Pride Foramer S.A. v. CIT & Anr. (Supreme Court of India) is a landmark ruling addressing whether a non-resident taxpayer without an active business, ongoing contract, or current Permanent Establishment (PE) in India can still claim business expenditure and unabsorbed depreciation against interest income received on an income-tax refund.
The matter raised to Supreme Court with the argument that in the absence of a live PE or operational presence, the taxpayer had no ongoing business in India and therefore should not be allowed to claim these deductions.
The Supreme Court disagreed.
The Court held that the existence of a business for tax purposes does not depend solely on current physical operations, but on broader factual indicators such as past activities, commercial intention, continuity, and the nexus of income with earlier business operations. Consequently, the non-resident was permitted to set off expenses and depreciation—even without an active PE—against the refund interest.
This ruling significantly reshapes how “business connection” and “business continuity” are interpreted for cross-border taxpayers under Indian tax law.
Pride Foramer S.A. v. CIT (Oct 2025): When “No Active Business” Still Counts as a Business
At first glance, the Pride Foramer S.A. ruling looks almost counterintuitive.
How can a non-resident—one with no current project, no active contract, and not even a functioning permanent establishment (PE) in India—still claim business expenses and depreciation set-offs?
But when you go deeper, the Court’s reasoning circles back to a principle we often overlook:
a business doesn’t stop being a business just because operations pause.
Let’s break that down with a real-world analogy.
Imagine an offshore drilling company that had major projects in India in the past. Their rigs operated for years, their assets were deployed, and they had a clear business footprint. Eventually, the project ended. The rigs moved out. The employees left. The PE practically went dormant.
Then suddenly, years later, the company receives interest on an income-tax refund.
Is this interest “business income”? If so, can they set off business expenses or unabsorbed depreciation from earlier years?
The argument was “No PE, no active business — no deductions.”
But reality isn’t that binary.
Think of a construction company that completes a huge project. The site is dismantled, equipment moves out, but the business doesn’t vanish into thin air. There may be warranty obligations, pending claims, receivables, refunds, litigations — all of which trace back to the original business activity.
The “operations” may have stopped, but the business nexus hasn’t.
This is exactly what the Court recognized.
It held that a non-resident doesn’t need a live project or an active PE in India to claim deductions.
The test isn’t whether a machine is running or an employee is punching attendance.
The real test is:
- Did the taxpayer carry on business in India in the past?
- Is the income (like refund interest) linked to that business?
- Is there demonstrable intent or continuity in the commercial conduct?
If the answers align, then expenses and unabsorbed depreciation still stand.
This matters more than it seems.
Take a foreign EPC contractor that completed a highway project five years ago.
Or an international drilling operator whose rigs left India after project closure.
Or a global IT service provider that wound down a contract but still has tax refunds pending.
Under a strict interpretation, none of them would be allowed set-offs if they weren’t physically present today.
But the Pride Foramer ruling says otherwise: business for tax purposes is judged by substance, not by whether the signboard is still hanging outside.
And in cross-border tax, that subtle distinction can be the difference between a negligible tax bill and a massive one.
By reinforcing that PE presence is not the sole indicator of business continuity, the judgment brings both legal clarity and commercial realism — something international taxpayers desperately needed.
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