sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
« From the Courts »
 Assistant Commissioner Assessment Iv Trade Tax, Varanasi & Ors. Vs M/s Auto Centre
 Ansal Housing And Construction Ltd. vs Assistant Commissioner Of Income Tax & Anr.
 40 LPA-Opening Financial Controller
 30 LPA-Opening Senior Manager Finance & Accounts,
 Indus Best Hospitality & Realtors Pvt. Ltd vs. PCIT (ITAT Mumbai)
 ITO vs. Wiz-Tech Solutions Pvt. Ltd (ITAT Kolkata)
 Pesak Ventures Ltd. vs. DCIT (ITAT Delhi)
 PCIT vs. Texraj Realty P.Ltd (Gujarat High Court)
 PCIT vs. Texraj Realty P.Ltd (Gujarat High Court)
 Ahmed Charaniya vs Jasmine Charaniya
  Assistant Commissioner Of Income Tax Vs Saabri Freight Carrier Pvt Ltd

Payment made abroad taxable if deal has links with India
May, 28th 2010

The Income-tax department can tax even a payment made to a foreign entity outside India, if the transaction has a business connection within
the country, according to a verdict passed last week by the Income Tax Appellate Tribunal, Mumbai.

In this case, the ITAT gave an order favouring the I-T departments decision to levy tax on $1 million (about Rs 4.5 crore) paid by an Indian company to a Chinese firm for services rendered in China.

In order to tax such payments, ITAT held, it is not necessary that the party has a business activity in India (territorial nexus). A division bench of ITAT, comprising Pramod Kumar and R S Padvekar, held that tax is payable in India on any income which is either sourced from India or which arises to a person domiciled in India.

The ITAT virtually dismissed the theory of territorial nexus, a concept of taxation by which tax is levied in the territory in which business activity took place.

The ITAT said that even if the business activity is not located in India, tax can be levied in India, the only prerequisite being a business connection.

In this case, the income being subject to tax is $I million paid by Indian company Ashapura Minechem to China Aluminium International Engineering Corp. The payment was made for services rendered by the Chinese company for bauxite testing. The final report of the bauxite testing was prepared by the Chinese company in China.

The Indian company claimed before the ITAT, that since the Chinese company did not have any business activity within India, it is not liable to pay tax in India either under the Indian Income-Tax Act or under the Double Taxation Avoidance Agreement.

The Indian company claimed before the ITAT that to be liable to pay tax in India, the Chinese company should have a territorial nexus in the country.

The latter did not have a permanent establishment in India, the Indian company pointed out. The concept of territorial nexus merely means that tax can be levied in the territory where the business activity had taken place. In this case, the payment was made outside India for service rendered outside India.

Therefore, going by the theory of territorial nexus, the Chinese company is not liable to pay tax in India. And hence the Indian company is not liable to withhold tax from the payment made to the Chinese company.

The ITAT negated the claim saying that India does not follow territorial taxation method in its income-tax. The ITAT said: It is thus fallacious to proceed on the basis that territorial nexus to a tax jurisdiction being sine qua non to taxability, in that jurisdiction is a normal international practise in all tax systems.

The ITAT drew support for its decision from the amendment made in the relevant I-T laws in the Finance Act 2010.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Enterprise Resource Planning Solutions ERP Solutions Enterprise Resource Planning Software Solutions ERP Software Solutions Supply Chain Management Solutions SCM Solutions Supply Chain Management Software Solutions SCM Software Solutions Enterprise Resource Planning Solutions India ERP Solutions India Enterprise Resource Planning Software Solutions India ERP Software Solutions India Supply Chain Management Solutions India SCM Solutions India Supply Chain Management Software Solutions India SCM Software Solutions India

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions