AAR held that income received by a foreign company for procurement support services rendered by its Indian office in connection with purchase operations undertaken by other foreign company in India, is taxable in India.
Recently, the Authority for Advance Ruling (AAR) in the case of Aramco Overseas Company BV [2010-TIOL-14-ARA-IT] held that a non resident, who is neither the purchaser of the goods nor an agent of such purchaser purchasing goods for the purpose of export to the holding company outside India would be liable to tax in India. It was held that clause (b) of the explanation 1 to section 9(1 )(i) of the Income-tax Act, 1961 (the Act) does not apply to the applicant where it is provided that no income shall be deemed to accrue or arise in India to the non resident through or from the operations which are confined to the purchase of goods in India for the purpose of export.
The AAR made an important observation that if the applicant itself is the purchaser of goods exported from India, the applicant can claim the benefit of clause (b) of explanation 1 to section 9(1)(i) of the Act.
Facts of the case
- The applicant, a tax resident of Netherlands, is a subsidiary of Saudi Arabian Oil Company (SAOC). The applicant has offices in many parts of the world. The applicant is engaged in providing services in relation to supply chain management, technical support, finance support and administrative support to SAOC and its group companies. In return the applicant will get a consideration on cost plus 5 percentage mark-up basis.
- The applicant proposes to set up an office in India to provide similar services to its head office and / or SAOC. The applicant proposes to undertake procurement support services for the purpose of export outside India of various goods/ products required by SAOC for eg. steel pipes, pipe fittings, steel valves, process vessels, heat transfer equipment, electrical equipment, etc. These products will be utilised by SACO in its business as fixed assets or as consumables.
- The Indian office will not undertake any other business function of the applicant or any of its group companies. The Indian office will be funded entirely by reimbursements received by it from its head office without any profit element thereon and the Indian supplier will be paid directly by the head office or SACO, as the case may be.
Issue before the AAR
