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Would the company have to pay tax in India on services and profits?

K G Vishwanath Ruwi / 23 April 2012

A Malaysian company would be responsible for offshore supplies and services to an Indian company which is setting up a container terminal in India.  Spare parts will also be supplied by the Malaysian company.  Would this company have to pay tax in India on the fees for offshore services and on profits made on supply of spare parts?

If no part of the activity relating to offshore supplies is undertaken in India, the question of any tax liability will not arise.  Business income can only be taxed in India if it accrues or arises in India from operations carried out in India.

Hence, the amount receivable by the Malaysian company for offshore supplies cannot be made liable to tax in India. This view has been taken on similar facts by the Authority for Advance Rulings which has relied on a decision of the Supreme Court on the same point.  Therefore, the Malaysian company would receive the full consideration from the Indian party which is not required to deduct any tax at source.

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