2013 (1) TMI 214 - HC - Income Tax

Offshore income not taxable under Income-tax Act for AY 2003-04 due to DTAA; Revenue's appeal dismissed

The Tribunal held that income from offshore supply and services is not taxable under section 9(1) of the Income-tax Act, 1961 for Assessment Year ... Offshore supply of equipments and offshore services - whether be taxed within the purview of section 9(1) - Held that:- ITAT followed the decision of Ishikawajima Harima Heavy Industries Co. Ltd. v. DIT [2007 (1) TMI 91 - SUPREME COURT] wherein held that the amount receivable by the assessee in respect of offshore supply of equipments and offshore services cannot be taxed under section 9(1). Also apart from non-applicability of section 9(1) in the present case Article 7 of the DTAA between India and Japan is also applicable and, hence, the income arising on account of offshore services and offshore supply of equipments would not be taxable. Thus if the assessee is not liable to tax in view of the Article 8 of DTAA between India and Japan, then, irrespective of the amendment to section 9(1) the assessee would not be liable to tax - no fault in the order of the ITAT. Issues:Taxability of offshore supply of equipments and offshore services under section 9(1) of the Income-tax Act, 1961 for Assessment Year 2003-2004.Analysis:The dispute in this case revolves around the taxability of offshore services and offshore supply provided by the assessee during the relevant assessment year. The Income Tax Appellate Tribunal, relying on a previous decision of the Apex Court in the assessee's own case, concluded that the amount receivable for these services cannot be taxed under section 9(1) of the Act. The Revenue argued that due to an explanation added to section 9 by the Finance Act, 2010, the assessee should be liable to pay tax on these offshore transactions. However, the Tribunal held that the income from offshore supply and services is not taxable under section 9(1) and also pointed out the applicability of Article 7 of the Double Taxation Avoidance Agreement (DTAA) between India and Japan, which further supports the non-taxability of such income. The Tribunal emphasized that even with the retrospective amendment to section 9(1), the assessee would still not be liable to tax if covered under the DTAA provisions.Therefore, the Tribunal found no fault with its decision, as it was in line with the previous judgment and the provisions of the DTAA. The appeal by the Revenue was dismissed, and no costs were awarded in this matter.