Thousands of Web sites, online travel and auction portals hosted abroad (i.e. with servers based in foreign countries) but with a base in India -- whereby users can subscribe or pay and buy goods and services -- will be liable to pay tax in India.

This follows an Authority for Advance Ruling (AAR) decision, which directed that payments made by an Indian subscriber for using a portal of a foreign company will be subject to deduction of tax at source.

The decision was taken in response to an appeal filed by Singapore-based Cargo Community Network Pte Ltd, which runs Ezycargo, an air cargo portal.

Ezycargo enables an agent based in India to access the data bank of airlines for flight schedules and cargo space availability.

The company had said that subscription for cargo booking through this portal includes a one-time receipt of system-connect fees, monthly subscription fees and help-desk charges. These charges fall within the purview of business income and are taxable in India, provided the company has a permanent establishment.

The company contended that these charges do not fall under the category of royalty or fees for technical services, and a liaison office could not be treated as a "permanent establishment (PE)."

However, the tax department ruled that the company provides onsite help-desk support and training on the usage of Ezycargo in Chennai, thus conducting business in India through a PE.