Divisible offshore contract profits taxable only to the extent attributable to the Indian permanent establishment; 44BB and advance-tax interest excluded.

A composite offshore installation contract was treated as divisible, so only profits attributable to the Indian permanent establishment were taxable in India; offshore fabrication and erection receipts remained outside Indian taxation. The facts also supported a project office PE, a dependent agent PE, and an installation PE in India because the office and agent were used for project-related and pre-bid activities. Section 44BB did not apply because the assessee was not providing services or facilities for mineral oil exploration or production. Interest under sections 234B and 234C was not leviable against the non-resident, and section 234D was consequential.

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Issues: (i) Whether the assessee had a permanent establishment in India, including a project office PE, a dependent agent PE, and an installation PE; (ii) whether the contract was divisible and, if so, whether only the profits attributable to the Indian PE could be taxed in India; (iii) whether the assessee's business activity fell within section 44BB of the Income-tax Act, 1961; (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, including a project office PE, a dependent agent PE, and an installation PE.

Analysis: The assessee's project office in India was found to have been established for the project and not merely as a communication channel. The office was used for pre-bid and project-related activities, and the record supported a fixed place of business in India. The material on record also showed active participation of M/s Arcadia Shipping Ltd. in pre-bid meetings, tender-related work, and project coordination, indicating agency functions carried out wholly and exclusively for the assessee. The duration and nature of the project further supported the existence of an installation PE.

Conclusion: The assessee had a project office PE, a dependent agent PE, and an installation PE in India.

Issue (ii): Whether the contract was divisible and, if so, whether only the profits attributable to the Indian PE could be taxed in India.

Analysis: The contract was treated as an umbrella arrangement with separately identified consideration for different activities. The revenue split between offshore and onshore operations was built into the contractual structure, and the work involved distinct phases such as design, fabrication, procurement, transportation, installation, and commissioning. Applying the principle of apportionment, profits from fabrication and erection outside India could not be attributed to the Indian PE. Only the income linked to installation and commissioning activities in India was taxable in India.

Conclusion: Even if the arrangement was turnkey in form, only profits attributable to the Indian PE were taxable, and offshore fabrication and erection receipts were not taxable in India.

Issue (iii): Whether the assessee's business activity fell within section 44BB of the Income-tax Act, 1961.

Analysis: Section 44BB applies to a non-resident engaged in providing services or facilities in connection with, or supplying plant and machinery on hire for, mineral oil exploration or production. The assessee was not carrying on such a business on the facts found; it was executing a project for installation of an offshore platform. The activity did not answer the statutory description required for presumptive taxation under that provision.

Conclusion: Section 44BB was not applicable to the assessee.

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 whose income was subject to deduction at source. In the absence of a liability to pay advance tax, the statutory basis for levy of interest under sections 234B and 234C was not made out. The levy under section 234D was consequential.

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

Final Conclusion: The appeal succeeded only in part: the assessee was held taxable in India only to the extent of profits attributable to the Indian PE, section 44BB did not apply, and interest under sections 234B and 234C was deleted.

Ratio Decidendi: In a composite contract with separately identifiable offshore and onshore components, only the profits attributable to the permanent establishment in India can be taxed, while offshore profits from fabrication and erection outside India remain outside Indian taxation; presumptive and interest provisions apply only if their statutory conditions are satisfied.

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