Offshore supply receipts outside Indian tax net where title passed abroad and section 44BB conditions were unmet

Receipts from offshore supply of plants and equipment were not taxable in India because the supply contracts, invoices and delivery documents showed FOB/FCA delivery outside India and transfer of title completed in Japan, so the sale event did not accrue or arise in India. Section 44BB was also inapplicable because it applies only to qualifying oilfield services, facilities, or hire of plant and machinery, and the assessee made outright sales for plant set-up rather than providing such services or hire arrangements.

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Issues: (i) Whether the receipts from sale of plants and equipment were taxable in India, having regard to the situs of the sale event and transfer of title; (ii) Whether section 44BB of the Income-tax Act, 1961 applied to the receipts from offshore supply of equipment.

Issue (i): Whether the receipts from sale of plants and equipment were taxable in India, having regard to the situs of the sale event and transfer of title.

Analysis: The assessee entered into independent agreements with the Indian buyer, and the supply agreement for catalyst and proprietary equipment stipulated FOB/FCA delivery at the Japanese seaport, airport or warehouse. The purchase order, bill of lading and invoices showed delivery in Japan, freight payable at destination, and payment terms linked to delivery outside India. On these facts, the sale event and transfer of title were completed outside India, and the receipts could not be regarded as accruing or arising in India.

Conclusion: The issue is decided in favour of the assessee; the receipts from offshore supply of plants and equipment are not taxable in India.

Issue (ii): Whether section 44BB of the Income-tax Act, 1961 applied to the receipts from offshore supply of equipment.

Analysis: Section 44BB applies only where a non-resident provides services or facilities in connection with prospecting for, or extraction or production of, mineral oils, or supplies plant and machinery on hire for such purposes. The assessee had sold the equipment on an outright basis for setting up a plant and had neither provided qualifying oilfield services nor supplied plant and machinery on hire. The preconditions of the provision were therefore absent.

Conclusion: The issue is decided in favour of the assessee; section 44BB did not apply.

Final Conclusion: The offshore supply receipts were held to be outside Indian taxability and the presumptive provision invoked by the Revenue was found inapplicable, so the assessee succeeded in the substantive appeal.

Ratio Decidendi: Where title and delivery of goods under a supply contract pass outside India on FOB terms, the resulting receipts are not taxable in India, and section 44BB cannot be invoked unless its statutory conditions are specifically satisfied.

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