TaxTMI 
TaxTMI 
2013 (6) TMI 185
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....n India. The contract consideration under these agreements is segregated into offshore portion and onshore portion. The onshore portion comprises of onshore supply of equipments and services in India and offshore portion also comprises of offshore supply of equipment and services from outside India. Insofar as the first two contracts are concerned, those were completed in the year ending 31.03.2006. The only contract which is relevant to the year under consideration is LNG storage tank at Kochi to be executed over 47 months, commencing from February 2008. For the execution of this contract the assessee set up a project office in India. In the return filed by the assessee it offered income received from onshore activities to tax in India with the claim of applicability of India-Japan Tax Treaty or the domestic law, whichever is beneficial to it. There is no dispute on this segment of the income. The assessee did not offer to tax income from offshore supply and offshore services by claiming that it did not accrue or arise in India. In support of its contention, the assessee relied on the judgment rendered by the Hon'ble Supreme Court in its own case viz., Ishikawajima-Harima Heavy In....
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....he Act: 5.1. The assessee is admittedly a non-resident. Section 5(2) provides that the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which - (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year, subject to the provisions of this Act. Section 9 deals with the incomes deemed to accrue or arise in India. Section 9(1)(vii), which is relevant for our purpose, provides that income by way of fees for technical services payable by .....(b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India etc., shall be deemed to accrue or arise in India. Going by the mandate of this provision, if any person who is resident of India pays an income by way of fees for technical services to a non-resident, such income shall be deemed to accrue or arise to such non-resident subject to the fulfillment of the other requisite conditions as stipulated. The Hon'ble Supreme Court has held....
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....come outside the ambit of section 9(1)(vii). In view of the amendment to the relevant provisions by means of the substitution of Explanation to section 9(2) governing the year under consideration also, we are of the considered opinion that the income from offshore services rendered outside India would fall within the domain of section 9(1)(vii) of the Act. This contention raised on behalf of the assessee is jettisoned. (ii) Position under the DTAA 6.1. Now let us examine the position under the DTAA. Article 12 encompasses the income from Royalty and fees for technical services; and Article 7 discusses the Business profits. Para 1 of Article 12 provides that royalty and fees for technical services arising in a contracting State and paid to a resident of the other contracting State may be taxed in that other contracting State. Article 12(2) provides that the fees for technical services may also be taxed in the contracting State in which they arise. Para 4 of this Article defines the term "fees for technical services", which is not disputed. Para 5 of this Article is a centre of controversy between the assessee and the Revenue, which is reproduced as un....
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....ontroverted by the Assessing Officer as well. Once income from offshore services comes within the scope of Article 7, the same cannot be taxed because of clause 6 of Protocol as per which the profits of the enterprise can be taxed in the other State only so much of them as are appropriate to the part played by the permanent establishment in these transactions. Since the permanent establishment did not play any role in rendering such offshore services, the learned AR contended such income from offshore services would escape taxation as has been held by the Hon'ble Supreme Court and further the Hon'ble jurisdictional High Court in the assessee's own cases. 6.4. Having heard the rival submissions and perused the relevant material on record, the first question which arises for our consideration is as to whether the issue of income from offshore services as per the DTAA has been decided or not by the Hon'ble Supreme Court? The learned Departmental Representative vehemently argued that there is no decision by the Hon'ble Supreme Court on this aspect. He put forth that even if some reference was to be found to such issue in the judgment, it would not mean the decision of t....
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....rious operations. (10) The location of the source of income within India would not render sufficient nexus to tax the income from that source. (11) If the test applied by the Authority for Advance Rulings is to be adopted here too, then it would eliminate the difference between the connection between Indian and foreign operations, and the apportionment of income accordingly. (12) The services are inextricably linked to the supply of goods, and it must be considered in the same manner." 6.6. From the above judgment it is discernible that the Hon'ble Supreme Court has rendered a positive decision on this aspect by holding in para (8) above that Article 7 of the DTAA is applicable in this case insofar as the income from offshore services is concerned. It has further been held that since the entire services were rendered outside India having nothing to do with the permanent establishment, there can be no taxability of this amount in India. Further in para (12) it has been held that the offshore services are inextricably linked to the supply of goods, so it must be considered in the same manner. In view of the enunciation of law by the Hon'ble Supreme court in a....