AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 709
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.... use for safer operations, control and handling of aircrafts on the ground, airborne, aircrafts close to the Airport and ground vehicles at the Airport. On 1st July 2009, the assessee had entered into a contract with Delhi International Airport Pvt. Ltd. (DIAL) for supply, erection, installation, integration, testing and commissioning of visual docking guidance system GOS equipment / work stations and associated works. Similarly, the assessee entered into a sub-contract agreement on 16th April 2009 with Larsen & Toubro Ltd. for execution of certain work relating to Mumbai International Airport Pvt. Ltd. (MIAL). The scope of work as per the sub-contract agreement with L&T are Part-A - supply of Airfield, Ground Lighting Equipment; Part-B - Overview the design, installation, testing, commissioning and integration of the supplied items with experienced staff; and Part-C - development, design, supply, installation, testing and commissioning a control and monitoring system. For the impugned assessment year, the assessee filed its return of income on 29th September 2011, declaring total income of Rs. 45,71,583. During the assessment proceedings, the Assessing Officer noticed that, though....
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....l out the on-shore and off-shore portion of works / services. On going through both the contracts entered into by the assessee the Panel found that the payment to be made in respect of off-shore and on-shore operation has also been quantified separately in terms of Indian rupee as well as in Euros. They found that as far as on-shore activities attributable to Permanent Establishment (P.E.) is concerned, the assessee has worked out profit on such income and offered it to tax. The DRP observed, though, the Assessing Officer has observed that the contracts with DIAL and MIAL are composite contract, however, the operation of work to be executed in India is clearly spelt out. They observed, neither it is the case of the Assessing Officer that receipt from works executed in India has not been returned to assessee nor it is his case that there has been overstatement of the price of the off-shore equipment and understatement of cost of on-shore works. According to the DRP, the Assessing Officer has only concentrated on the claim of non-chargeability of the off-shore supply and has sought to bring it to tax. On the contrary, the DRP observed, clause 1.1.3 of the sub-contract with L&T clearl....
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....to on-shore components of the contract, the claim of the assessee in not offering the income from off-shore supplies is justified. The DRP held since the P.E. in India was no way involved in the transactions relating to such supplies it cannot be made taxable. The DRP observed, since the exercise of attribution under the treaty can only be carried out in respect of income of the P.E., it automatically rules out the attribution of activities such as supply which came out before formation of P.E. Accordingly, the DRP directed the Assessing Officer to complete the assessment by excluding the amount received from off-shore supplies. 5. The learned Departmental Representative taking us through the observations of the Assessing Officer in the assessment order submitted that the Assessing Officer after making a thorough analysis of the terms of contracts entered into by the assessee has found that they are composite and indivisible contracts as it includes design, supply, erection, installation, testing, commissioning and training, system delivery at project site. There is no bifurcation or splitting of contract into various parts. The assessee has not entered into two agreements i.e.,....
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....nt to be submitted at the plant site on CIF basis. Risk of material has to be borne by the assessee from the date of notice to proceed till 21 days after completion of contract. This according to the learned Departmental Representative, indicates that the title of goods did not pass outside India. In this context, he relied upon the decision of the Tribunal, Delhi Bench, in Baker Hughes Asia Pacific Ltd. and others v/s ACIT, [2014] 151 ITD 76 (Del.). Learned Departmental Representative submitted, there is no separate agreement with regard to off-shore supply of material Further, separate price for off-shore and on-shore contract is purely on ad-hoc basis, hence, not reliable. Therefore, it will be incorrect to conclude that the contract is divisible and can be segregated to supply and service operations. He submitted, DRP has completely erred in holding that supply on CIF / CIP basis would mean delivery of goods outside India. He submitted, it is also equally wrong to conclude that the off-shore and on-shore terms are clearly spelt in the contract. He submitted, on the contrary, off-shore manufacturing is intricately linked with on-shore design / feed back / approval of contractor ....
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....endance, handling and transport up to and including uploading at the project site if the materials are supplied on CIF basis. He submitted, as per the contract supply of goods from outside the territory of India is on CIP basis, hence, the title over such goods passes once it is loaded and dispatched in the country of origin. Learned Authorised Representative drawing our attention to the total project value as provided in the contract submitted, for each part of the contract, there is a separate price schedule. He submitted, for Part-A, which is for supply of materials the price is provided in Euros. Whereas, for Part-B which relates to design, development, installation, testing, commissioning, etc. Price to be paid is in Indian rupee. He submitted, as far as Part-C of scope of work is concerned, both the supply portion and service portion have to be paid in Euros. He submitted, rights and liabilities under each part of the contract has been clearly spelt out. He submitted, though, the contracts executed with DIAL and L&T are composite contracts, however, they are divisible in nature, since, both of them clearly spell out the scope of work and the consideration for off-shore and on....
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....y the assessee as off-shore portion of the contract and has no territorial nexus with India, hence, not taxable. Undisputedly, the income arising out of on-shore portion of the work relating to the installation, testing, commission, etc., has been offered by the assessee to taxation in India. However, the Assessing Officer has concluded that the contracts executed by the assessee being composite and indivisible, it cannot be segregated to off-shore and on-shore portion and the entire amount received for executing the contract including off-shore supply will be taxable in India. In this context, the Assessing Officer also observed that the P.E. in India has taken active part in designing, monitoring of the work relating to plant / equipment to be supplied. Therefore, the income arising from such supply having territorial nexus with India is taxable in India. As discussed elsewhere in the order, in the course of hearing, the learned Authorised Representative has taken us through the contract executed by the assessee with L&T Ltd. with regard to the airfield ground lighting works of Mumbai International Airport. On a reading of the contract as a whole it appears, work to be executed b....
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....as no role to play as far as it relates to off-shore supply of equipments and materials which is evident from the fact that not only the goods were supplied from Sweden and other countries on CIF/CIP basis but payments have been made directly to the assessee outside India in foreign currency and in the bank account of the assessee in Sweden. Therefore, the P.E. has no connection with the off-shore supply of goods. Therefore, only because the contracts entered into by the assessee are single composite contracts it cannot be said they are indivisible. Rather, the reading of contract as a whole clearly demonstrates that the scope of work as per the contract is divisible in nature and has been segregated to supply portion and erection and commissioning portion. Therefore, the off-shore supply of equipments having been effected from outside the territory of India and the sale having been completed outside territory of India, the ratio laid down by the Hon'ble Supreme Court in Ishikawajma-Harima Heavy Industries Ltd. (supra) squarely applies to the facts of the present case. Therefore, there is no need to refer to any other decisions which were relied upon by the parties before us. H....