Full Judgment Text
REPORTABLE
2025 INSC 1247
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 4395-4397/2010
Pride Foramer S.A. Appellant(s)
VERSUS
Commissioner of Income Tax & Anr. Respondent(s)
J U D G M E N T
Joymalya Bagchi, J.
1. These appeals are directed against common judgment and order
dated 12.06.2009 passed by the High Court of Uttarakhand in
Income Tax Appeal Nos. 49 of 2005, 91 & 98 of 2006 (Assessment
Years 1997-98, 1996-97 and 1999-2000, respectively) whereby
1
the High Court set aside the orders passed by the ITAT and
affirmed the orders passed by CIT (Appeals) whereby the CIT
(Appeals) had disallowed the deduction of business expenditure
Signature Not Verified
2
under Section 37 of the Income Tax Act 1961 , as well as carrying
Digitally signed by
ARJUN BISHT
Date: 2025.10.17
15:19:21 IST
Reason:
1
Income Tax Appellate Tribunal, New Delhi.
2
Hereinafter, ‘the Act’.
Page 1 of 13
forward of unabsorbed depreciation under Section 32(2) of the Act
for the Assessment Years 1996-1997, 1997-1998 and 1999-2000.
FACTS:
2. Relevant facts for adjudication of the appeals are set out
hereinunder:
a. Appellant is a non-resident company incorporated in France
and is engaged in oil drilling activities. In 1983, the appellant
was awarded a 10-year contract for drilling operations in
offshore Mumbai from 1983 till 1993.
b. Thereafter, the appellant was awarded another drilling
contract in October, 1998, which came to be formalised in
January, 1999.
c. In the interregnum i.e., during the relevant assessment years,
though no drilling contract was awarded, the appellant carried
on business correspondences with ONGC from its office at
Dubai and headquarters at France and had also submitted a
bid for oil exploration in 1996.
d. During this period, appellant undertook various expenditures
including administrative charges, audit fees etc. with the
Page 2 of 13
intention of carrying out its business activities as well as
3
realising tax refunds from the Income Tax Department.
e. For the relevant assessment years, the appellant filed its
return showing ‘NIL’ income. The only income credited was
under the head ‘Income from Business’ on account of interest
received on income tax refunds amounting to Rs.
1,69,57,395/- for Assessment Year 1996-1997, Rs. 5,49,628/-
for Assessment Year 1997-1998 and Rs. 11,29,957/- for
Assessment Year 1999-2000.
f. Against this, business expenditures aggregating to Rs.
2,50,000/-, Rs. 5,55,152/- and Rs. 11,29,957/-, respectively,
were claimed as deductions and appellant also claimed set-off
against unabsorbed depreciation on furniture and fixtures
brought forward from earlier years.
FINDINGS OF ASSESSING OFFICER AND CIT (APPEAL):
4
3. The Assessing Officer disallowed deduction of business
expenditure as well as carry forward of unabsorbed depreciation on
the ground that the appellant was not carrying on any business
3
Hereinafter, ‘Department’.
4
Hereinafter, ‘AO’.
Page 3 of 13
during the relevant assessment years. The findings of the AO were
upheld by CIT (Appeals).
FINDINGS OF THE ITAT:
4. ITAT, however, reversed the findings of the CIT (Appeals), holding a
temporary lull in business for whatever reason cannot be termed
as cessation of business. It proceeded to hold as follows:
“ 6 .……. In the present case, undoubtedly,
after 1992-93, the assessee did not have any
business activity. However, there is enough
evidence on record to suggest that the
assessee had not completely gone out of
business. Copies of correspondence dated
1996 with ONGC show that the assessee was
in constant touch with ONGC for supply of
manpower in respect of expert key personnel
for deep water drilling and a tender in this
regard was in fact submitted in September
1996. This proves that even after the
completion of the earlier contract in 1993,
the assessee was contemplating to bid for
another contract. The efforts of the assessee
finally culminated in a firm contract being
awarded to it in 1998 which was formalized
in 1999. A copy of the said contract is on
record. As held by the Bombay High Court in
the case of Hindustan Chemical Works Ltd.
V. CIT in 124 ITR 561, there is a marked
distinction between “lull in business” and
“going out of business”. A temporary
discontinuance of business may, in certain
circumstances, give rise to an inference that
a business is going through a lean period of
transition and it could be revived if proper
circumstances arise. In the present case, the
period between 1993 and 1998 was of such
temporary discontinuance only which can be
Page 4 of 13
termed as a “lull in business”. Thus, when
the intention of the assessee was never to go
completely out of business, it cannot be
concluded that the assessee had
discontinued its business. To our mind, it
makes no difference if the correspondence
was by the Dubai Office of the assessee or by
its office in France as was one of the
contentions of the ld. DR. In fact, in the
accounting year 1995-96, the assessee had
also paid consultancy Charges to follow up
the aforesaid ONGC bid. Further, the
receipts from this contract were offered for
taxation in assessment year 2000-03 as
reflected by the copy of the statement of total
income placed on record. Another factor
which weighed with the revenue authorities
to conclude that the assessee had
discontinued business in India, was the so
called admission by the assessee that it had
no permanent establishment in India. No
doubt, the authorized representative had
averred in the affidavit dated 22.1.01 that the
assessee did not establish nor had any
existing permanent establishment in India.
However, the revenue authorities have
considered this affidavit out of context. The
affidavit had to be sworn in context of the
assessee’s claim for concessional rate of tax
with regard to interest income. Since the
assessee had claimed concessional rate of
tax, the Assessing Officer inferred that there
was a permanent establishment in India. On
account of this wrong inference, the assessee
had to swear an affidavit denying the
existence of a permanent establishment in
India. However, taking this as the base, the
Assessing Officer and the CIT(A) concluded
that since there was no permanent
establishment in India, the assessee was out
of business. It is not well appreciated by the
authorities below that whether there is a
permanent establishment in India or not, has
to be determined as per the provisions of the
relevant DTAA. As per the DTAA, the
Page 5 of 13
assessee may not have a permanent
establishment in India, but that does not
necessarily lead to the conclusion that the
assessee is not in business. The assessee can
be in business, depending upon the facts and
circumstances of the case de hors’ the
permanent establishment which we do find
in the present case. Thus, considering all the
facts and circumstances of the case, we hold
that the assessee was in business during the
period relevant to the assessment year in
question.”
(emphasis supplied)
5. In light of such finding that the appellant had not ceased to carry
on business, the Tribunal though holding income on account of
interest on tax refunds was chargeable under the head ‘Income
from Other Sources’ and not ‘Income from Business’, allowed set
off of the expenses on account of administrative charges, legal
professional fees undertaken by the appellant as business
expenses from ‘income from other sources’ under Section 71 of the
Act. For similar reason unabsorbed depreciation from previous
years was allowed under Section 32(2) of the Act.
FINDINGS OF THE HIGH COURT:
6. The Department challenged the ITAT orders in appeals arising out
of Assessment Years 1996-1997 and 1999-2000 before the High
Court. The High Court reversed the ITAT orders which were
challenged before the Apex Court and remanded for fresh
Page 6 of 13
5
consideration . Thereupon, the appeals arising out of all the
Assessment Years 1996-1997, 1997-1998 and 1999-2000 were
reheard analogously and disposed of by the impugned order.
7. The High Court while agreeing with the proposition that mere lull
in business does not mean the assessee had ceased to do business
in India, reversed the finding of ITAT, holding as follows:
“..when the assessee has neither permanent
office, nor any other office in India, nor any
contract was in execution during the relevant
period, it cannot be said that they were in
business in India, as such, it cannot be said
that assessee was entitled to set off claimed
by it under Section 71 of the Act.”
ISSUE:
8. Having heard learned counsel for the parties, we are of the opinion
that the moot issue which falls for our consideration is:
‘Whether, in the facts of the case, the appellant can be said to have
been carrying on business during the relevant period, so as to avail
deduction of business expenditure under Section 37(1) read with
Section 71 of the Act, and carry forward unabsorbed depreciation
of previous years under Section 32(2) of the Act?’
5
Vide order dated 13.10.2008 in SLP(C) No. 4510 of 2008.
Page 7 of 13
ANALYSIS:
9. Section 37(1), inter alia , provides any expenditure (not being an
expenditure in the nature described in Section 30 to 36 or in the
nature of capital expenditure or personal expenses of the assessee)
which is undertaken wholly and exclusively for the purpose of
business and profession shall be allowed to be deducted in
computing income chargeable under the head ‘Profits and Gains
from Business and Profession’ and consequently, may be set off as
loss against income under any other head subject to the conditions
provided in Section 71 of the Act.
10. Section 32(2) provides unabsorbed depreciation allowance of a
previous year may be carried forward and set off against income of
the following assessment years in the manner and subject to the
conditions provided therein. The first proviso to the said sub-
section further provided such depreciation allowance can be
carried forward if the business or profession for which the
depreciation allowance was originally computed, continued in the
previous year relevant to the assessment year in question. It may
be apposite to note that the said proviso has since been omitted by
st
the Finance Act, 2001 w.e.f. 1 April, 2002.
Page 8 of 13
11. It is evident that to avail the benefit of the aforesaid provisions, the
appellant had to demonstrate that it was carrying on business in
India during the relevant period. While the Tribunal was of the view
mere failure to procure a business contract or maintain a
permanent establishment in India was not a sine qua non to
demonstrate the assessee’s intention to carry on business, the High
Court held to the contrary and disallowed the claim of the
appellant.
12. In the present case, the appellant, a non-resident company had
been awarded 10 years’ drilling contract by ONGC in 1983. The
contract continued till 1993. Thereafter, the appellant failed to
procure another contract till October, 1998. But ample materials
have been placed on record to show during the interregnum , the
appellant had continuous business correspondences with ONGC
with regard to hiring of manpower services in respect of expert key
personnel for drilling in deep waters and had even unsuccessfully
submitted a bid in 1996.
13. Whether failure to procure the drilling contract with ONGC was
owing to the appellant’s disinterest to carry on business during
relevant period and amounted to cessation of business or not must
be construed from the appellant’s conduct. If such conduct, from
the standpoint of a prudent businessman, evinces intention to
Page 9 of 13
carry on business, mere failure to obtain a business contract by
itself would not be a determining factor to hold the appellant had
6
ceased its business activities in India.
14. The Tribunal rightly noted a business going through a lean period
of transition which could be revived if proper circumstances arose,
must be termed as lull in business and not a complete cessation of
the business.
15. The word ‘business’ has a wide import and connotes some real,
substantial and systemic or organised course of activity or activity
7 8
with a set purpose. In CIT v. Malayalam Plantations Ltd. this
Court further underlined that the expression ‘for the purpose of
business’ is wider in scope than the expression ‘for the purpose of
earning profits’ and would encompass in its fold “many other acts
incidental to the carrying on of a business”. The Bench observed as
follows:
“The expression ‘for the purpose of business’
is wider in scope than the expression ‘for the
purpose of earning profits’. Its range is wide:
it may take in not only the day-to-day
running of a business but also the
rationalisation of its administration and
modernisation of its machinery; it may
include measures for preservation of
6
CIT v. Vikram Cotton Mills, (1988) 169 ITR 597 (SC), para 15.
7
Narain Swadeshi Weaving Mills v. Commissioner of excess Profits Tax (1954) 2 SCC 546.
8
(1964) 53 ITR 140 (SC).
Page 10 of 13
business and for protection of its assets and
property from expropriation, coercive process
or assertion of hostile title; it may also
comprehend payment of statutory dues and
taxes imposed as a pre-condition to
commence or for carrying on a business; it
may comprehend many other acts incidental
to the carrying on of a business.”
(emphasis supplied)
16. Continuous correspondences between the appellant and ONGC
with regard to supply of manpower for oil drilling purposes and its
unsuccessful bid in 1996 demonstrates various acts aimed at
carrying on business in India which unfortunately did not fructify
in procuring a contract.
17. In this factual backdrop, the High Court erred in holding that the
appellant was not carrying on business as it had no subsisting
contract with ONGC during the relevant period.
18. The other issue on which the High Court misdirected itself was to
infer as the appellant did not have a permanent establishment and
corresponded with ONGC from its foreign office, it cannot be said
to carry on business in India. This view is wholly fallacious and
contrary to the very scheme of the Act which does not require a
non-resident company to have a permanent office within the
country to be chargeable to tax on any income accruing in India.
Page 11 of 13
19. A combined reading of the charging provisions under Section 4 and
Section 5(2) of the Act read with Section 9(1)(i) makes it amply clear
that a non-resident person shall be liable to pay tax on income
which is deemed to accrue or arise in India. Under Section 9(1)(i),
income accruing or arising, directly or indirectly, through or from
any business connection in India is deemed to accrue or arise in
India and is accordingly chargeable to tax as business income
under Section 28 of the Act. None of these provisions make it
mandatory for a non-resident assessee to have a permanent
establishment in India to carry on business or have any business
connection in India. The issue of ‘permanent establishment’ may
be relevant for the purposes of availing the beneficial provisions of
the Double Tax Avoidance Agreement (DTAA) between India and
France which is not a relevant consideration for the purposes of
this case.
20. In an era of globalisation whose life blood is trans-national trade
and commerce, the High Court’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.
Page 12 of 13
CONCLUSION:
21. For the aforesaid reasons, we allow the appeals and set aside the
judgment and order of the High Court. Orders passed by the ITAT
are revived and Assessing Officer is directed to pass fresh
Assessment Orders for the relevant Assessment Years in terms of
the ITAT orders.
……………………………………………., J
( MANOJ MISRA )
…………………………………………, J
( JOYMALYA BAGCHI )
New Delhi,
October 17, 2025
Page 13 of 13
2025 INSC 1247
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 4395-4397/2010
Pride Foramer S.A. Appellant(s)
VERSUS
Commissioner of Income Tax & Anr. Respondent(s)
J U D G M E N T
Joymalya Bagchi, J.
1. These appeals are directed against common judgment and order
dated 12.06.2009 passed by the High Court of Uttarakhand in
Income Tax Appeal Nos. 49 of 2005, 91 & 98 of 2006 (Assessment
Years 1997-98, 1996-97 and 1999-2000, respectively) whereby
1
the High Court set aside the orders passed by the ITAT and
affirmed the orders passed by CIT (Appeals) whereby the CIT
(Appeals) had disallowed the deduction of business expenditure
Signature Not Verified
2
under Section 37 of the Income Tax Act 1961 , as well as carrying
Digitally signed by
ARJUN BISHT
Date: 2025.10.17
15:19:21 IST
Reason:
1
Income Tax Appellate Tribunal, New Delhi.
2
Hereinafter, ‘the Act’.
Page 1 of 13
forward of unabsorbed depreciation under Section 32(2) of the Act
for the Assessment Years 1996-1997, 1997-1998 and 1999-2000.
FACTS:
2. Relevant facts for adjudication of the appeals are set out
hereinunder:
a. Appellant is a non-resident company incorporated in France
and is engaged in oil drilling activities. In 1983, the appellant
was awarded a 10-year contract for drilling operations in
offshore Mumbai from 1983 till 1993.
b. Thereafter, the appellant was awarded another drilling
contract in October, 1998, which came to be formalised in
January, 1999.
c. In the interregnum i.e., during the relevant assessment years,
though no drilling contract was awarded, the appellant carried
on business correspondences with ONGC from its office at
Dubai and headquarters at France and had also submitted a
bid for oil exploration in 1996.
d. During this period, appellant undertook various expenditures
including administrative charges, audit fees etc. with the
Page 2 of 13
intention of carrying out its business activities as well as
3
realising tax refunds from the Income Tax Department.
e. For the relevant assessment years, the appellant filed its
return showing ‘NIL’ income. The only income credited was
under the head ‘Income from Business’ on account of interest
received on income tax refunds amounting to Rs.
1,69,57,395/- for Assessment Year 1996-1997, Rs. 5,49,628/-
for Assessment Year 1997-1998 and Rs. 11,29,957/- for
Assessment Year 1999-2000.
f. Against this, business expenditures aggregating to Rs.
2,50,000/-, Rs. 5,55,152/- and Rs. 11,29,957/-, respectively,
were claimed as deductions and appellant also claimed set-off
against unabsorbed depreciation on furniture and fixtures
brought forward from earlier years.
FINDINGS OF ASSESSING OFFICER AND CIT (APPEAL):
4
3. The Assessing Officer disallowed deduction of business
expenditure as well as carry forward of unabsorbed depreciation on
the ground that the appellant was not carrying on any business
3
Hereinafter, ‘Department’.
4
Hereinafter, ‘AO’.
Page 3 of 13
during the relevant assessment years. The findings of the AO were
upheld by CIT (Appeals).
FINDINGS OF THE ITAT:
4. ITAT, however, reversed the findings of the CIT (Appeals), holding a
temporary lull in business for whatever reason cannot be termed
as cessation of business. It proceeded to hold as follows:
“ 6 .……. In the present case, undoubtedly,
after 1992-93, the assessee did not have any
business activity. However, there is enough
evidence on record to suggest that the
assessee had not completely gone out of
business. Copies of correspondence dated
1996 with ONGC show that the assessee was
in constant touch with ONGC for supply of
manpower in respect of expert key personnel
for deep water drilling and a tender in this
regard was in fact submitted in September
1996. This proves that even after the
completion of the earlier contract in 1993,
the assessee was contemplating to bid for
another contract. The efforts of the assessee
finally culminated in a firm contract being
awarded to it in 1998 which was formalized
in 1999. A copy of the said contract is on
record. As held by the Bombay High Court in
the case of Hindustan Chemical Works Ltd.
V. CIT in 124 ITR 561, there is a marked
distinction between “lull in business” and
“going out of business”. A temporary
discontinuance of business may, in certain
circumstances, give rise to an inference that
a business is going through a lean period of
transition and it could be revived if proper
circumstances arise. In the present case, the
period between 1993 and 1998 was of such
temporary discontinuance only which can be
Page 4 of 13
termed as a “lull in business”. Thus, when
the intention of the assessee was never to go
completely out of business, it cannot be
concluded that the assessee had
discontinued its business. To our mind, it
makes no difference if the correspondence
was by the Dubai Office of the assessee or by
its office in France as was one of the
contentions of the ld. DR. In fact, in the
accounting year 1995-96, the assessee had
also paid consultancy Charges to follow up
the aforesaid ONGC bid. Further, the
receipts from this contract were offered for
taxation in assessment year 2000-03 as
reflected by the copy of the statement of total
income placed on record. Another factor
which weighed with the revenue authorities
to conclude that the assessee had
discontinued business in India, was the so
called admission by the assessee that it had
no permanent establishment in India. No
doubt, the authorized representative had
averred in the affidavit dated 22.1.01 that the
assessee did not establish nor had any
existing permanent establishment in India.
However, the revenue authorities have
considered this affidavit out of context. The
affidavit had to be sworn in context of the
assessee’s claim for concessional rate of tax
with regard to interest income. Since the
assessee had claimed concessional rate of
tax, the Assessing Officer inferred that there
was a permanent establishment in India. On
account of this wrong inference, the assessee
had to swear an affidavit denying the
existence of a permanent establishment in
India. However, taking this as the base, the
Assessing Officer and the CIT(A) concluded
that since there was no permanent
establishment in India, the assessee was out
of business. It is not well appreciated by the
authorities below that whether there is a
permanent establishment in India or not, has
to be determined as per the provisions of the
relevant DTAA. As per the DTAA, the
Page 5 of 13
assessee may not have a permanent
establishment in India, but that does not
necessarily lead to the conclusion that the
assessee is not in business. The assessee can
be in business, depending upon the facts and
circumstances of the case de hors’ the
permanent establishment which we do find
in the present case. Thus, considering all the
facts and circumstances of the case, we hold
that the assessee was in business during the
period relevant to the assessment year in
question.”
(emphasis supplied)
5. In light of such finding that the appellant had not ceased to carry
on business, the Tribunal though holding income on account of
interest on tax refunds was chargeable under the head ‘Income
from Other Sources’ and not ‘Income from Business’, allowed set
off of the expenses on account of administrative charges, legal
professional fees undertaken by the appellant as business
expenses from ‘income from other sources’ under Section 71 of the
Act. For similar reason unabsorbed depreciation from previous
years was allowed under Section 32(2) of the Act.
FINDINGS OF THE HIGH COURT:
6. The Department challenged the ITAT orders in appeals arising out
of Assessment Years 1996-1997 and 1999-2000 before the High
Court. The High Court reversed the ITAT orders which were
challenged before the Apex Court and remanded for fresh
Page 6 of 13
5
consideration . Thereupon, the appeals arising out of all the
Assessment Years 1996-1997, 1997-1998 and 1999-2000 were
reheard analogously and disposed of by the impugned order.
7. The High Court while agreeing with the proposition that mere lull
in business does not mean the assessee had ceased to do business
in India, reversed the finding of ITAT, holding as follows:
“..when the assessee has neither permanent
office, nor any other office in India, nor any
contract was in execution during the relevant
period, it cannot be said that they were in
business in India, as such, it cannot be said
that assessee was entitled to set off claimed
by it under Section 71 of the Act.”
ISSUE:
8. Having heard learned counsel for the parties, we are of the opinion
that the moot issue which falls for our consideration is:
‘Whether, in the facts of the case, the appellant can be said to have
been carrying on business during the relevant period, so as to avail
deduction of business expenditure under Section 37(1) read with
Section 71 of the Act, and carry forward unabsorbed depreciation
of previous years under Section 32(2) of the Act?’
5
Vide order dated 13.10.2008 in SLP(C) No. 4510 of 2008.
Page 7 of 13
ANALYSIS:
9. Section 37(1), inter alia , provides any expenditure (not being an
expenditure in the nature described in Section 30 to 36 or in the
nature of capital expenditure or personal expenses of the assessee)
which is undertaken wholly and exclusively for the purpose of
business and profession shall be allowed to be deducted in
computing income chargeable under the head ‘Profits and Gains
from Business and Profession’ and consequently, may be set off as
loss against income under any other head subject to the conditions
provided in Section 71 of the Act.
10. Section 32(2) provides unabsorbed depreciation allowance of a
previous year may be carried forward and set off against income of
the following assessment years in the manner and subject to the
conditions provided therein. The first proviso to the said sub-
section further provided such depreciation allowance can be
carried forward if the business or profession for which the
depreciation allowance was originally computed, continued in the
previous year relevant to the assessment year in question. It may
be apposite to note that the said proviso has since been omitted by
st
the Finance Act, 2001 w.e.f. 1 April, 2002.
Page 8 of 13
11. It is evident that to avail the benefit of the aforesaid provisions, the
appellant had to demonstrate that it was carrying on business in
India during the relevant period. While the Tribunal was of the view
mere failure to procure a business contract or maintain a
permanent establishment in India was not a sine qua non to
demonstrate the assessee’s intention to carry on business, the High
Court held to the contrary and disallowed the claim of the
appellant.
12. In the present case, the appellant, a non-resident company had
been awarded 10 years’ drilling contract by ONGC in 1983. The
contract continued till 1993. Thereafter, the appellant failed to
procure another contract till October, 1998. But ample materials
have been placed on record to show during the interregnum , the
appellant had continuous business correspondences with ONGC
with regard to hiring of manpower services in respect of expert key
personnel for drilling in deep waters and had even unsuccessfully
submitted a bid in 1996.
13. Whether failure to procure the drilling contract with ONGC was
owing to the appellant’s disinterest to carry on business during
relevant period and amounted to cessation of business or not must
be construed from the appellant’s conduct. If such conduct, from
the standpoint of a prudent businessman, evinces intention to
Page 9 of 13
carry on business, mere failure to obtain a business contract by
itself would not be a determining factor to hold the appellant had
6
ceased its business activities in India.
14. The Tribunal rightly noted a business going through a lean period
of transition which could be revived if proper circumstances arose,
must be termed as lull in business and not a complete cessation of
the business.
15. The word ‘business’ has a wide import and connotes some real,
substantial and systemic or organised course of activity or activity
7 8
with a set purpose. In CIT v. Malayalam Plantations Ltd. this
Court further underlined that the expression ‘for the purpose of
business’ is wider in scope than the expression ‘for the purpose of
earning profits’ and would encompass in its fold “many other acts
incidental to the carrying on of a business”. The Bench observed as
follows:
“The expression ‘for the purpose of business’
is wider in scope than the expression ‘for the
purpose of earning profits’. Its range is wide:
it may take in not only the day-to-day
running of a business but also the
rationalisation of its administration and
modernisation of its machinery; it may
include measures for preservation of
6
CIT v. Vikram Cotton Mills, (1988) 169 ITR 597 (SC), para 15.
7
Narain Swadeshi Weaving Mills v. Commissioner of excess Profits Tax (1954) 2 SCC 546.
8
(1964) 53 ITR 140 (SC).
Page 10 of 13
business and for protection of its assets and
property from expropriation, coercive process
or assertion of hostile title; it may also
comprehend payment of statutory dues and
taxes imposed as a pre-condition to
commence or for carrying on a business; it
may comprehend many other acts incidental
to the carrying on of a business.”
(emphasis supplied)
16. Continuous correspondences between the appellant and ONGC
with regard to supply of manpower for oil drilling purposes and its
unsuccessful bid in 1996 demonstrates various acts aimed at
carrying on business in India which unfortunately did not fructify
in procuring a contract.
17. In this factual backdrop, the High Court erred in holding that the
appellant was not carrying on business as it had no subsisting
contract with ONGC during the relevant period.
18. The other issue on which the High Court misdirected itself was to
infer as the appellant did not have a permanent establishment and
corresponded with ONGC from its foreign office, it cannot be said
to carry on business in India. This view is wholly fallacious and
contrary to the very scheme of the Act which does not require a
non-resident company to have a permanent office within the
country to be chargeable to tax on any income accruing in India.
Page 11 of 13
19. A combined reading of the charging provisions under Section 4 and
Section 5(2) of the Act read with Section 9(1)(i) makes it amply clear
that a non-resident person shall be liable to pay tax on income
which is deemed to accrue or arise in India. Under Section 9(1)(i),
income accruing or arising, directly or indirectly, through or from
any business connection in India is deemed to accrue or arise in
India and is accordingly chargeable to tax as business income
under Section 28 of the Act. None of these provisions make it
mandatory for a non-resident assessee to have a permanent
establishment in India to carry on business or have any business
connection in India. The issue of ‘permanent establishment’ may
be relevant for the purposes of availing the beneficial provisions of
the Double Tax Avoidance Agreement (DTAA) between India and
France which is not a relevant consideration for the purposes of
this case.
20. In an era of globalisation whose life blood is trans-national trade
and commerce, the High Court’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.
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CONCLUSION:
21. For the aforesaid reasons, we allow the appeals and set aside the
judgment and order of the High Court. Orders passed by the ITAT
are revived and Assessing Officer is directed to pass fresh
Assessment Orders for the relevant Assessment Years in terms of
the ITAT orders.
……………………………………………., J
( MANOJ MISRA )
…………………………………………, J
( JOYMALYA BAGCHI )
New Delhi,
October 17, 2025
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