Offshore supply and make available test controlled taxability of contract receipts and support fees under the India treaty.

Offshore supply receipts under separately awarded foreign and onshore contracts were treated as not taxable in India where the contracts had distinct scopes, title and payment passed outside India, and no business connection, dependent agent PE, or construction PE was established. Receipts from supplies to Indian entities also failed because the record did not show a sufficient nexus with the Indian project once PE-based taxation was absent. The global operation fee was held not taxable as fees for technical services under the DTAA because the services were mainly managerial and support-oriented and did not satisfy the make available test.

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Issues: (i) Whether the offshore supply receipts could be brought to tax in India on the basis of an alleged artificial split of a composite contract and the existence of business connection or permanent establishment; (ii) Whether the receipts from supplies to the Indian entities and the global operation fee were taxable in India under the Act and the DTAA.

Issue (i): Whether the offshore supply receipts could be brought to tax in India on the basis of an alleged artificial split of a composite contract and the existence of business connection or permanent establishment.

Analysis: The contracts and bidding documents showed that the offshore supply contract and the onshore supply and services contracts had separate scopes, separate awards, and separate contractual counterparts. The Indian associate was proposed in the bid itself and accepted as an independent contractor for the onshore work. The stipulation that the foreign contractor remained overall responsible for successful completion did not, by itself, establish an artificial splitting of a single composite contract or create an agency relationship. The offshore supplies were made outside India, title passed outside India, and the payments were also outside India. In the absence of evidence of solicitation activity, a dependent agent relationship, or construction activity in India, the alleged business connection, dependent agent permanent establishment, and construction permanent establishment were not made out.

Conclusion: The offshore supply receipts were not taxable in India, and the findings on artificial splitting, business connection, dependent agent permanent establishment, and construction permanent establishment were rejected in favour of the assessee.

Issue (ii): Whether the receipts from supplies to the Indian entities and the global operation fee were taxable in India under the Act and the DTAA.

Analysis: Once the foundation of permanent establishment-based taxation failed, the addition on receipts from the Indian entities could not survive merely because the supplies were technical or customised. The assessment also failed to show that those supplies were linked to the PGCIL contract in a manner warranting taxation. As regards the global operation fee, the services were found to be predominantly managerial and support-oriented, and the record did not establish that technical knowledge, skill, or experience was made available to the recipient so as to satisfy the treaty test. In the absence of the make available condition, the fee could not be treated as taxable fees for technical services under the DTAA.

Conclusion: The additions on the receipts from the Indian entities and on the global operation fee were unsustainable and were deleted in favour of the assessee.

Final Conclusion: The assessment additions were set aside and the appeal succeeded entirely on the substantive tax issues, with consequential relief following from the deletion of the impugned additions.

Ratio Decidendi: Offshore supply arising from a separately awarded foreign segment of a contract is not taxable in India merely because the foreign contractor remains overall responsible for the project, unless the revenue establishes a taxable nexus through business connection, permanent establishment, or treaty-based attribution; treaty fees are taxable as technical services only when the stipulated make available test is satisfied.

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