2012 (2) TMI 74 - AAR - Income Tax

Offshore Equipment Supply Not Taxable: Authority Ruling

SEPCO III Electric Power Construction Corporation, In re

SEPCO III Electric Power Construction Corporation, In re - [2012] 342 ITR 213 Issues:Taxability of payment received under offshore supply contract.Analysis:1. The applicant, a Chinese company, entered into a contract with an Indian company for supplying equipment for a power project. The applicant claimed that the payment received for the equipment supplied under the contract was not taxable in India as the supply was outside Indian territory. The applicant sought an advance ruling on the taxability of the payment.2. The Revenue objected to the advance ruling application, citing pending assessment proceedings. However, the objection was overruled, and the application was allowed. The question framed for ruling was whether the amounts received for offshore supply of equipment were liable to tax in India under the Income-tax Act.3. The terms of the contract were elaborately discussed, highlighting that the title to the equipment passed outside India, as per the contract clauses. Various aspects of the contract, such as payment terms, port of loading, and insurance details, indicated that the transaction was an offshore sale.4. The applicant's counsel referred to a Supreme Court decision and a ruling of the Authority in support of the contention that the payment for offshore supply should not be taxed in India.5. The Revenue argued that significant portions of the contract involved activities in India, indicating a permanent establishment in India. However, the Authority noted that the question was specifically on offshore supply of equipment and not other activities.6. Despite the Revenue's arguments, the Authority stated that it was bound by the Supreme Court decision referenced by the applicant. The Authority emphasized that the transaction should be considered an offshore sale based on the contract terms and related documents.7. The Authority concluded that the payment received for offshore supply of equipment was not liable to tax in India, following the Supreme Court decision. The objection raised by the Revenue was overruled based on the legal precedent.8. The ruling clarified that it pertained only to offshore supplies and not other activities under the contract. The decision was based on the specific circumstances of the case and the legal principles established by the Supreme Court.9. The ruling was pronounced on January 31, 2012, providing a definitive answer on the taxability of the payment received by the applicant for offshore supply of equipment under the contract.This comprehensive analysis of the judgment addresses the issues involved and the detailed reasoning behind the Authority's ruling on the taxability of the payment received under the offshore supply contract.