Tax on Purchase of overseas Travel Package purchased by Tour operator

CASE

Agent providing sale and marketing services relating to cruises and holiday packages for overseas agents and their appointment in India is mainly for the purpose of collecting money in India, therefore, the entire sale proceeds received by the agents were received on behalf of the overseas agents and belonged to it subject to the rights of the agents.

As per Section 9(1)(i)

The following incomes shall be deemed  to accrue or arise in India :—

 (i)  all income accruing or arising, whether directly or indirectly, through or from any business connection in India….

Furher as per Explanation 1

[Explanation 1].—For the purposes of this clause—

(a)  in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;

 [Explanation 2.—For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of the non-resident,—

(a)  has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or

(b)  has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c)  habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :

[Explanation 4.—For the removal of doubts, it is hereby clarified that the expression "through" shall mean and include "by means of", "in consequence of" or "by reason of".

As clear from the reading of explanation (1) (a) when no business operations are carried out in India, even if a non resident has a business connection in India, no part of income of such business can be deemed to have accrued or arisen in India.