Foreign companies operating in India must deduct at source even on salaries paid abroad to their expatriate employees for services rendered in India, the Supreme Court has ruled.
The Supreme Court Judge stated: “We are of the view that if the payments of home salary abroad by the foreign company to the expatriate has any connection or nexus with his rendition of service in India then such payment would constitute income which is deemed to accrue or arise to the recipient in India as salary earned in India in terms of Section 9(1)(ii) of the Income Tax Act."
This clarifies 104 appeals from various high courts and tribunals, raising questions over the obligations of foreign companies. The appellants included Eli Lilly, Ericsson Communications, Woodward Governors and Japanese companies Mitsui & Company and Tokyo-Mitsubishi Bank, but not a Hutchison Vodaphone case which is to be considered separately.
The Indian tax authorities had launched investigations and imposed penalties on some Japanese companies for non-disclosure of the salaries of their expatriate staff based in India. These penalties were lifted under this latest judgement.
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