As per Art. 7 (Business profits) of most tax treaties, business income of a foreign enterprise (from the Residence State) is taxable in the Source State if, and to the extent, it is attributable to a permanent establishment (PE) in the Source State. Domestic tax laws of some jurisdictions provide for determination of taxable business income on ‘presumptive basis’. Often, taxpayers find such provisions more beneficial compared to taxation as per mainstream provisions.

Sec. 44BB of the Indian Income Tax Act, 1961 (“the Act”) is a leading example of provisions permitting determination of business profits on presumptive basis. That provision, inter alia, deems as income 10% of a non-resident’s revenue from provision of services in connection with the prospecting for, or extraction or production of, mineral oils.

Though a provision such as Sec. 44BB of the Act may seem fairly simple and straight forward, sometimes it gives rise to rather interesting issues. For example,...