Offshore supply receipts not taxable in India, no supervisory permanent establishment under India-Thailand Tax Treaty Article 5.

ITAT Delhi held that offshore supply receipts were not taxable in India, rejecting revenue's claim of supervisory permanent establishment under India-Thailand Tax Treaty Article 5. Following coordinate bench precedent, the tribunal directed deletion of additions made by Assessing Officer for profit attribution on offshore supplies. Additionally, ITAT ruled that engineering service receipts were not royalty income, correcting departmental authorities' factual misconception regarding equipment process usage. The assessee's appeal was allowed on both issues.

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Issues Involved:
1. Taxability of receipts from offshore supplies.
2. Taxability of receipts from engineering services as royalty.

Summary:

1. Taxability of Receipts from Offshore Supplies:
The assessee, a non-resident corporate entity from Thailand, engaged in manufacturing train control and signaling systems, formed a consortium with an Indian company and entered into a contract with Delhi Metro Rail Corporation (DMRC). The assessee received Rs. 21,02,08,336/- for offshore supplies and claimed it was not taxable in India as the transfer of title occurred outside India and there was no Permanent Establishment (PE) in India. The Assessing Officer attributed 10% of these receipts as profits of the PE and taxed Rs. 2,10,20,833/-. The Dispute Resolution Panel (DRP) upheld this in line with previous assessments. However, the Tribunal, referencing prior years' decisions and the principle of consistency as per Radhasoami Satsang Vs. CIT, directed the deletion of the addition, stating that the offshore supplies are not taxable under the India-Thailand DTAA.

2. Taxability of Receipts from Engineering Services as Royalty:
The departmental authorities treated the receipts from Bombardier Transportation India Limited (BTIN) for engineering services as royalty income for the use of process or equipment. The Tribunal, following its previous rulings for assessment years 2016-17, 2018-19, and 2019-20, found that these receipts do not constitute royalty. Consequently, the Tribunal directed the deletion of the additions made on this account.

Conclusion:
The Tribunal allowed the appeal, holding that the receipts from offshore supplies and engineering services are not taxable in India. The final assessment order was set aside, and the additions made by the Assessing Officer were deleted. The order was pronounced in the open court on 30/10/2023.

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