2023 (10) TMI 404 - HC - Income Tax

High Court affirms ITAT decision: Offshore supply income not taxable in India; section 234B interest inapplicable. Appeal dismissed.

The High Court dismissed the appeal, affirming the ITAT's decision that income from Offshore supplies was not taxable in India. The court upheld that ... Income taxable in India - income from the Offshore supply - assessee is a South Korean company engaged in the business of manufacturing and installation of electric cables set up project offices in India for installation of electric cables in India in connection with the Indian projects that were awarded to it - ITAT has come to a factual finding that though assessee had entered into a contract with MRVC for supply of equipments and services, Off-shore as well as On-shore, the terms of the contract distinctly set out the quantum of Offshore supplies to be made by assessee to MRVC and also the quantum of payment to be received by assessee from MRVC outside - HELD THAT:- ITAT after considering the contract between assessee and MRVC, came to the conclusion that the composite contract specifically records the quantum of goods to be supplied outside India, the property in the plant and machinery got transferred to MRVC once they were loaded on the mode of transport from the country of origin to India and even the payment is made outside India. We cannot find fault with these factual findings and the decision of ITAT in holding that the income arising from Off-shore supplies are not taxable in India. Therefore, question “A” and “B” raised by the Revenue cannot be entertained. As there is no liability to pay tax, the question of demanding 10% on presumptive basis will not arise. Question “D” is accordingly rejected. We find support for this view of ours in Xelo Pty. Ltd. [2011 (11) TMI 439 - BOMBAY HIGH COURT] Interest u/s 234B is not leviable following the decision of DIT(IT) vs. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] Issues:1. Taxability of payment in relation to Offshore supply2. Taxability of Off-shore supply considering the role played by Permanent Establishment (PE)3. Levy of interest u/s 234B4. Estimation of profit by the Assessing Officer (AO)Issue 1: Taxability of payment in relation to Offshore supplyThe appellant raised concerns regarding the taxability of payment in relation to Offshore supply, arguing that the contract in question was indivisible, unlike the case of Ishikawajma Harima where the contract was divisible. The appellant contended that the decision of AAR in the MERO Asia Pacific Pte Ltd. should apply in this case. However, the High Court upheld the ITAT's decision, stating that the Offshore supplies were not taxable in India as the contract clearly outlined the quantum of Offshore supplies to be made and the payments to be received outside India.Issue 2: Taxability of Off-shore supply considering the role played by PEThe appellant also disputed the taxability of Off-shore supply, emphasizing the role played by the Permanent Establishment (PE) in the execution of supply and procurement of goods. However, the High Court affirmed the ITAT's decision, highlighting that the contract specified the Offshore supplies to be made outside India, with property transfer and payments also occurring outside India.Issue 3: Levy of interest u/s 234BRegarding the levy of interest u/s 234B, the appellant argued that since they had a Permanent Establishment in India and were liable to pay advance tax, the interest should be levied. However, the High Court referenced the decision in the case of DIT vs. NGC Network Asia LLC and concluded that the interest u/s 234B was not applicable in this case, given the non-taxability of Offshore supplies.Issue 4: Estimation of profit by the Assessing Officer (AO)The Assessing Officer estimated the profit on a presumptive basis at 10% due to the appellant not showing the entire contract receipt for On-shore supply and services of Off-shore supply. The appellant challenged this estimation, but the High Court dismissed the issue since there was no liability to pay tax on Offshore supplies, rendering the estimation unnecessary.In conclusion, the High Court dismissed the appeal, upholding the ITAT's decision that the income arising from Offshore supplies was not taxable in India. The questions of law raised by the Revenue were rejected based on factual findings, and the appeal was consequently dismissed.