Offshore supply taxation and capital gains computation turn on taxable nexus, agreed consideration, and verified TDS credit.

Offshore supply profits were treated as non-taxable in India where the supplies were concluded outside India, title and risk passed abroad, and no taxable nexus through a permanent establishment was shown; the related denial of business loss set-off therefore could not stand. Share-transfer capital gains had to be recomputed on the basis of the agreed consideration under the non-resident share purchase agreement, subject to verification of the correct foreign exchange conversion rate and linked brought forward capital loss relief. Full TDS credit required verification against Form 26AS. Interest under section 234B was remanded for recomputation, while interest under section 234C was deleted.

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Issues: (i) whether profit from offshore supply of equipment to an Indian customer was taxable in India and whether business loss could be set off against such income; (ii) whether the long-term capital gain on transfer of shares had been correctly computed, including the sale consideration and foreign exchange conversion rate, and whether brought forward capital loss was to be allowed; (iii) whether full TDS credit was to be granted; (iv) whether interest under sections 234B and 234C was leviable.

Issue (i): whether profit from offshore supply of equipment to an Indian customer was taxable in India and whether business loss could be set off against such income

Analysis: The supplies were made from outside India, the title and risk passed outside India, and the assessee separately offered supervision fee to tax. The record showed no material distinction from earlier years where the same transaction pattern had already been held not to give rise to taxable offshore-supply income in India. In the absence of a taxable nexus through a permanent establishment for the offshore supply segment, the attribution made by the Assessing Officer could not stand.

Conclusion: The addition on account of offshore supply income was unsustainable, and the related denial of set-off of business loss also could not survive.

Issue (ii): whether the long-term capital gain on transfer of shares had been correctly computed, including the sale consideration and foreign exchange conversion rate, and whether brought forward capital loss was to be allowed

Analysis: The shares were transferred under a share purchase agreement between non-residents, and the agreed consideration under that agreement could not be replaced by a notional higher value merely because the shares were quoted on the stock exchange later on the transfer date. The conversion rate adopted by the Assessing Officer was not satisfactorily supported. At the same time, the issue relating to the exact conversion rate required verification. The question of set-off of brought forward capital loss was linked to the recomputation exercise.

Conclusion: The capital gains issue was remanded for verification of the correct conversion rate and recomputation, with opportunity to the assessee, and was therefore partly in favour of the assessee.

Issue (iii): whether full TDS credit was to be granted

Analysis: The TDS reflected in Form 26AS showed a higher credit than what was allowed in the assessment, and the discrepancy required verification before proper grant of credit.

Conclusion: The issue was remanded for grant of correct TDS credit after verification.

Issue (iv): whether interest under sections 234B and 234C was leviable

Analysis: Interest under section 234B was dependent on the recomputation of tax liability and therefore required verification. Interest under section 234C could not be sustained on assessed income where there was no default in advance tax payment on returned income.

Conclusion: The issue under section 234B was remanded for verification, and the levy under section 234C was deleted.

Final Conclusion: The assessment was interfered with on the principal disputes concerning offshore supply income, with consequential reliefs on business loss, and the remaining issues were either remanded for recomputation or allowed in part, resulting in a partial success for the assessee.

Ratio Decidendi: Where offshore supply is concluded outside India and the assessee has no taxable nexus through a permanent establishment for that segment, the resulting profit is not taxable in India; further, a genuine share transfer agreement between non-residents governs the sale consideration for capital gains computation unless the statute expressly permits substitution.

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