SC: Expenditure for exploring business in India part of IT deduction

NEW DELHI: More than 25 years after a French oil exploration company was denied business expenditure deductions in income tax assessment, Supreme Court has ruled that even if the efforts of the foreign company failed to materialise into a contract, it cannot be denied expenditure deductions from IT assessment.Pride Foramer SA, incorporated in France and engaged in oil drilling activities, was awarded a 10-year contract by ONGC in 1983 till 1993. Thereafter, it failed to procure another contract till Oct 1998. It produced before IT officials relevant material to show that between 1993-98, it had continuous business correspondences with ONGC regarding hiring of manpower services in respect of expert key personnel for drilling in deep waters and had unsuccessfully submitted a bid in 1996.Between 1993-98, the company claimed business expenditure deductions. This was allowed by the commissioner of income tax but Uttarakhand HC in 2009 reversed the decision. The company appealed against this before SC.A bench of Justices Manoj Misra and Joymalya Bagchi faulted the HC’s view that since the appellant did not have an office in India, it could not claim to have carried out business in India.SC said, “This view is wholly fallacious and contrary to the very scheme of the IT Act.”

Writing the judgment, Justice Bagchi said, “The issue of ‘permanent establishment’ may be relevant for the purposes of availing the beneficial provisions of Double Tax Avoidance Agreement ... which is not a relevant consideration.”“In an era of globalisation whose life blood is trans-national trade and commerce, the HC’s restrictive interpretation that a non-resident company making business communications with an Indian entity from its foreign office cannot be construed to be carrying on business in India is wholly anachronistic with India’s commitment to Sustainable Development Goal relating to ‘ease of doing business’ across national borders,” SC said.