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Offshore supplies to projects in India not taxable in select cases
August, 18th 2008

Profits of a foreign company arising from offshore supplies to Indian projects are not liable to be taxed in India if the foreign companys office in India has no role in these projects, according to a ruling by the Income-Tax Appellate Tribunal (ITAT).

The ITAT order last week was on an appeal filed by South Korean company LG Cables. In this case, the ITAT bench headed by president Vimal Gandhi held that though the agreement for supply of equipment was entered in India, this alone cannot be a ground for taxing the foreign companys income from these projects.

LG Cables has a project office in India with RBI approval. LG Cables was awarded contracts for execution of onshore fibre optic cabling system and for offshore supplies and services by PowerGrid Corporation of India, a PSU. The tax payer claimed a loss of Rs 86 lakh on the project execution of onshore fibre optic but on the offshore supply aspect, the company took a view that this income was out of the ambit of Indian tax authorities. The Indian I-T department accepted the claim of loss on onshore business but rejected the claim that offshore business was not taxable in India. The department took a stand that the Indian operation of the company was closely linked to its offshore operation. And hence, the department brought it under the tax net.

 
 
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