The Supreme Court has decided to examine the issue of whether foreign law firms charging professional fees from Indian companies and businessmen are liable to pay income tax in the country.

A bench headed by Justice S H Kapadia has issued notices to a London-based law firm on a petition filed by the Income Tax Department.

The law firm in turn claims that it is not liable to pay any income tax in India as it is not operating in India and only the British Tax Laws are applicable to such foreign firms.

The Income Tax Department is, however, contending that it causes a huge income tax loss to India since Indian corporate companies claim tax exemption on the legal expenses incurred by them.

According to the Department, it is, therefore, entitled to charge income tax from foreign law firms, who are giving legal advice or assistance to Indian companies after charging professional fees from them.

In India, professionals are liable to pay income tax at the rate of 10.5 per cent.