2012 (7) TMI 690 - AT - Income Tax

High Court affirms 75% offshore supply taxable in India, 7% profit estimation upheld.

The appeal of the assessee was dismissed by the High Court, confirming that 75% of the offshore supply activities were taxable in India. The profits were ... Accrual of income in India - ITAT earlier decided that 75 percent of the offshore supply activities have happened in India given the fact that the entire manufacturing activity has happened outside India which has not been disputed by the Tribunal - HC remanded the matter back to ITAT - held that:- The assessee except filing chart showing net profit margin by different parties in similar power projects, did not file profit and loss account etc. of the subsidiary and other comparative figures as was asked by the Tribunal at the time of hearing in first round. - The assessee in this case has not been able to file any material or evidence even on the direction of the Hon’ble High Court when the assessee was allowed opportunity in this regard as directed by the Hon’ble High Court to furnish documents and the Tribunal was directed to receive such documents for the limited purpose of enabling the Tribunal to work out the percentage. - Appeal of assessee dismissed. Issues Involved:1. Application of the ratio of the Honourable Apex Court in the case of Ishikawajima Harima Heavy Industries.2. Determination of the percentage of offshore supply activities that occurred in India.Issue-wise Detailed Analysis:1. Application of the Ratio of the Honourable Apex Court in the Case of Ishikawajima Harima Heavy Industries:The Tribunal initially decided against the assessee, and the assessee appealed to the Hon'ble Madras High Court. The High Court admitted the substantial question of law regarding whether the Tribunal erred in not applying the ratio of the Honourable Apex Court in the case of Ishikawajima Harima Heavy Industries. The criteria set by the Apex Court included (a) passing of property outside India and (b) payment of consideration outside India. The High Court answered this question in favor of the Revenue, confirming that the Tribunal did not err in its application.2. Determination of the Percentage of Offshore Supply Activities that Occurred in India:The second issue was whether the Tribunal was right in holding that 75 percent of the offshore supply activities happened in India, despite the entire manufacturing activity occurring outside India. The High Court remitted this matter back to the Tribunal for fresh consideration. The Tribunal proceeded to adjudicate without the assistance of the assessee, who had not responded to the notice of hearing.The Departmental Representative referenced a previous Tribunal order for the Assessment Year 2000-01, where the issue was decided in favor of the Revenue. The Tribunal noted that the Commissioner of Income Tax (Appeals) had provided a detailed examination of the contracts involved, concluding that the appellant should be taxed on all four contracts due to the composite nature of the work and the responsibilities taken by the appellant, including the use of a subsidiary company as a facade.The Commissioner of Income Tax (Appeals) had estimated the profit on Contract I at 15%, attributing 75% of this profit to activities in India, resulting in an 11.25% taxable profit. For Contracts III and IV, a lower profit was estimated due to claimed losses and ongoing arbitration proceedings. Overall, a reasonable profit of 7% was considered for the entire project, with Contract II being taxed under section 9(1)(vii) as a fee for Technical Services.The Tribunal, in its previous decision, had concluded that only 25% of the profits of Contract I could be considered offshore, confirming that the remaining 75% of the profits were taxable in India. This conclusion was based on the composite nature of the contract and the significant activities conducted in India.In the current appeal, the Tribunal found that the facts and activities during the year under consideration were identical to those in the Assessment Year 2000-01. As the assessee did not provide any new material or evidence, the Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) and dismissed the grounds of appeal of the assessee.Conclusion:The appeal of the assessee was dismissed, confirming that 75% of the offshore supply activities were taxable in India, and the profits were reasonably estimated at 7% for the entire project, with specific considerations for each contract involved. The Tribunal's decision was consistent with the previous year's findings, and no new evidence was presented to alter this conclusion.