Payment made abroad taxable if deal has links with India

Court :
ITAT

Brief :
In this case, the income being subject to tax is $I million paid by Indian company Ashapura Minechem to China Aluminium International Engineering Corp. The payment was made for services rendered by the Chinese company for bauxite testing. The final report of the bauxite testing was prepared by the Chinese company in China. The Indian company claimed before the ITAT, that since the Chinese company did not have any business activity within India, it is not liable to pay tax in India either under the Indian Income-Tax Act or under the Double Taxation Avoidance Agreement. The Indian company claimed before the ITAT that to be liable to pay tax in India, the Chinese company should have a territorial nexus in the country. The latter did not have a permanent establishment in India, the Indian company pointed out. The concept of territorial nexus merely means that tax can be levied in the territory where the business activity had taken place. In this case, the payment was made outside India for service rendered outside India. Going by the theory of territorial nexus, the Chinese company is not liable to pay tax in India. And hence the Indian company is not liable to withhold tax from the payment made to the Chinese company.

Citation :
The Income-tax department can tax even a payment made to a foreign entity outside India, if the transaction has a business connection within the country, according to a verdict passed last week by the Income Tax Appellate Tribunal, Mumbai. In this case, the income being subject to tax is $I million paid by Indian company Ashapura Minechem to China Aluminium International Engineering Corp. The payment was made for services rendered by the Chinese company for bauxite testing. The final report of the bauxite testing was prepared by the Chinese company in China.