Foreign Offshore Supplies Should Not Be Taxed

Technical services for fulfillment of an offshore dealing does not establish business connection in India, says H P Agrawal

Whenever any sophisticated equipment is bought from a foreign country then the Indian party necessarily requires the technical knowhow back-up along with the equipment. The Indian party may also like to have the benefit of technical services for commissioning and setting up of the imported equipment. It is also desirable to have performance guarantees.

Therefore, the foreign party, besides the supply of equipment, may also provide technical drawings and operational manual for which the basic and detailed engineering is generally done outside India.

 

However, some activities in India are nevertheless unavoidable to ensure proper commissioning and functioning of the imported machinery. In most cases an attempt is made by the Indian tax authorities to tax the income arising out of the supply of plant and machinery on the ground that the sale of such equipment is in fact effectively completed in India.

Often, the foreign suppliers are asked to pay tax on at least that part of the receipt by them which relates to technical knowhow or technical services because provision of knowhow, etc., amounts to either