TaxTMI 
TaxTMI 
2024 (3) TMI 307
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....e year under consideration, the assessee is stated to have received an amount of Rs. 14,28,30,433/- on account of offshore supply made to Indian PSU's which the assessee had claimed to be not chargeable to tax under Indian Taxation and accordingly, claimed the refund of corresponding tax credit. 4. The Assessing Officer however followed same modus operandi as followed in A.Ys. 2018-19 & 2019-20 and bifurcated the said consideration of Rs. 14.28 crore into 'business income' and 'Fee for Technical Service' (FTS) in the ratio of 60%:40% taxable in India to arrive at an addition of Rs. 6,79,10,056/-. As per the methodology, 60% of the receipt of Rs. 14.48 crore was allocated for equipment supply and 40% for FTS. Further, the calculation on the attribution of profit was done by considering 25% of the equipment supply and 100% of FTS. The returned income was accordingly, enhanced by Rs. 6,18,89,441/- on account of income chargeable on account of FTS and Rs. 58,02,135/- towards taxable component of business receipts. The total income was accordingly assessed at Rs. 6,79,10,056/- as against the return income of Rs. 2,18,480/-. 5. Aggrieved, by the aforesaid action of the AO as per the fi....
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.... of total revenue from offshore contracts as FTS on the ground that Assessee was engaged in engineering, design, testing, commissioning of goods, the same qualify as technical service. 6.3 In this backdrop, the learned Counsel submitted that the appeal filed in respect of A.Ys. 2018-19 & 2019-20 in similar facts have been adjudicated in favour of the assessee by the Co-ordinate Bench of Tribunal in ITA Nos.2290 & 2291/Del/2022 order dated 29.11.2023. The learned Counsel thus submitted that in consonance with the view taken by the Tribunal in the earlier years, the appeal of the assessee deserves to be allowed. 7. Learned DR, on the other hand, relied upon the order/directions of the lower authorities. 8. As pointed out on behalf of the assessee, the issue is squarely covered in favour of the assessee in identical facts in A.Ys. 2018-19 & 2019-20 in ITA Nos.2290 & 2291/Del/2022 order dated 29.11.2023. The relevant operative para of the order of the Co-ordinate Bench is reproduced hereunder for a ready reference: "11. We have considered rival submissions in the light of decisions relied upon and perused materials on record. The first issue, which requires to be decided, is regar....
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....nd as per the extant provisions, Indian Income Tax is not payable on sale of goods, if the contract is on principal to principal basis and the title of the goods passes to the purchaser outside India. 13. Thus, the terms of the contract clearly establish that title over the goods, for which the assessee has received the payment, was transferred outside India and the sale was completed outside India. By relying upon certain clauses of the contract in isolation and out of context, the departmental authorities have held that the amount received by the assessee towards supply of goods, being related to the activities of the PE, is taxable in India. In our view, the departmental authorities have arrived at such conclusion without any rational basis and backed by evidence. Merely because the assessee has a subsidiary/related entity in India, which has performed some onshore activities under a distinct and separate contract with the very same contractee, that by itself, would not make the offshore and onshore contracts composite. Though, it may be a fact that assessee's group entity in India has received commission from the assessee for doing certain work related to the supply of goods,....
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....ecution of the two contracts to achieve successful completion. There was a cross fall breach clause in the contract also. In para 11 of the decision, the court has taken note of the arguments of the ld. counsel that property in equipment passed to the buyer only in India and this property did not pass till equipment was erected and yielded satisfactory performance in India. In para 18, the Hon'ble High Court has categorically held that none of the stipulations of the on shore contract could postpone the transfer of property supplied under the offshore contract. xxx xxx xxx 39. In the present case, a perusal of clause 31.1 and 31.2 clearly shows that the property in goods will pass when it is loaded on to the mode of transport in the country of origin. Thus, there is no ambiguity and this clause will clearly be applicable. We find the Hon'ble Delhi High Court on this very issue at para 18 of the order has observed as under:- "18. Furthermore, as noticed above, the scope of work under the onshore contract was under a separate agreement and for separate consideration. There is, therefore, in our opinion no justification to mix the consideration for the offshore and onshore contra....
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....lect their intention and there is no dispute about such intention between the parties. xxx xxx xxx 46. In view of the above discussion, we are of the considered opinion that the ld.CIT(A) is correct in holding that the income from offshore supplies is not liable to tax in India both u/s 44BBB as well as under the provisions of Article 7 r.w. para 6 of DTAA between India and Japan. Accordingly, grounds No.1 and 2 raised by the Revenue are dismissed." 15. In case of Schindler China Elevator Company Ltd. (supra), while dealing with an identical issue, the coordinate Bench has held as under: 13........We find that in a case, wherein the assessee made an offshore supply of equipment on a CIF basis at an Indian port, the coordinate bench of the Tribunal in JCIT vs Siemens Aktiengesellschaft, [2009] 34 SOT 16 (Mumbai) observed as under: "12. From the above clause of the contract it is patent that BPL acquired the absolute right in the property when it was delivered to the carrier at the port of shipment i.e., in Germany. The reference of the learned D.R. to the invoice for depicting that it was on CIF basis at Bombay and hence the right of the buyer in the property should be cons....
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....e judgment of the Hon'ble Supreme Court in Seth Pushalal Mansighka (P.) Ltd. v. CIT [1967] 66 ITR 159. As it is the case of offshore supply of equipment, it is axiomatic that this transaction got completed outside India. Thus no income accrued to the assessee in India towards this transaction." 16. In case of LG Cables (supra), Hon'ble jurisdictional High Court has held as under : 14. A look now at the relevant provisions of the offshore agreement entered into on 26th February, 2001, which have been reproduced by the Tribunal as under: - "Article 6 on which revenue has laid lot of emphasis specifically states that notwithstanding award of work under two separate contracts, the contractor shall be overall responsible to ensure the execution of both the two contracts to achieve successful completion and taking over of the project by POWERGRID. It further provides that "any default or breach under the "Second Contract" shall automatically be deemed as a default or breach of this "First contract" and also vice-versa. xxx xxx xxx 19. The contention of the learned counsel for the Revenue during the course of arguments that offshore supplies are not taxable only in the case o....
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....or the supply of equipment and there appears to be no justification to intermingle the two. The consideration for the offshore supply of equipment, it is repeated at the risk of repetition, accrued when the goods were sold. The performance of duties as envisaged in the second contract, viz., the Erection Contract, by no stretch of imagination can be conceived to postpone the transfer of property under paragraph 31.2 of the agreement, which property passed on to the buyer simultaneously with the "loading on to the mode of transport to be used to convey the plant and equipment from the country of origin to the country of import." Although the entire consideration was not paid on shipment of equipment, but nonpayment of a part of the price could not prevent the transfer of equipment. The passing of the property to the purchaser, as rightly held by the Tribunal had, nothing to do with the payment of the entire price of the equipment to the seller." 17. In case of DIT vs. Ericsson AB (supra), Hon'ble jurisdictional High Court has held as under : "44. The aforesaid analysis will bring forth the legal position that the place of negotiation, the place of signing of agreement, or formal....