L S Cables Ltd. v. Director of Income-tax, A.A.R. No. 858-861 of 2009

L S CABLES LTD. V. DIRECTOR OF INCOME TAX

Whether the assessee was liable to pay tax in India on its offshore supply income.
Whether the assessee had a permanent establishment in India for the purpose of taxation.

A foreign company is not liable to pay tax in India on its offshore supply income unless it has a permanent establishment in India.

L. S. Cables Ltd. was a South Korean company that manufactured and sold power transmission cables and related equipment.
It had entered into a series of contracts with Power Grid Corporation of India Ltd. (PGCIL) for the supply of power transmission cables and related equipment.
The contracts were performed by the assessee’s Indian agent, M/s. Alpasso Industries Pvt. Ltd.
The assessee did not have any offices or establishments in India.
The assessee’s agent, M/s. Alpasso Industries Pvt. Ltd., was only involved in performing ancillary activities, such as clearing the goods imported by the assessee from South Korea, arranging for transportation of the goods to the project sites, and providing assistance to the assessee’s technical team during the installation of the cables.
The agent did not have the authority to enter into contracts on behalf of the assessee.

The Supreme Court of India held that L. S. Cables Ltd. was not liable to pay tax in India on its offshore supply income and that it did not have a permanent establishment in India.
The Court reasoned that the assessee’s agent, M/s. Alpasso Industries Pvt. Ltd., was only involved in performing ancillary activities and did not have the authority to enter into contracts on behalf of the assessee.
The Court’s decision is important because it clarifies the scope of the term “permanent establishment” in the context of taxation of offshore supply income