Divisible contract and offshore supply taxability upheld, with India-linked receipts separately attributed and reassessment challenge rejected.

Reassessment was not invalid on a change-of-opinion theory because an order under section 195(2) is only a prima facie TDS determination and not a regular assessment under section 143(3). The contract was treated as divisible, since consideration was separately allocated for supply, installation, commissioning, inspection and training; offshore supplies completed on FOB/FCA terms outside India were not taxable in India in the absence of offshore operations or a treaty PE nexus. Onshore supplies, installation and inspection receipts, and the service tax component required fresh factual examination. Attribution of 15% of gross receipts from India-linked activities was upheld, and the Revenue's higher attribution claim failed.

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Issues: (i) whether reassessment proceedings were invalid on the ground of change of opinion; (ii) whether the contract with ONGC was a composite contract or a divisible contract and whether offshore supplies were taxable in India; (iii) whether the issues relating to onshore supplies, installation and inspection charges, and service tax required fresh examination; (iv) whether estimation of income at 15% of gross receipts from the activities carried on in India was justified.

Issue (i): whether reassessment proceedings were invalid on the ground of change of opinion.

Analysis: The order under section 195(2) only prima facie determines the amount liable for deduction of tax at source and does not amount to an assessment under section 143(3). Reassessment can be challenged on the ground of change of opinion only where an opinion had been formed in the course of regular assessment. That position was not established on the facts.

Conclusion: The reassessment was not invalid on the ground of change of opinion and the objection was rejected.

Issue (ii): whether the contract with ONGC was a composite contract or a divisible contract and whether offshore supplies were taxable in India.

Analysis: The contract separately specified the consideration for supply of equipment, installation, commissioning, inspection and training. The covenants showed distinct scopes of work and separately identified prices, so the arrangement was not to be treated as a single composite contract for an undivided consideration. For imported goods, the delivery terms were FOB/FCA, which meant that title and risk passed outside India. As no operations relating to offshore supplies were carried out in India, section 9(1)(i) and Explanation 1 could not fasten taxability on that part of the receipts. Even on the treaty analysis, no fixed place PE, dependent agent PE, or installation PE was established for the offshore supply segment.

Conclusion: Offshore supplies were held not taxable in India and this issue was decided in favour of the assessee.

Issue (iii): whether the issues relating to onshore supplies, installation and inspection charges, and service tax required fresh examination.

Analysis: The claim that onshore supplies were merely reimbursed third-party supplies, and that no profit arose on that component, had not been examined by the lower authorities. The applicability of installation PE conditions and the factual basis for taxing installation and inspection receipts also required verification. The service tax component likewise had not been independently examined on the footing of a divisible contract. These matters therefore needed de novo consideration by the Assessing Officer.

Conclusion: These issues were restored for fresh examination and were not finally decided on merits.

Issue (iv): whether estimation of income at 15% of gross receipts from the activities carried on in India was justified.

Analysis: Since the activities in India were limited and the major offshore supply component was excluded, the attribution made by the Dispute Resolution Panel at 15% was accepted for the remaining India-linked activities, subject to the factual finding on the existence of the alleged PE. The Revenue's claim for enhancement to 25% was not accepted.

Conclusion: The estimation at 15% was upheld and the Revenue's challenge failed.

Final Conclusion: The reassessment challenge failed, offshore supply receipts were held non-taxable in India, the remand issues were sent back for fresh consideration, and the 15% attribution for India-linked activities was sustained; the assessee succeeded only in part.

Ratio Decidendi: Where a contract separately allocates consideration for distinct obligations and offshore supply is completed outside India, receipts from that segment are not taxable in India absent operations in India or a treaty-permitted PE nexus, while India-linked ancillary receipts may be separately examined for attribution.

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