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2016 (10) TMI 1131 - AT - Income TaxIncome deemed to accrue or arise in India - Income in relation to offshore supply - non taxability in India - applicability of DTAA - Held that - The sales are effected outside India i.e., in Korea and the transfer of title over the goods was effected to the employer outside territorial jurisdiction of India. This fact is not only proved from the actual sale event but also the clauses of the contract. Further, the P.E. has no role to play either in obtaining the contract or in relation to off-shore supplies. That being the case, the profits arising from off-shore supplies is not taxable under the provisions of the Act if considered vis-a-vis section 5(2) r/w Explanation-1(a) and section 9(1)(i) of the Act. Therefore, the question of applicability of DTAA does not arise. As far as the allegation of the departmental representative that contract is heavily skewed in favour of offshore supply, the same is found to be factually incorrect. On a perusal of the contract document we have found that out of the total contract price of ₹ 11,23,66,668, the quantum of offshore supplies is ₹ 5,55,54,119. Therefore it cannot be said that offshore supplies are skewed. Having analysed the facts of the case in the context of the decisions relied upon we are of the considered view that the assessee s case is more or less similar to the facts involved in case of Ishikawa Jima Harima Heavy Industries Ltd.(supra) hence, the principles laid down therein would squarely apply to assessee s case. Therefore applying the ratio laid down therein we hold that the amount received towards offshore supply is not taxable in India. As far as contract with DMRC is concerned it is evident from the observations of the departmental authorities that the nature of contract is similar to MRVC. Therefore our aforesaid observations will equally apply to the offshore supplies made by assessee in relation to this contract also. In the aforesaid view of the matter we hold that the amount received by the assessee in respect of offshore supplies would not be taxable in India. Ground no.1, is allowed. Estimation of income on presumptive basis on the total revenue earned including off-shore supplies - Held that - As far as the quantum of income is concerned, while deciding ground no.1, we have held that off-shore supplies are not taxable in India. That being the case, it has to be excluded from the contract receipt for computing income of the assessee. As far as the applicability of section 44BB/44BBB are concerned, on careful reading of these provisions, we have found that while section 44BB is applicable to business of exploration of mineral oil, section 44BBB is applicable to foreign companies engaged in the business of civil construction, erection, testing, or commissioning in connection with a turnkey power project approved by the Central Government. Thus, estimation of income @ 10% on presumptive basis by applying aforesaid provisions is not proper. Moreover, Assessing Officer has not pointed out any specific defect in the accounts of the assessee. That being the case, we direct the Assessing Officer to compute the income of the assessee from revenue earned on account of on-shore supply and on-shore services after verifying the accounts of the assessee and examining the genuineness of expenditure claimed. The ground no.2, is allowed for statistical purposes. Levy of interest under section 234B - Held that - Hon ble Jurisdictional High Court in NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT) have clearly held that in case of a non-resident company, no interest can be levied for non-payment of advance tax because a duty is cast on the payer to deduct tax at source. Hence, no interest is leviable on the assessee under section 234B for failure to pay advance tax. Therefore, in principle, we agree with the assessee that levy of interest under section 234B is not proper.
Issues Involved:
1. Taxability of income from offshore supplies in India. 2. Attribution of income to operations in India. 3. Levy of interest under section 234B of the Income Tax Act. 4. Levy of interest under section 234D of the Income Tax Act (not pressed by the assessee). 5. Disallowance of expenditure in relation to the contract with Transmission Corporation of Andhra Pradesh Limited (specific to A.Y. 2012-13). Detailed Analysis: 1. Taxability of Income from Offshore Supplies in India: The primary issue was whether the income from offshore supplies was taxable in India. The assessee, a tax resident of South Korea, argued that the income from offshore supplies was not taxable in India as the title over the goods was transferred outside India. The contracts involved offshore supply of equipment, onshore supply of equipment, and onshore services. The assessee contended that the offshore supplies were manufactured and sold outside India, and the Indian project office had no role in these supplies. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) held that the entire revenue from the composite contract, including offshore supplies, was taxable in India as the project office was executing the contract in India. The Tribunal, however, relying on the Supreme Court's decision in Ishikawajima Harima Heavy Industries v/s DIT, 288 ITR 408 (SC), held that only the income attributable to operations carried out in India is taxable. Since the offshore supplies were distinct and the title transferred outside India, the income from these supplies was not taxable in India. 2. Attribution of Income to Operations in India: The assessee argued that even if any income from offshore supplies was taxable, it should only be to the extent attributable to operations in India. The AO had treated the entire profit from the composite contract as taxable in India without proper attribution. The Tribunal agreed with the assessee, stating that only the income reasonably attributable to the operations carried out in India should be taxed. The Tribunal directed the AO to compute the income from onshore supplies and services after verifying the accounts and examining the genuineness of the expenditure claimed. 3. Levy of Interest under Section 234B of the Income Tax Act: The assessee contended that as a non-resident, it was not liable to pay advance tax, and hence, interest under section 234B should not be levied. The Tribunal agreed with the assessee, citing the jurisdictional High Court's decision in NGC Network Asia LLC, 222 CTR 85, which held that in the case of a non-resident, the obligation to deduct tax is on the payer, and hence, no interest under section 234B is leviable on the non-resident for failure to pay advance tax. 4. Levy of Interest under Section 234D of the Income Tax Act: This issue was not pressed by the assessee and hence dismissed by the Tribunal. 5. Disallowance of Expenditure in Relation to Contract with Transmission Corporation of Andhra Pradesh Limited (A.Y. 2012-13): The assessee challenged the disallowance of expenses incurred by the project office in relation to onshore supplies and services for the contract with Transmission Corporation of Andhra Pradesh Limited. The Tribunal did not specifically address this issue in detail for A.Y. 2012-13 as the assessee did not press this ground. Conclusion: The Tribunal allowed the appeals partly, holding that the income from offshore supplies was not taxable in India, and directed the AO to compute the income from onshore supplies and services after proper verification. The levy of interest under section 234B was also set aside, while the issue of interest under section 234D was dismissed as not pressed.
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