The Income Tax Appellate Tribunal (ITAT) decided on 26 April that there should be geographical and commercial link among contracts executed by a foreign enterprise before the revenue authorities can aggregate contracts while calculating the threshold limit.
The assessee, Valentine Maritime, a Mauritius tax resident engaged in marine and general engineering and construction, had executed three contracts in India of which the first two were with the same client. They were for the charter of an accommodation barge, use of a barge in domestically and for the replacement of decks. Although each contract was for less than the nine-month threshold stipulated by the India-Mauritius double taxation avoidance agreement (DTAA) to decide whether a company had a permanent establishment (PE) in India, together the three contracts exceeded that period.
The income earned on these contracts was taken as business profits. Valentine Maritime did not have a PE in India and as the contracts were independent of each other they claimed these business profits were tax exempt under the India-Mauritius DTAA.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
