“Catch Me If You Can” They Say. “Of Course We Will!” Says the Government Plugging the tax loop holes…

Cognizant of the many devious shenanigans of some foreign entities to avoid tax in India, the Government has tightened the screws by making the provisions of the Income Tax Act more stringent, with retrospective effect.

In a landmark case of Ishikawajima, the Supreme Court had earlier held that only if the fees for technical services were rendered in India as well as utilized in India, it could be chargeable to tax in the hands of a non-resident entity. In actual practice this was being used as an escape route by foreign entities.

To plug this loophole an amendment, to the Income-Tax Act, has been proposed in the current Finance Bill, covering those non-resident foreign entities which earn fees for technical services delivered to an Indian entity.

As per the revised Section 9 of the Income Tax Act (to be operational with retrospective effect from 1976) such fees to a non-resident will be taxable, whether or not the non-resident has rendered services in India.

The retrospective application can lead to opening of assessments of projects completed years ago, causing   harassment and financial implications to assesses.