Mumbai: The authority for advance ruling (AAR) has held that the fee paid by companies who procure overseas clients on referral basis is not liable to be taxed in India.

AAR gave the ruling on a reference made by Singapore-based real estate consultant Cushman & Wakefield Pte.

''The receipt on account of the referral fee arising to the applicant would not be taxable in India," the AAR said.

''Although the AAR ruling is binding only between the foreign company and the tax department, it will create a persuasive precedent and benefit companies in several sectors like engineering and management consultancy, advertisement and real estate," senior partner of the corporate law firm Titus and Co, Diljeet Titus, said.

The Singapore-based company had sought directions from AAR whether the referral fees received from group's Indian arm Cushman & Wakefield India would be subject to tax in India and whether the provisions of withholding tax would apply.

Ruling in favour of the Singapore firm, AAR said the referral fees cannot be taxed in India as such payments do not fall within the purview of either business income, royalty income or fees for technical services.

The authority held that under the double tax avoidance agreement between the two countries, the referral fees will not be taxed in India and also the domestic company will ''not be required to withhold any tax under section 195 of the I-T Act while making remittances".

The AAR ruling will prompt others to seek similar exemption as lot of consultancy business comes to India on referral basis. The ruling will also have implications chartered accounts, law firms and other firms that pay referral fees to overseas clients.