2021 (2) TMI 992 - AAR - Income Tax

Taxability of Offshore Services under India-France DTAA

The judgment concluded that the consideration received by Technip France SAS for offshore supply of equipment was not taxable in India under the ... Advance ruling - Income accrued or deemed to accrue in India - Income taxable in India - consideration received/receivable for offshore supply of all equipments under Contract - basic engineering design services carried or to be carried out in France in relation to the construction, erection, installation, commissioning and testing of the Plant at Dahe - India-France DTAA - PE in India - HELD THAT:- Though the contract was signed on 21.11.2011, the effective date of contract was 15.04.2011 i.e. the date of NOA. Even if the PO was set up after the effective date of contract, the Applicant had the services of TIL at its command. It is found that personnel of TIL were involved in the bidding process of the Applicant from the very beginning from the purchase of tender document, attending techno-commercial & price bid opening and bid clarificatory meetings etc - the deployment schedule of supervisory personnel for the Contract as filed by the Applicant had CVs of the key personnel and most of the key supervisory personnel were employees of TIL. Thus TIL was not only involved in the project from the very beginning but its key personnel were managing the affairs of the Applicant which makes them PE from the effective contract date. These employees not only had a secured right to use their office space but they were carrying on the business of the parent enterprise and in this sense the Applicant had a fixed place of business. Therefore, there is no doubt that the Applicant had a PE from the effective date of Contract. Taxability of offshore supply of Equipments - In view of the Clause (a) of Explanation 1 to Section 9(1)(i) and respectfully following the decision of the Apex Court in the case of Ishikawajima Harima Heavy Industries Ltd.[2007 (1) TMI 91 - SUPREME COURT] we are clear that no income arising in the hands of the Applicant from the off-shore supply of equipments & materials can be held to be chargeable to tax in India, under the Income tax Act 1961, as the sale was completed outside India and there was no accrual or deemed accrual in India. Taxability of offshore services - Basic Engineering' and 'Detailed Engineering' services - The nature of these services has been dealt with earlier and these are not found connected with offshore supply of equipments at all. In the Annexure-C Contract Price Schedule of the Contract the offshore equipments were categorized under 'Supply, Fabrication / Construction, Erection and Installation' whereas all the services were part of 'Design and Engineering - Butene-l Plant'. Therefore, these services were in respect of designing and engineering of the Butene-l Plant and were not connected with the designing of equipments under offshore supply. As the rendering of the services was done by the PE of the Applicant, the same is found covered under Article 7 of the India-France DTAA - There is no dispute to the fact that business of the Applicant was carried through its PO in India. As the design services were inextricably connected with setting up of the plant and were rendered through this PE, the profit of the PE is required to be taxed in India as per the provision of Article 7.1 of the India-France DTAA in respect of these services. As the basic engineering design service and offshore advisory services are found covered under Article 7.1 of the DTAA, it is not necessary to examine whether the same are also covered under Article 13 of the DTAA or not. Ruling :- Ques. 1 The consideration received by Technip France SAS from OPAL for offshore supply of equipments under Contract Ref. No OPAL/BDA/MM/CTS/275/11-12 dated November 21, 2011 is not chargeable to tax in India under the provisions of Income-Tax Act, 1961 and DTAA between India and France. Ques.2 & 3 The consideration received by Technip France SAS from OPAL in respect of basic engineering design services in relation to the construction erection installation, commissioning and testing of the Plant at Dahej and advisory services in relation to detailed engineering are liable to tax in India as business income of the PE of the Applicant under the provisions of Income-Tax Act, 1961 and Article 7 .1 of the DTAA between India and France. Issues Involved:1. Taxability of consideration received for offshore supply of equipment under the Income-tax Act, 1961 and the India-France DTAA.2. Taxability of consideration received for basic engineering design services under the India-France DTAA.3. Taxability of consideration received for offshore advisory services under the India-France DTAA.Detailed Analysis:Issue 1: Taxability of Offshore Supply of EquipmentThe Applicant, Technip France SAS, entered into a composite contract with OPAL for setting up a Butene-1 Plant, which included offshore and onshore work. The contract specified that the ownership of offshore equipment would transfer to OPAL upon FOB shipment. The Applicant contended that the income from offshore supply was not taxable in India as the title transfer and payment occurred outside India. The Revenue argued that the entire contract was a composite works contract and should be taxed in India.The judgment concluded that the offshore supply of equipment was not taxable in India. The transfer of ownership occurred outside India, and the income did not accrue or arise in India. The judgment relied on the Supreme Court's decision in Ishikawajima-Harima Heavy Industries Ltd., which held that offshore supply under a composite contract is not taxable in India if the transfer of property and payment occur outside India.Issue 2: Taxability of Basic Engineering Design ServicesThe Applicant argued that the basic engineering design services rendered in France should not be taxed in India under the India-France DTAA, invoking the MFN clause to import the restricted scope of FTS from the India-Finland and India-Portugal DTAAs. The Revenue contended that these services were part of the composite contract and should be taxed in India.The judgment found that the basic engineering design services were not rendered exclusively from France. The services were reviewed and approved by OPAL in India, thus making them available to OPAL. Consequently, these services were taxable as business income of the PE in India under Article 7.1 of the India-France DTAA.Issue 3: Taxability of Offshore Advisory ServicesThe Applicant claimed that offshore advisory services rendered from France should not be taxed in India, invoking the MFN clause. The Revenue argued that these services were part of the composite contract and were rendered through the PE in India.The judgment concluded that the offshore advisory services were not rendered exclusively from France. These services were reviewed and approved by OPAL in India, making them available to OPAL. Therefore, these services were taxable as business income of the PE in India under Article 7.1 of the India-France DTAA.Findings and Ruling:1. The consideration received by Technip France SAS from OPAL for offshore supply of equipment is not chargeable to tax in India under the Income-tax Act, 1961, and the India-France DTAA.2. The consideration received for basic engineering design services is liable to tax in India as business income of the PE under Article 7.1 of the India-France DTAA.3. The consideration received for offshore advisory services is liable to tax in India as business income of the PE under Article 7.1 of the India-France DTAA.The ruling was pronounced on February 2, 2021.