The spotlight is again on the issue of taxation of business process outsourcing (BPO) units in the country. The Supreme Court on Monday issued notices to the income tax department in the Morgan Stanley BPO case.
A decision by the court, either way, will decide whether income tax authorities will have the right to tax BPOs of multi-national companies.
In this case, Morgan Stanley had obtained an advance ruling from an arm of the tax department, the Authority for Advance Ruling (AAR), that outsourcing carried out by its Indian subsidiary did not constitute a permanent establishment. AAR is a quasi-judicial body, set up to give opinion to guide companies on their potential tax liabilities.
The AAR ruling meant that the company would not have to pay corporate tax in India on a portion of its profit, provided that the BPO and the overseas parent did not violate fair pricing norms or arms length pricing.
But the income tax department challenged the ruling and Morgan filed a cross appeal against it. The court will now hear both the appeals together on whether they can be admitted or not. However, no fresh date has been fixed for the hearing as yet, Jai Savla, counsel for Morgan Stanley said. Morgan Stanley has a captive BPO in India Morgan Stanley Advantage Services (MSAS) which provides support services IT and research.