« Top Headlines » Open DEMAT Account in 24 hrs  Delhi HC Rules GST Registration Cannot Be Cancelled Retrospectively Without a Clear Show Cause Notice (SCN)  Belated income tax return AY 2026-27: How to file, late filing charges and what you may lose  Major Financial Changes from August 1, 2026: ITR Deadline, RBI MPC Meeting, Tatkal Ticket Rules & More  Government proposes to ease tax relief conditions for offshore funds  TallyPrime Connected Banking: Automating Banking and Accounting  ITR Filing Deadline 2026: Is July 31 the Last Date to File Your Income Tax Return? Latest Official Update  ITR filing deadline nears: How to file income tax return online on e-filing portal - quick 15-step guide  Will the ITR Filing Deadline Be Extended Beyond July 31 for FY 2025-26? Here's the Latest Update for Taxpayers  Income Tax Refund Delayed for AY 2026-27? 5 Common Reasons Your Refund May Be Stuck and How to Fix It  ITR Filing 2026: FM Nirmala Sitharaman Asks Tax Officials to Let Honest Taxpayers Correct Genuine Mistakes  Will Your FCNR Deposit Stay Tax-Free After Returning to India? Tax Rules Explained for NRIs «  Centre's CST sweeteners fail to lure state ST chiefs... Mauritian tax agreement under scanner... » SC to take up tax plea against Morgan's BPO August, 14th 2006 The tax treatment of foreign companies setting up BPO units in India is in focus once again. The Supreme Court will consider on Monday whether or not to admit a Special Leave Petition (SLP) filed by the income tax department challenging the decision of the Authority for Advance Ruling in Morgan Stanleys case. The AAR which is a quasi judicial body had ruled that the business process outsourcing activities done by the Indian subsidiary of investment banker Morgan Stanley will not constitute a permanent establishment (PE) or a fixed place of business in India. If there is no PE, the parent company will not have to pay corporate tax in India on a portion of its profits. Simply put, the AARs ruling meant that a portion of Morgan Stanleys global profits are not liable to be taxed in India as long as it pays an arms length price to the Indian subsidiary. The AARs ruling is in line with the Central Board of Direct Taxes circular which broadly states that the foreign parent will not have any extra tax liability in India if it compensates its Indian subsidiary on an arms length basis. The critical issue here will be the mapping of the functions of the BPO unit to see whether it is an extension of the foreign company, according to Vispi T Patel, Head Transfer Pricing RSM. The government probably wants to examine whether the activities of the BPO are linked to those of the parent company. In such a case, there could be a rationale to tax a portion of the profits earned by the foreign company. After all the government also wants a share of the tax pie. We recommended filing an SLP in the Supreme Court challenging some of the grounds of the AARs ruling. The petition has been filed after consulting the law ministry, BM Singh, Director General International Taxation told ET. The AARs rulings are binding on the tax payer and the department. It also has a persuasive value. The AARs ruling in the Morgan Stanley case came as a relief to several foreign companies outsourcing their back office functions to Indian companies, particularly to captive service providers. The issue at stake was whether outsouring to captive service providers would result in a permanent establishment (PE) coming into existence. If Indian tax authorities were to hold that such activities would tantamount to a PE, then the global profits attributable to the PE would be taxed in India (at around 41%) in the hands of foreign entity, said a tax expert. For starters, Morgan Stanley Advantage Services Private Limited (MSAS) is one of the group companies of Morgan Stanley which is incorporated in India to provide support services. The AAR reportedly held that MSAS is not a fixed of place business of Morgan Stanley. It also held that MSAS does not constitute an agency PE of Morgan Stanley one of the factors for this being that it does not have the authority to conclude contracts.