German company's offshore equipment supply to BPCL not taxable in India under Section 44BB

ITAT Delhi held that receipts from offshore supply of plant and equipment by a German non-resident corporate entity to BPCL were not taxable in India. The tribunal found that the sale event and title transfer occurred in Japan (FOB Moji Port), not within Indian territory, following the Ishikawajma-Harima HC precedent. Section 44BB was inapplicable as the assessee was not engaged in mineral oil extraction services but sold equipment for plant setup. The DRP's conclusion of PE existence in India lacked valid reasoning and failed to establish how Article 5(1) conditions were satisfied. The receipts were held non-taxable in India.

---

---

Issues Involved:
The core issue relates to the taxability of the amount received by the assessee from offshore supplies of plants and equipments.

Issue 1: Situs of sale event
The assessee challenged the final assessment order, claiming exemption from taxation in India for the receipts from offshore supplies of plants and equipment to Bharat Petroleum Corporation Limited (BPCL). The Assessing Officer and the DRP invoked section 44BB of the Income-tax Act, treating 10% of the receipts as deemed profit and gains of the Permanent Establishment (PE) in India. The assessee contended that the sale event was completed outside India, supported by documentary evidence such as purchase orders, bill of lading, and invoices. The Tribunal observed that the situs of sale was in Japan, not within India, as evidenced by the terms of delivery, payment conditions, and location specified in the agreements. Citing the Ishikawajma-Harima Heavy Industries Ltd. case, the Tribunal held that no part of the disputed receipts was taxable in India.

Issue 2: Applicability of section 44BB of the Act
The Departmental Authorities applied section 44BB to tax the receipts on a presumptive basis, considering the nature of the contracts with BPCL. However, the Tribunal noted that the provision applies to non-residents engaged in providing services or facilities in connection with mineral oils, which did not apply to the present case. The assessee had sold the plant and equipment to BPCL for setting up a plant, not for prospecting or production of mineral oils. The Tribunal also highlighted that the other receipts were offered as Fees for Technical Services under the India-Germany DTAA, raising questions about the differential treatment by the Department. The Tribunal found that the conditions of section 44BB were not met, and no valid reasoning was provided to establish the existence of a PE in India. Consequently, the Tribunal held that the receipts from the sale/supply of plant and equipment were not taxable in India.

Final Decision:
The Tribunal allowed the appeal, holding that the receipts from the offshore supplies of plants and equipment were not taxable in India. The stay application was dismissed, and the appeal was allowed, based on the findings related to the situs of sale event and the inapplicability of section 44BB of the Income-tax Act.

---