Offshore supply income taxable only for India-attributable operations; foreign sale completed abroad was not taxed in India.

Income from offshore supply of equipment under composite contracts was treated as separate from onshore services, and only the income attributable to operations carried out in India was liable to tax in India under Section 9 of the Income-tax Act and Article 7 of the India-Korea treaty. Because title passed outside India and the manufacture, shipment, transfer of property, delivery of documents, and receipt of consideration for the offshore supply all occurred outside India, that component was not taxable in India. The presence of a business connection or permanent establishment did not, by itself, justify taxing the offshore supply income where the Indian agent had no role in that transaction. Onshore services remained separately taxable in India.

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Issues: Whether income from offshore supply of equipment under the contracts was chargeable to tax in India under Section 9 of the Income-tax Act, 1961 and Article 7 of the Double Taxation Avoidance Agreement between India and Korea.

Analysis: The contracts for offshore supply and onshore services were treated as separate, and the title in the equipment passed outside India on delivery abroad. The activities relating to manufacture, shipment, transfer of property, delivery of documents and receipt of consideration for the offshore supply took place outside India, so only income attributable to operations carried out in India could be taxed in India. The Indian agent was found to have no role in the offshore supply, and the existence of a business connection or permanent establishment, without involvement in the offshore transaction, did not justify taxing the entire offshore income. The onshore services were separately taxable in India, but that did not alter the tax position for offshore supply.

Conclusion: The offshore supply income was not taxable in India; the issue was decided in favour of the assessee.

Final Conclusion: The appeals failed because no tax liability could be fastened on the offshore supply component, and the Tribunal's view was affirmed.

Ratio Decidendi: Only that part of income which is attributable to operations carried out in India can be taxed in India, and offshore supply completed outside India is not taxable merely because the contract is connected with Indian onshore activities or a business connection is asserted.

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