Offshore supply receipts and related advance ruling applications: related transactions may be grouped, but no Indian tax without nexus.

The AAR construed the expression "a transaction" in section 245N of the Income-tax Act to permit an advance ruling application covering more than one related transaction, while unrelated transactions may stand differently. It then held that offshore supply receipts were not taxable in India where the contracts were separate offshore supply arrangements, title and risk passed outside India on FOB terms, payment was received in foreign currency, and the supply income was not shown to be attributable to any permanent establishment or other India-based nexus. The territorial nexus principle and apportionment rules were applied to exclude Indian taxability.

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Issues: (i) Whether the expression "a transaction" in section 245N of the Income-tax Act, 1961 permits an advance ruling application covering more than one related transaction; and (ii) whether amounts receivable for offshore supply of equipment under the contracts were chargeable to tax in India.

Issue (i): Whether the expression "a transaction" in section 245N of the Income-tax Act, 1961 permits an advance ruling application covering more than one related transaction.

Analysis: The expression "a transaction" was read in the light of section 13 of the General Clauses Act, 1897, the fee provisions in the Income-tax Rules, the Form 34C notes, and the Board's clarification. The singular form was held not to exclude multiple related transactions, though unrelated transactions may stand on a different footing.

Conclusion: The application was maintainable in respect of the related transactions.

Issue (ii): Whether amounts receivable for offshore supply of equipment under the contracts were chargeable to tax in India.

Analysis: The supply contracts were treated as separate offshore supply arrangements for Japan and China portions, with title and risk passing outside India on FOB terms, payment received in foreign currency, and marine insurance and delivery obligations resting on the purchaser. The supervisory and installation obligations were found to be separate from the offshore supply, and no material was accepted to show that the offshore supply income was attributable to a permanent establishment in India or that the contracts were a single composite taxable supply. The territorial nexus principle and the rule of apportionment under the Income-tax Act and the treaty were applied.

Conclusion: The offshore supply receipts were not chargeable to tax in India.

Final Conclusion: The advance ruling proceeded on the basis that related transactions could be examined together, and on merits it held that the offshore supply consideration did not give rise to taxable income in India absent attribution to a permanent establishment or other India-based taxable nexus.

Ratio Decidendi: For offshore supply of goods, income is not taxable in India where the sale is completed outside India, title and risk pass outside India, payment is received outside India, and no part of the income is attributable to operations in India or to a permanent establishment in India.

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