Offshore supply receipts not taxable in India where title passed abroad and Indian operations were separately priced.

Offshore supply receipts under a composite contract were held not taxable in India where the supply agreement provided separate consideration, payment in foreign exchange, and transfer of title outside India on loading and document delivery. The onshore erection contract was separately priced and concerned services in India, so its terms could not be used to mix the offshore supply consideration with Indian operations. The existence of a project office or business connection did not by itself make the offshore receipt taxable, because only income attributable to operations carried out in India can be taxed. Applying Ishikawajma, the Court held that the offshore supply income did not accrue or arise in India and the levy on that receipt could not stand.

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Issues: Whether the income from offshore supply under the contract was taxable in India under Section 9 of the Income-tax Act, 1961, and whether the existence of a project office or the linked onshore contract could postpone or extend the accrual of such income to India.

Analysis: The offshore supply agreement provided for separate consideration, payment in foreign exchange, and transfer of title outside India upon loading of the equipment and delivery of documents under the letter of credit. The onshore erection contract was separately priced and related to services performed within India. The Court held that the two agreements, even if read together, did not justify mixing the consideration for offshore supply with the onshore services contract. The project office had no role in the offshore supply transaction, and the mere existence of a business connection or permanent establishment did not make the entire offshore receipt taxable in India. Applying the principle that only the income attributable to operations carried out in India can be taxed, the Court followed the ratio of the Supreme Court in Ishikawajma and distinguished contrary factual situations.

Conclusion: The offshore supply income did not accrue or arise in India and was not taxable in India. The question was answered in favour of the assessee and against the Revenue; the levy based on that offshore receipt could not stand.

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