Offshore supply contracts executed outside India not taxable under section 9(1) and DTAA provisions

ITAT Mumbai held that offshore supply contracts executed and concluded outside India do not generate income deemed to accrue or arise in India under section 9(1) and DTAA provisions, making such income non-taxable. The tribunal ruled that receipts from offshore supply contracts cannot be included in business receipts for computing income under section 44BBB, as Explanation-4 cannot override the limitation imposed by Explanation-1(a) to section 9(1)(i). Following the SC precedent in Ishikawajima-Harima Heavy Industries Limited, the assessee's appeal was allowed, consistent with previous years' decisions.

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Issues:
Challenge to addition of income from Offshore Supply Contracts under section 44BBB of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Facts:
The appeal was filed by the assessee against the final assessment order dated 26.10.2023 under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the Assessment Year 2021-22. The assessee, a Joint Stock Company from the Russian Federation, was engaged in setting up power projects globally. The dispute arose regarding the taxation of income from Offshore Supply Contracts under section 44BBB of the Act.

2. Assessment Proceedings:
The Assessing Officer observed that the assessee received income from service contracts and supplying equipment to NPCIL for a nuclear power project. The AO proposed an addition on deemed income under section 44BBB and business income attributed to Permanent Establishment. The total income was determined at Rs. 328,14,60,573/-.

3. DRP Proceedings and Impugned Order:
The assessee objected before the DRP, which disposed of the objections, leading to the assessment order determining the total income at Rs. 515,59,03,600/-. The assessee appealed against this order.

4. Contentions of the Parties:
The assessee argued that the offshore supply contract receipts were not taxable in India, citing the decision in Ishikawajima Harima case. The Revenue contended that section 44BBB applied to all receipts related to the project, whether offshore or onshore.

5. Tribunal's Decision:
The Tribunal noted that the issue had been consistently decided in favor of the assessee for previous years. Citing the Ishikawajima Harima case, the Tribunal held that offshore supply contract receipts were not taxable in India. As there were no changes in the circumstances, the findings from earlier years were applicable, and the assessee's appeal was allowed.

6. Conclusion:
The Tribunal allowed the appeal, holding that the receipts from Offshore Supply Contracts were not taxable in India. As a result, other grounds of appeal raised by the assessee did not require further adjudication. The decision was pronounced on 06.09.2024.

This detailed analysis outlines the key aspects of the judgment, focusing on the taxation of income from Offshore Supply Contracts under section 44BBB of the Income Tax Act, 1961, and the Tribunal's decision in favor of the assessee based on consistent precedents and legal principles.

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