analytical services to various pharmaceutical companies.

 The AAR also rejected the contention of the tax authority that payment for such activities can be regarded as royalty income under the DTAA.

Citing the case of fee paid by Sandoz Pvt Ltd to Ranbaxy Research Laboratories in respect of bioequivalence tests conducted by it, which is in the nature of business profits under Article 7 of DTAA , the AAR said Anapharm's income is not taxable in India as the applicant does not have a permanent establishment in the country.

''Moreover, the test reports are drug-specific hence the material furnished by the applicant will not in anyway help the customers to facilitate further research and development of new drugs as contended by the revenue,'' the AAR ruled.