Transactions Abroad Taxable in India
May 28 – A verdict recently passed by the Income Tax Appellate Tribunal (ITAT) in Mumbai stated that payments made to foreign entities for services rendered abroad can still be taxed in India if the deal can be linked back to the country.
“It is no longer necessary that, in order to attract taxability in India, the services be rendered in India,” the ITAT ruled. “As the law stands now, utilization of these services in India is enough to attract taxability in India.”
This ruling stems from the ITAT’s decision to tax US$1 million paid by India-based Ashapura Minechem to China Aluminum International Engineering Corp. (CAIEC) for the testing of bauxite – an aluminum ore. The services provided by CAIEC were rendered in China, but the ITAT decided that, since the deal had business ties to India and would be utilized by an Indian company, it should be taxable in India as well.
Ashapure Minechem argued that since the services provided by CAIEC didn’t fall into India’s “territorial nexus” they shouldn’t be taxed according to the Indian Income Tax Act or the India-China DTA. These arguments were shot down by the income tax department, which used the Finance Act 2010’s IT laws to support their verdict.
“The concept of territorial nexus, for the purpose of determining the tax liability, is relevant only for a territorial tax system in which taxability in a tax jurisdiction is confined to the income earned within its borders,” stated the ITAT. “It is thus fallacious to proceed on the basis that territorial nexus to a tax jurisdiction being sine qua non to taxability, in that jurisdiction is a normal international practice in all tax systems.”
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