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2016 (11) TMI 1496 - HC - Income TaxTaxability in India - Non applicability of Section 44BB on sale of Off-shore supply of equipments by ITAT - also holding that 20% of profits on sale of Off-shore supply of equipments should be treated to have accrued in India and profit in this respect should be determined on the basis of Global Profit Ratio - Held that - The Tribunal has arrived at the above decision which has been confirmed by Hon ble Apex Court in the case of Ishikawajma-Harima Heavy Industries Ltd. vs. Director of Income Tax Mumbai (2007 (1) TMI 91 - SUPREME COURT) and has come to the conclusion that the assessee was having a divisible contract and for the manufacturing part it was not liable to pay any taxes in India as there was no element of sale at all in India. On facts it has not been recorded anywhere on the record that the situs of sale of the manufactured items took place in India. The entire equipment required by the Gas and Oil Company was completely manufactured outside India and it is only the installation of the equipment and the commission of the equipment which took place in India. Accordingly the assessee became taxable for the commissioning but not for the purchase of the equipment which was done outside India. - Decided in favour of assessee.
Issues: Interpretation of Section 44BB of the Income Tax Act for offshore supply of equipment
Analysis: The High Court addressed the appeal filed by the department under Section 260A of the Income Tax Act, 1961 against the Tribunal's order for the assessment year 2002-03. The primary question of law revolved around whether the provisions of Section 44BB of the Income Tax Act applied to the sale of offshore supply of equipment. The Tribunal had ruled that Section 44BB did not apply to offshore supply of equipment and that 20% of profits should be treated as accrued in India based on the Global Profit Ratio. This decision was supported by the Hon'ble Apex Court in a similar case, emphasizing the concept of divisible contracts and the absence of a sale element in India for the manufacturing part of the equipment. The Court noted that the equipment was entirely manufactured outside India, with only the installation and commissioning taking place in India. Consequently, the assessee was held liable for taxation only on the commissioning aspect, not on the purchase of equipment done outside India. The Court, therefore, ruled in favor of the assessee and against the department, disposing of the appeal with no costs incurred.
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