Services provided for purchase of goods to be exported from India may not be eligible for exemption provided under Income-tax provisions

Facts

• The applicant, Aramco Overseas Company (AOC) is a Dutch tax resident company. It is a subsidiary of Saudi Arabian Oil Company (Saudi AramCo). AOC provides services in relation to supply chain management, technical support, finance support and administrative support to its holding company and other group companies. For such services, AOC gets remuneration on cost plus 5 percent basis.
• AOC is proposing to set up an office in India to undertake procurement support activities. The Indian office will provide procurement services for export outside India of various goods to Saudi AramCo and other group companies. The Indian office will not undertake any other business function of AOC or of its group company. The expenses of the Indian office will be funded entirely by its head office without any profit element involved therein.
• The issue raised before Authority for Advance Ruling (AAR) is whether the applicant will be taxable in India in respect of support services rendered for purchases made from India.

Contentions of the Applicant

• All the activities proposed to be undertaken by the Indian office will be confined to the purchase of goods to be exported out of India. Therefore, Explanation 1(b) to section 9(1) (i) of the Income-tax Act (^„ITA^?) is applicable, which provides that no income shall be deemed to accrue or arise in India through or from operations which are confined to the purchase of goods in India for the purpose of export. Hence, no part of income of AOC can said to be deemed to accrue or arise in India.

• The mere fact that the purchasing company does not undertake the operations relating to purchase directly, but through a ^„buying agent^? cannot result in denial of aforesaid benefit of cl.(b) of Expl.1 to section 9(1) of the ITA.
• With regards to the specific provision for exclusion, the mark-up of 5% over and above the cost paid by Saudi AramCo to AOC outside India cannot result in taxable income of AOC in India.

Contentions of the Revenue