Non-resident company wins tax dispute on offshore supply income

The tribunal ruled in favor of the non-resident company, finding that income from offshore supply of elevators and escalators to Indian entities was not taxable in India. The tribunal emphasized the separate scopes of work between the company and its Indian partner, the method of payment, and the passing of property outside India. The tribunal directed the Assessing Officer to delete the addition related to offshore supply receipts, allowing the appeal for both assessment years and dismissing the consideration of net loss as infructuous.

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Issues Involved:
1. Taxability of receipts from offshore supply of escalators and elevators.
2. Non-consideration of net loss incurred by the appellant on offshore supply of escalators and elevators.

Detailed Analysis:

Issue 1: Taxability of Receipts from Offshore Supply of Escalators and Elevators

Facts and Arguments:
- The assessee, a non-resident company incorporated in China, engaged in the business of supply of elevators and escalators, filed its return of income for the assessment years 2018-19 and 2019-20, claiming receipts from Delhi Metro Rail Corporation Ltd (DMRCL) and Maharashtra Metro Rail Corporation Ltd (MMRCL) as not taxable in India.
- The Assessing Officer (AO) disagreed, holding that the income from offshore supply of elevators and escalators is taxable in India under section 9(1)(i) of the Income Tax Act, 1961, and treated the consortium of the assessee and Schindler India Private Limited (SIPL) as an Association of Persons (AOP).
- The Dispute Resolution Panel (DRP) upheld the AO's findings, maintaining that the contracts are composite and indivisible.

Tribunal's Findings:
- The tribunal noted that the consortium formed by the assessee and SIPL had distinct and separately defined scopes of work, with the assessee responsible for design, manufacturing, and supply, and SIPL responsible for installation, testing, commissioning, and maintenance.
- Payments to the two parties were made separately, with the assessee receiving payment in USD and SIPL in Indian currency.
- The tribunal emphasized that in cases of CIF (Cost, Insurance, and Freight) contracts, the property in goods passes to the buyer at the port of shipment, and hence, the transaction cannot be taxed in India.
- Citing the Supreme Court's decision in Ishikawajma-Harima Heavy Industries Ltd. vs DIT, the tribunal held that since all parts of the transaction (transfer of property and payment) were carried out outside India, the income earned by the assessee from offshore supply is not taxable in India.

Conclusion:
- The tribunal directed the AO to delete the addition made on account of offshore supply receipts, thus allowing ground No. 1 in the assessee's appeal.

Issue 2: Non-Consideration of Net Loss Incurred by the Appellant

Facts and Arguments:
- The assessee argued that the AO erred in making an ad-hoc addition of 5% of total receipts without considering the net loss incurred by the appellant in respect of the offshore supply transactions.

Tribunal's Findings:
- Given the tribunal's decision on the first issue, the second issue became academic and was rendered infructuous.

Conclusion:
- The tribunal dismissed ground No. 2 as infructuous.

Summary of Judgments:

- For the assessment year 2018-19 (ITA no.1679/Mum./2022), the appeal by the assessee was partly allowed, with the tribunal directing the AO to delete the addition related to offshore supply receipts and dismissing the second ground as infructuous.
- For the assessment year 2019-20 (ITA NO.2483/Mum./2022), the tribunal applied the same findings as the preceding year, allowing the first ground and dismissing the second ground as infructuous.

Final Order:
- Both appeals by the assessee were partly allowed.

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