Tribunal rules on offshore supply title passing, taxes on services; fresh income determination ordered

The tribunal held that the title of goods for offshore supply passed outside India, with compensation for services rendered in India chargeable to tax. Income from onshore supply of equipment and onshore services were also deemed taxable. Additionally, income from design and engineering services was considered fees for technical services. The tribunal directed the AO to determine the income for the year by verifying actual supplies and services rendered, and set aside the impugned order for fresh determination. Regarding transfer pricing adjustment, the tribunal directed a reevaluation of operating costs for correct Arm's Length Price determination.

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Issues Involved:

1. Income from contract with Steel Authority of India Ltd.
2. Transfer Pricing Adjustment.

Detailed Analysis:

A. Income from Contract with Steel Authority of India Ltd.

I. Income from Offshore Supply of Equipment

1. Where Title to the Goods PassedRs.

The assessee, a non-resident company from Korea, claimed that the title of goods for offshore supply passed outside India, with the transfer of risk occurring on the high sea. The DRP accepted this argument, but the DR argued that the PE in India played an active role in the supply. The tribunal held that the title of goods passed outside India, as the delivery and payment were made outside India.

2. Whether Sale Price Includes Any Consideration for Services Rendered or to be Rendered in IndiaRs.

The tribunal found that the sale price included training charges and potentially other costs such as defect liability and inspection charges. These services were rendered in India, and their compensation was included in the sale price of the equipment.

3. Taxability of Price for Offshore Supply of Equipment and Compensation for Services Rendered in India

The tribunal held that the profit from offshore supply of equipment simplicitor is not chargeable to tax in India. However, the compensation for services rendered in India is chargeable to tax. The tribunal directed the AO to verify the dates of actual supply and determine the value of services rendered in India.

4. Attribution of Income to Services Rendered in India

The tribunal directed the AO to determine the value of services rendered in India, such as training and other costs, and attribute income accordingly.

II. Income from Onshore Supply of Equipments

The assessee received Rs. 15.03 crore for onshore supply of equipment, which was claimed to be an advance. The tribunal held that this amount is chargeable to tax in the correct year and directed the AO to verify the actual supply and services rendered.

III. Income from Onshore Services

The assessee received Foreign Supervision Charges for services rendered in India. The tribunal held that this amount is chargeable to tax in the correct year and directed the AO to verify the actual services rendered.

IV. Income from Design & Engineering Services

The assessee received Euro 150900 for Design and Engineering services, claimed to be an advance. The tribunal held that this amount is chargeable to tax as fees for technical services under section 9(1)(vii) of the Act and directed the AO to determine the actual services rendered during the year.

How Much is Income for the Current YearRs.

The tribunal directed the AO to determine the income for the year under consideration by verifying the actual supply of goods and services rendered. The tribunal set aside the impugned order and restored the matter to the AO for fresh determination.

B. Transfer Pricing Adjustment

The assessee entered into a construction contract with its AE and subcontracted the project to an independent third party. The TPO initially proposed a TP adjustment of Rs. 4,46,82,666/-, which was later reduced to Rs. 2,15,27,090/-. The tribunal found that the TPO excluded certain expenses from the cost base, which was not sustainable. The tribunal directed the AO/TPO to recompute the OP/TC of the assessee and comparables by considering the total operating costs. The tribunal set aside the calculation of OP/OC and directed fresh computation for determining the correct ALP.

Conclusion

The appeal was partly allowed for statistical purposes, with directions for fresh determination by the AO/TPO on various aspects of income from the contract with SAIL and transfer pricing adjustment.

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