Captive BPOs of MNCs not liable to pay tax in India, rules SC
Mumbai: In a major relief to foreign firms outsourcing business process in India, the Supreme Court has held that these captive BPOs are not liable to be taxed in the country if they are billing the subsidiaries on an "arms length" basis or without giving any preference.

The judgement came on a case between US investment bank Morgan Stanley and the income tax department. The department had said that outsourcing activities by Morgan Stanley Advantage Services (MSAS), the firm's Indian arm, must pay tax in India.

The apex court ruling is likely to benefit foreign companies like GE, HSBC, Standard Chartered Bank, which outsource back office functions to their Indian units. Foreign companies operating in India pay tax at a rate of about 42 per cent and the judgement establishes that income of subsidiaries on work done for parent companies was not taxable.

The Supreme Court ruling could also have an impact on MNC taxation and may overrule the Mumbai Income Tax Appellate Tribunal, or ITAT, order in Sony's case, which had taken a contradictory position to the AAR.

The income tax department had gone in appeal against the Advance Ruling Authority 's order in the Morgan Stanley case. But the division bench of Justice Pasayat and Justice Kapadia has confirmed the Authority for Advance Rulings, or AAR, ruling. (Read More)
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