A new line of debate has been initiated by the tax department in the case citation [2026] 185 taxmann.com 54 (Bombay) wherein a China-resident company entered into a Service Agreement with its Indian subsidiary for providing management support, finance and HR, quality and warranty, IT support, facility management, and treasury, taxation, legal and internal control services. Crucially, Such services were to be rendered from China through email, conference calls and video conferencing without any personnel visiting India.
Since these services were being rendered virtually through interactive modes on video conferencing or conference calls or emails, the tax authorities formed a view that the nature and manner in which the services were provided, as per the law prevailing in India, even if done virtually, equates to and is the same as a physical rendition of services in India.
In rejecting such argument the High Court even when finding it though at first blush attractive held that the services may have been rendered in the presence of each other, but by merely saying that because the services were rendered to the Indian entity virtually, would mean that the services were physically rendered in India by the Chinese entity would be too broad a proposition for Court to accept. Without there being any specific provision, either in law or in the DTAA, Court felt unable to accept this broad proposition that because the services were rendered by the China company to its subsidiary in India virtually, the same amounted to the said services being rendered physically in India. In the absence of specific provisions in either domestic law or the Double Taxation Avoidance Agreement (DTAA), the Court was unable to bridge the gap between virtual and physical presence. Consequently, the Court ruled that the services were physically rendered in China, not in India