SC rules NR taxpayer carried on business in India even in absence of contract or PE in India

This Tax Alert summarizes a recent Supreme Court ^[1]  (SC) (Two Judge Bench) decision in the case of Pride Foramer S.A. v. CIT & Anr. ^[2]  (Taxpayer) , where the key issue was whether business expenses and unabsorbed depreciation (arising from past business operations in India) claimed by a non-resident taxpayer under the Indian Tax Law ^[3]  (ITL) can be set off against interest on income tax refund, even in the absence of active business operations or physical presence in India.

The Taxpayer, a non-resident (NR) company, undertook a drilling contract for ONGC ^[4]  from 1983 to 1993. Subsequently, another drilling contract was awarded in October 1998. During the intervening period, the Taxpayer maintained continuous business correspondence with ONGC to offer manpower services for deep-water drilling and had even submitted a bid in 1996, which was unsuccessful. 

The Taxpayer received interest on income tax refund during the intervening period and filed its return of income offering such interest as business income and claimed deductions for administrative and audit expenses including set off of unabsorbed depreciation brought forward from earlier years. While these claims for set off were disallowed by the Tax Authority, they were accepted by the Tribunal.

The Uttarakhand High Court (HC) reversed the Tribunal’s decision and denied the deduction of business expenses including unabsorbed depreciation. On Taxpayer’s further appeal, the SC held that a mere lull in business activity does not amount to cessation of business, particularly where the Taxpayer’s conduct demonstrates a continuing intention to carry on business in India. Accordingly, the SC allowed deduction of expenses incurred including set off of unabsorbed depreciation. The SC observed that activities such as maintaining correspondence with ONGC for manpower supply contract and submitting bids were sufficient to establish the Taxpayer’s continuing intent to conduct business. 

^[1] The Apex Court in India
^[2] 2025 INSC 1247
^[3] Income-tax Act, 1961 r.w. Income tax Rules 1962
^[4] An Indian public sector company engaged in oil and gas business