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Pride Foramer S.A. vs. Commissioner of Income Tax & Anr.

Not available · 2025 INSC 1247Decided 17 Oct 2025
Not available
Justice Manoj Misra

Background

Pride Foramer S.A., a French company engaged in offshore oil drilling, held a 10-year drilling contract with ONGC from 1983 to 1993 and was awarded a fresh contract in 1998-99. In the intervening assessment years (1996-97, 1997-98, 1999-2000), it had no active drilling contract but continued business correspondence with ONGC from its Dubai and France offices and submitted a bid for oil exploration in 1996, incurring administrative and audit expenses. It filed "NIL" income returns except for interest earned on income-tax refunds, and claimed deductions for its business expenditure and set-off of unabsorbed depreciation. The Assessing Officer and CIT(Appeals) disallowed these, holding the company was not "carrying on business" in India during that period; the High Court of Uttarakhand upheld this disallowance, reversing the Income Tax Appellate Tribunal, which had ruled in the company's favour.

Decision Breakdown

The Supreme Court allowed the company's appeals, holding that a non-resident company need not have a "permanent establishment" in India to be taxed on income deemed to accrue or arise in India under Sections 4, 5(2) and 9(1)(i) of the Income Tax Act: the "permanent establishment" concept is relevant only for claiming benefits under a Double Taxation Avoidance Agreement, not for determining whether a business connection exists for domestic tax purposes. The Court held that carrying on business correspondence with an Indian entity (ONGC) from a foreign office, even without an active contract, could still amount to carrying on business in India, and criticised the High Court's contrary, restrictive interpretation as out of step with India's commitment to ease of doing business in a globalised economy. The Court set aside the High Court's judgment, revived the ITAT's orders in the company's favour, and directed the Assessing Officer to pass fresh assessment orders accordingly.

Lesson Learnt

For tax purposes, a foreign company does not need a physical "permanent establishment" in India to be treated as carrying on business here, ongoing business correspondence and dealings with an Indian counterpart can be enough to claim legitimate business-expense deductions, even during a lull between formal contracts.

Official source (sci.gov.in)View Judgment (PDF)

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