TaxTMI 
TaxTMI 
2023 (12) TMI 540
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....nt of China. The assessee had entered into three contracts with Power Grid Corporation of India Ltd. (PGCIL) and its two subsidiaries, viz., M/s. Power Grid Jabalpur Transmission Ltd. (PGJTL) and M/s. Power Grid Parli Transmission Ltd. (PGPTL). In terms with the contracts, the assessee manufactured the goods and equipments in China and supplied them to PGCIL and its subsidiaries in India on CIF (cost, insurance, freight) sale basis. 4. Before the Assessing Officer, the assessee pleaded that in terms with the contracts, it was only involved in offshore supply of goods/equipments to the Indian contractees. It was submitted, since title over the goods/equipments were transferred to contractees outside India and sale was completed outside India, the receipts from sale of such goods and equipments are not taxable in India. It was further submitted by the assessee that since it was not involved in any onshore activities in India and the onshore activities were carried out by its Indian subsidiary, viz., ZTT India Private Limited and income from such activities was offered to tax in India by M/s. ZTT India Private Limited, the assessee is not taxable in India in respect of PE. 5. Wh....
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....efore, he submitted, the receipts cannot be taxed in India. In support, he relied upon the decision of coordinate Bench in case of DDIT vs. Mitsui & Co. (2020) 118 taxmann.com 379 (Delhi). He submitted, the terms of contracts and nature of transaction in case of the assessee and in case of Mitsui & Co. (supra) are identical. He submitted, PGPTL, which is a public sector undertaking, has clarified in the bid data sheet that Income-tax is not payable in India on sale of goods, as the title over the goods passes outside India in terms of the offshore contract. In this context, he drew our attention to the relevant clauses of the contract. He submitted, when the contract between the parties are for CIF sale, which is an incoterm used in the contract to transfer the goods at the port of origin, which in this case is China, then it demonstrates that transfer of goods has taken place outside India at the port of origin in China. In support of such contention, the assessee relied upon the decision of coordinate Bench in case of Schindler China Elevator Company Ltd. (2023) 103 ITR (Trib) 567. He submitted, the allegation of the departmental authorities that offshore and onshore contracts ar....
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....d Departmental Representative submitted, in course of assessment proceedings, neither did the assessee appear nor furnished any information/details in response to various queries raised by the Assessing Officer. Therefore, he submitted, the Assessing Officer proceeded to complete the assessment to the best of his judgment by invoking the provision of section 144 of the Act. Drawing our attention to the contract executed with PGPTL placed in the paper book, learned Departmental Representative submitted that the assessee is responsible for end to end completion of project and assessee's responsibilities do not cease on supply of goods and equipments. He submitted, this is evident from the fact that final 10% of the payment to be made towards supply of goods is to be cleared on receipt of goods at site and on submission of invoice supported by the material acceptance certificate issued by purchaser's representative. He submitted, the contract also provides that payment towards port clearance, port handling, insurance etc. shall be initially borne by M/s. ZTT India Private Limited on behalf of the assessee and subsequently, such expenses are reimbursed by the contractee directly to ZTT....
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.... on CIF sale basis from a port at China. 90% of the CIF price shall be paid progressively through irrevocable letter of credit in favour of the assessee after dispatch of goods and on submission of the documents, such as bill of lading, invoices, insurance policy, guarantee certificate, material inspection clearance certificate, testing certificate, certificate of origin etc., balance of the CIF price shall be paid to the assessee on receipt of goods at site after a acceptance certificate by the purchaser's representative. This, in our view, is only for ensuring that the goods/equipments are free from any defect. It is also a fact that though the responsibility of inland transportation, insurance and other services to be performed in India, such as clearance, handling at port etc. shall be on ZTT India Private Limited, however, the entire cost is reimbursed by the contractee. The other contracts are also couched in similar terms and conditions. 12. Thus, the terms of the contracts clearly demonstrate that the transfer of title over the goods have not only taken place outside India with all associate risks and liabilities, but the payments have also been made outside India. In fa....
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....ture. 14. In case of Ishikawajma Harima Heavy Industries vs. DIT (supra), Hon'ble Supreme Court has laid down the ratio that where the sale of goods has taken place overseas, no taxable event happens in India. The same view was expressed by Hon'ble jurisdictional High Court in case of DIT vs. Ericsson AB (supra). In case of DDIT vs. Mitsui & Co. (supra), wherein, facts involved are more or less similar to assessee's case, the coordinate Bench after examining various clauses of the contract has held as under : "30. An analysis of the various clauses of the contract between the assessee and WBSEB and NHPC and in the case of LG Cables Ltd., show that the same are similar. We find, in the case of LG Cables Ltd., it has entered into a contract with Power Grid Corporation of India Ltd. And has entered into two contracts. One was for offshore supplies and services and the second one was for onshore services. This contract was entered into on 26th February, 2001 and PGCIL was under Ministry of Power as is the case of the assessee where NHPC is also under Ministry of Power and the contract was entered into on 6th December, 2001. The terms of the contracts are similar as these co....
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....s, it is the agreement between the parties which determines the passing of the title, therefore, the said decision, in our opinion, is not applicable. So far as the decision of the Tribunal in the case of Baker Hughes Asia Pacific Ltd. (supra) is concerned, a perusal of para 155 of the order of the Tribunal shows that it has taken note that "it is not correct to say that risk and title pass simultaneously. There may be agreement for passing of risk before passing of title per se. as per section 19 of the Sale of Goods Act, it is primarily the intention of the parties when the title to the goods is to pass." Thus, this judgment also endorses the settled law that ownership shall pass as per the intention of the parties. Thus, it is the intention of the agreement and in the present case in clause 31.1 and 31.2 of the agreement, it is clearly stipulated that ownership passes upon loading on to the mode of transport from the country of origin i.e., Japan. Therefore, there cannot be any dispute about the transfer of ownership having taken place in Japan. 41. So far as the decision in the case of Mahavir Commercial Co. Ltd. Vs. CIT, reported in 86 ITR 417 (SC) is concerned, we fi....
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....as been explained as "Cost and Freight" means that the seller must pay the cost and freight necessary to bring the goods to the named port of destination but the risk of losses of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. It has further been explained that in the case of CIF the seller must 'deliver the goods on board the vessel at the port of shipment on the date or within the period stipulated'. Clause A.5 also states that "Subject to the provisions of clause B.5, bear all risks of loss of or damage to the goods until such time as they have passed the ship's rail at the port of shipment." Clause B.5 in turn states that the buyer must 'bear all risks of loss of or damage to the goods from the time they have passed the ship's rail at the named port of shipment'." 14. As of the above it follows that in the case of CIF, the property in goods passes on to the buyer at the port of shipment. Though the Cost, Insurance and Freight etc. is met by ....
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....has been fashioned as a turnkey contract by itself may not be of much significance. The project is a turnkey project. The contract may also be a turnkey contract, but the same by itself would not mean that even for the purpose of taxability the entire contract must be considered to be an integrated one so as to make the appellant to pay tax in India. The taxable events in execution of a contract may arise at several stages in several years. The liability of the parties may also arise at several stages. Obligations under the contract are distinct ones. Supply obligation is distinct and separate from service obligation. Price for each of the component of the contract is separate. Similarly offshore supply and offshore services have separately been dealt with. Prices in each of the segment are also different." xxx xxx xxx 27. Applying the aforesaid law enunciated by the Supreme Court in the case of Ishikawajma (supra), there can be no manner of doubt that the offshore supplies in the instant case are not chargeable to tax in India. The instant case, in fact, in our view stands on a better footing as two separate contracts have been entered into between the parties, albeit ....
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....e so in the present case) supply has to be segregated from the installation and only then would question of apportionment arise having regard to the expressed language of section 9(1)(i), which makes the income taxable in India to the extent it arises in India." 18. Thus, if we carefully analyse the ratio laid down in the aforesaid decisions, it would become clear that merely because there is crossfall breach clause in some of the contracts, it will not tantamount to making distinct and separate contracts composite contract and to tax the income accruing outside India taxable in India. When, there is no dispute over the fact that transfer of title over the goods have passed outside India, which in fact has passed, the receipts certainly cannot be taxed in India. 19. One more aspect, which needs mention is, the mode and manner in which the receipts from offshore supplies are brought to tax. As discussed earlier, the Assessing Officer has attributed 60% of the receipts towards FTS and 40% towards price of goods/materials. This, in our view, is totally irrational and perfunctory. On what basis, the Assessing Officer has bifurcated the receipts between FTS and business income is ....