TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) whether the net profit rate of 27.5% could be applied to supervisory services attributed to the Indian permanent establishment; (ii) whether income from sale of designs and drawings was taxable as royalty or fees for technical services, or as business income from sale of a copyrighted article; (iii) whether profits from sale of equipment were taxable in India on the basis of attribution to the permanent establishment.
Issue (i): whether the net profit rate of 27.5% could be applied to supervisory services attributed to the Indian permanent establishment.
Analysis: The supervisory services were rendered in connection with an admitted permanent establishment in India. The same profit attribution rate had already been upheld in the assessee's own earlier years on identical facts. The Tribunal followed its coordinate Bench decisions and accepted the factual basis on which the Settlement Commission had attributed profits at 27.5% to supervisory activities.
Conclusion: The application of the net profit rate of 27.5% was upheld and the issue was decided against the assessee.
Issue (ii): whether income from sale of designs and drawings was taxable as royalty or fees for technical services, or as business income from sale of a copyrighted article.
Analysis: The designs and drawings were found to be basic engineering packages developed and supplied outside India, and the consideration was for the sale of a product embedded in the plant setup. Following the assessee's own earlier decisions, the Tribunal treated the transaction as sale of a copyrighted article rather than use of copyright or provision of technical services. The income was therefore characterised as business income and not as royalty or fees for technical services under the treaty or domestic law.
Conclusion: The receipts from sale of designs and drawings were held to be business income and the issue was decided in favour of the assessee.
Issue (iii): whether profits from sale of equipment were taxable in India on the basis of attribution to the permanent establishment.
Analysis: The equipment contracts were concluded outside India, the manufacturing and designing were carried out outside India, delivery was on FOB foreign port terms, payment was received outside India, and inspection took place outside India. The Tribunal followed its earlier rulings in the assessee's own case and held that there was no basis to attribute the offshore supply profits to an Indian permanent establishment.
Conclusion: The profits from sale of equipment were held not taxable in India and the issue was decided in favour of the assessee.
Final Conclusion: The assessee succeeded on the characterisation of design and drawing receipts and on the non-taxability of offshore equipment sales, while the attribution of profits from supervisory services at 27.5% was sustained. The revenue's appeal failed in full.
Ratio Decidendi: Where contracts are concluded and performed substantially outside India, receipts from offshore supply or sale of a copyrighted article are not taxable in India merely because the goods or deliverables are used in India, whereas profits from supervisory services attributable to an admitted permanent establishment may be assessed on a reasonable profit percentage consistently upheld on identical facts.
TaxTMI 
