In the case of Hyosung Corporation (the applicant), which involved off-shore and on-shore contracts among three entities, the Authority for Advance Ruling (AAR) held that amounts paid to non-residents for off-shore contracts taking place outside India are not taxable in India.
Power Grid Corporation of India Ltd (Power Grid) invited bids for execution of works related to a certain project in 2005. The applicant, a Korean company, bid successfully; Power Grid accepted the bid proposal and awarded the off-shore contract (that is, for work to be performed outside India) to the applicant by means of a Letter of Award (LOA). The on-shore supply contract and on-shore services contract were awarded to the applicant’s assignee, L&T.
The LOA gave the Applicant overall responsibility to ensure execution of all three contracts in order to complete the entire project. A Deed of Assignment was executed between the applicant and L&T. In the terms of the LOA, Power Grid entered into three separate contracts: the off-shore contract with the applicant, and the on-shore supply contract and on-shore services contract with L&T.
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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.
