India-UK treaty relief, offshore supplies and make available test limit taxability; most interest charges also deleted

Treaty relief under the India-UK DTAA was allowed where UK tax residency certificates established residence for treaty purposes. Offshore supply receipts were held not taxable in India because the contracts separated offshore and onshore work, the Indian entity acted as an independent contractor for onshore scope, and no business connection, dependent agent PE, fixed place PE or construction PE was proved; section 44BBB also did not apply. Global operation fee receipts were taxable only to the extent already offered, as the remaining managerial or support services did not satisfy the make available test under Article 13(4)(c). Interest under sections 234B, 234C and 234D was largely deleted, with section 234A left for verification for one year.

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Issues: (i) Whether the assessee was entitled to treaty benefit as a resident of the United Kingdom under the India-UK DTAA. (ii) Whether offshore supply receipts were taxable in India on the basis of an alleged business connection or permanent establishment, and whether section 44BBB applied. (iii) Whether global operation fee receipts were taxable as fees for technical services under the India-UK DTAA. (iv) Whether interest under sections 234B, 234C and 234D was chargeable, and whether interest under section 234A required verification for one year.

Issue (i): Whether the assessee was entitled to treaty benefit as a resident of the United Kingdom under the India-UK DTAA.

Analysis: The assessee produced tax residency certificates issued by the UK tax authorities. The Tribunal accepted that the assessee was liable to tax in the United Kingdom and was a resident for treaty purposes. The fiscal transparency noted in the accounts did not displace the treaty residency position once the certificate and the treaty definition were satisfied.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether offshore supply receipts were taxable in India on the basis of an alleged business connection or permanent establishment, and whether section 44BBB applied.

Analysis: The Tribunal held that the bid structure and contractual documents showed distinct offshore and onshore obligations, and that the Indian associate was engaged as an independent contractor for the onshore scope. The finding of an artificial split of a composite contract was rejected. On that basis, the alleged business connection, dependent agent permanent establishment, fixed place permanent establishment and construction permanent establishment were not established. Since the offshore supplies were made outside India and the property in goods passed outside India, only operations carried out in India could be taxed, and that principle was not attracted here. Section 44BBB was held inapplicable because the assessee was only making offshore supplies and was not carrying on the specified turnkey activities in India.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether global operation fee receipts were taxable as fees for technical services under the India-UK DTAA.

Analysis: The Tribunal examined the service arrangements and held that only the portion already offered to tax as global industrialization support was taxable. The balance services were managerial or support services and did not satisfy the make available requirement under Article 13(4)(c) of the India-UK DTAA. Therefore, the remaining global operation fee could not be taxed as fees for technical services.

Conclusion: The issue was decided in favour of the assessee.

Issue (iv): Whether interest under sections 234B, 234C and 234D was chargeable, and whether interest under section 234A required verification for one year.

Analysis: The Tribunal held that interest under section 234B was not chargeable where tax was deductible at source on the relevant payments. Interest under section 234D was consequential. For the year in which section 234C was in dispute, the charge was confined to returned income. For assessment year 2020-21, the issue of section 234A interest was remitted only for verification of the filing date of the return.

Conclusion: The issue was partly decided in favour of the assessee, with limited verification directed for section 234A in one year.

Final Conclusion: The additions on treaty denial, offshore supply taxation, PE attribution, section 44BBB and the impugned FTS adjustment were deleted, while the interest issue was partly deleted and partly left for verification in one year, resulting in partial relief to the assessee across the connected appeals.

Ratio Decidendi: Offshore supply receipts are not taxable in India where the relevant transfer and payment occur outside India and no taxable business connection or permanent establishment is established; contractual liability for overall project completion does not by itself create a permanent establishment or justify attribution of profits, and technical services are taxable under the treaty only if the make available condition is satisfied.

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