Offshore supply and make available test limit Indian taxation of project receipts and treaty-based technical services

Separate contracts awarded under a bid structure, with distinct scopes of work and independent contractual parties, were treated as genuine offshore and onshore arrangements rather than an artificial split of one composite contract. On that basis, offshore supply receipts were regarded as outside Indian tax nexus in the absence of business connection, dependent agent PE, or construction PE. Receipts linked to other offshore supplies were also held outside the section 44BBB framework. For the global operation fee, treaty taxation as fees for technical services failed because the services were managerial or support-oriented and did not satisfy the make available test under the India-UK DTAA.

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Issues: (i) Whether the offshore supply receipts from PGCIL were taxable in India on the basis of an alleged artificial split of a composite contract and the existence of a business connection, dependent agent PE, or construction PE; (ii) Whether the receipts from GETDIL and SFO Technologies could be taxed as offshore supply income and whether section 44BBB could be applied; (iii) Whether the global operation fee received from GETDIL was taxable as fees for technical services under the India-UK DTAA.

Issue (i): Whether the offshore supply receipts from PGCIL were taxable in India on the basis of an alleged artificial split of a composite contract and the existence of a business connection, dependent agent PE, or construction PE.

Analysis: The contract documents showed that the offshore supply contract and the onshore supply and service contracts were separately awarded pursuant to the bid structure itself. The Indian associate was proposed at the bidding stage, was treated as an independent contractor for the onshore contracts, and the parties had distinct scopes of work and separate consideration. Mere overall responsibility for project completion and coordination did not convert the arrangements into one indivisible contract or establish that the Indian associate was acting as the assessee's agent. In the absence of evidence of solicitation by the Indian entity on behalf of the assessee, and in view of the offshore nature of the supplies, no business connection, dependent agent PE, or construction PE was made out. The territorial principle of taxation also supported exclusion of income where transfer of property and payment occurred outside India.

Conclusion: The offshore supply receipts from PGCIL were not taxable in India, and the findings on artificial split, business connection, dependent agent PE, construction PE, and attribution of profits were set aside in favour of the assessee.

Issue (ii): Whether the receipts from GETDIL and SFO Technologies could be taxed as offshore supply income and whether section 44BBB could be applied.

Analysis: Once the foundation of the PE finding failed, the basis for taxing these receipts also fell away. The purchase orders and invoices showed offshore supplies on independent terms, and there was no reliable material to link those supplies to the PGCIL contract. Section 44BBB was held inapplicable because the assessee was not engaged in civil construction, erection, commissioning, or similar turnkey execution in India under the relevant offshore supplies.

Conclusion: The additions on account of receipts from GETDIL and SFO Technologies and the application of section 44BBB were deleted in favour of the assessee.

Issue (iii): Whether the global operation fee received from GETDIL was taxable as fees for technical services under the India-UK DTAA.

Analysis: The services under the global operation fee agreement were examined and the disputed portion was found to be largely managerial or support-oriented in nature. The essential requirement under the DTAA was that technical knowledge, skill, or experience must be made available to the recipient so that it can apply it independently in future. That test was not satisfied for the disputed services, and the tax authorities had not shown how the amounts represented taxable technical services within the treaty meaning.

Conclusion: The global operation fee was not taxable as fees for technical services under the make available clause, and the addition was deleted in favour of the assessee.

Final Conclusion: The assessment additions were unsustainable in law and on facts, and the appeal succeeded with consequential relief.

Ratio Decidendi: Separate contracts awarded under a bid structure, with distinct scopes of work and independent contractual parties, cannot be treated as an artificial split merely because the project was commercially coordinated and the main contractor retained overall responsibility; offshore supplies completed outside India are not taxable absent a taxable nexus, and treaty-based FTS taxation requires satisfaction of the make available test.

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