Offshore supply and overseas repair receipts were held non-taxable in India absent Indian operations, FTS conditions, or make available

Offshore supply receipts under a composite contract were treated as arising from separate, divisible activities, and because title passed outside India, no part of the supply was carried out in India, and the Indian permanent establishment had no role, the receipts were not taxable in India. Repair receipts for services performed outside India were also not taxable as fees for technical services or royalty: the work fell within the mineral oil operations exclusion, did not satisfy the make available condition for royalty under the treaty, and could not be attributed to the Indian permanent establishment or taxed under section 44DA. The Assessing Officer's additions were therefore unsustainable.

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Issues: (i) whether income from offshore supply of products under a composite contract was taxable in India; (ii) whether receipts from repair services rendered outside India were chargeable to tax in India as fees for technical services, royalty, or as attributable to a permanent establishment.

Issue (i): whether income from offshore supply of products under a composite contract was taxable in India.

Analysis: The contract was treated as consisting of separate, divisible and independent activities. The supply of goods took place outside India, title in the goods passed outside India, no part of the offshore supply activity was carried out in India, and the Indian permanent establishment had no role in the supply transaction. On that basis, the receipts from offshore supply could not be brought to tax in India.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): whether receipts from repair services rendered outside India were chargeable to tax in India as fees for technical services, royalty, or as attributable to a permanent establishment.

Analysis: The repair work was undertaken at overseas workstations outside India. The services fell within the exclusion from fees for technical services because they were rendered in connection with the business of services or facilities relating to mineral oil operations. The services also did not satisfy the make available requirement for royalty under the relevant treaty provision, as mere rendering of repairs did not transfer technical knowledge, skill, know-how or process for future use by the recipient. Since the work was performed outside India, attribution of the receipts to the Indian permanent establishment did not arise, and taxation under section 44DA was not warranted.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The additions made by the Assessing Officer were not sustainable, and the appellate relief granted below was upheld.

Ratio Decidendi: Offshore supplies are not taxable in India where the supply is independent, title passes outside India, and no operations relating to that supply are carried out in India; similarly, repair receipts rendered outside India are not taxable as fees for technical services or royalty unless the statutory or treaty conditions, including make available, are satisfied.

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