Cross-border contract apportionment limits Indian taxation to PE-attributable profits and excludes offshore fabrication receipts.

A composite cross-border contract may be apportioned where offshore fabrication, procurement and supply are performed outside India while installation and commissioning occur in India. On the stated facts, the Indian project office and related business functions supported the existence of a fixed place, installation and dependent agent PE, but taxation is confined to profits attributable to the Indian PE. Section 44BB does not apply to construction and installation of an offshore platform outside the mineral oil prospecting or extraction context. For a non-resident subject to withholding tax, interest under sections 234B and 234C is not leviable on the basis described, and section 234D follows consequentially.

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Issues: (i) Whether the assessee had a permanent establishment in India in the form of a fixed place PE, installation PE, or dependent agent PE, and to what extent profits were attributable to such PE; (ii) whether the contract was divisible so that offshore fabrication and supply receipts could be excluded from taxation in India; (iii) whether section 44BB of the Income-tax Act, 1961 applied; and (iv) whether interest under sections 234B, 234C and 234D of the Income-tax Act, 1961 was leviable.

Issue (i): Whether the assessee had a permanent establishment in India in the form of a fixed place PE, installation PE, or dependent agent PE, and to what extent profits were attributable to such PE?

Analysis: The assessee had a project office in India and its activities were not confined to a mere communication channel. The office was involved in pre-bid and project-related activities, and the record also showed involvement of Arcadia in core business functions, including bid-related and contract-related dealings. The duration and nature of the project also supported the existence of an installation PE. However, under the treaty, only profits attributable to the PE could be taxed in India.

Conclusion: The assessee had a PE in India, including an installation PE and a dependent agent PE, but taxability was confined to profits attributable to the Indian PE.

Issue (ii): Whether the contract was divisible so that offshore fabrication and supply receipts could be excluded from taxation in India?

Analysis: The contract separately identified consideration for different activities and the evidence showed bifurcation between work done in Abu Dhabi and work done in India. The offshore fabrication, procurement and related activities were completed outside India, while installation and commissioning were carried out in India. Following the principle of apportionment, offshore operations could not be taxed merely because the overall project culminated in India.

Conclusion: The contract was divisible in substance, and receipts attributable to offshore fabrication and supply were not taxable in India.

Issue (iii): Whether section 44BB of the Income-tax Act, 1961 applied?

Analysis: Section 44BB applies to non-residents engaged in providing services or facilities in connection with prospecting for, or extraction or production of, mineral oils, or in supplying plant and machinery on hire for such purposes. The assessee was engaged in construction and installation of an offshore platform, which did not fall within the statutory scope of section 44BB.

Conclusion: Section 44BB did not apply.

Issue (iv): Whether interest under sections 234B, 234C and 234D of the Income-tax Act, 1961 was leviable?

Analysis: The assessee was a non-resident and tax was required to be withheld at source on payments made to it. In such circumstances, the assessee was not liable to advance tax in the manner assumed for levy of interest under sections 234B and 234C. No independent submission was advanced on section 234D, and that levy was consequential.

Conclusion: Interest under sections 234B and 234C was not leviable; section 234D was consequential.

Final Conclusion: The appeal succeeded in part: profits attributable to offshore work were held outside Indian tax net, taxation was confined to income attributable to the Indian PE, section 44BB was held inapplicable, and the levy of advance-tax interest was deleted.

Ratio Decidendi: Under a composite cross-border contract, only the profits attributable to the permanent establishment in India are taxable in India, and offshore fabrication or supply receipts completed outside India are not taxable merely because the project is ultimately installed in India.

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